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Callon (CPE) Updates '19 Guidance on Midland Basin Divestment

Callon Petroleum Company CPE recently closed the divestment deal with Sequitur Permian, LLC — involving the non-core assets in the southern Midland Basin — for a cash payment of $245 million. Also, Callon Petroleum updated its full-year 2019 guidance to incorporate the divestment and a previously announced acreage trade in Midland County.

The transaction is in sync with the company’s strategy of monetizing lower margin, non-core properties. This is also in line with its deleveraging targets. Notably, the company had total cash and cash equivalents of only $10.5 million, and debt burden of $1,319.9 million, as of Mar 31, 2019. The deal is expected to help Callon simplify the business structure by focusing on three core operating areas. The latest move can result in lower capital requirements and boost its shareholders’ value.

Here are the details of the updated guidance:

Production: Callon expects full-year output in the band of 38-39.5 thousand barrels of oil equivalent per day (MBoe/d), lower than the prior guided range of 39.5-41.5 MBoe/d. However, the estimated production is pegged much higher than the 2018 actual figure of 32.9 MBoe/d. Per the company, 78-79% of the total output is expected to be oil.

Lease Operating Expense: Callon reiterated its lease operating expense (LOE) guidance in the range of $5.50-$6.50 per barrel. In contrast, the company’s 2018 actual figure was $5.76 per barrel.

Wells on Production: Net operated horizontal wells placed into production for full-year 2019 is expected in the range of 47-49, in line with the prior guidance but lower than the prior-year reported figure of 54.

Capital Expenditure: Following the divestment, which removed net 9,850 Wolfcamp acreage, the guidance for full-year capital expenditure for operational purposes has been revised downward to $495-$520 million from $500-$525 million expected earlier.

Price Performance

Callon has lost 4.9% year to date compared with 3% collective decline of the industry it belongs to.


Zacks Rank & Stocks to Consider

Currently, Callon has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Berry Petroleum Corp. BRY, TOTAL S.A. TOT and Apache Corp. APA. While Berry Petroleum sports a Zacks Rank #1 (Strong Buy), TOTAL and Apache hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Berry Petroleum’s earnings growth is projected at 23.8% through 2019.

TOTAL’s earnings growth is projected at 6.9% through 2019.

Apache surpassed earnings estimates in each of the trailing four quarters, with the average being 31.1%.

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