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Permian-Focused Callon to Take Eagle Ford Assets in $3.2B Acquisition of Carrizo
Houston-based Callon Petroleum Co.’s board has approved the acquisition of Carrizo Oil & Gas Inc., adding Eagle Ford Shale-centered assets to Callon’s portfolio.
Callon’s board approved an all-stock deal valued at $3.2 billion that would expand the company’s net acreage in the Permian Basin and Eagle Ford to 200,000 net acres, and its position in the Delaware sub-basin to 90,000 net acres. The deal is expected to close in 4Q2019.
Callon shareholders would retain a 54% ownership stake in the merged company, and Carrizo shareholders would hold the remaining 46% ownership interest. Company headquarters will remain in Houston.
“As a larger organization, Callon will be well-positioned to benefit from an expanded infrastructure footprint and critical mass for our production marketing and supply chain functions,” said Callon CEO Joe Gatto.
Callon, in announcing the board’s approval of the deal, also revised up its second quarter production guidance after lowering its full-year guidance in June. The company expects to produce between 40 and 40.5 million boe/d in the second quarter, with 77% of the output coming from oil.
Carrizo said Monday that second quarter crude oil output should average around 44,400 b/d, while overall production is expected to be 65,600 boe/d. The company reported production climbing by 21% in the first quarter year/year in the Permian and Eagle Ford.
The companies produced a combined 102.3 million boe/d in 1Q2019.
Callon said the combination would create scaled development operations across core oil-weighted assets, accelerating free cash flow, capital efficiency and debt reduction. The company expects to run 9-10 drilling rigs and up to four completion crews mostly in the Permian next year after the deal closes.
The tie-up is also expected to help expand large-scale development in the Permian, enabling simultaneous drilling and completion operations, improving production cycle times and reducing well costs. Moreover, Callon said the merger would better allow the integration of Delaware infrastructure and water management, expanding opportunities for water recycling and increasing monetization opportunities with a larger portfolio of noncore acreage for divestment and trades.
Callon expects the acquisition to translate into free cash flow next year, with positive free cash flow generation of over $100 million at current pricing.
Callon brought its largest project to date online during the first quarter as part of a longer-term move toward developing mega-pads in the Delaware sub-basin in 3Q2019.
Callon completed a five-well pad in the southern part of its WildHorse operating area in the Midland sub-basin of West Texas that quarter.
Callon first entered the Delaware in 2016 when it purchased 16,098 net acres from multiple Austin, TX-based entities.
In May of 2018, the company expanded its foothold in the basin when it acquired Cimarex Energy Co.
The Energy Information Administration (EIA) forecasts an increase oil and gas production in the Eagle Ford in August, according to its latest Drilling Productivity Report. The EIA reported a projected increase to 1.35 million b/d of oil and 4.84 MMcf/d.
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