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Talos Energy adds to consolidation in offshore sector

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Timothy Duncan, president and Chief Executive Officer, poses for a photo at Talos Energy Thursday, Sept. 26, 2013, in Houston. ( Brett Coomer / Houston Chronicle )
Timothy Duncan, president and Chief Executive Officer, poses for a photo at Talos Energy Thursday, Sept. 26, 2013, in Houston. ( Brett Coomer / Houston Chronicle )Brett Coomer/Staff

Houston oil company Talos Energy plans to acquire Louisiana-based Stone Energy in a nearly $2 billion merger to become the largest exploration and production player focused exclusively on the Gulf of Mexico.

The privately held Talos would become a public company through the deal with Stone, which is already traded on the New York Stock Exchange. The new company will use the "TALO" stock ticker.

Stone, which recently emerged from bankruptcy, is valued at $710 million. The combined company would have a stock market value of $1.9 billion, according to Talos.

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Talos will maintain its Houston headquarters, while keeping open Stone's offices in New Orleans and Lafayette. Some layoffs are likely after the merger closes in the second quarter of 2018, said Talos Chief Executive Tim Duncan, who will continue to lead the company.

The merger is part of the consolidation in the offshore energy sector, which remains mired in a prolonged slump as prices stay low and oil and gas companies concentrate on the less expensive shale production, especially in West Texas' booming Permian Basin. Since oil prices crashed in 2014, some of the bigger deals involving offshore specialists include the acquisition of Houston's Cameron International by Schlumberger and the merger of Houston-based FMC Technologies with Paris' Technip to form the new TechnipFMC.

Duncan said Talos has shown it can thrive in overlooked areas. The Stone deal makes sense because the Louisiana company carried little debt after emerging from bankruptcy and gave Talos a path to going public. Most importantly, Duncan said, Talos has quality acreage in the Mississippi Canyon of the Gulf of Mexico and a strong operating team.

"There's still some benefits to being offshore," Duncan said. "There's still life, and there's still activity."

Talos was founded five years ago to focus on exploration and production in the Gulf of Mexico with the financial backing of New York private equity firms Apollo Global Management and Riverstone Holdings. The idea was to take Talos public through an initial public offering in 2014 or 2015, but the oil bust scuttled those plans.

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Stone Energy, which has operated out of Louisiana for more than 20 years, filed for bankruptcy protection last year amid the oil collapse. Talos shareholders will own 63 percent of the combined company - more than 35 percent to Apollo and 27 percent to Riverstone - and Stone shareholders will hold 37 percent.

Talos and Stone aren't strangers to each other, either. Three years ago, Talos bought some of Stone's Gulf acreage for $200 million.

Talos made waves this summer when it struck it big with the so-called Zama discovery off Mexico after the company successfully won some of the first offshore bids in Mexico's energy reform process that opened offshore blocks to foreign investors. Zama is the first major discovery since Mexico opened its oil industry to foreign investment in 2013.

Duncan said he wanted to take Talos' successes in the U.S. Gulf and see if its strategies could translate elsewhere.

"We had to challenge ourselves if we could do that somewhere else," he said. "We're proud of ourselves that we had the courage to show up early."

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Since then, the competition has heated up in Mexico's offshore leasing bids, and Talos has failed to acquire other major blocks.

For Stone's part, Chairman Neal Goldman called the deal the successful culmination of the company's bankruptcy restructuring. Stone already had sold off most of its onshore assets, leaving it as a Gulf-focused company.

As the offshore sector slowly rebounds, Duncan said Talos will consider other acquisitions.

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