Callon Petroleum (CPE) Update - April 17
Posted: Fri Apr 17, 2020 10:10 am
HOUSTON, April 16, 2020 /PRNewswire/ -- Callon Petroleum Company (NYSE: CPE) ("Callon") today announced that on April 10, 2020, it received formal notice from the New York Stock Exchange ("NYSE") that the average closing price of Callon's shares of common stock had fallen below $1.00 per share over a period of 30 consecutive trading days, which is the minimum average share price for continued listing on the NYSE.
As required by the NYSE, Callon has responded to the NYSE regarding its intent to cure the deficiency to return to compliance with the NYSE continued listing requirements within the six-month cure period. Callon intends to put forth a proposal for a reverse stock split in connection with its annual meeting of shareholders.
Update for 2020 Outlook
Callon's integration process and associated synergy capture has progressed ahead of schedule in the first quarter despite the challenges of the current economic and operating environment. Current expectations for first quarter operational results1 include:
Operational capital spending of approximately $275 million
Production between 100 and 102 MBoepd with an oil cut of 63% (three-stream basis) < Compares to my forecast of 110,000 Boepd.
Lease operating expense between $54 and $56 million, or $5.95 to $6.15 per Boe. < Compares to my forecast of $53 million LOE.
Gathering, processing, & transport ("GP&T") expense between $14 and $15 million, or $1.55 and $1.65 per Boe. < Compares to my forecast of $18 million.
Unhedged realized oil, natural gas, and NGL prices are expected to be between $45 and $46 per Bbl, $0.55 and $0.65 per Mcf, and $10 and $11 per Bbl respectively. Net cash from derivative settlements is estimated to be approximately $25 million for the quarter. < The commodity prices used in my forecast models include my guess at cash settlements on their hedges, WHICH ARE EXTREMELY IMPORTANT THIS YEAR.
Callon provided an update to the 2020 capital program on March 17th, reducing full year capital expectations by more than 25% from $975 million to a range of $700 to $725 million. Since then, the Company has taken additional steps to further reduce planned spending for the year in line with Callon's commitment to free cash flow generation. We will be detailing these incremental capital plan reductions with first quarter 2020 disclosures, which include an immediate reduction to one completion crew and a reduction to three drilling rigs by next month. These actions will further reduce our average run-rate capital spending for the remainder of 2020 relative to the first quarter beyond the March 17th estimate of approximately 50%, and shift completion activity and wells placed on production out of the second quarter.
In addition to the estimated $35 to $45 million of run-rate corporate cost savings from the Carrizo transaction, Callon is targeting an additional $15 - $20 million of cash G&A cost reductions for a total decrease of 40% from combined 2019 levels. This incremental reduction represents approximately 15% of the initial 2020 cash G&A budget (combined capitalized and expensed components), led by voluntary reductions in compensation by all of Callon's directors and officers. Board members have agreed to reduce their compensation by 35%, and our Chief Executive Officer has agreed to reduce his salary by 20% and his total target cash compensation by 35%. All other officers have agreed to reduce their total target cash compensation by at least 25%, including salary reductions of 15% and 10% by senior vice presidents and vice presidents, respectively.
President and Chief Executive Officer, Joe Gatto stated, "During a very turbulent first quarter, our team has remained focused and has quickly pivoted our program to allow for greater flexibility while ramping down activity to match the needs of this commodity environment. Our execution as a scaled operator has been solid to begin the year and we will now turn that execution focus on meaningful reductions in both capital expenditures and our cost structure. In addition, the well productivity initiatives discussed during our 2019 fourth quarter call have driven consistently positive outcomes from our first quarter projects and pave the way for improved capital efficiency from substantially reduced spending."
Gatto continued, "Callon remains focused on maximizing liquidity and reducing leverage to endure the current commodity downturn. Management and the Board's top priority is emerging from this volatile period with a robust business that is prepared to take advantage of an improving economic environment."
Marketing and Hedging Updates
Consistent with past practices, Callon maintains a portfolio of multi-year term sales contracts with numerous creditworthy customers and marketers. These term sales agreements are less prone to the risk of pipeline-related cuts as Callon has dedicated buyers to support the physical placement of nominated barrels on pipelines. Altogether, the Company has approximately 60,000 barrels per day of term sales agreements and is negotiating another contract for 25,000 barrels of oil per day (Bbl/d). Callon also maintains long-term firm transport capacity for 25,000 Bbl/d to support sales of Permian Basin volumes to the Gulf Coast refining and export markets and has contracted interim transport arrangements in the Eagle Ford as well. Collectively, our physical oil marketing and pipeline agreements support diversified pricing across Midland, Magellan East Houston ("MEH"), Brent and waterborne benchmark points.
As required by the NYSE, Callon has responded to the NYSE regarding its intent to cure the deficiency to return to compliance with the NYSE continued listing requirements within the six-month cure period. Callon intends to put forth a proposal for a reverse stock split in connection with its annual meeting of shareholders.
Update for 2020 Outlook
Callon's integration process and associated synergy capture has progressed ahead of schedule in the first quarter despite the challenges of the current economic and operating environment. Current expectations for first quarter operational results1 include:
Operational capital spending of approximately $275 million
Production between 100 and 102 MBoepd with an oil cut of 63% (three-stream basis) < Compares to my forecast of 110,000 Boepd.
Lease operating expense between $54 and $56 million, or $5.95 to $6.15 per Boe. < Compares to my forecast of $53 million LOE.
Gathering, processing, & transport ("GP&T") expense between $14 and $15 million, or $1.55 and $1.65 per Boe. < Compares to my forecast of $18 million.
Unhedged realized oil, natural gas, and NGL prices are expected to be between $45 and $46 per Bbl, $0.55 and $0.65 per Mcf, and $10 and $11 per Bbl respectively. Net cash from derivative settlements is estimated to be approximately $25 million for the quarter. < The commodity prices used in my forecast models include my guess at cash settlements on their hedges, WHICH ARE EXTREMELY IMPORTANT THIS YEAR.
Callon provided an update to the 2020 capital program on March 17th, reducing full year capital expectations by more than 25% from $975 million to a range of $700 to $725 million. Since then, the Company has taken additional steps to further reduce planned spending for the year in line with Callon's commitment to free cash flow generation. We will be detailing these incremental capital plan reductions with first quarter 2020 disclosures, which include an immediate reduction to one completion crew and a reduction to three drilling rigs by next month. These actions will further reduce our average run-rate capital spending for the remainder of 2020 relative to the first quarter beyond the March 17th estimate of approximately 50%, and shift completion activity and wells placed on production out of the second quarter.
In addition to the estimated $35 to $45 million of run-rate corporate cost savings from the Carrizo transaction, Callon is targeting an additional $15 - $20 million of cash G&A cost reductions for a total decrease of 40% from combined 2019 levels. This incremental reduction represents approximately 15% of the initial 2020 cash G&A budget (combined capitalized and expensed components), led by voluntary reductions in compensation by all of Callon's directors and officers. Board members have agreed to reduce their compensation by 35%, and our Chief Executive Officer has agreed to reduce his salary by 20% and his total target cash compensation by 35%. All other officers have agreed to reduce their total target cash compensation by at least 25%, including salary reductions of 15% and 10% by senior vice presidents and vice presidents, respectively.
President and Chief Executive Officer, Joe Gatto stated, "During a very turbulent first quarter, our team has remained focused and has quickly pivoted our program to allow for greater flexibility while ramping down activity to match the needs of this commodity environment. Our execution as a scaled operator has been solid to begin the year and we will now turn that execution focus on meaningful reductions in both capital expenditures and our cost structure. In addition, the well productivity initiatives discussed during our 2019 fourth quarter call have driven consistently positive outcomes from our first quarter projects and pave the way for improved capital efficiency from substantially reduced spending."
Gatto continued, "Callon remains focused on maximizing liquidity and reducing leverage to endure the current commodity downturn. Management and the Board's top priority is emerging from this volatile period with a robust business that is prepared to take advantage of an improving economic environment."
Marketing and Hedging Updates
Consistent with past practices, Callon maintains a portfolio of multi-year term sales contracts with numerous creditworthy customers and marketers. These term sales agreements are less prone to the risk of pipeline-related cuts as Callon has dedicated buyers to support the physical placement of nominated barrels on pipelines. Altogether, the Company has approximately 60,000 barrels per day of term sales agreements and is negotiating another contract for 25,000 barrels of oil per day (Bbl/d). Callon also maintains long-term firm transport capacity for 25,000 Bbl/d to support sales of Permian Basin volumes to the Gulf Coast refining and export markets and has contracted interim transport arrangements in the Eagle Ford as well. Collectively, our physical oil marketing and pipeline agreements support diversified pricing across Midland, Magellan East Houston ("MEH"), Brent and waterborne benchmark points.