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Current CPE Stock Info

Callon Petroleum (ticker: CPE) is engaged in the acquisition, development, exploration and operation of oil and gas properties in Texas, Louisiana and the offshore waters of the Gulf of Mexico. In 2009, Callon began a strategic initiative to diversify its operations from strictly offshore Gulf of Mexico by entering the Permian Basin of West Texas. The company’s move to diversify onshore was made to reduce reinvestment risk and create a strong foundation of visible growth potential.  Callon’s plan is twofold: reinvest cash flow generated from its offshore fields in the U.S. Gulf of Mexico into onshore oil plays, and divest non-core offshore Gulf of Mexico assets to provide increased liquidity and capital to grow onshore.

Last Remaining Deepwater Asset to Divest

The company reported it had authorized the marketing of its 15% working interest (WI) in the Medusa deepwater field and 10% interest in Medusa Spar LLC to prospective buyers. After selling its deepwater Habanero Field late last year, Medusa is Callon’s last remaining  deepwater asset. As of year-end 2012, the Medusa field was credited with 3.9 MMBOE of proved reserves net to CPE with a pre-tax present value, discounted at 10%, of approximately $180 million. During 2012, the Medusa field produced 464 MBOE (1,268 BOEPD) net to Callon from eight wells, which accounted for 29% of company-wide production in 2012.

Previous Sale of Deepwater Assets

Callon has a track record of being able to successfully market its offshore assets. Back in November 2012, CPE sold its 11.25% WI in the Habanero field to Shell Offshore Inc., a subsidiary of Royal Dutch Shell plc (ticker: RDS.B) for $42 million. To put the company’s onshore transformation in perspective, at year-end 2009, 17% of CPE’s total proved reserves of 9.7 MMBOE were located onshore and the company’s onshore production was 350 BOEPD during Q4’09. Pro forma for the Habanero sale, CPE reported that its onshore assets represent 67% of total company proved reserves of approximately 14.6 MMBOE (primarily in the Permian Basin) and 51% of pro forma October 2012 production of 4,390 BOEPD (63% crude oil).

 

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Thoughts on Callon

If the company divests its final deepwater asset, Callon’s offshore presence will be limited to legacy fields in the shallow waters of the GOM shelf region, which accounted for only 4% of its year-end 2012 proved reserves and 22% of its total production in 2012.

The intended sale signals Callon’s commitment to the Permian Basin and would provide additional capital to accelerate drilling and production from its Permian properties, an area that continues to attract industry attention. Pioneer Natural Resources (ticker: PXD) made a presentation earlier this month in which they said they believe the Midland Basin Wolfcamp and Jo Mill Shale plays combined hold an estimated recoverable resource of 50 billion barrels of oil equivalent, making it the second largest field in the world. Needless to say, Callon chose an excellent growth play.

Callon believes the additional capital generated from the sale could provide them with the financial strength and flexibility to pursue complementary Permian basin acquisitions with an improved overall cost of capital. Thanks to continued execution of its business strategy, Callon is close to becoming a pure-play Permian Basin story.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.