Quarterly / Earnings Reports | Second Quarter (2Q) Update

Callon Details Q2 2019 Results, Ops Highlights

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   |    Wednesday,August 07,2019

Callon Petroleum Co. reported results of operations for the three and six months ended June 30, 2019.

2Q Highlights

• Increased production by 40% year-over-year to 40.5 Mboe/d (77% oil)
• Generated an operating margin of $36.11 per Boe, a sequential increase of over 10%
• Reduced capital spending by $25 million during the second quarter, while placing approximately five additional net wells on production compared to the first quarter of 2019
• Recently placed on production the first multi-zone mega-pad employing simultaneous operations in the Delaware Basin with an average cost per lateral foot below 2020 targeted synergy levels
• Closed the divestiture of the Southern Midland Basin assets for net cash proceeds at closing of $245 million
• Completed the redemption of Callon preferred stock in the amount of $73 million, reducing annual dividend obligations by more than $7 million
• Announced the strategic acquisition of Carrizo Oil & Gas, Inc. ("Carrizo") in an all-stock transaction valued at $3.2 billion

"Our team's performance continued to exceed expectations during the second quarter with stronger production and lower capital spending than forecasted. We remain on track to meet all of the goals that we laid out for the market back in February while delivering on a seamless integration process to cement a highly accretive acquisition opportunity that will benefit shareholders of both Callon and Carrizo. Our operational efficiency in the Midland Basin during the second quarter and successful completion of our first Delaware mega-pad project are emblematic of the value creation that underpins the strategic rationale in combining these two high performing companies," commented Joe Gatto, Callon's President and Chief Executive Officer. He continued, "We are steadfast in our commitment to accelerating the achievement of our core goals of boosting returns on invested capital, reducing leverage, generating sustainable free cash flow growth and improving the overall long-term outlook for our shareholders. With this strategic combination, which will be enhanced by the eminently achievable, tangible synergies identified, we will unlock significant value for shareholders in the near term as the highly efficient and sustainable development program we have outlined advances all of our goals. We are very pleased with our integration progress and equally excited about the tremendous value proposition created by merging our two organizations."

Operations Update

At June 30, 2019, we had 487 gross (330.2 net) horizontal wells producing in the Permian Basin. Net daily production for the three months ended June 30, 2019 grew 40% to 40.5 Mboe/d (77% oil), at the top of the previously announced range of expectations (provided in the July 15, 2019 press release), as compared to the same period of 2018.

For the three months ended June 30, 2019, we drilled 15 gross (14.3 net) horizontal wells, and placed a combined 18 gross (15.9 net) horizontal wells on production. Almost all of the wells were focused in the Midland Basin and included two six-well projects targeting three development zones that were placed on line under budget due to sustained, realized capital efficiencies. As part of our larger scale development model in the Midland Basin, a five well project in central Howard County achieved an average peak IP-30 rate of 1,346 Boe/d (91% oil), equating to 155 Boe/d per lateral foot. In addition, a two-well pad in the Delaware was placed on line, targeting co-development of the 2^nd Bone Spring Shale and Lower Wolfcamp A.

Additional activity during the quarter in the Delaware Basin was focused on the completion of our first large scale development project, involving co-development of two Wolfcamp A flow units and the Wolfcamp B. Significant improvements in drilling and completion costs resulted in an average total well cost of less than $1,100 per lateral foot. These savings were realized through highly efficient simultaneous drilling and completion operation techniques that will be the focal point of the 2020 capital development program across the pro forma asset portfolio. In addition, water sourcing for the completion operations utilized over 1.6 million barrels from our Delaware recycling facilities, resulting in significant savings versus traditional sourcing methods. The wells from this project were recently placed on flow back and are in the early stages of production.

Callon has reduced its number of active drilling rigs from six to four and is running a single completion crew after building a substantial inventory of drilled, uncompleted locations, in accordance with the previously communicated capital program expectations. In addition, the field optimization project initiated during the first quarter of 2019 in the Delaware Basin has been completed and all associated wells have been returned to production.

Capital Expenditures

For the six months ended June 30, 2019, we incurred $133.5 million in operational capital expenditures (including other items) on an accrual basis as compared to $155.2 million in the first quarter of 2019, representing a decrease of 14%.