Houston-based Callon Petroleum Co. expects to control more than 110,000 net acres in the Permian Basin’s Delaware formation after clinching an estimated $788 million cash-and-stock deal to buy private explorer Primexx Energy Partners Ltd.
Primexx, headquartered in Dallas, has around 35,000 net acres in the Delaware sub-basin within Reeves County in West Texas. The partnership produced 18,000 boe/d net in 2Q2021. Based on the production volumes, Callon valued the transaction at around $43,800 per boe/d.
“The Primexx transaction checks every operational and financial box on the list of compelling attributes of consolidation,” Callon CEO Joe Gatto said. “The asset base adds substantial current oil production and a top-tier inventory to our Delaware portfolio, and fits squarely into our model of scaled, co-development of a multi-zone resource base.”
As part of the deal, private investor Kimmeridge Energy Management Co. agreed to convert into common shares its remaining portion of Callon second lien senior notes once the transaction is completed. The equitization would save nearly $20 million a year in interest costs, Gatto noted.
Primexx now is running a two-rig program, which would be eased into Callon’s development plans. The acreage has about 300 identified net locations, two-thirds of which are two-mile laterals.
Primexx also has invested in gathering and water management infrastructure that includes 80,000 barrels/day of water recycling capacity and 60 miles of water transfer lines. The infrastructure would more than double Callon’s Permian water recycling capacity.
Under terms of the transaction, set to be completed by year’s end, Callon agreed to pay $440 million in cash and trade 9.19 million shares of stock.
Prices Up, Output Down
Callon also issued its 2Q2021 results on Wednesday, noting that production volumes fell from a year ago in the Permian and Eagle Ford Shale.
In part on asset sales, production fell year/year to average 89,000 boe/d versus 108,664 boe/d in 2Q2020. Permian output fell to 61,948 boe/d, compared with year-ago volumes of 69,858 boe/d. Eagle Ford volumes declined to 27,033 boe/d from 38,806 boe/d.
At the end of June, Callon had 1,359 net wells producing from established flow units in the Permian and Eagle Ford. During 2Q2021, Callon drilled 6.5 net wells and placed online a total of almost 45 net wells from the Permian Delaware and Midland sub-basins and Eagle Ford.
Callon fetched an average realized oil price of $46.82/bbl in 2Q2021, compared with $33.82 a year ago. Realized natural gas prices averaged $2.25/Mcf, compared with 97 cents a year ago. Natural gas liquids prices climbed to an average of $23.21/bbl from $8.74.
“The third quarter is off to a tremendous start, with July production volumes well ahead of our second quarter average and our commodity price realizations are projected to benefit from the reduction in overall hedged production,” Gatto said.
Callon plans to run up to four drilling rigs across its Lower 48 acreage through the end of the year. Completion activity and wells turned to production are to be focused mostly in the Permian.
During 3Q2021, production is expected to be 95,500-97,500 boe/d, 64% weighted to oil. Operational capital spending in the quarter is forecast to be $120-130 million.
Callon reported a net loss of $11.7 million (minus 25 cents/share) in 2Q2021, which included a hedging loss of nearly $191 million. In 2Q2020, net losses totaled $1.56 billion (minus $33.97).
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