Callon Petroleum (CPE) Update - Mar 2

[dan_s]

"Based on our planned operational activity and leading operating margins, we expect to
generate over $500 million in adjusted free cash flow in 2022, based on $75 per barrel. This
level of free cash flow puts us on a path to further reduce our absolute debt levels and
achieve a leverage ratio of less than 1.5x by year end 2022." - Joe Gallo, CEO

I have updated my forecast/valuation model for CPE and it will be posted to the EPG website this afternoon.
At the time of this post, CPE was trading for $59.76 and First Call's price target was $69.20.
My valuation based on WTI oil averaging $85/bbl in 2022 and $80/bbl in 2023 increases by $5 to $95.00 per share.

Based on my forecast, CPE should generate more than $1.5 billion of operating cash flow and more than $800 million of free cash flow this year.

The company's balance sheet is now in "Good" shape and should be in "Great" shape by year-end as they currently intent to use FCF to pay off debt. They have lots of running room in the Permian Basin and actually deserve a much higher valuation multiple than I am using.

If WTI does average $100/bbl in 2022, Callon's FCF should exceed $1 billion.

[Roadster]

What percentage of Oil is hedged? Looks like around 60%. Thanks

[dan_s]

You can find a detailed table of Callon's hedges at the bottom of the forecast model, which is under the Sweet 16 tab on our website.
For 2022:
> ~24% of oil is hedged with NYMEX Swaps at $61.61/bb;
> ~29% of oil is hedged with NYMEX Collars that have $56.16 floors and $67.70 ceilings (ceiling range from $65.58 to $70.12)
> ~2% of oil is hedged with Magellan East Houston Collars that have ceiling of $63.15. These expire on June 30.
> ~30% of natural gas is hedged with Swaps at an average price of $3.65
> ~24% of natural gas is hedged with Collars that have $3.29 floors and $4.14 ceilings that range from $3.75 in Q1 to $5.07 in Q4.

[Roadster]

Dan Most Helpful. Could you post the % Oil Hedge or % Gas Hedge on the Sweet 16 Summary in one column>

For example Callon would be 55%/54% for Oil and Gas.

[dan_s]

Right now I am up to my "gills" in forecast and profile updates. Plus, the percentage hedged can be misleading. For example, companies are now hedging with collars that have very high ceilings. All hedges are not the same.
Detailed charts of each company's hedges are shown at the bottom of each spreadsheet and most of them include hedge tables in their corporate slides. They must show them in 10Q and 10K reports.

[dan_s]

I will finish my review of CPE's profile tomorrow.