# Talos Energy Inc.: Form 10-Q/A for the period ended Mar 31, 2024 - Company: [Talos Energy Inc.](/companies/talo.md) (CIK 1724965) - Form: 10-Q/A - Filed: 2024-11-12 - Accepted by EDGAR: Nov 12, 2024, 16:36 ET - Period: 2024-03-31 - Accession: 0000950170-24-125553 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1724965/000095017024125553/talo-20240331.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1724965/000095017024125553/ ## Controls and procedures As filed, 6,239 characters. ### Disclosure Controls and Procedures Under the supervision and with the participation of our management, our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Form 10-Q/A. Our disclosure controls and procedures are designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2024 as a result of the material weaknesses identified in our internal control over financial reporting described below. A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. As reported in our Form 10-K/A for the year ended December 31, 2023, filed with the SEC on the date hereof, subsequent to the end of the period covered by this Form 10-Q/A, we identified material weaknesses in our internal control over financial reporting. In September 2024, the Company received a notification from a third party suggesting that the subject employee was engaged in inappropriate procurement practices. In response, the Audit Committee conducted a review of such alleged practices by engaging independent external legal counsel to assist in reviewing the matter and determining the extent of such activities. Such review with external legal counsel did not identify nor implicate other current or former employees and the subject employee was separated from the Company. The Audit Committee also did not identify any related material errors in the Company’s historical financial statements. However, in the course of its review, the Company identified two material weaknesses. The first material weakness identified was due to our inability to rely on the review control performed by the subject employee with respect to the estimated decommissioning costs incorporated into the asset retirement obligations recognized in our consolidated financial statements. As such, we could not rely on the subject employee’s judgment in the operation of the review control, which is performed upon acquisition of oil and gas assets subject to the retirement obligation and when costs are incurred and reassessed. Although the review of such costs was a task unrelated to the reported conduct subject to our review, we nevertheless determined that the concerns raised regarding the subject employee’s reliability made it inappropriate to have relied on such subject employee’s judgment in the review function. The second material weakness identified was due to inappropriate segregation of duties without designing and maintaining effective monitoring controls over the timely review of expenditures associated with asset retirement obligation spending, capital expenditures and lease operating expenses. Notwithstanding the identified material weaknesses above, management has concluded that our condensed consolidated financial statements and related notes included in the Original Filing fairly present in all material respects the Company’s financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in accordance with generally accepted accounting principles in the United States. ### Plan for Remediation of Material Weaknesses Management, with oversight from the Audit Committee, has developed a remediation plan to address the material weaknesses. The remediation plan includes, among other things: - The separation of the subject employee from the Company. - The appointment of qualified personnel over business processes related to the review of estimated decommissioning costs. - The enhancement of policies and training relating to defined roles and responsibilities, the appropriate segregation of duties, and the promotion of ethical behavior. - Establishing and enhancing the design, including the precision, of the monitoring control(s) related to expenditures associated with asset retirement obligation spending, capital expenditures and lease operating expenses, and the effective operation of such control(s). We believe that these actions, collectively, will remediate the material weaknesses identified. However, we will not be able to conclude that we have completely remediated the material weaknesses until the applicable controls are fully implemented and operated for a sufficient period of time and management has concluded, through formal testing, that the remediated controls are operating effectively. We will continue to monitor the design and effectiveness of these and other processes, procedures, and controls and will make any further changes management deems appropriate. ### Internal Control over Financial Reporting On March 4, 2024, we completed the QuarterNorth Acquisition. Other than the unremediated material weaknesses noted above and integrating the acquired operations of QuarterNorth into our overall internal control over financial reporting and related processes, there were no other changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ## Risk factors As filed, 6,019 characters. In addition to the other information set forth in this Form 10-Q/A, you should carefully consider the risk factors and other cautionary statements described under Part I, Item 1A. “Risk Factors” included in our Amendment No. 1 to our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023, filed with the SEC as of the date hereof (the “Amended Form 10-K/A”) and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our Amended Form 10-K/A or our other SEC filings, except as described below with respect to material weaknesses identified in our internal control over financial reporting which existed as of March 31, 2024. ***We have identified material weaknesses in our internal control over financial reporting that could, if not remediated, result in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations.*** As more fully disclosed in this Form 10-Q/A under Part I, Item 4. “Controls and Procedures,” our Audit Committee, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures and internal control over financial reporting as of March 31, 2024. Based on that evaluation, we concluded that our disclosure controls and procedures were not effective as of March 31, 2024 due to material weaknesses identified in our internal control over financial reporting. A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. In September 2024, the Company received a notification from a third party suggesting that the subject employee was engaged in inappropriate procurement practices. In response, the Audit Committee conducted a review of such alleged practices by engaging independent external legal counsel to assist in reviewing the matter and determining the extent of such activities. Such review with external legal counsel did not identify nor implicate other current or former employees and the subject employee was separated from the Company. The Audit Committee also did not identify any related material errors in the Company’s historical financial statements. However, in the course of its review, the Company identified two material weaknesses. The first material weakness identified was due to our inability to rely on the review control performed by the subject employee with respect to the estimated decommissioning costs incorporated into the asset retirement obligations recognized in our consolidated financial statements. As such, we could not rely on the subject employee’s judgment in the operation of the review control, which is performed upon acquisition of oil and gas assets subject to the retirement obligation and when costs are incurred and reassessed. Although the review of such costs was a task unrelated to the reported conduct subject to our review, we nevertheless determined that the concerns raised regarding the subject employee’s reliability made it inappropriate to have relied on such subject employee’s judgment in the review function. The second material weakness identified was due to inappropriate segregation of duties without designing and maintaining effective monitoring controls over the timely review of expenditures associated with asset retirement obligation spending, capital expenditures and lease operating expenses. While these material weaknesses did not result in a material misstatement of our consolidated financial statements, these internal control deficiencies were not remediated as of March 31, 2024 and there is a reasonable possibility that it could have resulted in a material misstatement in the Company's annual or interim consolidated financial statements that would not have been detected. Accordingly, we have determined that these internal control deficiencies constituted material weaknesses in our internal control over financial reporting. While management, under the oversight of our Audit Committee, has taken steps to implement our remediation plan as described more fully in Part I, Item 4. “Controls and Procedures” of this Form 10-Q/A, the material weaknesses described above will not be considered remediated until the enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the related controls are effective. Furthermore, we can give no assurance that the measures we take will remediate the material weaknesses. We can give no assurance that additional material weaknesses will not arise in the future. Any failure to remediate these material weaknesses, or the development of any new material weaknesses in our internal control over financial reporting, could result in material misstatements in our consolidated financial statements and cause us to fail to meet our reporting and financial obligations, which in turn could have a negative impact on our financial condition, results of operations or cash flows, restrict our ability to access the capital markets, require significant resources to correct the material weaknesses or deficiencies, subject us to fines, penalties or judgments, harm our reputation or otherwise cause a decline in both investor confidence and the market price of our stock. Filed Nov 12, 2024. Source: SEC EDGAR, the filing index for accession 0000950170-24-125553. Last ingested by Listed: Nov 3, 2026, 21:34 ET. No prices; not investment advice.