Page 5 - NorthAmOil Week 28

NorthAmOil COMMENTARY NorthAmOil
Callon’s purchase of Carrizo comes as shale drillers struggle
Callon Petroleum is buying Carrizo Oil & Gas for $1.2bn, in a deal that comes as the shale industry’s challenges become increasingly apparent, writes Anna Kachkova
US
WHAT:
Callon is buying Carrizo for $1.2bn.
WHY:
The companies are seeking to achieve considerable synergies and cost-cutting through this transaction.
WHAT NEXT:
Similar deals are likely to remain rare, though major players could still snap up small companies.
CALLON Petroleum announced on July 15 that it would buy Carrizo Oil & Gas for $1.2bn in stock, with the deal appearing to illustrate the shale industry’s recent struggles. Drillers have come under considerable pressure from shareholders recently to prioritise returns over production growth, and with oil prices still low and further volatility expected, this has created a more challenging operating environment. Indeed, Lion Point Capital – Carrizo’s fourth largest shareholder –urged the company in May to look at a potential merger or sale in order to achieve scale. is follows similar pressure on the company from Kimmeridge Energy Man- agement a er the latter boosted its stake in Car- rizo last year.
Big deal
e deal comes during a period of comparatively muted consolidation activity, Occidental Petro- leum’s looming acquisition of Anadarko Petro- leum notwithstanding. e transaction is valued at $3.2bn, including $1.7bn of Carrizo’s debt. It is anticipated to bolster Callon’s presence in the Permian Basin and Eagle Ford shale regions.
The combined company will have about 200,000 net acres (809 square km) across the two shale regions. Combined, the two companies produced over 100,000 barrels of oil equivalent
per day (boepd) in the rst quarter of 2019, with oil comprising nearly three quarters of this.
Callon said it anticipated the deal to generate positive free cash ow of over $100mn at current pricing and save $100-125mn per year in costs.
“As a portfolio, our increased level of large project initiatives in the Permian Basin will be balanced by sustained investment in shorter-cy- cle and less capital-intensive projects in the Eagle Ford shale,” the companies said in a statement. “Based on initial plans for capital allocation within the combined portfolio, Callon forecasts its free cash ow breakeven WTI crude oil price to progress to under $50 per barrel by 2021.”
e companies are also projecting that a total of $850mn in net present value (NPV) will be generated from the “primary synergies” stem- ming from the combination. These include expanded large-scale development in the Per- mian Basin, involving the deployment of simul- taneous drilling and completion operations, improved production cycle times and reduced well costs. e companies also expect to speed up the combined entity’s development schedule and to bene t from improved uptime thanks to concentrated development.
Under the terms of the transaction, Carrizo shareholders will receive 2.05 Callon shares for each share held, or about $13.12 per Carrizo
Source: US Energy Information Administration
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