Callon Petroleum (CPE) Update - August 5
Posted: Thu Aug 05, 2021 9:54 am
I have updated my forecast/valuation model for CPE and posted it to the EPG website.
My model now assumes that the Primexx transaction will close on 10-1-2021. From a cash flow standpoint, it really doesn't matter when it closes because the Effective Date will be before 10/1.
Callon provided only high level details, but this is what I am using in the model.
> Adds 18,000 Boepd of production to Q4 2021 and full year 2022 < They are going to keep two drilling rigs running on the Premexx leasehold, so it should add more production in 2022.
> Production mix is 61% oil per Callon and my guess of 25% natural gas and 14% NGLs, which is a bit "gassier" than what Callon's current production mix is.
> The model assumes that operating expenses per Boe will be the same as Callon's $6/boe. My guess is that LOE per Boe will decline.
> I've added $10 million of "Acquisition Expenses" to 2021.
> I have increase my "cushions" for Q4 2021 and 2022 due to the limited information about expenses.
> I have lowered the multiple of operating cash flow used to value CPE from 4.0 to 3.5 X annualized CFPS for 2021+2022. < Very low for a company that appears to have lots of low-risk/high-return development drilling inventory.
My current valuation of CPE declines by $10 to $68 per share. It is trading for $31.51 at the time of this post.
If Q4 results confirm my forecast assumptions, there is significant upside to my valuation because my 2022 forecast based on realized commodity prices of $65 for oil and $3.00 for natural gas shows Callon's operating cash flow should be over $1.4 Billion, $23.00/share in 2022.
My model now assumes that the Primexx transaction will close on 10-1-2021. From a cash flow standpoint, it really doesn't matter when it closes because the Effective Date will be before 10/1.
Callon provided only high level details, but this is what I am using in the model.
> Adds 18,000 Boepd of production to Q4 2021 and full year 2022 < They are going to keep two drilling rigs running on the Premexx leasehold, so it should add more production in 2022.
> Production mix is 61% oil per Callon and my guess of 25% natural gas and 14% NGLs, which is a bit "gassier" than what Callon's current production mix is.
> The model assumes that operating expenses per Boe will be the same as Callon's $6/boe. My guess is that LOE per Boe will decline.
> I've added $10 million of "Acquisition Expenses" to 2021.
> I have increase my "cushions" for Q4 2021 and 2022 due to the limited information about expenses.
> I have lowered the multiple of operating cash flow used to value CPE from 4.0 to 3.5 X annualized CFPS for 2021+2022. < Very low for a company that appears to have lots of low-risk/high-return development drilling inventory.
My current valuation of CPE declines by $10 to $68 per share. It is trading for $31.51 at the time of this post.
If Q4 results confirm my forecast assumptions, there is significant upside to my valuation because my 2022 forecast based on realized commodity prices of $65 for oil and $3.00 for natural gas shows Callon's operating cash flow should be over $1.4 Billion, $23.00/share in 2022.