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Callon Cuts Spending, Drilling for 2021; 95 Completions Planned

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   |    Friday,February 26,2021

Callon Petroleum Co. reported its Q4 / full year 2020 results as well as its 2021 capital plan.

2021 Plan

- Capex: $430 million - down 12% vs. 2020 levels

  • D&C: $344 million (80%)
  • Other: $86 million (20%)

By Play:

  • Permian: $301 million (70%)
  • Eagle Ford: $129 million (30%)

- Production: 90-92 MBOEPD - down 10% from full year 2020 output

  • Oil Production: 56.7-57.9 MBOPD - down 11% from full year 2020
  • NGL Production: 17.1-17.5 MBbls/d
  • Gas Production: 16.2-16.6 Mmcf/d 

- Wells Drilled: 55-65 gross wells - down 34% vs. 2020

- Wells Completed: 90-100 gross wells - up 6% vs. 2020

 - Rig Count: 3 rigs running

 - Frac Crews: 1-2 crews

Permian Plan

Permian development activity will predominantly feature co-development of the Wolfcamp A and B in the Delaware and the Lower Spraberry and Wolfcamp A in the Midland.

Eagle Ford Plan

The Eagle Ford program remains focused solely on the primary target zone, the Lower Eagle Ford Shale, as technical evaluation continues on Austin Chalk potential for future delineation.


Our scaled development plan for 2021 will continue to employ our life of field development philosophy and benefit from our balanced capital deployment strategy. We entered the year with a robust backlog of drilled uncompleted wells ("DUCs"), after drilling over 90 wells in 2020, which will allow us to complete approximately 55 wells in the first half of the year. Although at a reduced number from year end 2020, we now plan to maintain a meaningful DUC inventory heading into 2022 to provide operational flexibility to execute across a range of development planning scenarios. The capital expenditures associated with this higher DUC inventory contributed to the majority of the approximate $30 million increase relative to our previous 2021 capital estimates, in addition to selective project size increases to improve capital efficiency and resource recovery. These schedule refinements will position Callon for an improved production trajectory in the medium term, adhering to our reinvestment rate parameters, to increase free cash flow generation potential.


Q4 / Full Year 2020 Results

2020 Highlights

  • Full-year 2020 production of 101.6 MBoe/d (63% oil), an increase of 146% over 2019 volumes
  • Year-end proved reserves of 475.9 MMBoe (61% oil)
  • Generated net cash provided by operating activities of $559.8 million and adjusted free cash flow1 of $10.7 million, including net cash provided by operating activities of $368.1 million and $122.6 million of adjusted free cash flow1 generation over the last three quarters
  • Loss available to common stockholders of $2.5 billion, or $63.79 per diluted share, driven by impairments of evaluated oil and gas properties of $2.5 billion, adjusted EBITDA1 of $709.7 million, and adjusted income1 of $117.1 million or $2.86 per diluted share
  • Lowered average drilling and completion cost per lateral foot by approximately 35% from 2019 comparable well costs, driving total operational capital expenditures of $488.6 million, meaningfully below budgeted levels
  • Reduced total cash general and administrative expenses by more than 60% from pro forma 20192 levels
  • Lowered annual lease operating expense by more than $30 million from pro forma 20192 levels through effective implementation of field best practices
  • Asset monetization proceeds and debt exchanges reduced total debt balances by approximately $350 million since the second quarter of 2020
Fourth Quarter 2020 Highlights
  • Fourth quarter 2020 production of 94.9 MBoe/d (62% oil), an increase of 103% over fourth quarter 2019 volumes and a sequential decrease of 7% including the impact of completed divestitures
  • Generated $134.6 million of net cash provided by operating activities and adjusted free cash flow1 of $24.4 million
  • Loss available to common stockholders of $505.1 million, or $12.71 per diluted share, driven by an impairment of evaluated oil and gas properties of $585.8 million, adjusted EBITDA1 of $167.8 million, and adjusted income1 of $42.8 million or $1.00 per diluted share

Joe Gatto, President and Chief Executive Officer commented, "In a year marked by extraordinary volatility in commodity prices and workplace challenges created by the COVID-19 pandemic, our newly integrated team executed flawlessly on a revamped set of operational and financial initiatives that ultimately delivered over $120 million of adjusted free cash flow since the beginning of the second quarter, dramatically improving our liquidity and absolute debt position. Importantly, these accomplishments were complemented by significant achievements related to employee safety and environmental emissions."

He continued, "Our medium-term development plans are squarely focused on free cash flow generation and absolute debt reduction. Given our leading operating margins and low-cost resource base, the magnitude and pace of improvements in financial strength from organic cash flows are highly differentiated in the sector. Our 2021 capital budget, inclusive of capitalized expenses, implies a reinvestment rate3 of approximately 75% of discretionary cash flow at $50 per barrel WTI price and a free cash flow breakeven price of approximately $40 per barrel. We will continue to manage our future capital reinvestment rate3 within a targeted range of 65% to 75% under a range of pricing environments, which is expected to generate adjusted free cash flow in a range of $500 to $800 million over the next three years assuming WTI oil prices of $50 to $60 per barrel. In addition, we are targeting asset monetizations of approximately $125 to $225 million in 2021 to further our debt reduction goals, meeting our original 2020 total divestiture targets after including transactions completed last year. As divestiture market conditions continue to improve, we are evaluating opportunities for incremental, credit enhancing monetizations above our targeted levels."

Environmental, Social, and Governance ("ESG") Updates

Callon advanced its sustainability initiatives during 2020 with the Company achieving numerous milestones as detailed below:

  • Issued an inaugural SASB aligned sustainability report
  • Reduced flared natural gas volumes by 44%
  • Achieved a 66% reduction in spill volumes
  • Increased recycled water usage by 10%
  • Set a new Callon record for safety with a total recordable incident rate of under 0.55
  • Named a top Houston workplace for the fourth straight year by the Houston Chronicle
  • Supported schools, food banks and first responders in our local communities during the challenges of the global pandemic
  • Enhanced board oversight of ESG by expanding the remit of the Nominating and ESG Committee

Callon continues to advance various sustainability efforts and expects to disclose new long-term targets for GHG emissions reductions and a revamped executive compensation program aligned with investor and corporate priorities in the near future.

Operations Update and Outlook

At December 31, 2020, Callon had 1,496 gross (1,320.6 net) horizontal wells producing from established flow units in the Permian and Eagle Ford. Net daily production for the three months ended December 31, 2020 grew 103% to 94.9 MBoe/d (62% oil) as compared to the same period of 2019. Full year production for 2020 averaged 101.6 MBoe/d (63% oil) reflecting growth of 146% over 2019 volumes.

For the three months ended December 31, 2020, Callon drilled 22 gross (20.0 net) horizontal wells and placed a combined 16 gross (14.3 net) horizontal wells on production. Wells placed on production during the quarter were completed in the Lower Spraberry and Wolfcamp A in the Midland Basin and the Wolfcamp A and Wolfcamp C in the Delaware Basin.

Recently, severe winter storms affected field operations in both the Permian and Eagle Ford resulting in the shut-in of nearly 100% of our operated production. Currently, we have returned nearly all of our Eagle Ford and Midland Basin wells to production and expect to have all of our Delaware well production returned by the end of February. The estimated annualized impact of these deferrals is approximately 2,000 Boe/d. This has been reflected in our updated production guidance for 2021. The impact to our drilling and completion operations were not significant enough to alter our expectations for the full year development schedule and any additional operational costs are currently reflected in our lease operating expense guidance.

Currently, the Company has three active rigs with one each in the Midland, Delaware, and Eagle Ford. The Company recently deployed a second completion crew and has operations taking place in the Delaware and Eagle Ford.

Capital Expenditures

For the year ended December 31, 2020, Callon incurred $488.6 million in operational capital expenditures on an accrual basis as compared to $515.1 million in 2019. For the three months ended December 31, 2020, the Company incurred $87.5 million in operational capital expenditures on an accrual basis, which represented a $49.1 million increase from the third quarter of 2020.

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