Callon Petroleum Expects 50% Production Growth for Permian

Callon Petroleum Expects 50% Production Growth for Permian

Callon Petroleum (NYES: CPE) is a pure play Permian operator focused in Midland,Howard and Regan counties and is currently running a one rig program. Callon achieved production of 12,440 Boepd during the first quarter realizing production growth of 45% since the first quarter of 2015. Second quarter production is forecasted to be 14,000 Boepd at the midpoint. CPE expects to reduce fracturing cost by 62% from the last quarter of 2014 in the second quarter of 2016.

Big Star Acquisition Adds Inventory of Extended Laterals

The recent acquisition of Big Star assets included 14,089 net acres having about 165 net locations located mostly in Howard county. The acquisition was announced in April of 2016 and closed May 31, 2016. The acreage in Howard county from Big Star had estimated first quarter 2016 production of 1,931 Boepd. With the acquired acreage from Big Star there is no drilling activity need in 2016 to hold acreage and 2017 requirements can be meet with less then one rig. The majority of locations that Callon has added to their inventory are expected to be long laterals extending longer then 7,500 feet.

enter image description hereSource: Callon Petroleum Investor Presentation

Gaining Acreage with Reduced Capital

The Reagan County AMI (area of mutual interest) transaction which was announced with the Big Star Acquisition has helped Callon gain a leasehold position in an area in which they “view highly”. This AMI transaction has lowered the initial investment to acquire acreage in Regan County. The AMI consists of acquiring 55% of the new acreage (5,736 gross acres) and $33 million in cash as well as 27.5% of legacy Garrison Draw leasehold with is 3,204 gross acres.

enter image description hereSource: Callon Petroleum Investor Presentation

What is to come?

Callon’s current one rig program and expected 50% production growth Y-o-Y doesn’t include the potential to increase activity in the second half of the year which is encouraging. The companies base case includes returning to a two rig program in the fourth quarter of 2016 with a focus in Howard County. This base case has the assumption that oil prices will be in the $40 to $45 range in 2017. With oil now trading at about $50 which is the highest this year things are looking up, but lets not jump the gun we still have to get through the second half of the year.

enter image description hereSource: Callon Petroleum Investor Presentation

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