Callon Petroleum (CPE) Update - Oct 19

[dan_s]

TipRanks shows five analysts' reports that have been updated on CPE since mid-September. The recent price targets range from $4.00 to 18.50. < Quite a difference of opinion on this one!
First Call's price target today is $8.44. First Call is a service provided by Reuters. Of the 18 reports on CPE at Reuters, only 1 rates it a SELL (the one with the $4 price target). The next lowest price target is $6.00, so 17 of 18 analysts think CPE has upside from where it is trading today ($4.58 at the time of this post). Three analysts rate it a BUY and there is one STRONG BUY.

Callon does carry a lot of debt, but on October 1 the Company ANNOUNCED A $170 MILLION IN ASSET MONETIZATIONS AND $300 MILLION ISSUANCE OF SECURED SECOND LIEN NOTES.
In the same press release, they announced that their bankers completed the fall borrowing base redetermination for its senior secured credit facility resulting in a reaffirmation of Callon's borrowing base at $1.7 billion. The borrowing base and elected commitment were subsequently reduced to $1.6 billion in consideration of the ORRI sale and total 2nd Lien Notes capacity.

President and CEO Joe Gatto commented, "These transactions represent an important step forward in delivering on our stated goals to improve Callon's liquidity position. Absolute debt reduction is also accelerated, complementing our free cash flow generation that has been bolstered by the significant synergies realized from the Carrizo acquisition. Importantly, the asset monetizations are accretive to our 2021 leverage metrics given a blended transaction multiple of approximately 6.5 times projected operating cash flow at current strip pricing. We will continue to pursue initiatives that improve our financial position and are encouraged by the expanding spectrum of actionable alternatives that have emerged as we execute on our strategic plan as a scaled operator in premier operating areas."

Highlights of the combined transactions:

> Total gross cash proceeds of approximately $465 million after original issue discount < Compares to Callon's full-year capital budget of $500 to $525 million as adjusted on 8/4/2020.
> Estimated pro forma liquidity of $600 million after transaction expenses, with the next regularly scheduled borrowing base redetermination in spring 2021
> Flexibility to issue up to a total of $700 million of 2nd Lien Notes under the indenture, including, $300 million notes issued to Kimmeridge, $300 million reserved for potential exchanges of unsecured notes and up to an additional $100 million that may be issued to Kimmeridge under certain conditions and at its election
> Significant financial position improvements from the monetization of approximately 3.5% of current daily production with a resulting average net revenue interest (8/8ths basis) of over 74% for both our existing producing wells, as well as our undeveloped location inventory

Because Callon has ~85% of their crude oil for Q3 and Q4 hedged at $43/bbl and natural gas & NGL prices are moving higher, the Company is on-track to generate more than $14.00 of operating cash flow per share this year. If WTI averages $50/bbl in 2021, Callon's operating cash flow should be over $16.00 per share.

As I have posted here several times before, at least one of the analysts covering CPE did not approve of the merger with Carrizo, so they continue to keep the stock in the "Penalty Box". If oil prices stay in the low $40's they might be proven right. HIGH DEBT = HIGH RISK, but if the price of oil does rebound in a Post-Pandemic World, Callon should survive.