Callon Petroleum (CPE)

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cmm3rd
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Joined: Tue Jan 08, 2013 4:44 pm

Callon Petroleum (CPE)

Post by cmm3rd »

Dan,

Any thoughts on Callon's recent weakness and relative underperformance?

Thanks.
dan_s
Posts: 34469
Joined: Fri Apr 23, 2010 8:22 am

Re: Callon Petroleum (CPE)

Post by dan_s »

We had a luncheon today in Houston and I just got back to my desk. I will take a look at CPE this afternoon.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34469
Joined: Fri Apr 23, 2010 8:22 am

Re: Callon Petroleum (CPE)

Post by dan_s »

HOUSTON, Feb. 12, 2019 /PRNewswire/ -- Callon Petroleum Company (NYSE: CPE) ("Callon" or the "Company") today announced its 2019 capital expenditure budget, reflecting a combination of financial discipline and capital efficiency gains.
•2019 forecasted annual production of 39.5 - 41.5 MBoe/d (77% - 78% oil), representing growth of over 20% compared to current "street" consensus of 32.7 MBoe/d for 2018 < Production guidance for 2019 is good, but below what I had in my forecast model.
•Planned sequential decrease in 2019 operational capital expenditures to a range of $500 to $525 million
•Running an average of five drilling rigs to support larger and more efficient, multi-well pad development
•Plan to place 47 - 49 net wells on production with an increase of approximately 15% in average net lateral length over the 2018 program
•Year-end 2018 proved reserves of 238.5 MMBoe (54% proved developed and 76% oil), an annual increase in total proved reserves of 74% and proved developed reserves of 85%
•Year-end 2018 PV-10 value1 of $3.1 billion < Subtract $1.4 Billion of net debt = NAV of $1.7 Billion or ~$7.50/share. This gives zero value to their P2 and P3 potential.

Joe Gatto, President and Chief Executive Officer of Callon, stated, "Our 2019 capital program highlights our commitment to generate free cash flow in the near-term as we transition to scaled development of our high quality asset base. Strong cash operating margins underpin our plan and are complemented by capital efficiency improvements resulting from multi-well pad development in the Delaware Basin, increasing lateral lengths across our portfolio and a significant reduction in facilities spending. Even under our flat $50/Bbl WTI oil price assumption, we expect to be free cash flow positive in the fourth quarter of 2019 with a full year outspend that is almost half of our 2018 projection. In addition, although our production growth rate will be lower than previous years, the combination of a well-established Midland Basin operation and the emerging impact of large pad development in the Delaware Basin positions us for a sustained trajectory over the longer term with capital expenditures within or below internal cash flows." He continued, "Our tremendous progress maturing the business in recent years now allows us to benefit from repeatable well investments that will drive improved corporate-level returns due to scale efficiencies, reduced facilities needs and shallower production decline rates on a consolidated basis. Any improvement in commodity prices would further enhance that return on capital profile, as we have no plans to increase capital investment in 2019 with higher oil prices."

For those of you that own their preferred stock, this is all very good news. I am updating the valuation of the common stock now.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34469
Joined: Fri Apr 23, 2010 8:22 am

Re: Callon Petroleum (CPE)

Post by dan_s »

Since the press release, three analysts have submitted fresh reports to Reuters.
> On 2/11/2019 Jeanine Wai at Barclays rates CPE a HOLD with a valuation of $9.00. < Barclays' valuations are based on a low commodity price deck.
> On 2/12/2019 Tim Rezvan at Oppenheimer rates CPE a BUY with a valuation of $13.00.
> On 2/12/2019 Gabriele Sorbara at Williams Capital rates CPE a BUY with a valuation of $12.00.

I have updated my forecast/valuation model for CPE and my valuation comes down $2.00 to $14.00/share.
> Q4 2018 results will include a BIG mark-to-market gain on their oil hedges, so "Reported EPS" should crush the First Call estimate. "Adjusted EPS" s/b close to my forecast of $0.22/share.
> Full year 2018 results s/b approximately $0.86 EPS and $1.85 operating cash flow per share.
> CPE has some nice oil hedges in place that should get them decent realized oil prices in the first half of 2019.
> CPE reports natural gas and NGLs on a combined basis, so keep that in mind when you look at the gas price used in my forecast. Their realized gas price was $4.51/mcfe in Q3 2018.
> Full year 2019 results (based on a realized oil price of $51.75/bbl) should be approximately $0.95 EPS and $2.14 operating cash flow per share.
> Cash flow from operation should fund ~93% of their capital program in 2019.

The only reason that I can see for the recent stock price performance is that CPE is still outspending their operating cash flow. The Wall Street Gang is very negative on upstream companies doing this, but IMO CPE is generating significant upside for their equity owners by developing more and more proven reserves each year and increasing production by 41% YOY in 2018 and ~27% in 2019. This is an "Aggressive Growth" oil company. If oil prices do go higher, this stock will draw a lot of attention. For long-term investors, today's share price is a very attractive entry point.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34469
Joined: Fri Apr 23, 2010 8:22 am

Re: Callon Petroleum (CPE)

Post by dan_s »

This morning (Feb 13) I received a new report on CPE from Irene Haas at Imperial Capital. She rates CPE as "Outpreform" with a price target of $15.00.

If you'd like to read her full report, send me an email: dmsteffens@comcast.net
Dan Steffens
Energy Prospectus Group
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