HOUSTON, July 15, 2019 /PRNewswire/ -- Callon
Petroleum Company (NYSE: CPE) and Carrizo Oil & Gas, Inc.
(Nasdaq: CRZO) today announced that their Boards of Directors have
unanimously approved a definitive agreement under which Callon will
acquire Carrizo in an all-stock transaction valued at $3.2 billion. This highly complementary
combination will create a leading oil and gas company with scaled
development operations across a portfolio of core oil-weighted
assets in both the Permian Basin and Eagle Ford Shale.
Under the terms of the agreement, Carrizo shareholders will
receive a fixed exchange ratio of 2.05 Callon shares for each share
of Carrizo common stock they own. This represents $13.12 per Carrizo share based on Callon's
closing common stock price on July 12
and a premium of 18% to Carrizo's trailing 60-day volume weighted
average price. Following the close of the transaction, Callon
shareholders will own approximately 54% of the combined company,
and Carrizo shareholders will own approximately 46%, on a fully
diluted basis. The all-stock transaction is intended to be tax-free
to Carrizo shareholders.
"We are excited about this transformational transaction,
creating a differentiated oil and gas company by integrating core
asset bases in premier basins. Together with Carrizo, we will
accelerate our free cash flow, capital efficiency and deleveraging
goals through an optimized model of large-scale development across
the portfolio. We will also benefit from leading cash margins to
navigate commodity price volatility and allow for reliable,
continuous development of the combined asset base. With a deep
inventory of high rate-of-return well locations in well-established
areas and substantial upside opportunities for organic inventory
delineation, we will be able drive differentiated growth deploying
our life-of-field development model for many years to come," said
Joe Gatto, President and Chief
Executive Officer of Callon. "As a larger organization, Callon will
be well-positioned to benefit from an expanded infrastructure
footprint and critical mass for our production marketing and supply
chain functions and also leverage our technology and data capture
initiatives across a broader base. Importantly, this combination
brings together two organizations grounded in strong values and a
shared commitment to responsible operations, integrity, and a drive
to deliver leading results. We look forward to welcoming Carrizo's
employees and joining forces as a Houston-based company focused on the
development of a premier Texas
asset base to create enhanced value for all of our stakeholders."
S.P. "Chip" Johnson, IV, President and Chief Executive Officer
of Carrizo, commented, "We believe that Callon is the ideal partner
for Carrizo. Through our combination, we bring together a strong
foundation of Midland Basin and Eagle Ford Shale assets and overlay
a substantial Delaware acreage
position and value proposition that will be unlocked through an
integrated plan of large-scale program development. This all-stock
transaction provides Carrizo shareholders with the opportunity to
participate in the significant near- and long-term upside potential
of the merged company. We look forward to a bright future for
our employees and all of our stakeholders and expect a seamless
integration."
Strategic and Financial Benefits of the Transaction
- Increases Corporate and Delaware Basin Scale: On a pro forma
basis, Callon will have an approximate 200,000 net acre footprint
in the Permian Basin and Eagle Ford Shale, including over 90,000
net acres in the Delaware Basin,
and approximately 2,500 total gross horizontal drilling locations.
The companies produced a combined 102.3 MBoe/d in 1Q19 (71% oil)
and generated pro forma LTM 1Q19 adjusted EBITDAX of $1.2 billion. With an expected total of 9 to 10
drilling rigs and 3 to 4 completion crews working during the course
of 2020, predominantly in the Permian Basin, the combined entity
will have the critical mass to realize supply chain savings and
sustain simultaneous operations initiatives.
- Expands Portfolio of Complementary High-Quality Assets:
Together with Carrizo, Callon will be a premier Texas operator with an extensive inventory of
core Permian and Eagle Ford locations that compete for capital on a
full-cycle basis. As a portfolio, our increased level of large
project initiatives in the Permian Basin will be balanced by
sustained investment in shorter cycle and less capital-intensive
projects in the Eagle Ford Shale. Based on initial plans for
capital allocation within the combined portfolio, Callon forecasts
its free cash flow breakeven WTI crude oil price to progress to
under $50/Bbl by 2021.
- Accelerates Free Cash Flow Generation: Callon expects
this combination to be immediately accretive to free cash flow per
share in 2020 with positive free cash flow generation of over
$100 million at current strip
pricing1 while maintaining double-digit production
growth. The combination brings together a well-established and
repeatable free cash flow generating business in the Eagle Ford
Shale with Permian Basin assets that are rapidly transitioning to
positive net cash flows with increasing investment in high-return
projects. In addition, the combined company's corporate free cash
flow will be increased through an optimized development plan in
addition to corporate cost savings. This sustained free cash flow
generation will accelerate Callon's deleveraging initiatives and
improve its capacity to return capital to shareholders in the
future.
- Maintains Callon's Financial Strength and Flexibility:
Callon expects to have an enhanced credit profile due to broader
scale and scope, and a substantial base of oil-weighted proved
developed producing reserves. Importantly, significant free cash
flow generation will drive the combined company's leverage ratio to
below 2.0x in 2020 at current strip pricing. Additionally, upon
closing, the combined company is anticipated to have pro forma
liquidity of more than $1 billion
under a new underwritten credit facility combined with no near-term
debt maturities.
- Drives Substantial Identified Synergies: The combination
is expected to generate a total of $850
million in net present value from the following categories
of primary synergies:
-
- Annual run-rate operational synergies of $65 to $80 million
attributed to a structural shift in the combined program
development model, consisting of:
-
- Expanded large scale development in the Permian Basin,
deploying simultaneous drilling and completion operations,
improving production cycle times and reducing well costs;
- Optimized, integrated development schedule to capture
efficiencies from continuous utilization of dedicated completion
crews; and
- Improved uptime from concentrated development, resulting in
reduced production downtime from offsetting completion
operations.
- Estimated annual cash general and administrative savings of
$35 million to $45 million.
- Optimized capital allocation initiatives, including a mix of
shorter and longer cycle projects, select activity acceleration
within a larger cash flow base and high-grading of drilling
inventories.
In addition, Callon has identified further synergies that are
anticipated to be realized over time:
- Integration of Delaware
infrastructure and water management, expanding the opportunity for
water recycling programs and increasing scale for potential
monetization structures;
- Larger portfolio of non-core acreage for divestment and trades,
high-grading overall returns on capital;
- Increased hydrocarbon volumes provide critical mass for
marketing arrangements and ongoing initiatives to control critical
parts of the value chain, including firm transportation on
pipelines; and
- Cost of capital reductions, including opportunistic debt
refinancings.
Governance and Leadership
The transaction has been unanimously approved by the Boards of
Directors at both Callon and Carrizo. In addition, each of
the Carrizo directors has committed to vote his or her shares in
favor of the transaction.
Upon closing, the Board of Directors of the combined company
will consist of 11 members, including Callon's eight current Board
members and three to be appointed from the Board of Carrizo. The
combined company will be led by Callon's executive management team
and will remain headquartered in Houston, Texas.
Timing and Approvals
The transaction, which is expected to close during the fourth
quarter of 2019, is subject to customary closing conditions and
regulatory approvals, including the approval of shareholders of
both companies.
Second Quarter Updates
For the second quarter of 2019, Callon expects daily production
of between 40.0 and 40.5 MBoed with approximately 77% coming from
oil. Total capital expenditures, inclusive of capitalized expenses
and on an accrual basis, is expected to be between $162.5 and $167.5
million with operational capital representing approximately
$132.5 to $137.5 million of that estimate. Lease operating
expense for the second quarter is expected to be between
$6.30 and $6.50 per Boe.
For the second quarter of the year, Carrizo expects crude oil
production to be approximately 44,400 Bbls/d, exceeding the
high-end of the Company's guidance range. Total production is
expected to be approximately 65,600 Boe/d. This is below the
low-end of the Company's guidance range for the quarter of
66,500-67,500 Boe/d as its production during June was materially
impacted by weather-related downtime at a third-party gas
processing plant in the Delaware
Basin. In total, third-party midstream issues negatively impacted
the Company's production by more than 4,000 Boe/d during the second
quarter. Carrizo currently expects drilling, completion, and
infrastructure (DC&I) capital expenditures to be $130-$135 million
in the second quarter and expects to meet or beat its second
quarter guidance ranges for expense items.
Advisors
J.P. Morgan LLC is serving as exclusive financial advisor to
Callon and Kirkland & Ellis LLP is serving as legal advisor to
Callon. JPMorgan Chase Bank, N.A. and BofA Merrill Lynch provided
underwritten financing to Callon to support the transaction. RBC
Capital Markets, LLC and Lazard are serving as financial advisors
to Carrizo and Baker Botts L.L.P. is serving as legal advisor to
Carrizo.
Conference Call and Webcast
The companies will host a joint conference call and webcast
today at 8:30 a.m. ET / 7:30 a.m. CT to discuss the transaction.
The conference call can be accessed by dialing (800) 374-1355
within the United States and (270)
855-8553 for all other locations. The confirmation code is 2381448.
Participants should dial in 10 minutes prior to the scheduled start
time.
A live webcast of the conference call and associated
presentation materials will be available in the investor relations
section of each company's website at ir.callon.com and
https://ir.carrizo.com/investor-relations/default.aspx.
A replay of the conference call will be available approximately
two hours after completion of the conference call through
July 29, 2019 and can be accessed by
dialing (800) 585-8367 from the
United States or (404) 537-3406 from outside
the United States. The replay
confirmation code is 2381448. The webcast will be archived in the
investor relations section of each company's website.
About Callon
Callon is an independent energy company focused on the
acquisition and development of unconventional onshore oil and
natural gas reserves in the Permian Basin in West Texas.
This news release is posted on Callon's website at
www.callon.com, and will be archived for subsequent review under
the "News" link on the top of the homepage.
About Carrizo
Carrizo Oil & Gas, Inc. is a Houston-based energy company actively engaged
in the exploration, development, and production of oil and gas from
resource plays located in the United
States. Our current operations are principally focused on
proven, producing oil and gas plays in the Eagle Ford Shale in
South Texas and the Permian Basin
in West Texas.
No Offer or Solicitation
Communications in this news release do not constitute an offer
to sell or the solicitation of an offer to buy any securities or a
solicitation of any vote or approval with respect to the proposed
transaction or otherwise, nor shall there be any sale of securities
in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. Communications in this
news release do not constitute a notice of redemption with respect
to or an offer to purchase or sell (or the solicitation of an offer
to purchase or sell) any preferred stock of Carrizo.
Additional Information and Where to Find It
In connection with the proposed transaction, Callon and Carrizo
intend to file materials with the SEC, including a Registration
Statement on Form S-4 of Callon (the "Registration Statement") that
will include a joint proxy statement of Callon and Carrizo that
also constitutes a prospectus of Callon. After the Registration
Statement is declared effective by the SEC, Callon and Carrizo
intend to mail a definitive proxy statement/prospectus to
stockholders of Callon and shareholders of Carrizo. This news
release is not a substitute for the joint proxy
statement/prospectus or the Registration Statement or for any other
document that Callon or Carrizo may file with the Securities and
Exchange Commission (the "SEC") and send to Callon's stockholders
and/or Carrizo's shareholders in connection with the proposed
transaction. INVESTORS AND SECURITY HOLDERS OF CALLON AND CARRIZO
ARE URGED TO READ THE REGISTRATION STATEMENT AND JOINT PROXY
STATEMENT/PROSPECTUS, AS EACH MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, AND OTHER RELEVANT DOCUMENTS FILED BY CALLON AND
CARRIZO WITH THE SEC CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT CALLON, CARRIZO AND
THE PROPOSED TRANSACTION.
Investors will be able to obtain free copies of the Registration
Statement and joint proxy statement/prospectus, as each may be
amended from time to time, and other relevant documents filed by
Callon and Carrizo with the SEC (when they become available)
through the website maintained by the SEC at www.sec.gov. Copies of
documents filed with the SEC by Callon will be available free of
charge from Callon's website at www.callon.com under the
"Investors" tab or by contacting Callon's Investor Relations
Department at (281) 589-5200 or IR@callon.com. Copies of documents
filed with the SEC by Carrizo will be available free of charge from
Carrizo's website at www.carrizo.com under the "Investor Relations"
tab or by contacting Carrizo's Investor Relations Department at
(713) 328-1055 or IR@carrizo.com.
Participants in the Proxy Solicitation
Callon, Carrizo and their respective directors and certain of
their executive officers and other members of management and
employees may be deemed, under SEC rules, to be participants in the
solicitation of proxies from Callon's stockholders and Carrizo's
shareholders in connection with the proposed transaction.
Information regarding the executive officers and directors of
Callon is included in its definitive proxy statement for its 2019
annual meeting filed with the SEC on March
27, 2019. Information regarding the executive officers and
directors of Carrizo is included in its definitive proxy statement
for its 2019 annual meeting filed with the SEC on April 2, 2019. Additional information regarding
the persons who may be deemed participants and their direct and
indirect interests, by security holdings or otherwise, will be set
forth in the Registration Statement and joint proxy
statement/prospectus and other materials when they are filed with
the SEC in connection with the proposed transaction. Free copies of
these documents may be obtained as described in the paragraphs
above.
Cautionary Statement Regarding Forward-Looking
Information
Certain statements in this news release concerning the proposed
transaction, including any statements regarding the expected
timetable for completing the proposed transaction, the results,
effects, benefits and synergies of the proposed transaction, future
opportunities for the combined company, future financial
performance and condition, guidance and any other statements
regarding Callon's or Carrizo's future expectations, beliefs,
plans, objectives, financial conditions, assumptions or future
events or performance that are not historical facts are
"forward-looking" statements based on assumptions currently
believed to be valid. Forward-looking statements are all statements
other than statements of historical facts. The words "anticipate,"
"believe," "ensure," "expect," "if," "intend," "estimate,"
"probable," "project," "forecasts," "predict," "outlook," "aim,"
"will," "could," "should," "would," "potential," "may," "might,"
"anticipate," "likely" "plan," "positioned," "strategy," and
similar expressions or other words of similar meaning, and the
negatives thereof, are intended to identify forward-looking
statements. The forward-looking statements are intended to be
subject to the safe harbor provided by Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act
of 1934 and the Private Securities Litigation Reform Act of
1995.
These forward-looking statements involve significant risks and
uncertainties that could cause actual results to differ materially
from those anticipated, including, but not limited to, failure to
obtain the required votes of Callon's stockholders or Carrizo's
shareholders to approve the transaction and related matters;
whether any redemption of Carrizo's preferred stock will be
necessary or will occur prior to the closing of the transaction;
the risk that a condition to closing of the proposed transaction
may not be satisfied, that either party may terminate the merger
agreement or that the closing of the proposed transaction might be
delayed or not occur at all; potential adverse reactions or changes
to business or employee relationships, including those resulting
from the announcement or completion of the transaction; the
diversion of management time on transaction-related issues; the
ultimate timing, outcome and results of integrating the operations
of Callon and Carrizo; the effects of the business combination of
Callon and Carrizo, including the combined company's future
financial condition, results of operations, strategy and plans; the
ability of the combined company to realize anticipated synergies in
the timeframe expected or at all; changes in capital markets and
the ability of the combined company to finance operations in the
manner expected; regulatory approval of the transaction; the
effects of commodity prices; and the risks of oil and gas
activities. Expectations regarding business outlook, including
changes in revenue, pricing, capital expenditures, cash flow
generation, strategies for our operations, oil and natural gas
market conditions, legal, economic and regulatory conditions, and
environmental matters are only forecasts regarding these
matters.
Additional factors that could cause results to differ materially
from those described above can be found in Callon's Annual Report
on Form 10-K for the year ended December 31,
2018 and in its subsequent Quarterly Report on Form 10-Q for
the quarter ended March 31, 2019,
each of which is on file with the SEC and available from Callon's
website at www.callon.com under the "Investors" tab, and in other
documents Callon files with the SEC, and in Carrizo's Annual Report
on Form 10-K for the year ended December 31,
2018 and in its subsequent Quarterly Report on Form 10-Q for
the quarter ended March 31, 2019,
each of which is on file with the SEC and available from Carrizo's
website at www.carrizo.com under the "Investor Relations" tab, and
in other documents Carrizo files with the SEC.
All forward-looking statements speak only as of the date they
are made and are based on information available at that time.
Neither Callon nor Carrizo assumes any obligation to update
forward-looking statements to reflect circumstances or events that
occur after the date the forward-looking statements were made or to
reflect the occurrence of unanticipated events except as required
by federal securities laws. As forward-looking statements involve
significant risks and uncertainties, caution should be exercised
against placing undue reliance on such statements.
Supplemental Non-GAAP Financial Measures
This presentation includes non-GAAP measures, such as adjusted
EBITDA, Free Cash Flow and other measures identified as non-GAAP.
Management also uses adjusted EBITDAX, which reflects adjusted
EBITDA plus exploration and abandonment expense. Reconciliations
are available below.
Adjusted EBITDA is a supplemental non-GAAP financial measure
that is used by management and external users of our financial
statements, such as industry analysts, investors, lenders and
rating agencies. We define adjusted EBITDA as net income (loss)
before interest expense, income taxes, depreciation, depletion and
amortization, asset retirement obligation accretion expense,
exploration expense, (gains) losses on derivative instruments
excluding net settled derivative instruments, impairment of oil and
natural gas properties, non-cash equity based compensation, other
income, gains and losses from the sale of assets and other non-cash
operating items. Management believes adjusted EBITDA is useful
because it allows it to more effectively evaluate our operating
performance and compare the results of our operations from period
to period and against our peers without regard to our financing
methods or capital structure. We exclude the items listed above
from net income in arriving at adjusted EBITDA because these
amounts can vary substantially from company to company within our
industry depending upon accounting methods and book values of
assets, capital structures and the method by which the assets were
acquired. Adjusted EBITDA should not be considered as an
alternative to, or more meaningful than, net income as determined
in accordance with GAAP or as an indicator of our operating
performance or liquidity. Certain items excluded from adjusted
EBITDA are significant components in understanding and assessing a
company's financial performance, such as a company's cost of
capital and tax structure, as well as the historic costs of
depreciable assets, none of which are components of adjusted
EBITDA. Our presentation of adjusted EBITDA should not be construed
as an inference that our results will be unaffected by unusual or
non-recurring items.
Free Cash Flow is also a supplemental non-GAAP financial measure
that is used by management and external users of our financial
statements to assess our liquidity. We define Free Cash Flow
as net cash provided by operating activities less capital
expenditures attributable to continuing operations. Management
believes that Free Cash Flow provides useful information in
assessing the impact of our ability to generate cash flow in excess
of capital requirements and to return cash to shareholders.
Free cash Flow should not be considered as an alternative to net
cash provided by operating activities or any other measure of
liquidity in accordance with GAAP. Free Cash Flow is also a
supplemental non-GAAP financial measure that is used by management
and external users of our financial statements to assess our
liquidity. We define Free Cash Flow as net cash provided by
operating activities less capital expenditures attributable to
continuing operations. Management believes that Free Cash Flow
provides useful information in assessing the impact of our ability
to generate cash flow in excess of capital requirements and to
return cash to shareholders. Free cash Flow should not be
considered as an alternative to net cash provided by operating
activities or any other measure of liquidity in accordance with
GAAP. We have not provided a reconciliation of projected Free Cash
Flow to projected net cash provided by operating activities, the
most comparable financial measure calculated in accordance with
GAAP. We are unable to project net cash provided by operating
activities for any future period because this metric includes the
impact of changes in operating assets and liabilities related to
the timing of cash receipts and disbursements that may not relate
to the period in which the operating activities occurred. We are
unable to project these timing differences with any reasonable
degree of accuracy without unreasonable efforts such as predicting
the timing of its and customers' payments, with accuracy to a
specific day, months in advance.
Non-GAAP
Reconciliation
|
|
|
Adjusted EBITDA
Reconciliation
|
2Q18
|
|
3Q18
|
|
4Q18
|
|
1Q19
|
|
LTM
EBITDA
|
Net income (loss)
available to common shareholders
|
$
78,745
|
|
$112,226
|
|
$409,490
|
|
$124,835
|
|
$
725,296
|
Dividends on preferred stock
|
6,298
|
|
6,280
|
|
6,191
|
|
6,184
|
|
24,953
|
Accretion on preferred stock
|
740
|
|
771
|
|
793
|
|
801
|
|
3,105
|
Loss on
redemption of preferred stock
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Income
tax expense (benefit)
|
964
|
|
2,367
|
|
9,138
|
|
(184,544)
|
|
(172,075)
|
Depreciation, depletion and amortization
|
112,023
|
|
129,287
|
|
143,074
|
|
136,235
|
|
520,619
|
Interest
expense, net
|
16,193
|
|
16,117
|
|
16,626
|
|
17,189
|
|
66,125
|
(Gain)
loss on derivatives, net
|
84,266
|
|
89,727
|
|
(263,325)
|
|
150,544
|
|
61,212
|
Cash
paid for commodity derivative settlements, net
|
(32,063)
|
|
(35,501)
|
|
(33,191)
|
|
(2,928)
|
|
(103,683)
|
Non-cash
general and administrative, net
|
8,370
|
|
5,770
|
|
508
|
|
10,541
|
|
25,189
|
Loss on
extinguishment of debt
|
-
|
|
-
|
|
910
|
|
-
|
|
910
|
Non-recurring and other expense, net
|
4,264
|
|
(1,091)
|
|
(1,163)
|
|
4,358
|
|
6,368
|
Acquisition expense
|
1,767
|
|
1,435
|
|
1,333
|
|
157
|
|
4,692
|
Adjusted
EBITDA
|
$281,567
|
|
$327,388
|
|
$290,384
|
|
$263,372
|
|
$
1,162,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions - pro
forma adjustments
|
|
|
|
|
|
|
|
|
50,380
|
Divestitures - pro
forma adjustments
|
|
|
|
|
|
|
|
|
(50,214)
|
Adjusted EBITDA,
inclusive of pro forma adjustments
|
|
|
|
|
|
|
|
|
$
1,162,877
|
Contacts for Callon
Mark Brewer
Director of Investor Relations
Callon Petroleum Company
(281) 589-5200
or
Kate Schilling
Senior IR Analyst
Callon Petroleum Company
(281) 589-5200
Contacts for Carrizo
Jeffrey P. Hayden, CFA
VP - Financial Planning and Analysis
(713) 328-1044
or
Kim Pinyopusarerk
Manager - Investor Relations
(713) 358-6430
1 Current strip prices as of July 12, 2019
View original
content:http://www.prnewswire.com/news-releases/callon-to-acquire-carrizo-in-all-stock-transaction-300884540.html
SOURCE Callon Petroleum Company