Callon Petroleum (CPE) Update - August 15
Posted: Thu Aug 15, 2019 8:21 am
John White at Roth Capital sent out a fresh report on CPE this morning. Below are his comments. My comments are in blue.
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Our valuation is based on a net asset value (NAV) analysis which produced $8.86 per share which we rounded higher to $9.00, which is our target price. < My valuation is $11.00/share.
CPE: Strong 2Q: Capex Discipline, Benefits of CRZO Merger Highlighted: Positive
CPE highlighted its capital spending discipline, as capex was below forecast, primarily due to solid operational efficiency gains from larger project concepts and sustained utilization of a dedicated completion crew. Capex in 2Q 2019 was $161 million versus the consensus estimate $171 million. CPE has reduced its number of active drilling rigs from six to four and is running a single completion crew after building a substantial inventory of wells waiting on completion.
CPE’s Delaware Basin water recycling facility was recently expanded to 60,000 BW per day. On the conference call CPE advised this water recycling facility may be a candidate for a meaningful monetization opportunity, with proceeds likely used for debt reduction and balance sheet improvement.
On the earnings conference call CPE emphasized its expectation for numerous benefits and synergies to result from the proposed merger with Carrizo Oil & Gas (CRZO-NC). Among these benefits are operating CRZO’s more mature Eagle Ford asset base in a maintenance mode and using the cash flow to fund the combined Permian operations.
To better reflect the current commodity price environment, we have lowered our 3Q WTI crude oil price estimate from $57.00/bbl to $56.00/bbl and our 4Q 2019 WTI crude oil estimate moves from $57.00/bbl to $54.00/bbl. Our 2020 WTI crude oil price forecast moves lower from $54.75/bbl to $52.25/bbl. Our assumptions for WTI crude oil price in 2021 and beyond moves from $53.00/bbl to $52.00/bbl. < I am assuming a WTI price of $60/bbl for Q4 and 2020, which explains my higher valuation.
Our 3Q 2019 Henry Hub natural gas price forecast moves from $2.25/MMBtu to $2.20/MMBtu and our 4Q 2019 Henry Hub natural gas price forecast moves from $2.40/MMBtu to $2.25/MMBtu. Our 2020 Henry Hub natural gas price moves lower from $2.49/MMBtu to $2.40/MMBtu. Our assumptions for the Henry Hub natural gas price in 2021 and beyond moves from $2.60/MMBtu to $2.50/MMBtu.
Due to our lower oil and gas price deck, our CPE price target moves lower, from $12.00 to $9.00. < See note below.
Due to slightly lower LOE and lower G&A our 3Q 2019 estimates improve from EPS/CFPS/EBITDA of $0.19/$0.47/$106.4 million to $0.20/$0.49/$110.9 million. < Compares to my Q3 forecast of $0.19 EPS and $0.51 operating CFPS.
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John's forecast/valuation model for CPE is still based on the company pre-merger with Carrizo. Post-merger Callon will have production of approximately 105,000 Boepd, revenues over $2 Billion in 2020 and operating cash flow of more than $3.00/share even using John's lower WTI price for 2020.
----------------------
Our valuation is based on a net asset value (NAV) analysis which produced $8.86 per share which we rounded higher to $9.00, which is our target price. < My valuation is $11.00/share.
CPE: Strong 2Q: Capex Discipline, Benefits of CRZO Merger Highlighted: Positive
CPE highlighted its capital spending discipline, as capex was below forecast, primarily due to solid operational efficiency gains from larger project concepts and sustained utilization of a dedicated completion crew. Capex in 2Q 2019 was $161 million versus the consensus estimate $171 million. CPE has reduced its number of active drilling rigs from six to four and is running a single completion crew after building a substantial inventory of wells waiting on completion.
CPE’s Delaware Basin water recycling facility was recently expanded to 60,000 BW per day. On the conference call CPE advised this water recycling facility may be a candidate for a meaningful monetization opportunity, with proceeds likely used for debt reduction and balance sheet improvement.
On the earnings conference call CPE emphasized its expectation for numerous benefits and synergies to result from the proposed merger with Carrizo Oil & Gas (CRZO-NC). Among these benefits are operating CRZO’s more mature Eagle Ford asset base in a maintenance mode and using the cash flow to fund the combined Permian operations.
To better reflect the current commodity price environment, we have lowered our 3Q WTI crude oil price estimate from $57.00/bbl to $56.00/bbl and our 4Q 2019 WTI crude oil estimate moves from $57.00/bbl to $54.00/bbl. Our 2020 WTI crude oil price forecast moves lower from $54.75/bbl to $52.25/bbl. Our assumptions for WTI crude oil price in 2021 and beyond moves from $53.00/bbl to $52.00/bbl. < I am assuming a WTI price of $60/bbl for Q4 and 2020, which explains my higher valuation.
Our 3Q 2019 Henry Hub natural gas price forecast moves from $2.25/MMBtu to $2.20/MMBtu and our 4Q 2019 Henry Hub natural gas price forecast moves from $2.40/MMBtu to $2.25/MMBtu. Our 2020 Henry Hub natural gas price moves lower from $2.49/MMBtu to $2.40/MMBtu. Our assumptions for the Henry Hub natural gas price in 2021 and beyond moves from $2.60/MMBtu to $2.50/MMBtu.
Due to our lower oil and gas price deck, our CPE price target moves lower, from $12.00 to $9.00. < See note below.
Due to slightly lower LOE and lower G&A our 3Q 2019 estimates improve from EPS/CFPS/EBITDA of $0.19/$0.47/$106.4 million to $0.20/$0.49/$110.9 million. < Compares to my Q3 forecast of $0.19 EPS and $0.51 operating CFPS.
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John's forecast/valuation model for CPE is still based on the company pre-merger with Carrizo. Post-merger Callon will have production of approximately 105,000 Boepd, revenues over $2 Billion in 2020 and operating cash flow of more than $3.00/share even using John's lower WTI price for 2020.