PAULSON & CO. Callon Petroleum INC. October 21, 2019
TABLE OF CONTENTS I. Callon Strategy & Guidance- Prior To Carrizo II. Proposed Carrizo Deal III. Sell Side Research IV. Path Forward V. Appendix The content of this presentation has been gathered from sources believed to…
I. Callon Strategy & Guidance- Prior To Carrizo 16
CALLON REBUILT ITSELF AROUND THE PERMIAN BASIN Source: Callon Petroleum Presentation Dated March 25, 2019 Page 3 The content of this presentation has been gathered from sources believed to be reliable but its accuracy cannot be…
CALLON RAISED 2.8 BILLION IN CAPITAL OVER LAST 4 YEARS FOR INVESTMENT IN PERMIAN Am o unt Security Year P rice ( millio ns) E q uity 2015 8 .4 0 116 E q uity 2016 6 .5 0 99 E q uity 2016 8 .5 0 215 E q uity 2016 1 4 .6 0 437…
CAPITAL RAISED FOR PERMIAN ACQUISITIONS OF 1.8 BILLION P rice Transactio n Basin Year ( millio ns) M idland Basin P ermian 2016 301 Ho ward Co unty P ermian 2016 340 So uthern Delaware P ermian 2017 615 Ward Co unty P…
CALLON GUIDED TOWARDS FREE CASH FLOW GENERATION STARTING 4Q19 Source: Callon Petroleum Presentation Dated June 18, 2019, Page 3 and 12 The content of this presentation has been gathered from sources believed to be reliable but its…
II. Proposed Carrizo Deal 16
CALLON SHAREHOLDERS HAVE LOST 589 MILLION SINCE DEAL ANNOUNCED Share Price Performance Since Deal Announcement 6.00 5.50 5.00 -589 million 4.50 4.00 3.50 3.00 8/9/2019 9/2/2019 10/18/2019…
SEVERE UNDERPERFORMANCE FROM DESTRUCTIVE & DILUTIVE DEAL Relative Share Price Performance Since Deal Announcement 110 100 90 80 XOP: -23% 70 60 CPE: -40% 50 8/2/2019 8/9/2019 9/6/2019 10/11/2019…
MANAGEMENTS RECEIVE GOLDEN PARACHUTES, SHAREHOLDERS LOSE MONEY 100.0 29.1 10.7 0.0 -100.0 -200.0 Millions -300.0 -400.0 -500.0 -600.0 -589.3 -700.0 CPE CPE CRZO Shareholders Success Fee Golden Parachute…
CARRIZO COMBINATION WILL LEAD TO MULTIPLE DECLINE Since Deal Announced Future With Carrizo 5.0x 4.5x 4.0x 3.7x 3.6x 3.3x EV/2020E EBITDA 3.0x 2.0x 1.0x 0.0x Callon Callon PF Multi-Basin Eagle Ford (7/12/19)…
CARRIZO DEAL INCREASES LEVERAGE (IMPACT OF 350M OF ASSETS SALES INDETERMINABLE WITHOUT MORE INFO) P F ( 3 5 0 m CP E CRZO Adj* PF asset sales) Rev o lv er* 178 841 362 1,381 1,031 N o tes 1,000 900 0 1,900 1,900 P referred 0 200 0…
NET DEBT EXPLODES FROM 1.2 BILLION TO 3.5 BILLION Net Debt 4,000 3 ,463 3,500 3,000 2,500 3.0x Millions 2,000 1,500 1 ,162 1,000 500 0 Callon Pro-Forma Source: Bloomberg, Callon Petroleum Proxy Filed…
INTEREST EXPENSE & PREFERRED DIVIDEND SET TO NEARLY TRIPLE Est. Annual Interest Expense & Preferred Dividend 200 184 180 160 1 75 (if pref 140 redeemed 2.7x with short-term 120 debt) Millions 100 80 69 60 40…
CALLON MATURITIES CURRENTLY WELL SPACED OUT Debt Maturity Profile 2,500 2,000 1,500 Millions 1,000 500 600 CPE Notes 400 CPE Notes 178 CPE Rev 0 2023 2024 2025 2026 Preferred Source: Callon 2Q19 10Q,…
CALLON MANAGEMENT USES UNRELIABLE NON-GAAP DEFINITIONS Carrizo current working capital is NEGATIVE 276 million Callons cash flow projections also exclude: capitalized interest costs; preferred dividends; some capitalized G&A…
COMPANYS NON-GAAP FREE CASH FLOW IGNORES REAL COSTS 2020-2021 Cash Flow Bridge Unclear if or what portion of 300 cash expenses included in FCF definition. Company provides no reconciliation between 200 GAAP and non-GAAP figures…
EVEN ACCEPTING CALLONS OVERSTATED PROJECTIONS, DEAL IS SIGNIFICANTLY DILUTIVE Stand-Alone Stand-Alone Projections Projections From From Proxy Filed S4: 9, 2019 October 1.06/share -32% Dilution Pro-Forma Projections…
PROPOSED TRANSACTION IS DILUTIVE ON NAV PER SHARE N AV/share I mpact BM O: Dilutive by 8% RS E nergy: Dilutive Credit Suisse: Dilutive by 7% Tudo r P ickering & Ho lt: Dilutive Co wen: Dilutive by 12% Source: BMO, RS…
OPERATIONAL SYNERGIES WAY OVERSTATED AS LITTLE ACREAGE OVERLAP Source: Bernstein Research Red denotes Callon acreage, Green denotes Carrizo acreage The content of this presentation has been gathered from sources believed to be…
EVEN SO, MOST SYNERGIES UNJUSTLY TRANSFERRED TO CARRIZO SHAREHOLDERS 900 800 700 Callon 291m (54% of Shareholders remaining synergies) 600 (37%) Millions 500 400 248m (46% of Callon remaining synergies) 77m…
III. Sell Side Research 16
PROPOSED TRANSACTION EXPENSIVE AND LACKS MERIT Source: Credit Suisse as of July 15, 2019 The content of this presentation has been gathered from sources believed to be reliable but its accuracy cannot be guaranteed. The views…
SELL SIDE QUESTIONS RATIONALE, SYNERGY REALIZATION & EXECUTION Source: Credit Suisse as of July 15, 2019 The content of this presentation has been gathered from sources believed to be reliable but its accuracy cannot be guaranteed.…
DEAL IS DILUTIVE AND INCREASES LEVERAGE Source: BMO as of July 16, 2019 The content of this presentation has been gathered from sources believed to be reliable but its accuracy cannot be guaranteed. The views contained in this…
SUDDEN DEVIATION FROM STRATEGY SURPIRSED MARKET Source: Simmons Energy as of July 16, 2019 The content of this presentation has been gathered from sources believed to be reliable but its accuracy cannot be guaranteed. The views…
CARRIZO INFERIOR QUALITY RELATIVE TO CALLONS Source: Barclays as of July 22, 2019 The content of this presentation has been gathered from sources believed to be reliable but its accuracy cannot be guaranteed. The views contained in…
IV. Path Forward 16
CALLON SHOULD REDUCE COSTS WHILE PURSUING SALE Source: Tudor Pickering Holt & Co as of September 10, 2019 The content of this presentation has been gathered from sources believed to be reliable but its accuracy cannot be guaranteed.…
CPE HAS CONSISTENTLY UNDERPERFORMED SINCE REPOSTIONING. GIVEN SUBPAR PERFORMANCE, BOARD SHOULD PURSUE A SALE Comparative Stock Price Return YTD 1 Year 2 Year 3 Year 4 Year CPE (41%) (68%) (66%) (74%) (56%) XOP (22%) (49%) (37%)…
CALLON SPENDING HAS MASSIVELY INCREASED; TIME TO BRING CAPEX AND G&A EXPENSE DOWN Callon Operational Capital Expenditure Callon Expensed & Capitalized G&A 600 90 546 79 508 80 500 +102% +222% 70 60 400 372 60 50…
CALLON BETTER OFF WITHOUT CARRIZO, COULD BE WORTH UP TO 61% MORE Since Deal Announced Future Without Carrizo 5.0x 4.5x 4.2x 4.0x 3.6x 3.3x EV/2020E EBITDA 3.0x 2.0x 1.0x 0.0x Callon Callon Callon All Permian…
STOCK OWNERSHIP INSULTINGLY LOW RELATIVE TO CUMULATIVE PAY Cum ulativ e Shares P ay Since N am e P o sitio n Owned As % 2015 Jo seph Gatto CEO 346,694 0.2% 13,929,685 Jam es U lm CFO 22,269 0.0% 3,211,130 Jeff Balm er COO 133…
CALLON BOARD DODGES REAL STRATEGIC REVIEW Board claims to have evaluated and considered several alternatives for maximizing shareholder value over the past two years. However the Board: Failed to engage external advisors to…
CALLON BOARD ONLY PAYS LIP SERVICE TO STRATEGIC CONCERNS Additional disclosure language was only added defensively after the public release of Paulson letter Difference Between S4 Dated September 20 vs. August 19 Source: Callon…
CALLON WAS THE ONLY CARRIZO SUITOR TO RAISE BIDTWICE Source: Callon Petroleum Proxy Filed October 9, 2019 Page 77, 82, and 83 The content of this presentation has been gathered from sources believed to be reliable but its accuracy…
CALLON FAIRNESS OPINION LACKS DETAIL, IN STARK CONTRAST TO CARRIZO CRZO (RBC Opinion) CRZO (Lazard Opinion) CPE (JPM Opinion) Source: Callon Petroleum Proxy Filed October 9, 2019 Page 111, 122, and 131 The content of…
CALLON ADVISERS INDICATE MINIMAL VALUE CREATION EVEN ASSUMING 100% OF SYNERGIES Source: Callon Petroleum Proxy Filed October 9, 2019 Page 111 The content of this presentation has been gathered from sources believed to be reliable…
EXCHANGE RATIO AT VERY HIGH END OF ADVISERS NAV ESTIMATE Source: Callon Petroleum Proxy Filed October 9, 2019 Page 111 The content of this presentation has been gathered from sources believed to be reliable but its accuracy cannot…
CALLON FAIRNESS OPINION USED INAPPROPRIATE PEER GROUP Predominantly Permian Producer Stock Price Was Influenced By Strategic Review Permian Only Producer Notably this peer group excludes: Eagle Ford producers including…
CALLON FAIRNESS OPINION LACKS CRITICAL MANAGEMENT SELLING POINTS Fairness Opinion Lacks: Details on GAAP accretion of all key per share financial metrics Details on pro-forma credit profile despite claims of strong balance…
CARRIZO PERMIAN ASSETS HAVE SIGNIFICANTLY LOWER OIL CUT June 13, 2019 (Guidance Update Following Divestiture of Southern Midland Basin Assets) July 15, 2019 (Carrizo Announcement) Source: Company Filings The content of this…
PROPOSED ASSET SALES LACK MEANINGFUL DETAIL AND NON-DEAL-SPECIFIC Selling Eagle Ford acreage which is the driving force of managements rationale for this deal Incorrectly assumes non-core and fringy property can be sold at…
BOARD REFUSES TO MEASURE MANAGEMENT ON PER SHARE VALUE METRICS 2018 2019 Source: Callon Petroleum Proxy Filed March 27, 2019 Page 38 and 39 The content of this presentation has been gathered from sources believed to be reliable…
NO BUYER VOTE ON COMPENSATION IN RECENT ENERGY DEALS CALLON DEAL TRIGGERS COMPENSATION Buyer Acquiror Target Compensation Vote Concho RSP Permian NO Diamondback Energen NO Encana Newfield Exploration NO Denbury Resources…
PARSLEY ACQUISTION OF JAGGED IS VERY SENSIBLE M&A VERSUS CALLON ACQUISITION OF CARRIZO = VALUE DESTRUCTION JAG/PE CRZO/CPE Strategy: In-basin Out of basin Acreage: Highly contiguous Little overlap Deal Premium: 11% 25%…
CXO/RSPP: SOUND STRATEGY BUT OVERPAID AND OVERPROMISED SYNERGIES CXO vs. XOP Relative Performance Since Deal Announcement 0% -5% Acquisition Close -10% -15% -20% -25% -30% -35% -40% -45% 3/27/18 5/27/18…
CHK/WRD: SOUND RATIONALE BUT CHK STILL TOO LEVERED CHK vs. XOP Relative Performance Since Deal Announcement 0% -5% -10% -15% -20% Acquisition -25% Close -30% -35% 1/29/19 2/28/19 3/31/19 4/30/19 5/31/19…
ECA/NFX: OUT OF FAVOR BASIN DIVERSIFICATION HAS NOT WORKED ECA vs. XOP Relative Performance Since Deal Announcement 15% 10% 5% 0% -5% -10% -15% Acquisition Close -20% -25% -30% 1/31/19 2/28/19 3/31/19…
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