Callon Petroleum acquires Permian basin assets for $475 million, exits Eagle Ford
(WO) – Callon Petroleum Company signed two definitive agreements that streamline and focus Callon's operations, accelerate the achievement of its debt reduction target and allow for the initiation of a shareholder return program in the third quarter of 2023.
Callon has entered into a definitive agreement to acquire the membership interests of Permian-based Percussion Petroleum Operating II, LLC in a cash and stock transaction valued at approximately $475 million and potential contingent payments of up to $62.5 million. Under the terms of the agreement, Percussion will receive $265 million in cash and a maximum of 6.46 million shares of Callon common stock.
Under a separate agreement, Callon agreed to sell all its assets in the Eagle Ford Shale to Ridgemar Energy Operating, LLC for $655 million in cash and potential contingent payments of up to $45 million.
Solidifies Permian focus. Callon's operations will be focused on its more than 145,000 net acres in the prolific Permian basin, executing its proven "Life of Field" Co-Development Model on an expanded Delaware Basin footprint. Callon's scale and singular focus on the Permian will enhance operational and capital efficiencies. The company will have an inventory of more than 1,500 high-quality locations on a concentrated acreage position in the Permian basin.
Increases Permian oil-weighting, improves margins. The oil-weighting of Callon's production in the Permian basin is expected to increase post-closing. Pro forma cash operating costs per boe are estimated to drop approximately 5% in the second half of 2023 through identified G&A and LOE savings.
Accelerates achievement of $2 billion total debt target. The transactions will strengthen Callon's balance sheet with total debt expected to be below $1.9 billion at closing.
"Callon is uniquely positioned to capture value from this high-quality oil asset that is complementary to our core Delaware position. The combined transactions strengthen our capital structure, improve our margins, and lengthen our top-tier Permian inventory.
“In addition to improving our net asset value proposition, we will achieve our near-term total debt milestone and intend to initiate a capital return program for shareholders at closing," said Joe Gatto, President and CEO. "Our strategic Eagle Ford exit funds our Delaware expansion and focuses our people, capital and operations on our premium Permian position.”
The acquisition will add approximately 18,000 net acres in Ward, Winkler and Loving counties and approximately 70 high-return well locations in the 3rd Bone Spring, Wolfcamp A and Wolfcamp B with an average lateral length of nearly 10,000 feet, with additional prospectivity in emerging zones. The acreage is largely contiguous with Callon's existing core positions in the Delaware basin and will benefit from the company's subsurface and operational expertise in the area. Estimated average production from Percussion's assets for April 2023 is approximately 14,100 boed, of which approximately 70% is oil.
Callon's Eagle Ford assets are comprised of approximately 52,000 net acres, and April 2023 estimated average production is approximately 16,300 boed, of which 71% was oil.
Callon has agreed to assume Percussion's existing contingent payment liabilities of $12.5 million for calendar year 2023 and $25 million each for calendar years 2024 and 2025 if WTI NYMEX oil prices average more than $60 per barrel.
Ridgemar has agreed to pay Callon contingent payments of $20 million if oil prices average between $75 and $80/bbl WTI NYMEX in 2024 and an additional $25 million if WTI NYMEX oil prices are $80 per barrel, or higher, in 2024.
At closing, Callon will also assume Percussion's existing oil and gas derivatives with a settlement value of approximately $7 million as of May 2, 2023. On a proforma basis, Callon's oil production in the second half of 2023 will be approximately 30% hedged.
