HOUSTON, March 17, 2020 /PRNewswire/ -- Callon Petroleum
Company (NYSE: CPE) today provided an update on its 2020
development program, prioritizing free cash flow and financial
flexibility in 2020 and beyond. The revised plan accounts for
recent changes in the macroeconomic outlook, including the
following highlights:
- Reducing operational capital plan for full-year 2020 to
$700 to $725
million from $975 million,
significantly reducing average quarterly expenditures for the
remainder of 2020 by approximately 50% from a previously budgeted
first quarter level of over $275
million and resulting in relatively flat year-over-year
production growth versus the predecessor companies' combined 2019
production volumes
- Reducing current operated rig count of nine to five before the
end of the second quarter of 2020
- Reducing frac crew count from five to two upon the completion
of currently in-process projects
- 2H20 and preliminary 2021 plans employ three to four drilling
rigs (two to three in the Permian Basin and one in the Eagle Ford)
and one to two completion crews focused on a high-graded set of
shorter cycle projects
- Shifting capital allocation to high return, shorter cash cycle
projects in the Midland Basin and Eagle Ford Shale while preserving
the long-term, co-development strategy in the Delaware Basin
- Forecasted free cash flow1 generation of
$75 to $100
million for the balance of the year (second quarter through
year-end) assuming no service cost deflation and flat NYMEX prices
of $35/Bbl and $2.00/MMBtu for the balance of the year
- Assuming $40/Bbl and $2.25/MMBtu average NYMEX prices in 2021, no
service cost deflation and a capital allocation strategy similar to
the revised 2020 program, expectations for over $100 million of free cash flow1 in 2021 under an
operational capital program of $400
to $500 million with the upper end of
the range supporting a maintenance capital program and the lower
end of the range resulting in modestly lower year-over-year
production volumes
Joe Gatto, President and Chief
Executive Officer commented, "Our ability to pivot quickly to
shorter cycle, less capital-intensive projects reflects Callon's
inherent optionality across our expanded pro forma portfolio. This
will allow us to continue with capital efficient, scaled
development, while also focusing on a program that shortens cash
conversion cycles in a lower commodity price environment. Our
differentiated development model is underpinned by 'flexibility
with continuity', optimizing near-term returns without sacrificing
long-term value or the balance sheet. The diversification of our
asset base means that we can and will stay true to our strategy of
large scale, co-development of our Delaware position. Although we will be
reducing the amount of activity in the near-term, our opportunity
set will be preserved for future development and not be compromised
by near-term high grading at the expense of optimal multi-zone
development over time. Moreover, Callon's enhanced, pro forma scale
affords us the ability to preserve the cost and cycle time
efficiencies that are driven by the key tenets of scaled
development—namely, the deployment of simultaneous operations and
the continuous utilization of drilling rigs and completion
crews—despite the substantial reduction in our planned capital
spend. Lastly and most importantly, our rapid shift in capital
allocation gives us the free cash flow profile to reduce absolute
leverage and protect our financial position. We will continue to
adapt to any changes in the commodity price environment with the
same vigor, discipline and priorities in the coming months. On a
final note, we have instituted a company-wide work policy grounded
in a remote workplace and social distancing to protect our
employees, reduce potential COVID-19 transmission risks and
maintain business continuity for our operations."
Callon plans to provide additional detail on updated guidance
for 2020 as part of its first quarter conference call and, as such,
the 2020 guidance issued on February
26th should no longer be relied upon.
Operational Update
Callon successfully implemented several previously announced
operational enhancements as part of its recent large-scale projects
in the Delaware Basin and the
Eagle Ford Shale. Operational changes for 2020 include: upspacing
based on 2019 learnings, a more conservative flowback and reservoir
management strategy, and fluid efficiency improvements to further
reduce costs and improve well recoveries.
In the Delaware Basin, initial
production from the five-well Wally project is currently performing
above expectations on a restricted choke. The outperformance of
this multi-zone project, which was drilled on 800-foot horizontal
spacing, emphasizes the importance of ongoing design modification
and inventory preservation through co-development. In the Eagle
Ford Shale, initial production from the 16-well Brown Trust project
began as scheduled in February and the wells are currently
averaging approximately 700 Bbls/d of oil per well (gross) on
restricted chokes. Importantly, this project witnessed more than a
50% improvement in average recovery time for shut-in production and
a 33% reduction in the aerial range of interference with offset
parent wells relative to similarly sized, precedent projects in the
area. These improvements are the result of continued
optimization of frac design, sequencing and flowback management
that will carry into similar multi-well projects scheduled this
year.
Liquidity and Hedging Update
At the end of February 2020,
Callon's liquidity position was approximately $700 million, supported by a credit facility with
a borrowing base of $2.5 billion and
an elected commitment of $2.0
billion, and no debt maturities prior to 2023. The Company's
net debt to pro forma last quarter annualized adjusted
EBITDA2 was 2.6x at year-end 2019.
In light of recent market volatility, Callon restructured
existing hedge contracts and continues to actively manage its hedge
position to provide cash flow certainty at favorable commodity
prices. Over 11 million barrels of three-way collars for the
balance of 2020 were recently restructured into swaps,
significantly improving downside protection. For the whole of 2020,
the Company now holds swap contracts at an average of $50.31/Bbl for nearly 11 million barrels of oil.
Price certainty for natural gas was also increased through the
addition of 3.6 million MMBtu in swaps. Callon now has 10
million MMBtu of gas hedged through swap instruments alone in 2020.
For additional details on Callon's hedge position as of
March 17, 2020, please see the tables
below.
|
1Q20
|
2Q20
|
3Q20
|
4Q20
|
FY
2020
|
WTI NYMEX (Bbls,
$/Bbl)
|
|
|
|
|
|
Swaps
|
|
|
|
|
|
Total
Volumes
|
1,522,700
|
2,984,800
|
3,022,200
|
3,383,760
|
10,913,460
|
Total Daily
Volumes
|
16,733
|
32,800
|
32,850
|
36,780
|
29,818
|
Avg. Swap
|
$52.25
|
$50.56
|
$50.52
|
$49.03
|
$50.31
|
Three-way
Collars
|
|
|
|
|
|
Total
Volumes
|
2,222,000
|
182,000
|
184,000
|
-
|
2,588,000
|
Total Daily
Volumes
|
24,418
|
2,000
|
2,000
|
-
|
7,071
|
Avg. Short Call
Price
|
$65.26
|
$64.63
|
$64.63
|
-
|
$65.17
|
Avg. Long Put
Price
|
$55.44
|
$55.00
|
$55.00
|
-
|
$55.38
|
Avg. Short Put
Price
|
$44.99
|
$39.50
|
$39.50
|
-
|
$44.22
|
|
|
|
|
|
|
Total WTI Hedged
(Bbl)
|
3,744,700
|
3,166,800
|
3,206,200
|
3,383,760
|
13,501,460
|
Average WTI Ceiling
Price ($/Bbl)
|
$59.97
|
$51.36
|
$51.33
|
$49.03
|
$53.16
|
Average WTI Floor
Price ($/Bbl)
|
$54.14
|
$50.81
|
$50.77
|
$49.03
|
$51.28
|
|
|
|
|
|
|
ICE BRENT (Bbls,
$/Bbl)
|
|
|
|
|
|
Three-way
Collars
|
|
|
|
|
|
Total
Volumes
|
150,000
|
227,500
|
230,000
|
230,000
|
837,500
|
Total Daily
Volumes
|
1,648
|
2,500
|
2,500
|
2,500
|
2,288
|
Avg. Short Call
Price
|
$70.00
|
$70.00
|
$70.00
|
$70.00
|
$70.00
|
Avg. Long Put
Price
|
$58.24
|
$58.24
|
$58.24
|
$58.24
|
$58.24
|
Avg. Short Put
Price
|
$50.00
|
$50.00
|
$50.00
|
$50.00
|
$50.00
|
|
|
|
|
|
|
MAGELLAN EAST
HOUSTON FIXED PRICE (Bbls/$/Bbl)
|
|
|
|
|
Swaps
|
|
|
|
|
|
Total
Volumes
|
-
|
136,500
|
184,000
|
184,000
|
504,500
|
Total Daily
Volumes
|
-
|
1,500
|
2,000
|
2,000
|
1,378
|
Avg. Swap
Price
|
-
|
$59.61
|
$58.23
|
$57.19
|
$58.22
|
|
|
|
|
|
|
MAGELLAN EAST
HOUSTON DIFFERENTIAL VS WTI-CUSHING (Bbls/$/Bbl)
|
|
|
Swaps
|
|
|
|
|
|
Total
Volumes
|
347,000
|
1,201,201
|
1,360,802
|
975,202
|
3,884,205
|
Total Daily
Volumes
|
3,813
|
13,200
|
14,791
|
10,600
|
10,613
|
Avg. Swap
Price
|
$2.55
|
$2.62
|
$2.59
|
$2.56
|
$2.59
|
|
|
|
|
|
|
MIDLAND-CUSHING
DIFFERENTIAL (Bbls/$/Bbl)
|
|
|
|
|
Swaps
|
|
|
|
|
|
Total
Volumes
|
1,901,900
|
1,965,600
|
2,217,200
|
2,392,000
|
8,476,700
|
Total Daily
Volumes
|
20,900
|
21,600
|
24,100
|
26,000
|
23,160
|
Avg. Swap
Price
|
($2.27)
|
($1.84)
|
($1.13)
|
($0.84)
|
($1.47)
|
|
|
|
|
|
|
NYMEX HENRY HUB
(MMBtu, $/MMBtu)
|
|
|
|
|
|
Swaps
|
|
|
|
|
|
Total
Volumes
|
910,000
|
3,640,000
|
3,680,000
|
1,850,000
|
10,080,000
|
Total Daily
Volumes
|
10,000
|
40,000
|
40,000
|
20,109
|
27,541
|
Avg. Swap
Price
|
$2.48
|
$2.18
|
$2.18
|
$2.28
|
$2.22
|
Three-way
Collars
|
|
|
|
|
|
Total
Volumes
|
910,000
|
910,000
|
920,000
|
1,835,000
|
4,575,000
|
Total Daily
Volumes
|
10,000
|
10,000
|
10,000
|
19,946
|
12,500
|
Avg. Short Call
Price
|
$2.75
|
$2.75
|
$2.75
|
$2.73
|
$2.74
|
Avg. Long Put
Price
|
$2.50
|
$2.50
|
$2.50
|
$2.46
|
$2.48
|
Avg. Short Put
Price
|
$2.00
|
$2.00
|
$2.00
|
$2.00
|
$2.00
|
|
|
|
|
|
|
Total NYMEX Volume
Hedged (MMBtu)
|
1,820,000
|
4,550,000
|
4,600,000
|
3,685,000
|
14,655,000
|
Average NYMEX Ceiling
Price ($/MMBtu)
|
$2.61
|
$2.29
|
$2.29
|
$2.50
|
$2.39
|
Average NYMEX Floor
Price ($/MMBtu)
|
$2.49
|
$2.24
|
$2.24
|
$2.37
|
$2.31
|
|
|
|
|
|
|
WAHA DIFFERENTIAL
(MMBtu, $/MMBtu)
|
|
|
|
|
Swaps
|
|
|
|
|
|
Total
Volumes
|
5,824,000
|
6,097,000
|
6,624,000
|
6,261,000
|
24,806,000
|
Total Daily
Volumes
|
64,000
|
67,000
|
72,000
|
68,054
|
67,776
|
Avg. Swap
Price
|
($0.99)
|
($1.42)
|
($1.03)
|
($0.81)
|
($1.06)
|
About Callon Petroleum
Callon Petroleum Company is an independent oil and natural gas
company focused on the acquisition, exploration and development of
high-quality assets in the leading oil plays of South and
West Texas.
Cautionary Statement Regarding Forward Looking
Statements
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Forward-looking
statements include all statements regarding future levels of
drilling activity and associated production; the Company's 2020
production guidance, capital expenditure forecast and associated
cash flow expectations; and the implementation of the Company's
business plans and strategy, as well as statements including the
words "believe," "expect," "plans", "may", "will", "should",
"could" and words of similar meaning. These statements reflect the
Company's current views with respect to future events and financial
performance based on management's experience and perception of
historical trends, current conditions, anticipated future
developments and other factors believed to be appropriate. No
assurances can be given, however, that these events will occur or
that these projections will be achieved, and actual results could
differ materially from those projected as a result of certain
factors. Any forward-looking statement speaks only as of the date
on which such statement is made and the Company undertakes no
obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law. Some of the factors which
could affect our future results and could cause results to differ
materially from those expressed in our forward-looking statements
include the volatility of oil and natural gas prices; our ability
to drill and complete wells, operational, regulatory and
environment risks; the cost and availability of equipment and
labor; our ability to finance our activities; the ultimate timing,
outcome and results of integrating the operations of Carrizo and
Callon; the effects of the business combination of Carrizo and
Callon, including the Company's future financial condition, results
of operations, strategy and plans; the ability of the combined
company to realize anticipated synergies and other benefits in the
timeframe expected or at all; and other risks more fully discussed
in our filings with the SEC, including our most recent Annual
Reports on Form 10-K and subsequent Quarterly Reports on Form 10-Q,
available on our website or the SEC's website
at www.sec.gov.
Non-GAAP Financial Measures and Reconciliations
Callon calculates adjusted earnings before interest, income
taxes, depreciation, depletion and amortization ("Adjusted EBITDA")
as net income (loss) before interest expense, income taxes,
depreciation, depletion and amortization, asset retirement
obligation accretion expense, (gains) losses on derivative
instruments excluding net settled derivative instruments,
impairment of oil and natural gas properties, non-cash equity based
compensation, and other operating expenses. Adjusted EBITDA is not
a measure of financial performance under GAAP. Accordingly, it
should not be considered as a substitute for net income (loss),
operating income (loss), cash flow provided by operating activities
or other income or cash flow data prepared in accordance with GAAP.
However, the Company believes that Adjusted EBITDA provides
additional information with respect to our performance or ability
to meet our future debt service, capital expenditures and working
capital requirements. Because Adjusted EBITDA excludes some, but
not all, items that affect net income (loss) and may vary among
companies, the Adjusted EBITDA presented may not be comparable to
similarly titled measures of other companies. For a reconciliation
of fourth quarter 2019 adjusted EBITDA, please see our press
release dated February 26, 2020.
Contact information
Mark Brewer
Director of Investor Relations
Callon Petroleum Company
ir@callon.com
1-281-589-5200
1 Free cash flow calculated as cash flow from
operations less capex, capitalized G&A, capitalized interest,
contingency payments and transaction costs.
2 Net debt to pro forma last quarter annualized
adjusted EBITDA is calculated as the sum of total long-term debt
less unrestricted cash and cash equivalents, divided by pro forma
last quarter annualized adjusted EBITDA. Pro forma adjusted EBITDA
includes Carrizo's adjusted EBITDA for the pre-close portion of
fourth quarter 2019. Adjusted EBITDA is a non-GAAP financial
measure. See "Non-GAAP Financial Measures" included within this
release for related disclosures.
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SOURCE Callon Petroleum Company