TALOS ENERGY INC.

Note 1 — Organization, Nature of Business and Basis of Presentation

Organization and Nature of Business

Talos Energy Inc. (the “Parent Company”) is a Delaware corporation originally incorporated on November 14, 2017. The Parent Company conducts all business operations through its operating subsidiaries, owns no operating assets and has no material operations, cash flows or liabilities independent of its subsidiaries. The Parent Company’s common stock is traded on The New York Stock Exchange under the ticker symbol “TALO.”

The Parent Company (including its subsidiaries, collectively “Talos” or the “Company”) is a technically driven, innovative, independent energy company focused on maximizing long-term value through our oil and gas exploration and production (“Upstream”) business in the United States (“U.S.”) Gulf of America and offshore Mexico. The Company’s activities are primarily concentrated in the Deepwater (i.e., water depths of more than 600 feet) area of the U.S. Gulf of America. The Company leverages decades of technical and offshore operational expertise to acquire, explore, and produce assets in key geological trends while maintaining a focus on safe and efficient operations, environmental responsibility and community impact.

Basis of Presentation and Consolidation

The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, these financial statements include all adjustments, which unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, cash flows and changes in equity for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The unaudited financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying notes included in the 2025 Annual Report.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Segments

The Company hasone operating segment: our exploration and production of oil, natural gas and NGLs (“Upstream Segment”). The Company's Upstream Segment is currently theonly reportable segment being managed on a consolidated basis. See additional information in Note 14 —Segment Information.

Summary of Significant Accounting Policies

The Company has provided a discussion of its significant accounting policies, estimates and judgments in Note 2 –Summary of Significant Accounting Policies included in the accompanying Notes to Consolidated Financial Statements in the 2025 Annual Report. The Company has not changed any of its significant accounting policies from those described in our 2025 Annual Report.

Recently Issued Accounting Standards Not Yet Adopted

Disaggregation of Income Statement Expenses —As disclosed in the Notes to Consolidated Financial Statements of the Company’s 2025 Annual Report, in November 2024, the FASB issued new disclosure guidance relating to the disaggregation of income statement expenses. The Company continues to evaluate the disclosure requirements, which is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of the amount of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):

Accounts Receivable

The following table provides the components of “Accounts receivable, net” as presented on the Condensed Consolidated Balance Sheets (in thousands):

Note 2 — Acquisitions and Divestitures

Asset Acquisitions

Acquisitions accounted for as asset acquisitions require, among other items, the cost of the acquisition to be allocated to the assets acquired and liabilities assumed based on relative fair value basis.

Acquisition of Incremental Working Interest in Monument Oil Discovery —On March 7, 2025, the Company completed the acquisition of an additional 8.3% non-operated working interest in the Monument oil discovery in the Deepwater U.S. Gulf of America located on certain Walker Ridge lease blocks for $14.8 million, substantially all of which was allocated to its proved properties. An additional aggregate $6.3 million of contingent payments will be recognized upon the achievement of certain milestones defined in the agreement. This incremental acquisition brings the Company’s total non-operated working interest in the Monument oil discovery to 29.7%.

Divestitures

During the three months ended March 31, 2026, the Company sold a portion of its equity method investment in Talos Energy Mexico 7, S. de R.L. de C.V. (“Talos Mexico”). See Note 6 –Equity Method Investments for additional information.

Note 3 — Property, Plant and Equipment

Proved Properties

Capitalized oil and natural gas costs are limited to a ceiling based on the present value of future net revenues from proved reserves, computed using a discount factor of 10%, plus the lower of cost or estimated fair value of unproved oil and natural gas properties not being amortized less the related tax effects. The Company performs this ceiling test calculation each quarter utilizing SEC pricing.

The Company’s ceiling test computation resulted in an impairment of its U.S. oil and natural gas properties during the three months ended March 31, 2026 of$145.0 million. The non-cash impairment is reflected as “Impairment of oil and natural gas properties” on the Condensed Consolidated Statements of Operations and an increase to “Accumulated depreciation, depletion and amortization” on the Company’s Condensed Consolidated Balance Sheets. At March 31, 2026, the Company’s ceiling test computation was based on SEC pricing of$63.17 per Bbl of oil,$3.97 per Mcf of natural gas and$18.50 per Bbl of NGLs. No impairments were recorded during thethree months ended March 31, 2025.

Because the ceiling calculation uses trailing twelve-month first day of the month average commodity prices, the effect of increases and decreases in period-over-period prices can significantly impact the ceiling limitation calculation. In addition, other factors that impact the ceiling limitation calculation include, but are not limited to, incremental proved reserves that may be added each period, revisions to previous reserve estimates, capital expenditures, operating costs, depletion expense, and all related tax effects. Depending on fluctuations in these factors, including price changes, the Company may incur ceiling test impairments in future quarters.

Note 4 — Leases

The Company has operating leases principally for office space, drilling rigs and other equipment necessary to support the Company’s operations. Costs associated with the Company’s leases are either expensed or capitalized depending on how the underlying asset is utilized. Additionally, the Company has a finance lease and the right-of-use (“ROU”) asset was capitalized and included in proved properties and is being depleted as part of the full cost pool.

The lease costs described below are presented on a gross basis and do not represent the Company’s net proportionate share of such amounts. A portion of these costs have been or may be billed to other working interest owners. The Company’s share of these costs is included in property and equipment, lease operating expense or general and administrative expense, as applicable. The components of lease costs were as follows (in thousands):

(1)

Operating lease costs reflect a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis.

(2)

Short-term lease costs are reported at gross amounts and primarily represent costs incurred for drilling rigs and well intervention vessels, most of which are short-term contracts not recognized as a ROU asset and lease liability on the Condensed Consolidated Balance Sheets. The short-term operating lease costs incurred during the periods presented are not necessarily indicative of the Company’s future short-term lease costs and obligations, as it routinely executes short-term contracts for the use of drilling rigs to support its drilling activities. Short-term lease costs for drilling rigs can vary significantly based on the timing of the drilling program. Market conditions can also contribute to the volatility and variability of short-term drilling rig lease costs.

(3)

Variable lease costs primarily represent differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases.

The present value of the fixed lease payments recorded as the Company’s ROU asset and lease liability, adjusted for initial direct costs and incentives were as follows (in thousands):

The table below presents the supplemental cash flow information related to leases (in thousands):

Note 5 — Financial Instruments

As of March 31, 2026 and December 31, 2025, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair values because they are highly liquid or due to the short-term nature of these instruments.

Debt Instruments

The following table presents the carrying amounts, net of discount and deferred financing costs, and estimated fair values of the Company’s debt instruments (in thousands):

The carrying values of the 9.000% Second-Priority Secured Senior Notes due 2029 and 9.375% Second-Priority Senior Secured Notes due 2031 (together, the “Senior Notes”) are adjusted for discount and deferred financing costs. Fair value is estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices and, where such prices are not available, other observable (Level 2) inputs are used such as quoted prices for similar liabilities in the active markets. See Note 7 —Debtfor the maturity dates of the Company’s Senior Notes.

Oil and Natural Gas Derivatives

The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production. The Company is currently utilizing oil and natural gas swaps and costless collars. Swaps are contracts where the Company either receives or pays depending on whether the oil or natural gas floating market price is above or below the contracted fixed price. Costless collars consist of a purchased put option and a sold call option with no net premiums paid to or received from counterparties. Typical collar contracts require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price.

The following table presents the impact that derivatives, not designated as hedging instruments, had on its Condensed Consolidated Statements of Operations (in thousands):

The following tables reflect the contracted average daily volumes and weighted average prices under the terms of the Company's derivative contracts as of March 31, 2026:

The following tables provide additional information related to financial instruments measured at fair value on a recurring basis (in thousands):

Financial Statement Presentation

Derivatives are classified as either current or non-current assets or liabilities based on their anticipated settlement dates. Although the Company has master netting arrangements with its counterparties, the Company presents its derivative financial instruments on a gross basis in its Condensed Consolidated Balance Sheets. The following table presents the fair value of derivative financial instruments as well as the potential effect of netting arrangements on the Company's recognized derivative asset and liability amounts (in thousands):

Credit Risk

The Company is subject to the risk of loss on its financial instruments as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. The Company has entered into International Swaps and Derivative Association agreements with counterparties to mitigate this risk. The Company also maintains credit policies with regard to its counterparties to minimize overall credit risk. These policies require (i) the evaluation of potential counterparties’ financial condition to determine their credit worthiness; (ii) the regular monitoring of counterparties’ credit exposures; (iii) the use of contract language that affords the Company netting or set off opportunities to mitigate exposure risk; and (iv) potentially requiring counterparties to post cash collateral, parent guarantees, or letters of credit to minimize credit risk. The Company’s assets and liabilities from commodity price risk management activities at March 31, 2026 represent derivative instruments from eight counterparties; all of which are registered swap dealers that have an “investment grade” (minimum Standard & Poor’s rating of BBB- or better) credit rating, and are parties under the Company’s Bank Credit Facility. The Company enters into derivatives directly with these counterparties and, subject to the terms of the Company’s Bank Credit Facility, is not required to post collateral or other securities for credit risk in relation to the derivative activities.

Note 6 — Equity Method Investments

As of March 31, 2026 and December 31, 2025, the Company's ownership interest in Talos Mexico was 20.0% and 50.1%, respectively, and the carrying amount of its investment was$44.8 million and$112.4 million, respectively. As of March 31, 2026 and December 31, 2025, the carrying amount of the investment includes a positive basis difference of $26.3 million and $66.0 million, respectively. Talos Mexico is a variable interest entity and the Company's maximum exposure to loss as a result of its involvement with Talos Mexico is the carrying amount of its investment.

On March 25, 2026, the Company sold an additional 30.1% equity interest in Talos Mexico to Zamajal, S.A. de C.V., a subsidiary of Grupo Carso, S.A.B. de C.V. (“Carso”), for $49.7 million in cash consideration with an additional $33.1 million payment contingent on first oil production from the Zama Field (the “Incremental Mexico Equity Sale”). The $20.4 million initial fair value of the contingent consideration related to the Incremental Mexico Equity Sale has been recognized as a long-term asset and included in“Other assets” as presented on the Condensed Consolidated Balance Sheets. The Company recognized a$6.8 million gain on the Incremental Mexico Equity Sale, which is included in “Equity method investment income (expense)” on the Condensed Consolidated Statements of Operations. See Note 12 —Related Party Transactions for additional information on Carso.

The Company will receive $83.0 million in additional payments contingent upon the Zama Field reaching first oil production. Of this amount, $49.9 million is associated with the initial Talos Mexico equity sale that closed on September 27, 2023 as discussed in Note 3 –Acquisitions and Divestitures included in the accompanying Notes to Consolidated Financial Statements in the 2025 Annual Report, and the remainder is associated with the Incremental Mexico Equity Sale.

Note 7 — Debt

A summary of the detail comprising the Company’s debt and the related book values for the respective periods presented is as follows (in thousands):

(1)

As of March 31, 2026, the Company was in compliance with all debt covenants.

Revolving Reserve-based Credit Facility

The Company maintains a bank credit facility with a syndicate of financial institutions. The borrowing base is redetermined by the lenders at least semi-annually during the second quarter and fourth quarter of each year based on a proved reserves report that the Company delivers to the administrative agent of its bank credit facility.

On January 20, 2026, the Parent Company, Talos Production Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Talos Production”), and certain other direct and indirect subsidiaries of the Company and Talos Production entered into the Amended and Restated Credit Agreement (the “A&R Credit Agreement”) among the Company, Talos Production, as Borrower, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), the issuing banks, the lenders party thereto, and the other persons from time to time party thereto. The A&R Credit Agreement amended and restated in its entirety the prior credit agreement, dated as of May 10, 2018 (as amended, the “Prior Credit Agreement”), by and among the Company, Talos Production, as Borrower, JPMorgan Chase Bank, N.A., as administrative agent, the issuing banks, the lenders party thereto, and the other persons party thereto.

The A&R Credit Agreement has an initial borrowing base and total commitments of $700.0 million (with a letter of credit facility with a $250 million sublimit), subject to redetermination by the lenders at least semi-annually during the second quarter and fourth quarter of each year. The maturity date of the A&R Credit Agreement is the earlier of (i)January 20, 2030 and (ii)November 2, 2028 (the 91st day prior to the earliest stated maturity date of the 9.000% Second-Priority Senior Secured Notes due 2029 (the “9.000% Notes”), (or any Permitted Refinancing Indebtedness with respect thereto)), if such notes (or such Permitted Refinancing Indebtedness) have not been refinanced, redeemed, or repaid in full on or prior to such 91st day.

Interest accrues at Talos Production’s option either at an alternate base rate (“ABR”) plus the applicable margin (“ABR Loans”), an adjusted term secured overnight financing rate (“SOFR”) plus the applicable margin (“Term Benchmark Loans”) or adjusted daily simple SOFR plus the applicable margin (“RFR Loans”). ABR is based on the greater of (a) the prime rate, (b) a federal funds rate plus 0.5% or (c) the adjusted term SOFR for a one-month interest period plus 1.00%. The adjusted term SOFR is equal to the term SOFR for each applicable tenor (e.g., one-month, three-months and six-months) calculated and published by the CME Group Inc. The adjusted daily simple SOFR is equal to the overnight SOFR calculated and published by the Federal Reserve Bank of New York. In addition, Talos Production is obligated to pay a commitment fee on the unutilized portion of the commitments. The applicable margin and the commitment fee rate are calculated based upon the utilization levels as a percentage of unused lender commitments then in effect.

The A&R Credit Agreement includes certain conditions to borrowings, representations and warranties and events of default customary for financings of its type and size. The A&R Credit Agreement also limits the Company’s, Talos Production’s and their respective subsidiaries’ ability to, among other things, incur additional indebtedness, grant liens on any assets, pay dividends or make certain restricted payments, make certain investments, consummate certain asset sales, make certain payments on indebtedness, and merge, consolidate or engage in other fundamental changes. The A&R Credit Agreement has certain customary affirmative and negative covenants, including that Talos Production must maintain a Consolidated Total Debt to EBITDAX Ratio (as defined in the A&R Credit Agreement) of no greater than to 3.00 to 1.00 calculated each quarter utilizing the most recent twelve months to determine EBITDAX. Talos Production must also maintain a current ratio no less than 1.00 to 1.00 each quarter. Under the A&R Credit Agreement, unutilized commitments are included in current assets in the current ratio calculation. The bank credit facility is secured by, among other things, mortgages covering at least 85.0% of the proved oil and natural gas assets of the Company and is fully and unconditionally guaranteed by the Company and certain of its wholly-owned subsidiaries.

Note 8 — Asset Retirement Obligations

The asset retirement obligations included in the Condensed Consolidated Balance Sheets in current and non-current liabilities, and the changes in that liability were as follows (in thousands):

At March 31, 2026, the Company has (1) restricted cash of$76.6 million held in escrow and (2) two notes receivable with an aggregated face value of $66.2 million to settle future asset retirement obligations.

Note 9 — Employee Benefits Plans and Share-Based Compensation

Long Term Incentive Plans

Restricted Stock Units (“RSUs”) —The following table summarizes RSU activity under the Amended and Restated Talos Energy Inc. 2021 Long Term Incentive Plan (the “A&R LTIP”) for thethree months ended March 31, 2026:

Performance Share Units (“PSUs”) —The following table summarizes PSU activity under the A&R LTIP for the three months ended March 31, 2026:

(1)

Eligible to vest based on continued employment and the relative annualized total shareholder return (“TSR”) of the Company as compared to a peer group over athree-year performance period, as modified by the Company’s absolute annualized TSR over the same performance period.

(2)

Excludes 279,197 strategic PSUs awarded which vest over a three-year performance period, subject to continued employment of the recipients and the achievement of strategic measures. At the end of the performance period, and based on the Company’s ultimate performance, the Compensation Committee of the Board of Directors (the “Compensation Committee”) has discretion to determine the number of shares of common stock issuable, ranging from zero to 200% of the target number of PSUs awarded. Due to this level of discretion, the Company recognizes stock-based compensation expense over the requisite service period based on the estimated fair value at each reporting date until the grant date. In the period in which the grant occurs, the cumulative compensation cost will be adjusted to the fair value at the date of the grant.

The following table summarizes the assumptions used in the Monte Carlo simulations to calculate the fair value of the TSR PSUs granted at the date indicated:

Share-based Compensation Costs

Share-based compensation costs associated with RSUs and PSUs are reflected as “General and administrative expense,” on the Condensed Consolidated Statements of Operations, net of amounts capitalized to “Proved properties,” on the Condensed Consolidated Balance Sheets.

The following table presents the amount of costs expensed and capitalized (in thousands):

Note 10 — Income Taxes

The Company is a corporation that is subject to U.S. federal, state and local and non-U.S. income taxes.

For the three months ended March 31, 2026, the Company recognized an income tax benefit of$65.3 million for an effective tax rate of 20.3%. The Company’s effective tax rate for this period is different than the U.S. federal statutory income tax rate of 21% primarily due to state and local income taxes offset with a change in valuation allowance.

For the three months ended March 31, 2025, the Company recognized an income tax benefit of$0.1 million for an effective tax rate of 0.9%. The Company’s effective tax rate for this period is different than the U.S. federal statutory income tax rate of 21% primarily due to permanent differences.

The Company evaluates and updates the estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of the Company’s actual earnings compared to annual projections, the effective tax rate may vary quarterly and may make quarterly comparisons not meaningful. The quarterly income tax provision is generally comprised of tax expense on income or benefit on loss at the most recent estimated annual effective tax rate. The tax effect of discrete items is recognized in the period in which they occur at the applicable statutory rate.

Deferred income tax assets and liabilities are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce deductions and income in the future. The deferred tax asset estimates are subject to revision, either up or down, in future periods based on new facts or circumstances. The Company reduces deferred tax assets by a valuation allowance when, based on estimates, it is more likely than not that a portion of those assets will not be realized in a future period. In evaluating the Company’s valuation allowance, the Company considers cumulative losses, the reversal of existing temporary differences, the existence of taxable income in carryback years, tax optimization planning and future taxable income for each of its taxable jurisdictions. The Company assesses the realizability of its deferred tax assets quarterly, and changes to the Company’s assessment of its valuation allowance in future periods could materially impact its results of operations. The Company’s valuation allowance primarily relates to accruals for asset retirement obligations. A net deferred tax liability of $86.1 million and $156.7 million is included in “Other long-term liabilities” on the Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025, respectively.

Note 11 — Income (Loss) Per Share

Basic earnings per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Except when the effect would be antidilutive, diluted earnings per common share includes the impact of RSUs and PSUs.

The following table presents the computation of the Company’s basic and diluted income (loss) per share attributable to common stockholders (in thousands, except for the per share amounts):

Note 12 — Related Party Transactions

Slim Family and Affiliates

Carlos Slim Helú, Carlos Slim Domit, Marco Antonio Slim Domit, Patrick Slim Domit, María Soumaya Slim Domit, Vanessa Paola Slim Domit and Johanna Monique Slim Domit (collectively, the “Slim Family”) are beneficiaries of a Mexican trust which in turn owns all of the outstanding voting securities of Control Empresarial de Capitales S.A. de C.V. (“Control Empresarial” together with the Slim Family, the “Slim Family Office”). Control Empresarial held approximately 24.7% of the Company’s outstanding shares of common stock as of March 31, 2026 based on SEC beneficial ownership reports filed by Control Empresarial and the Company’s total outstanding shares of common stock as of that date.

The Company has a cooperation agreement with Control Empresarial that limits additional acquisitions of the Company’s voting securities by Control Empresarial if such acquisitions would result in ownership exceeding 25.0%, subject to specified exceptions. The agreement was amended on December 8, 2025 to extend its term through December 16, 2026, subject to early termination provisions. A discussion of the agreementis included in the Notes to the Consolidated Financial Statements in the 2025 Annual Report.

The Slim Family own a majority stake in Carso. Carso, through its subsidiary, has an ownership interest in Talos Mexico. See Note 6 –Equity Method Investments for additional information on Talos Mexico. At March 31, 2026 and December 31, 2025, the Company had a $2.8 million receivable from Carso related to advisory services the Company provided in connection with the Lakach Deepwater natural gas field off Mexico’s southeastern coast near Veracruz. This amount is reflected in “Accounts receivable, net” on the Condensed Consolidated Balance Sheets for both periods.

Equity Method Investments

The Company had a $0.1 million and $0.7 million related party receivable from Talos Mexico as of March 31, 2026 and December 31, 2025, respectively. These amounts are reflected in “Accounts receivable, net” on the Condensed Consolidated Balance Sheets.

Note 13 — Commitments and Contingencies

Performance Obligations

Regulations with respect to the Company's operations govern, among other things, engineering and construction specifications for production facilities, safety procedures, plugging and abandonment of wells, and removal of facilities in the U.S. Gulf of America.

As of March 31, 2026, the Company had outstanding performance bonds from third party sureties totaling$1.5 billion. The ongoing cost of maintaining these bonds is reflected as “Interest expense” on the Condensed Consolidated Statements of Operations. Additionally, as of March 31, 2026, the Company had letters of credit issued under its bank credit facility totaling$97.4 million. Letters of credit that are outstanding reduce the available revolving credit commitments.

The Company has arrangements with its surety providers that establish limits on the aggregate amount of collateral the Company may be required to post, subject to annual collateral funding commitments. These arrangements also require the Company to incur minimum annual expenditures for plugging and abandonment activities of $90.0 million for each of the three years beginning January 1, 2026 and $45.0 million for each of the two years beginning January 1, 2029.

The table below outlines the estimated collateral funding commitments under the arrangements as of March 31, 2026 (in thousands):

The collateral funding commitments may be secured by cash or letters of credit which will reduce the Company’s liquidity. Collateral funded with cash will be reflected as “Restricted cash” within the Condensed Consolidated Balance Sheets. The collateral funding commitments, and ultimately any posted cash collateral, will be reduced as plugging and abandonment activities are completed and underlying surety bonds are released.

Firm Transportation Commitments

The Company has firm transportation agreements in place with pipeline carriers for future transportation of oil and gas production wherein the Company is obligated to transport minimum monthly volumes or pay for any deficiencies. As of March 31, 2026, the future minimum transportation payments under the Company’s commitments total approximately $42.1 million for years 2026 through 2030. Our production is currently expected to exceed the minimum monthly volume in the periods provided in the agreements.

Legal Proceedings and Other Contingencies

From time to time, the Company is involved in litigation, disputes related to our business, regulatory examinations and administrative proceedings primarily arising in the ordinary course of business in jurisdictions in which the Company does business. Although the outcome of these matters cannot be predicted with certainty, the Company’s management believes none of these matters, either individually or in the aggregate, would have a material effect upon the Company’s financial position; however, an unfavorable outcome could have a material adverse effect on the Company’s results from operations for a specific interim period or year.

Other than as described below, during the three months ended March 31, 2026, there were no material developments to those matters discussed in the Notes to the Consolidated Financial Statements in the 2025 Annual Report:

By virtue of the Company’s consummation of an acquisition in March 2024 as discussed in Note 3 –Acquisitions and Divestitures included in the accompanying Notes to Consolidated Financial Statements in the 2025 Annual Report, Talos is defending a lawsuit brought by a contractor concerning amounts allegedly owed for drilling operations at several locations in the Gulf of America. The lawsuit alleges that the contractor is entitled under Louisiana Law to certain statutory liens and payment. While the Company disputes the contractor’s liens and damages claims, the Company and the plaintiff expect to settle the lawsuit with a $14.3 million payment by the Company, in exchange for a release of the liens and a full liability release by the plaintiff. The accrued settlement payment is reflected as a component of “Other operating (income) expense” on the Condensed Consolidated Statements of Operations and “Other current liabilities” on the Condensed Consolidated Balance Sheets.

Decommissioning Obligations

Decommissioning in the U.S. is governed by both federal and state laws and regulations. The Company, as a co-lessee or predecessor-in-interest in oil and natural gas leases located in the U.S. Gulf of America, is in the chain of title with unrelated third parties either directly or by virtue of divestiture of certain oil and natural gas assets previously owned and assigned by our subsidiaries. Certain counterparties in these divestiture transactions or third parties in existing leases have filed for bankruptcy protection or undergone associated reorganizations and may not be able to perform required abandonment obligations. Both federal and state laws and regulations could require the Company to assume such obligations. The Company reflects such costs as “Other operating (income) expense” on the Condensed Consolidated Statements of Operations.

The decommissioning obligations included are in the Condensed Consolidated Balance Sheets as “Other current liabilities” and “Other long-term liabilities”, and the changes in that liability were as follows (in thousands):

Although it is reasonably possible that the Company could receive state or federal decommissioning orders in the future or be notified of defaulting third parties in existing leases, the Company cannot predict with certainty, if, how or when such orders or notices will be resolved or estimate a possible loss or range of loss that may result from such orders. However, the Company could incur judgments, enter into settlements or revise its opinion regarding the outcome of certain notices or matters, and such developments could have a material adverse effect on its results of operations in the period in which the amounts are accrued and its cash flows in the period in which the amounts are paid.

Note 14 —Segment Information

The chief operating decision maker (“CODM”) is currently the President and Chief Executive Officer and Chief Financial Officer. The Company’s CODM does not review assets by segment as part of the financial information provided and therefore, no asset information is provided in the table below.

The following table presents selected segment information (in thousands):

(1)

Component of lease operating expense.

(2)

Includes general and administrative expense less transaction expenses and equity-based compensation.

(3)

For thethree months ended March 31, 2026, primarily includes an accrual for a legal settlement as further discussed in Note 13 — Commitments and Contingencies offset by interest income. For the three months ended March 31, 2025, primarily includes interest income and other miscellaneous operating income.

Reconciliations

The following table presents the reconciliation of Segment Expenditures to the Company’s consolidated totals (in thousands):