Talos Energy: Time to Take a Plunge Ahead of New CEO Appointment?

January 29, 2025 at 08:15 AM EST

Talos Energy offshore oil

Independent offshore oil and gas exploration and production company Talos Energy Inc. (NYSE: TALO) primarily operates in the U.S. Gulf of Mexico. The oils/energy sector company leverages technology using seismic imaging and data analytics to spot and develop oil and gas resources more efficiently. The company has proven its ability to bring projects online and within budget and has teamed with big oil companies like Chevron Co. (NYSE: CVX) in the past.

Its 12-year CEO, Tim Duncan, abruptly stepped down on Aug. 29, 2024, to “pursue other opportunities.” Board member Joseph Mills stepped in as interim CEO immediately while the company searched for a permanent CEO. On Jan. 6, 2025, Interim CEO Mills also abruptly stepped down, effective immediately, adding that his departure was not related to any operational issues or accounting matters.

Strange Departures Amid Poison Pill

In 2024, Mexican Billionaire Carlos Slim accumulated a 24% stake in Talos Energy. Shortly after CEO Duncan’s departure, the company adopted a poison pill in October 2024 to prevent Slim from taking control of the company. The poison pill is triggered when any single investor acquires 25% or more of the outstanding shares. Once triggered, it would allow existing shareholders to purchase additional shares at a discounted price, thereby diluting the ownership stake of a potential acquirer. This would make a takeover attempt much more costly.

Negotiating a Deal to Terminate Poison Pill

However, the company terminated the poison pill in December 2024 after making a deal with Carlos Slim. The agreement limited his investment firm’s stake to 25% and would also sell some of Talos Energy’s stake in the Zama Field to Carlos Slim’s Grupo Carso. This was seen as a win-win, preventing a potential hostile takeover while banking up to $82.9 million from the deal while strengthening its partnership with Grupo Carso and still owning 20% of Talos Mexico, which holds a 17.4% interest in the Zama Field.

The agreement prohibited Control Empresarial De Capitales from buying any more shares until Dec. 16, 2025, beyond 25%. Carlos Slim and his family own both Grupo Carso and Control Empresarial De Capitales. This option still leaves the company potentially vulnerable to acquisition in 2026.

Interim CEO Steps Down as Permanent CEO Announcement Looms

Before investors could wrap their heads around why the first CEO resigned, the interim CEO abruptly resigned on Jan. 6, 2025, to also “pursue other opportunities.” The company noted that they had found a permanent CEO candidate and were “…in the final stages of the process with this candidate.” The company expects the candidate will join by the end of the first quarter of 2025. Again, the question is, why is there a hurry to leave for the interim CEO? The company also reaffirmed its 2024 production outlook of 91,000 to 94,000 barrels of oil per day and assured investors there were no accounting or operational reasons for Joseph Mills’s departure.

Katmai West #2 Significant Discovery of 15,000 to 20,000 Barrels a Day

On Jan. 15, 2025, Talos Energy announced that it had significantly drilled the Katmai West #2 well located in the Ewing Bank area of the U.S. Gulf of Mexico ahead of schedule and under budget to a vertical depth of 27,000 feet. It made a significant discovery, namely that it encountered the primary target sand full-to-base with more than 400 feet of gross hydrocarbon pay and excellent rock properties, as expected. This equates to approximately 15,000 to 20,000 barrels of oil a day. The first production is expected in the late second quarter of 2025.

TALO Stock Triggers a Rising Wedge Breakdown

A symmetrical triangle is comprised of a descending (falling) upper trendline resistance converging with an ascending (rising) lower trendline support at the apex point. A breakout occurs when the stock surges above the upper trendline resistance. A breakdown occurs when the stock collapses below the lower trendline support. A breakout or breakdown becomes eminent as the stock gets closer to the apex point as the channel narrows.

Talos Energy TALO stock chart

TALO formed a symmetrical triangle from the converging descending upper trendline resistance at the $12.71 swing high and the lower ascending trendline support starting from the $8.94 Fib. The daily anchored VWAP sits at $10.18, and the daily RSI is slipping at the 47-band. Pullback support levels are at $10.17, $9.55, $8.94, and $7.95.

TALO stock’s average consensus price target is 56.39% higher at $15.94, and its highest analyst price target sits at $21.00. It has seven analysts' Buy ratings and two Hold ratings. The stock has a 7.09% short interest.

Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered calls at upside Fib levels executes a wheel strategy for income.

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