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Callon Petroleum Third Quarter 2022 Results

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   |    Wednesday,November 02,2022

Callon Petroleum Co. reported results of operations for the three and nine months ended September 30, 2022.

Third Quarter 2022 and Recent Highlights:

• Delivered 8% sequential growth in daily oil production volumes and 7% sequential growth in total daily production volumes (66.4 MBbls/d and 107.3 MBoe/d, respectively)
• Achieved Midland Basin well productivity gains in 2022 of over 25% compared to the 2019 - 2021 average
• Generated net cash provided by operating activities of $475.3 million and adjusted free cash flow of $148.4 million for the third quarter
• For the first nine months of the year, generated net cash provided by operating activities of $1.1 billion and adjusted free cash flow of $457.3 million
• For the third quarter, Callon reported net income of $549.6 million ($8.88 per diluted share), adjusted EBITDA of $458.5 million, and adjusted income of $249.8 million, ($4.04 per diluted share)
• For the first nine months of the year, Callon reported net income of $937.3 million ($15.14 per diluted share), adjusted EBITDA of $1.3 billion, and adjusted income of $690.3 million ($11.15 per diluted share)
• During the quarter, reduced total debt-to-adjusted EBITDA ratio to under 1.5x and total debt by approximately $150 million
• Extended the maturity of the revolving credit facility to October 2027 with a borrowing base of $2.0 billion and an elected commitment of $1.5 billion
• Issued the Company's third annual sustainability report which provides a comprehensive overview of the continued progress on sustainability initiatives

Joe Gatto, President and Chief Executive Officer, said: "Callon's strong production growth this quarter was the product of increased well productivity and completion efficiencies that improved cycle times of larger scale projects. Top line growth combined with a reduction in per unit lease operating expenses and capital cost controls drove a sequential 28% increase in net cash provided by operating activities and 18% increase in free cash flow despite lower oil and NGL benchmark pricing. We have generated over $450 million in free cash flow in the first nine months of the year and expect the fourth quarter to be the best quarter of the year for this important measure. Looking forward, we have been proactive in securing key oilfield services for 2023 to ensure repeatable execution of our operational model of scaled co-development that drives more consistent well productivity over time."

Callon Operations Update

At September 30, 2022, Callon had 1,420 gross (1,264.1 net) wells producing from established flow units in the Permian and Eagle Ford. Net daily production for the three months ended September 30, 2022 was 107.3 MBoe/d (62% oil and 82% liquids).

Operated drilling and completion activity for the three months ended September 30, 2022 are summarized in the table below:

For the three months ended September 30, 2022, Callon drilled 27 gross (25.1 net) wells and placed a combined 43 gross (37.4 net) wells on production. Completions operations for the quarter included 12 gross (10.0 net) wells in the Delaware Basin, 23 gross (20.9 net) wells in the Midland Basin, and 11 gross (10.4 net) wells in the Eagle Ford. Callon placed 10 gross (7.1 net) wells on production in the Delaware Basin, 22 gross (19.9 net) wells in the Midland Basin, and 11 gross (10.4 net) wells in the Eagle Ford. The average lateral length for all wells completed during the third quarter was 7,791 feet. Operated completions during the third quarter consisted of 3 Upper Wolfcamp A wells, 3 Lower Wolfcamp A wells, 2 Wolfcamp A wells, and 4 Wolfcamp B wells in the Delaware Basin; 10 Lower Spraberry wells, 1 Middle Spraberry well, 8 Wolfcamp A wells and 4 Wolfcamp B wells in the Midland Basin; and 10 Lower Eagle Ford Shale wells and 1 Austin Chalk well.

Financial Update

As of September 30, 2022, the drawn balance on the Credit Facility was $636.0 million and cash balances were $4.4 million. On October 19, 2022, Callon and its lenders amended and restated the senior secured revolving credit facility (the "Credit Facility") which extends the maturity to October 19, 2027. The Credit Facility has a borrowing base of $2.0 billion with an elected commitment of $1.5 billion. The Company intends to continue its application of organic free cash flow towards repayment of debt balances related to the Credit Facility and other debt instruments.

In addition, Callon has entered into agreements for the divestiture of approximately $25 million of non-core properties that are anticipated to close during the fourth quarter with proceeds to be used to repay borrowings under the Credit Facility.

Fourth Quarter Activity Outlook and Guidance

Callon entered the fourth quarter running five drilling rigs, with four rigs in the Delaware Basin and one rig in the Midland Basin. A sixth drilling rig was contracted in early October and is anticipated to commence drilling in the fourth quarter. The sixth rig was added earlier than scheduled to secure high-quality drilling services in support of operational plans for early 2023. These plans were recently modified to include numerous larger scale Permian projects that will employ simultaneous operations to benefit overall cycle times and efficiencies. Callon intends to utilize one completion crew in the fourth quarter, supporting new production in the Midland and Delaware Basins, before adding a second dedicated crew for simultaneous completion operations in early 2023.

For the fourth quarter, the Company expects to produce 105 - 108 MBoe/d (63% oil), including the impact of pending divestitures. Wells placed on-line are expected to be 20 - 24 gross wells (19 - 23 net), all of which are located in the Permian Basin. In addition, Callon projects operational capital expenditures of $180 - $195 million on an accrual basis, including the fourth quarter operating activity increases described above. Fourth quarter and full year 2022 guidance is available in the accompanying presentation.

Capital Expenditures

For the three months ended September 30, 2022, Callon incurred $254.7 million in operational capital expenditures on an accrual basis.