Callon To Acquire Carrizo For $3.2B, Boost Permian Footprint
Zacks Investment Research | Jul 15, 2019 09:07PM ET
Callon Petroleum Company (NYSE:CPE) recently announced that the company has struck an all-stock deal to acquire Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) . Following the news, Callon’s shares declined 15.9% yesterday.
Per the company, the deal is valued at around $3.2 billion, which incorporates about $1.7 billion debt of Carrizo. The acquisition is expected to boost Callon’s footprint in the prolific Permian Basin. However, the company can lose its pure-play Permian status on acquiring Carrizo’s Eagle Ford shale play properties, pointed out by Drillinginfo's Andrew Dittmar. Some investors might be sceptical about this change in status quo.
Per the deal, for each Carrizo stock, its shareholders will receive 2.05 Callon shares. The transaction values each Carrizo share for $13.12, which is a 25% premium to the company’s closing price on Friday. Following the closing of the deal, which is expected during fourth-quarter 2019, shareholders of Callon Petroleum and Carrizo will own around 54% and 46% of the combined entity, respectively.
The combined company is expected to have around 200,000 net acres in the Permian Basin and Eagle Ford shale. Combined production in first-quarter 2019 was 102.3 thousand barrels of oil equivalent per day (Mboe/d), of which 71% was crude oil. The deal is expected to generate more than $100 million of fee cash flow and annual cost-saving synergies in the range of $100-$125 million. This information can be intriguing for investors as Callon’s free cash flow has been negative since 2011.
Notably, upstream companies are currently under pressure from investors, who are no longer supporting drilling programs in the absence of strong cash flows. Currently, investors want these companies to reduce costs, raise share repurchases, and increase returns. As such, the proposed acquisition can quench the company’s thirst for strong cash flows. Markedly, exploration and production companies require larger contiguous space to drill longer horizontal wells, which result in economies of scale and cost efficiency. Following the acquisition of Carrizo, Callon will have around 2,500 total gross horizontal drilling locations.
Second-Quarter Update
Callon expects second-quarter 2019 output in the range of 40-40.5 Mboe/d, of which 77% is anticipated to be oil. Total capital expenditure in the quarter is expected within $162.5-$167.5 million. Lease operating cost during the June quarter is estimated in the range of $6.30-$6.50 per barrel of oil equivalent.
Price Performance
Callon has lost 17.1% year to date against 3% collective growth of the stocks belonging to the Zacks Investment Research
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.