塔洛斯能源 (TALO) 2026年第三季度财报电话会：上调产量指引

核心要点

• 塔洛斯能源（Talos Energy）公布2026年第三季度平均日产量约为92,000桶油当量（BOE），其中原油日产量为69,000桶。两项指标均超出公司指引预期。
• 受产量增长以及原油实际售价较WTI溢价约1.60美元/桶的支撑，调整后EBITDA约为4.06亿美元，调整后自由现金流达约1.86亿美元。
• 管理层将2026全年原油日产量指引上调至68,000–70,000桶，总日产量指引上调至92,500–94,500桶油当量。原油指引中值较最初预期高出约8%。
• 塔洛斯能源于9月22日完成了美国湾（Gulf of America）补强型收购，最终净现金收购对价为4.20亿美元，期间未动用信贷额度。季度末杠杆率为0.6倍。
• 截至第三季度末，公司已完成全年1亿美元的“最佳绩效计划”（Optimal Performance Plan）目标，并预计相关效益将延续至2027年及以后。
• 开发活动方面，Monument项目预计于2027年第一季度实现首油，扩建后的Brutus五井开发计划预计自2027年第二季度起分阶段投产。

关键财务数据

自2025年第二季度宣布资本配置框架以来，塔洛斯能源已累计以约1.60亿美元回购1450万股，均价为每股11美元。公司表示，这使已发行在外股数减少了约8%，目前获批的回购授权额度尚余约1.76亿美元。

业务与运营表现

基础产量受益于强劲的运营表现、第三季度未出现风暴停产，以及新收购的美国湾资产带来的初步贡献。管理层表示，即便在剔除天气影响并排除收购资产后，产量仍处于指引区间的高端。

塔洛斯能源完成了与Ridgewood在美国湾的补强型交易，收购了Coulomb油田50%的工作权益及作业权，以及英国石油（BP）作业的Na Kika平台和四个相关油田25%的非作业工作权益。管理层已确定了多项开发及以基础设施为导向的勘探机遇，其中包括一口可能争取2027年资本支出的Coulomb开发井。

CPN于9月实现首油，表现符合预期。在塔洛斯能源新增一个侧钻机会后，Brutus开发井数量由四口增至五口。在Monument项目上，第一口开发井钻遇约250英尺的净油层，符合钻前预期，第二口井已于9月初开钻。

在Daenerys项目上，2026年评价井已达目标深度，并在多个砂层中钻遇油层。流体和储层测试仍在进行中。塔洛斯能源计划于2027年进行评价侧钻，目前正在评估各种开发方案，包括回接到现有基础设施或采用独立的主机设施。

在墨西哥，塔洛斯能源与雷普索尔（Repsol）正在推进29区块的监管审批和开发方案选择。管理层表示，该区块包含两个石油发现，总可采资源量超过2亿桶油当量。塔洛斯能源还正在与Zama作业者合作，力争在2027年达成最终投资决定（FID）。

在洪都拉斯，公司于10月完成了一项初步深水三维地震采集计划。管理层预计首批处理数据将于2027年初获取。

管理层指引

管理层计划于2月提供完整的2027年指引。塔洛斯能源预计，在完成收购后将以更高的产量基数迈入2027年，同时保持为开发、评价和勘探项目提供资金的灵活性。

资本配置框架保持不变。塔洛斯能源预计将把高达50%的年度自由现金流通过股份回购返还股东，同时投资于高回报项目、保持强劲的资产负债表并寻求具有选择性的增值性增长。

风险与关注要点

• Daenerys项目需要进一步的评价和流体分析，塔洛斯能源才能确定首选的开发方案和商业化路径。
• 管理层表示，Daenerys在2029年前实现首油的可能性极低，但并非绝无可能，并指出若要实现该时间目标，必须采取回接开发模式。
• 29区块的参股（farm-in）交易在交割前仍需获得墨西哥能源部（SENER）的批准，其FID时间表则取决于方案选择及前端工程工作。
• 海上生产仍面临天气干扰风险。飓风“伊萨亚斯”（Isaias）导致第四季度初进行了平台人员疏散和停产，不过塔洛斯能源报告称未发生设施受损。
• 鉴于公司正在权衡基础运营、Daenerys评价、Coulomb开发以及潜在的墨西哥业务，2027年资本支出的节奏与分配仍在审议中。

分析师问答要点

Daenerys评价与开发：管理层表示，评价井在钻遇含油气层方面符合钻前预期，但储层和流体测试仍在进行中。计划于2027年实施的侧钻旨在评估未测试区域的储层范围和流体性质。塔洛斯能源将在避免过度评价或评价不足的同时，权衡回接开发与独立主机平台的价值。

Na Kika与Coulomb的增长潜力：管理层表示，计划将其成熟的中期资产战略应用于新收购的资产组合，通过延长油田寿命和开发周边机会来实现增值。对于这些资产能否达到Ram Powell、Pompano和Brutus在收购储量基础上实现超过40%增幅的水平，管理层未给出具体量化预测。

资本配置：塔洛斯能源重申，稳健的资产负债表、股东回报、内生性投资以及增值性收购是相辅相成的优先事项。公司在未动用循环信贷额度的情况下完成了这笔4.20亿美元的收购。

2027年业务活动：管理层表示，目前提供季度产量和资本支出细节尚为时过早。不过，公司预计Monument和Brutus将贡献新增产量，而West Vela钻井计划定于2027年年中左右启动。

业绩电话会完整纪要

完整财报电话会议逐字稿

管理层陈述

Operator

Good morning, ladies and gentlemen, and welcome to the Talos Energy Third Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Wednesday, November 4, 2026.

I would now like to turn the conference over to Kyle Sahni, Manager, Investor Relations. Please go ahead, sir.

Kyle Sahni

Thank you, operator. Good morning, everyone, and welcome to our third quarter 2026 earnings conference call. Joining me today to discuss our results are Paul Goodfellow, President and Chief Executive Officer; Zach Dailey, Executive Vice President and Chief Financial Officer; and Bill Langin, Executive Vice President, Exploration and Development. Please refer to our third quarter 2026 earnings presentation that is available on our website under the Investor Relations section for a more detailed look at our results and operations.

Before we start, I would like to remind you that our remarks will include forward-looking statements subject to various cautionary statements identified in our presentation and earnings release. Actual results may differ materially from those contemplated by the company. Factors that could cause these results to differ materially are set forth in yesterday's press release and our Form 10-K for the period ending December 31, 2025, filed with the SEC. Forward-looking statements are based on assumptions as of today, and we undertake no obligations to update these statements as a result of new information or future events.

During this call, we may present GAAP and non-GAAP financial measures. A reconciliation of certain non-GAAP to GAAP measures is included in yesterday's press release, which was furnished with our Form 8-K filed with the SEC and is available on our website. And now I would like to turn the call over to Paul.

Paul Goodfellow

Thanks, Kyle, and good morning to everyone joining us on the call today. As always, I want to start by thanking our employees for their continued commitment to safety and environmental stewardship. The results Zach and I will discuss today are a direct reflection of the talent, drive and relentless focus on execution across the One Talos team. The third quarter continued to demonstrate the strength of the business we are building. We delivered another quarter of consistent execution from the base business, completed our Gulf of America bolt-on acquisition while keeping leverage at 0.6x, raised full year production guidance and significantly bolstered our portfolio of development and exploration opportunities. Taken together, these results reflect continued progress across all three pillars of our strategy and further strengthen the foundation to be a leading pureplay offshore E&P.

I want to begin, as I always do, with the base business, which continues to provide the foundation for everything we do. Oil production averaged approximately 69,000 barrels per day and total production averaged approximately 92,000 barrels of oil equivalent per day, both exceeding guidance. That was driven by strong base business performance, the absence of storm-related downtime and an initial contribution from the Gulf of America acquired asset following closing on September 22. Importantly, even after adjusting for weather and excluding the acquisition contribution, production was at the high end of our guidance range. That clearly signals the underlying strength of the business.

Those operational results, combined with premium oil realizations translated into strong adjusted free cash flow of $186 million and support another increase to our full year 2026 production guidance. Zach will walk through the details later in the call. These results also reflect our Optimal Performance Plan, and I'm pleased to report that we have delivered on our full year $100 million target by the end of the third quarter. We expect these business improvements to be lasting and carry into next year and beyond. They have been broad-based across the organization, spanning margin enhancement, capital efficiency, commercial opportunities and organizational improvements.

Delivering the target does not change our focus. Continuous improvement is embedded in how we operate, and we will keep looking for opportunities to improve production and uptime, spend capital more efficiently and reduce costs across the portfolio. This is exactly what we mean when we talk about improving the business every day. I'm incredibly proud of what the team has accomplished this year. These results were delivered because our teams choose excellence each and every day.

We saw that again in early October ahead of Hurricane Isaias. Our priority was the safety of our offshore personnel and protecting the environment, which meant shutting in production and evacuating our platforms. I want to thank our operations team for their commitment to living our values. Once it was safe to return, we confirm that there was no damage to our facility and shifted our focus to restore production. The increased full year guidance Zach will discuss includes the fourth quarter hurricane impact of approximately 7,000 barrels of oil equivalent per day, which was within the weather allowance incorporated into our full year plan and guidance.

In addition to the outstanding performance in production operations, Talos continues to distinguish itself through best-in-class execution, and we advanced several important projects during the quarter. That execution starts with drilling. When we benchmark our recent operated wells, including Daenerys, Sunspear, Katmai West #2 and CPN, they all rank in the top quartile of Gulf of America industry performance. And the recent Daenerys appraisal well, drilled to a total vertical depth of nearly 29,500 feet, ranked in the top decile. Full credit goes to our drilling team. Drilling and completing faster and more efficiently translates directly into lower well costs and better returns and is a clear example of what we mean when described Talos as a technically differentiated offshore operator.

At CPN, we achieved first oil in September as planned, and the well is performing in line with expectations. CPN is an operated infrastructure-led tie back to Na Kika and is a good example of the type of high-return, short-cycle opportunity that underpins our development program. At Brutus, we commenced the development program during the third quarter with operations from the platform-based rig. Our team has optimized the plan to incorporate batch drilling and completions, which we believe improves execution efficiency and project returns. The program has also expanded from 4 to 5 wells, with the addition of another sidetrack opportunity. We expect first oil beginning in the second quarter of 2027 with production phased in through the fourth quarter as the wells come online.

At Monument, the first development well TD'd in June and found approximately 250 feet of net oil pay, in line with predrill expectations. And the second well spud in early September following the operator's rig deployment to one of its own fields. First oil is now expected in the first quarter of 2027, and our view of the project economics is unchanged.

Now let me turn to Daenerys. We spud the appraisal well in early July and drilled to target depth in late August, meeting our appraisal objectives. The well tested the northern portion of the prospect and encountered oil pay in multiple sands. We collected samples that are undergoing testing to further assess the reservoir and fluid properties. Daenerys is a multiyear appraisal program. The additional appraisal activity is needed to better understand the reservoir. As planned, the next step in the program is an appraisal sidetrack in 2027. Together, the data from this year's well and next year's sidetrack will help inform the path forward. In parallel, our teams continue to evaluate a range of development concepts from a tieback to existing infrastructure to a stand-alone host. We're also building out a broader opportunity set around Daenerys. In late '27 or early 2028, we expect to drill an exploration well targeting a prospect we acquired in the December 2025 Big Beautiful Gulf 1 lease sale. If successful, it has the potential to be co-developed with Daenerys.

Turning to the Gulf of America bolt-on acquisition. On September 22, we closed the transaction alongside our partner, Ridgewood. This added a 50% working interest in operatorship in the Coulomb field, along with a 25% nonoperated working interest in the BP-operated Na Kika platform and 4 associated fields. The final net cash purchase price was $420 million, less than our original expectations. Integration is well underway, and we are pleased with how the assets are performing to date. The acquisition adds high-quality oil-weighted production that enhances our scale, margins and free cash flow generation while providing infrastructure-led growth opportunities that leverage our core strengths.

I also want to spend a moment on why we believe the value of this acquisition extends well beyond the acquired reserves. Talos has a proven track record of acquiring midlife assets and extending field life. As an example, across Ram Powell, Pompano and Brutus, cumulative production since acquisition, combined with the remaining 2P reserves at year-end 2025 represents more than a 40% uplift relative to the 2P reserves at the time of acquisition. That uplift came from extending field life and identifying additional resources through infrastructure-led opportunity. We intend to apply that same playbook to the acquired assets here. We have already identified multiple development and infrastructure-led exploration opportunities, including the operated Coulomb development well, which we expect to compete for capital in 2027.

Beyond the Gulf of America, we continue to progress our newest exploration and development opportunities. In Mexico, we continue to work with the operator to advance Zama towards an expected FID in 2027, while also progressing our new opportunity in Block 29. In Block 29, we are progressing the SENER approval required to close the farm-in transaction for that block while working with Repsol towards FID in 2027. With two oil discoveries holding more than 200 million barrels of oil equivalent of gross recoverable resource and similar exploration potential on the block, this remains a development-led opportunity with meaningful upside. And we continue to work with Repsol to plan an exploration well late in next year.

In Honduras, we commenced the first-ever 3D seismic program across a portion of the deepwater acreage in October, less than three months after signing the agreement. This initial deepwater 3D program has now been completed, and we expect the first processed data in the early part of 2027. The broader position is equivalent to roughly 700 Gulf of America blocks with the existing Main Cape oil discovery validating the working petroleum system in this large, underexplored basin. While these opportunities are at different stages of maturity, that is by design. Our portfolio now spans a strong base business in the Gulf of America, combined with pre-FID development and longer cycle exploration. The speed with which our teams and partners are moving them forward continues to be a key differentiator for us here at Talos.

The common theme across the quarter is disciplined execution. We delivered strong operational and financial performance from the base business, closed an acquisition that increases our deepwater scale, completed the noncore gas-weighted shelf divestment and advanced a deeper portfolio of development, appraisal and exploration opportunities. We carry significant momentum through year-end and into 2027.

With that, I will now turn the call over to Zach to discuss our financial results, updated guidance, balance sheet and capital allocation in greater detail as well as some early thoughts on 2027.

Zachary Dailey

Thanks, Paul. This morning, I will focus on three key takeaways: strong free cash flow generation in the third quarter, supported by premium oil realizations; increased full year production guidance pro forma for the acquisition; and a resilient balance sheet that supports our unchanged capital allocation framework. I'll then close with a few early thoughts on 2027.

Starting with the quarter, the disciplined operational execution Paul just discussed translated directly into strong financial results. We generated adjusted EBITDA of approximately $406 million and adjusted free cash flow of approximately $186 million, driven by production that exceeded guidance and premium oil realizations of approximately $1.60 per barrel above WTI. That combination supported adjusted EBITDA margins of approximately $52 per BOE, excluding hedges, which continue to rank in the top decile of the E&P sector. At the same time, lease operating expenses of $16.74 per BOE remained below the Gulf of America peer average, reinforcing our advantaged cost structure.

On the heels of the strong first 9 months, we're increasing our full year 2026 production guidance to 68,000 to 70,000 barrels of oil per day and 92,500 to 94,500 BOE per day. At the midpoint, that represents an increase of approximately 8% for oil production relative to our original guidance. This updated annual outlook includes the closed Gulf of America acquisition and the impact of Hurricane Isaias in early October. And as a reminder, it also reflects the closed noncore shelf divestment. Our base business continues to outperform and the Gulf of America acquisition builds on that.

For 2026 capital expenditures, we lowered the midpoint of guidance while increasing guidance for P&A, leaving combined capital and P&A spend unchanged from our original guidance. The P&A increase reflects a sizable project that was completed ahead of schedule, which allowed us to accelerate additional activity into the fourth quarter. As we've discussed previously, we focus on executing P&A activity in the most efficient manner rather than simply managing to an annual budget. Updated cost guidance is detailed in our earnings presentation.

Now turning to the balance sheet. We ended the third quarter with approximately $410 million of cash, an undrawn credit facility and approximately $1.1 billion of liquidity, resulting in a leverage ratio of 0.6x. In conjunction with closing the acquisition, our borrowing base increased to $850 million, and we have no debt maturities until the next decade. Importantly, we funded the bolt-on's final net cash purchase price of $420 million while keeping the credit facility undrawn, reflecting the financial flexibility we built through the capital markets transactions completed earlier this year alongside the strong operational performance and free cash flow generation of the business. We continue to expect year-end 2027 leverage to be well below 1x, consistent with our long-term leverage target.

Our capital allocation framework remains unchanged. We continue to expect to return up to 50% of annual free cash flow to shareholders through share repurchases while also investing in high-return projects, maintaining balance sheet strength, and pursuing selective accretive growth. During the third quarter, we repurchased 1.4 million shares for approximately $24 million. We intentionally structured the return framework as up to 50% to preserve flexibility to pursue accretive opportunities such as the acquisition we just closed.

Since announcing the framework in the second quarter of 2025, we have returned approximately $160 million to shareholders by repurchasing 14.5 million shares at an average price of $11 per share. This has reduced our outstanding share count by approximately 8% over that time period. That track record demonstrates the value of consistently buying back shares at attractive levels, and we have approximately $176 million remaining under our authorization.

Before we open the line for questions, I want to share a few early thoughts on 2027. As we build the business plan, our objective is to adhere to the three principles of our strategy, including further strengthening the depth and longevity of our portfolio while maintaining a low WTI free cash flow breakeven. We're working through our budgeting process now and expect to provide a full 2027 outlook in February, but we already have visibility into several important activities next year. We will enter 2027 with a higher production base from the recently completed acquisition and expect first oil from Monument in Q1 and Brutus beginning in Q2.

As previously discussed, in July, we secured the West Vela for our drilling program beginning in mid-2027 at an attractive day rate. We expect the Coulomb development well, which was acquired from Shell, to compete for capital alongside additional appraisal and exploration activity around Daenerys. We also expect to continue advancing Block 29 towards FID and may have an exploration well on Block 29 toward the end of the year. Overall, we have a deeper portfolio of development, appraisal and exploration opportunities than Talos has ever had, and we will remain disciplined in how we pace activity and allocate capital across it.

Bottom line, we generated meaningful free cash flow in Q3, completed an acquisition that increases our deepwater scale, resumed share repurchases, increased full year production guidance while keeping total capital spend unchanged, and we maintained a strong balance sheet. These results reflect the strength of the underlying business, disciplined execution across the organization and the financial flexibility to pursue our strategic priorities while continuing to create long-term shareholder value.

With that, we will open the line for Q&A.

Operator

[Operator Instructions] Your first question comes from [ Jerry Siche ] with Goldman Sachs.

分析师问答

Unknown Analyst

Can you talk through what it has been like working with Repsol and how you are seeing the path toward FID for the offshore Mexico farm-in in 2027?

Paul Goodfellow

Yes. Thanks, [ Jerry ]. Look, we have a very constructive relationship with the Repsol team, both through the early engagements when we were talking about the deal and then now as we're going through the process of closing it. As I've mentioned, we still have to go through the regulatory process to actually get ourselves on the license, and that is progressing as planned. But working with Repsol at a technical level is incredibly supportive. I think we bring skills that are complementary of each other. And we're now actually going through the concept select process that will take us into a decision on the concept and then FEED with a target of looking at FID in the second half of 2027. So yes, I think, bottom line, incredibly constructive relationship, and we're very happy to have Repsol as a partner.

Unknown Analyst

And for my follow-up, can you discuss the puts and takes in the full year total CapEx guidance? CapEx trended lower while P&A expenditures ticked up. What's driving that dynamic? And how should we think about the right run rate for capital intensity for the pro forma business?

Paul Goodfellow

Yes. Let me maybe start and then Zach, please, add in any comments that you have. Look, I think the capital forecast that we put out really is driven by a couple of things. One, it's the great performance in the base business that we have in terms of, if you think about drilling at Daenerys, you think about the drilling execution and completion at CPN and other projects that we have delivered an operated base, and also then to the timing of some of the nonoperated projects such as the Monument development where there was a unexpected gap for us put into that project, which has slightly phased out a little bit of the CapEx. But I would say the biggest element of the capital forecast at the moment is driven by the great performance of the operated part of the business.

That translates into the P&A side as well, where we look to be good stewards of the resources that we have, build a plan in terms of -- it's a multiyear plan of how we need to think about abandoning and decommission the liabilities that we have, and then we work that with the same diligence that we work new opportunities. Of course, we also have interest in nonoperated fields. And there were a couple of those that came into the plant late in the year, and those have been executed very well, which has just meant a slight shift in pulling forward some of the P&A type of opportunities. But as a run rate basis, I would think the level that we're at now is a reasonable number to think about at a P&A level going forward. That's a ratable, deliverable type of an activity set.

And in terms of the CapEx side, as Zach mentioned, we're still in the process of working through the budget. But I hope we've given you a bit of insight into some of those building blocks in terms of the continuation, of course, of Monument with first oil in '27, a slightly expanded project set at Brutus given identification of further opportunities there, and then advancing Block 29, both on the development side and the exploration side. And clearly, we'll come out with guidance early in the new year as we usually do.

Operator

Your next question comes from Ajay Bakshani with BMO Capital Markets.

Ajay Bakshani

One Daenerys, you mentioned in the script, the appraisal well encountered oil pay in multiple sands. Can you also comment on reservoir quality and how this compared to predrill expectations? And I believe the discovery well found pay in three separate zones, but you're also testing additional prospective interval. Are there any key takeaways here?

Paul Goodfellow

I think as we said, Ajay, so the work around fluid samples, fluid quality is ongoing, and so it's too early for us to share any insight on that. We're extremely pleased with, obviously, the performance of the well in terms of getting it down to TD, the quality of the data that we retrieved from the well, and the fact that we delivered against, also the well met the expectations that we had from a predrill perspective relative to the hydrocarbon zones that we encountered.

Ajay Bakshani

And for my follow-up, you mentioned in your opening remarks and in the deck about the success you had across Ram Powell, Pompano, and Brutus assets in terms of increasing 2P reserves. Now that you've closed the Shell deal, I was hoping to hear initial impressions with the asset and not to pin you down, but directionally, do you feel like this could also have a 40% plus uplift potential?

Paul Goodfellow

We're really pleased with the Na Kika and Coulomb asset that we've managed to bring into the portfolio with Ridgewood as our partner. One of the underlying basis for that from our perspective was exactly your question, which is we believe that we can take midlife assets such as this, identify opportunities in the neighborhood, extend the life and increase the ultimate recovery through the facilities. And that was one of our basis for the value that we saw in Na Kika. We would expect to continue down that path as we've done with other assets that we brought into the portfolio. And I think you see us starting to act on that immediately with the Na Kika Central Graben well being brought forward to compete for capital as we think about our overall plan and budget for '27 and beyond.

And so, yes, it is too early to pin me down in terms of a prediction on what the ultimate uplift will be. But I would say the basis and the foundation of why we like to take assets like this and why we think Talos is a differentiated developer for midlife assets is just that we can see opportunities, we can develop those on a short cycle, low cost to create optimum value, and therefore, extend the life of the asset. And clearly, we will work with the operator and partner BP in terms of doing that.

Operator

Your next question comes from Paul Diamond with Citi.

Paul Diamond

Talking about your capital return framework. I know you guys have the up to 50% target for share buybacks. But I guess leverage approaching 0.5 turn, can you talk about any potential shift in the use case of those future cash flows and how you guys are thinking about that on a longer-term basis?

Paul Goodfellow

Yes. Let me ask Zach to comment on that. Zach? Yes.

Zachary Dailey

Thanks, Paul. Appreciate the question. First and foremost, the strategy is unchanged, as we've discussed in our remarks, and the disciplined capital allocation framework that underpins that strategy is unchanged. So the short answer is no change to it. And the longer answer is we've got lots of options here. We did go back in the market in Q3 with buybacks ahead of closing the acquisition and funding the $420 million purchase price, which we're able to do without touching the revolver. So all 4 of the financial framework elements are extremely important to us, and they're not mutually exclusive. So we want to maintain a strong balance sheet, we want to return cash to shareholders, we want to invest in the business, and we want to be able to go out and bring accretive acquisitions into the portfolio, which is what we just did.

Paul Diamond

And then just a bit of a nuance on Honduras. I guess what are the logistical steps needed for closing the remaining 35% working interest? Is it just like paperwork for government approval? Or is there anything operational there?

Paul Goodfellow

Yes. Let me ask Bill Langin to share a few comments on that, Paul. Bill?

William Langin

Yes. Thanks. So the government has approved the remaining 35%, and they're going through their process called Gaceta, which is essentially just pushing the paperwork through their own system. So there's no remaining significant hurdles to that. It's just finalizing their process.

Operator

Your next question comes from Tim Rezvan with KeyBanc.

Unknown Analyst

This is [ Jon ] on for Tim. You alluded to this a little bit, but if I could take a different angle to it. You're generating strong free cash flow and projects like Block 29 and Daenerys could need meaningful capital over the next few years. So how are you just thinking about uses of that cash today? Keeping that in mind, would you build cash ahead of those commitments? Or would you put more to work now?

Paul Goodfellow

Yes. [ Jon ], look, I think Zach has already answered that question, which is we have a financial framework for that reason. And all 4 elements of that need to work in supportive conjunction of each other and whether that's investing in the base business, thinking about cash return to shareholders up to 50%, maintaining the balance of the leverage on the balance sheet and then working for accretive portfolio expansion that can either be through inorganic or organic means. We have to work those 4 in parallel. And that's exactly what we have been doing, and we will be doing. And now we also have to do that against the macro that we see going forward and against the reality of the environment in which we find ourselves today.

Now what we do know, of course, is that we hope that Block 29 stays on the time line that we've laid out. As we mentioned, Daenerys will need further appraisal, both for the discovery that we have and then, in addition, we're building, let's say, an inventory within the neighborhood. And so you'll see us look at potentially further exploration well in that area towards the end of next year or the early part of '28. And so we will weigh those up to determine at any given point in time what the best balance in that framework is.

But clearly, when we know we're on a path and come to that decision of taking FID, then that will then determine a certain amount of capital that needs to be allocated. The follow-up view then -- and maybe Zach can offer a few thoughts on this -- is the source of that capital, is it from the cash that we've generated, is it from the balance sheet strength, et cetera, but that will really be taken much sooner to that decision point. Zach, anything to add?

Zachary Dailey

Yes. [ Jon ], I'd just add to that, the first element of the financial framework that underpins the strategy is being able to invest in the business. And whether it's Daenerys or Block 29 or CPN or the Coulomb prospect that's part of the Shell acquisition, we want to have the flexibility on the balance sheet to make those wise investments.

Unknown Analyst

Just as my follow-up, just to hit on Daenerys again. As you weigh a tieback against a stand-alone host, what are the key milestones that you're looking for here? And is first oil before 2029 realistic under either of those paths?

Paul Goodfellow

Look, I think any decision like this is a trade-off between -- it's a value-based decision at the end of the day. So which solution gives us the best value, and that comes from weighing off the capital intensity of the decision, the recovery of the resource and then the cyclicity or the cycle time in terms of delivering that. And that's why we're going through the work we're going through at the moment in terms of further testing and evaluation of fluid properties, why we will do a sidetrack of one of the existing wells, most likely into the most southern part of the field next year. And from there, we'll then determine that trade-off.

But look, the balance that we have to keep here, of course, is we don't want to overappraise and destroy value by driving the uncertainty range down to such a narrow point that we spent too much to get to the decision. But conversely, we don't want to underappraise where we have too wide uncertainty range. And I think you've seen in the deepwater many examples of where under appraisal has led to value destruction. So the technical rigor that we bring to this, that we bring to all our work will continue. Now in terms of could there be first oil in 2029, I think that is a highly unlikely outcome, not impossible, but that would certainly be in a tieback solution only, [ Jon ].

Operator

Your next question comes from Nate Pendleton with Texas Capital.

Nathaniel Pendleton

Congrats on the strong quarter. I want to stay on the sidetrack at Daenerys just for a moment. Can you talk about what that next sidetrack is really trying to resolve? And could development of the Daenerys project really be contingent on that other prospect that you mentioned in your prepared remarks?

Paul Goodfellow

Bill, why don't you share a few thoughts on that, please?

William Langin

Sure. I think as Paul mentioned before, our path forward for development at Daenerys will be driven by what is the highest value for that project. And the sidetrack at Daenerys' look at the further extent of both the reservoir and fluid properties into an area that we haven't yet seen. And then very shortly after when we test an adjacent prospect, we'll look at the various options from accelerating one versus co-development and how do we create the most value for what we've invested. So as we gather those data, we'll make the highest value decision.

Nathaniel Pendleton

And then switching over to -- really on slide 10 of your deck, it highlights the drilling performance there. Can you talk about what are the drivers behind that? And how are you able to achieve these really consistently superior results?

Paul Goodfellow

Great people working against the set process, thinking about what the uncertainties, having mitigations in place and working with a set of service partners, especially the rig, the West Vela in this case, where they create a common team with a common outcome, which is, first and foremost, safe and environmentally solid performance, but always thinking about how can we learn and how can we perform each and every day. So it really does come down to the quality of people across the waterfront, whether it's our own internal Talos drilling team or completions team, but equally working with great service providers that share that outcome of striving for perfection each and every day.

Operator

Your next question comes from Michael Scialla with Stephens.

Michael Scialla

Zach, reading into your comments on 2027, I want to see if it was fair to assume that we should anticipate some sequential production growth, maybe slight growth with a full quarter of the Shell assets in the first quarter and then maybe some continued production growth in the second quarter with Monument and Brutus coming online. And then in terms of CapEx, it seems like it should be second half weighted when you get the West Vela. Am I reading too much into that or does that sound reasonable?

Paul Goodfellow

Possibly, Michael. It's probably a little too early to get extremely specific on '27 on a quarterly basis yet. We'll come out with more information in February when we announce the plan. But just a couple of points. To be clear, Q4 '26, this quarter we're in now will be the first full quarter of having the Shell assets under the hood. And then you're correct to hear our comments that Monument first oil is expected in Q1 and the Brutus program has been expanded with the addition of one more well. So that will come online over the course of next year. And beyond that, we'll provide more detail in February.

Michael Scialla

I wanted to ask on the prospect near Daenerys. Is that another 4-way structure below salt or is it similar to Daenerys or does it look different?

William Langin

We picked up a few different prospects in BBG1 that are in the neighborhood, and we're going through our final interpretation and portfolio ranking now. And that prospect will likely be drilled on the second half of West Vela sequence. We have time to make that final decision, which we'll also need to work with our partners in ultimately making that final selection. So we've got a couple of options, one subsalt, one, not subsalt.

Operator

Your next question comes from Leo Mariani with ROTH Capital.

Leo Mariani

Just wanted to get a high-level look on Daenerys here. Obviously, you've got two wells down. Do you feel comfortable this is a commercial oil development at this point and now it's just a matter of how you size this, which I guess is the point of the next appraisal well.

Paul Goodfellow

Yes. Leo look, I think as we said in the comments and to some of the questions this morning, there's still data that we need to get. We're in the process of doing that. Once we've done that, then we'll be able to be more definitive in terms of what the optimum value path forward is. I think as Bill mentioned and I mentioned myself, we do think at the moment that the first step in that is this sidetrack from one of the existing wells which, of course, will be much, much lower cost than the 2 wells that we've done so far, even though those were executed incredibly well as we show by the benchmark data. But we think that will be the next step in terms of coming out with what we think the best value solution is for Daenerys.

Leo Mariani

And you're going to use the West Vela rig for that, I guess, sometime in the second half of '27. So it sounds like that's a ways away before you guys give us some more details.

Paul Goodfellow

It is. So we've contracted the West Vela rig for a year plus some options. That will start around the middle of the year, dependent on when it's released from the current operator. And as Zach has mentioned, we're going through the process at the moment of how we build the details of architecture of the plan and timing of any subsequent activity at Daenerys will be a key component of that discussion.

Leo Mariani

And then just on the M&A front, obviously, you guys were successful in getting a deal, which you closed recently. How are you seeing the environment out there? Are there deals in the market that you guys are currently considering?

Paul Goodfellow

I'm not going to comment on any specific deal, Leo. Look, we remain active within the frame of the strategy that we've laid out. I think you've seen us act across all 3 pillars of the strategy within the financial framework, and we will continue to do that as opportunities either are brought to the market in terms of companies looking to divest or partner or opportunities that we can broke and identify ourselves. And I think through 2026, you've seen us act in both of those lanes, and it's reasonable to expect that we'll continue to act in both of those lanes as we go forward into 2027.

Operator

There are no further questions at this time. I will turn it back to Mr. Paul Goodfellow for some closing remarks.

Paul Goodfellow

Thank you, Anas, and thank you all for joining today and for your interest in Talos. To close, the third quarter demonstrated the strength of our base business, the quality of our team and the depth of our portfolio. We delivered our full year optimal performance plan target by the end of the third quarter, completed our Gulf of America bolt-on acquisition and advanced a deeper portfolio of development and exploration opportunities across 3 offshore basins, all while maintaining the discipline that underpins our capital allocation framework. We head into 2027 with greater scale, a high-quality oil-weighted portfolio, a strong balance sheet and a clear path to continue building the foundation to be a leading pureplay offshore E&P. We look forward to updating you on our progress in the quarters ahead. Thank you all.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.