Update: Pricing Announced
Callon Petroleum (ticker: CPE) upsized its stock offering one day after its original announcement, increasing the total to 12.0 million shares with a greenshoe of 1.8 million additional shares. The first round of stock offerings is expected to yield gross proceeds of approximately $100.8 million. Taking those metrics into account, the greenshoe would boost the gross proceeds to approximately $115.9 million. Management plans on using the proceeds to pay off the amount outstanding on Callon’s credit facility, which was $99 million as of September 30, 2015.
Accesses Capital Markets
Callon Petroleum (ticker: CPE) has increased its net surface footprint in the Permian Basin by 628 acres for total consideration of $29.5 million, according to a press release on November 9, 2015. Callon gains net production of 360 BOEPD (84% oil) and assumes full working interest (79.19% net revenue interest) of the Carpe Diem field, where the company originally held roughly 85% working interest (67.12% net revenue interest). The Permian pure-play E&P also adds average net working interest of 3.75% (2.81% net revenue interest) in the Casselman-Bohannon fields, bringing its updated stake to 66.45% working interest (49.83 net revenue interest).
Callon plans on directing 80% of its 2016 capital plan to the two regions, equating to about $88 million of its $100 million budget. Year-over-year growth is targeted at 20%, which would place average volumes at more than 11,500 BOEPD. If achieved, the volumes would be more than 40% higher than its preliminary estimates in February 2015. CPE plans on dedicating two rigs to 2016 regional development and expects to drill 17.1 net horizontal wells (prior to the latest acquisitions).
The company commenced a stock offering simultaneously with the acquisition announcement, and offered 10 million shares of common stock with and underwriters option for an additional 1.5 million shares. Callon last accessed the markets in March 2015, receiving net proceeds of $65.7 million for about 10.3 million shares. Similarly, the company tapped the markets in September 2014, selling about 14.4 million shares for net proceeds of $122 million.
Including the greenshoe, the offering will increase Callon’s share count by about 17%. Assuming the stock purchases are fully exercised, the company will have increased its share count to about 77.7 million from Q2’14’s total of just 40.6 million. In the meantime, the company will have increased its volumes to 10,099 BOEPD from 5,280 BOEPD.
Callon at Home in the Permian
The Lower Spraberry is the focus of operations moving forward, as more than 90% of drilled wells will target the formation. Type curves from the Lower Spraberry in the central part of the basin have estimated ultimate recovery of 912 MBOE, with costs of $5.9 million for a 7,500 foot well. The economics provide a payout in less than 20 months at $50/barrel prices. Callon estimates approximately 500 gross locations on its Midland Basin assets can provide 20% internal rates of return even if West Texas Intermediate prices remain in the $40 to $50 range.
In a conference call discussing the company’s Q3’15 results, Fred Callon, Chairman and Chief Executive Officer of Callon Petroleum, said the company continues to be opportunistic when Permian opportunities arise. “Tt’s just very difficult on the larger opportunities, but I will say though on smaller bolt-on type opportunities, we’re continuing to make some progress. I think that’s an area where I think we can make some progress certainly in the short-term.”
