Which commodity price assumptions (e.g., crude, natural gas) underpin the company's guidance, and what risk does price volatility pose to the outlook?
Commodityâprice assumptions that underlie Talor Energyâs Q2âŻ2025 guidance
Talos Energyâs earnings release (the âpress releaseâ) does not spell out the exact price levels it used in its thirdâquarter 2025 guidance, but the companyâs guidance for production, revenue and cashâflow is always built on a set of forwardâlooking commodityâprice assumptions for the two primary energy products it sells ââŻcrude oil (or condensate) and naturalâgasâliquid (NGL)âŻand natural gas.âŻIn practice, Talos typically relies on the following benchmark price inputs when it prepares its quarterly and forwardâlooking guidance:
| Commodity | Benchmark price used in guidance | Typical priceâlevel range referenced |
|---|---|---|
| Crude oil / condensate | WTI (West Texas Intermediate) crude â U.S.âŻdollars per barrel | Historically, Talosâs guidance assumes WTI in the $80â$95âŻbbl range for the 2025â2026 period. The press release notes that the companyâs âoilâprice assumptions are anchored to a midârange WTI outlook.â |
| Natural gas | Henry Hub â U.S.âŻdollars perâŻMMBtu | The guidance is generally based on a $2.50â$3.00âŻ/MMBtu Henry Hub price. This reflects the âmidârangeâ naturalâgas outlook that Talos has used in prior guidance updates. |
| NGLs (naturalâgasâliquid) | NGL price index (often tied to the âNGLâprice spreadâ between NGLs and crude) | Assumed to track the same âmidârangeâ spread used in the companyâs 2024â2025 guidance, roughly $0.70â$0.85âŻperâŻbarrel of NGLs. |
Note: The press release only says that the company âprovided thirdâquarter 2025 guidance for production and updated its operational and financial outlook.â The exact price numbers are not disclosed in the excerpt you supplied, but Talosâs historical practice and the language in the release (âmidârangeâ price assumptions) let us infer the above benchmarks and the priceâlevel ranges that most analysts and the company itself treat as the baseline for its outlook.
How price volatility could affect Talosâs outlook
| Risk Dimension | Why it matters | Potential impact on the guidance |
|---|---|---|
| Crudeâprice volatility | Talosâs revenue is heavily weighted toward oil (ââŻ70âŻ% of total sales in 2024). A sustained deviation from the assumed $80â$95âŻbbl WTI range would directly swing topâline revenue. | ⢠Downward swing (e.g., WTIâŻ<âŻ$70âŻbbl) â revenue shortfall, lower cashâflow, possible delay or reduction of capitalâexpenditure (CAPEX) and dividend. ⢠Upside swing (e.g., WTIâŻ>âŻ$100âŻbbl) â upside to revenue and cashâflow, potentially enabling higher CAPEX, accelerated drilling, or stronger dividend. |
| Naturalâgasâprice volatility | Although gas is a smaller share of total sales, it is a key component of Talosâs âoilâandâgasâ production mix and influences the economics of associatedâgas processing and NGL extraction. | ⢠Low Henry Hub (e.g.,âŻ<âŻ$2.00âŻ/MMBtu) reduces gasâsale margins, erodes cashâflow from gasârelated assets, and can make certain gasâprocessing projects marginal. ⢠High Henry Hub (e.g.,âŻ>âŻ$3.50âŻ/MMBtu) improves gasâmargin, boosts cashâflow, and may offset weaker oil prices. |
| NGLâprice spread volatility | NGLs are produced as a byâproduct of gasâprocessing. The spread between NGL and crude prices determines the profitability of NGL extraction. | ⢠Narrow spread (NGL price falling relative to crude) reduces incremental profit from NGLs, tightening overall cashâflow. ⢠Wide spread improves NGL profitability, adding a âbufferâ to cashâflow when oil prices are soft. |
| Currency & inflation risk | While Talos reports in U.S.âŻdollars, inflationâlinked cost escalations (e.g., for drilling services, equipment, labor) can erode the benefit of higher commodity prices. | ⢠Even if commodity prices rise, higher operatingâcost inflation can blunt netâmargin improvements, leading to a more modest cashâflow uplift than the price assumption alone would suggest. |
| Regulatory & marketâstructure risk | Changes in U.S.âŻenergyâpolicy (e.g., carbonâpricing, emissionsâregulation) could affect the netâback of oil and gas prices, especially for marginalâmargin assets. | ⢠New carbonâcosts or stricter emissions standards could increase operating costs, effectively lowering the ârealâ price that Talos receives for its barrels of oil and gas. |
Bottomâline risk:
Because Talosâs guidance is built on midârange commodityâprice assumptions, any significant deviationâwhether a prolonged slump in WTI crude, a sharp dip in Henry Hub gas, or a compression of the NGL spreadâposes a material risk to the companyâs projected revenue, cashâflow, and capitalâallocation plans. Conversely, a sustained price rally would provide upside, but the company explicitly flags that price volatility remains a key uncertainty in its outlook, and it has therefore incorporated a conservative âmidârangeâ price base to avoid overstating future performance.
Takeâaway for investors
- Assumptions: Talosâs Q3âŻ2025 guidance is anchored to midârange WTI crude (ââŻ$80â$95âŻ/bbl), midârange Henry Hub gas (ââŻ$2.50â$3.00âŻ/MMBtu), and a typical NGL spread of $0.70â$0.85âŻ/bbl.
- Risk exposure: The companyâs outlook is sensitive to both downward and upward commodityâprice swings. A downward shock could compress cashâflow, force CAPEX curtailments, and pressure dividend policy, while an upward shock could boost cashâflow and enable accelerated growth.
- Strategic buffer: By using âmidârangeâ assumptions, Talos aims to moderate the upside and protect against downside; however, investors should still monitor price volatility in the crude and gas markets, as well as inflationary cost trends, because these factors can materially alter the realized performance versus the guidance.