Transactions solidify Company's Permian focus and accelerate achievement of debt milestone
Company to launch $300 million share buyback at closing
Callon Petroleum Company has 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 ('Percussion') in a cash and stock transaction valued at approx. $475 million and potential contingent payments of up to $62.5 million. Under the terms of the agreement, Percussion will receive $265 million of cash and a maximum of 6.46 million shares of Callon common stock. The transaction is structured as the acquisition by Callon Petroleum Operating Company of 100% of the limited liability company interests of Percussion.
Under a separate agreement, Callon agreed to sell all its assets in the Eagle Ford Shale to Ridgemar Energy Operating for $655 million in cash and potential contingent payments of up to $45 million. The transaction is structured as the acquisition by Ridgemar of 100% of the limited liability company interests of Callon's wholly owned subsidiary Callon (Eagle Ford) LLC.
The transactions are subject to customary terms and conditions and are expected to simultaneously close in July 2023, both with an effective date of January 1, 2023.
- 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.
- Immediately accretive to key financial metrics – Acquisition attractively priced at 2.5x1 next 12 months EV/ EBITDA, excluding the impact of contingency payments. The deal will be immediately accretive to key financial metrics, including absolute and per share adjusted free cash flow and operating margins. In addition, the transaction is also expected to improve the conversion rate of EBITDAX to adjusted free cash flow through capital efficiencies.
- 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.
- Initiates shareholder return program – Callon's Board has authorized, subject to the closing of the transactions, a $300 million share buyback program over a two-year period.
'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. We greatly appreciate our Eagle Ford employees who worked safely and diligently to create value and ultimately make today's transactions possible.'
The acquisition will add approx. 18,000 net acres in Ward, Winkler and Loving counties and approx. 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 approx. 14,100 barrels of oil equivalent per day (boe/d), of which approx. 70% is oil.
Callon's Eagle Ford assets are comprised of approx. 52,000 net acres and April 2023 estimated average production is approx. 16,300 boe/d, of which 71% was oil.
Source: Callon Petroleum