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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 the Permian Basin of West Texas. In 2009, Callon began a strategic initiative to diversify its operations from strictly offshore Gulf of Mexico by shifting to onshore operations in the Permian Basin of West Texas. The company sold off virtually all of its remaining non-core, offshore assets in the Gulf of Mexico in November and December of 2013, which completed its transition to a Permian Basin pure play.

Callon anticipates 2014 daily production from the Permian Basin to increase by 120% year over year, according to a company news release on February 3, 2014. The company also provided reserve estimates and guidance for the upcoming year.

CPE also presented at EnerCom’s The Oil & Services Conference™ in San Francisco on February 18, 2014.

Permian Production (BOEPD)

Source: CPE Earnings Releases

Permian Positives

The full-scale shift in operations has taken several years, but now CPE is well positioned with a core leasehold of over 34,000 net acres in the oil-prone and prolific Permian Basin. Average 2014 production is expected to reach between 4.7 MBOEPD and 5.1 MBOEPD – a 120% increase over 2013 average production of roughly 2.2 MBOEPD.  Production growth will be driven by the company’s development drilling program.

At year-end 2013, CPE’s net reserves in the Permian Basin totaled 14.9 MMBOE, an increase of 58%, with approximately 9.7 MMBOE being discovered in Q4’13. with a drill bit finding and development cost at a reasonable $15.32 per BOE, as compared to the three-year average of $31.92 per BOE for the 87 companies in EnerCom’s E&P database. PV-10 value also jumped to $301 million at year-end 2013, a 20% increase over year-end 2012. At year-end 2013, half of the reserves are proved developed and 80% consist of oil.

Net production for Q4’13 averaged 2.9 MBOEPD. Despite severe weather conditions, Callon still achieved a sequential quarter increase of 18%, as compared to Q3’13. December 2013 production reached 3.6 MBOEPD, surpassing initial company guidance of 3.5 MBOEPD. The company also made investments in cost-saving infrastructure to develop drilling pads to facilitate future drilling operations.

The company’s two-rig drilling program is targeting primarily the Upper and Lower Wolfcamp B intervals. CPE reported average 24-hour peak rates of 1.1 MBOEPD from seven wells in Q4’13. Oil consisted of approximately 82% to 96% of the total volumes.

Callon has a pipeline of new wells in various stages of completion, creating built-in growth potential in the quarters ahead. At the end of January 2014, the company reported 19 horizontals wells were producing from the Wolfcamp B. Nine additional wells, including one in the Wolfcamp A, have either been drilled or are flowing back, and two of the wells are expected to commence production in February 2014. Average lateral lengths of the horizontals are 7,170 feet and cost $6.7 million apiece. The company is currently evaluating tests from hydraulic fracturing and plans to determine the benefits throughout the first half of 2014.

2014 Guidance

A capital budget of $210 million has been approved for 2014 operations, with $185 million earmarked to drill and complete 34 wells (26 horizontal). The remaining $25 million will be used to effectively plug and abandon non-core properties that were divested late in 2013.

The company will continue its two-rig program and CPE management said it will continue its pad drilling on four core fields aimed at the Wolfcamp A and the upper and lower Wolfcamp B. Approximately 540 drilling locations have been identified on its current acreage.

The 2014 exit rate target of 5.75 MBOEPD is nearly 60% higher than the exit rate in 2013 and its capital program is 100% operated, giving Callon control over the pace of activity and investment. The company is also forecasting lower per-unit costs. Using the midpoint of 2014 guidance, CPE expects drops per unit across the board in lease operating expense (-5%), workover expense (-17%) and G&A expense (-19%).

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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.