Energy Prospectus

Callon's first quarter results came in very close to my forecast. Adjusted earnings per share were double my forecast and reported EPS were even higher ($0.23 vs my forecast of $0.09).

More important, operating cash flow per share was slightly above my forecast at $0.27/share.

I have updated my forecast model for CPE and it will be posted to the EPG website later today. My valuation goes down $0.50/share to $22.00, but my confidence level goes up. The valuation goes down because I've lowered the oil price used in Q2 and raised the ngas price, which only partially offsets the oil price decline. Callon reports natural gas volumes including NGLs, which explains the high realized price they got for ngas ($3.88/mcf). Their realized oil price was $48.45/bbl because they had to pay cash to settle some hedges.

Operations are going great. Callon continues to get very strong well results in the Midland Basin and they are ramping up drilling in the Delaware Basin.

First Call's price target is $18.44
Credit Suisse = $20.00
Canaccord = $22.00

Go to the forecast model and take a hard look at the RED BOX. It will tell you why I moved CPE into our Sweet 16.

From John White at Roth Capital on May 5:

Our price target is $23 and our rating is Buy. Our net asset value and target price are based on proved and probable reserves, financial position, and historical and expected drilling results.

Our title refers to the strong results in 1Q 2017 at CPE's Sidewinder prospect.

After examining the 1Q results and the guidance for 2Q, we are updating our estimates and have lowered 2Q 2017 production slightly, from 23,054 BOE per day to 22,415 BOE per day (CPE guide is a range of 21,500 to 23,000 BOE per day). However, the new guidance on operating costs allows us to lower our lease operating expense and G&A. Therefore, our estimates for 2Q 2017 for EPS/CFPS/EBITDA improve from $0.05/$0.24/$62.0 million to $0.11/ $0.32/$67.5 million.

WildHorse/Sidewinder: In our opinion it was the WildHorse area that received the spotlight in 1Q 2017, and within WildHorse, it was the Sidewinder property in northwest Howard County delivering strong results. The completion results from the Wright-Adams 31-42 #5AH and the Garrett-Reed 37-48 #8AH, among others, tipped the scales and moved CPE to increase its Sidewinder Wolfcamp A 7,500’ type curve to 1.3 MMBOE (85% oil) compared to previous Howard County Wolfcamp A acquisition type curves of 700 MBOE to 1.0 MMBOE. Also, in our view, this item has positive implications for Earthstone Energy (ESTE-Buy), which also has a significant acreage position in Howard County.

Ward County Acquisitions: CPE advised it has recently signed agreements to acquire 2,626 net acres for $54.3 million, equating to an average purchase price of approximately $20,700 per net surface acre. The combined acquisition impact is the addition of an estimated equivalent 67 net Wolfcamp locations with an average lateral length of over 8,000 feet at a purchase price of approximately $800,000 per location.

CPE’s 1Q 2017 actual production of 20,422 BOE per day was squarely in line with the consensus estimate of 20,450 BOE per day and our figure of 20,270 BOE per day. Net daily production for 1Q 2017 was up approximately 64% as compared to 1Q 2016. Sequentially, production increased by approximately 11% compared to 4Q 2016.