Permian Basin pure-play Callon Petroleum Co., which is in a battle with major shareholders over plans to expand its focus with the takeover of Carrizo Oil & Gas Inc., expects third quarter production to average 37,500-37,900 boe/d, 78% weighted to oil.
The Houston independent said lease operating expenses are forecast to average $5.60-5.80/boe.
"We have continued to make significant progress toward our goal of enhanced shareholder value through growing, repeatable free cash flow generation," CEO Joe Gatto said. "Our field level performance during the third quarter exemplified our team's ongoing efforts to reduce capital and operating costs, which translates into enhanced capital efficiency across the combined asset footprint in 2020 and beyond.
“This incremental value will accrue to our shareholders as we execute on our deleveraging goals and improve overall shareholder returns."
Callon is working to buy Carrizo in an estimated $3.2 billion deal to expand its Permian leasehold and open up new territory in the Eagle Ford Shale. Some Callon shareholders have questioned the value of acquiring the “inferior” Eagle Ford assets. In its third quarter projections issued last week, Carrizo estimated that volumes averaged 69,500-69,600 boe/d, a 6% sequential increase.
Callon said operational capital spending during 3Q2019 is expected to be $114-118 million, in line with projected full-year expenditures of $495-520 million. Pre-hedge realized prices are projected to average roughly $54/bbl of oil and $1.55/Mcf of natural gas.
In reaction, Tudor, Pickering, Holt & Co. said Callon’s preliminary 2020 outlook has a free cash flow (FCF) breakeven of $50/bbl. As it expects $300 million of FCF through 2021 at $55/bbl, “we’ll be looking to see how plans may potentially change with our price deck of $51/bbl for 2020 and $50/bbl in 2021-plus, particularly how management plans to balance growth versus FCF.”
Williams Capital Group LP said the preliminary forecast was in line with pricing expectations but “it may take a couple quarters for investors to see and appreciate the benefits” of the Carrizo acquisition from synergies/asset sales, improved financial leverage and enhanced FCF generation.