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Callon Petroleum Forecasts 2019 Production & Capital Outlay

Zacks Equity Research

Callon Petroleum Company CPE has unveiled 2019 production and capital expenditure budget.

In 2019, the company anticipates annual production between 39.5-41.5 thousand barrels of oil equivalent per day (MBoe/d), up more than 20% from the current estimate of 32.7 MBoe/d for 2018. Of the total, 77-78% of production in 2019 will be oil.

The completion activity will be mainly concentrated on the Midland Basin in the first half of 2019. In the second half of the year, focus will shift to a high proportion of multi-well pads in the Delaware Basin. In 2019, the company plans to target seven discrete flow units but the largest amount of wells is anticipated for the Wolfcamp A (upper and lower intervals).

Notably, Callon Petroleum’s plan includes15% increase in lateral length to about 8,400 feet as its adjacent Delaware Basin position enters program development. This is enabling the company to bring about 15% more net lateral feet online in 2019 in spite of a decline in net wells placed on line (47 to 49 wells) relative to 2018. The company expects to run an average of five drilling rigs to support larger and more efficient multi-well pad development.

Callon Petroleum expects operational capital expenditures in 2019 to decline to the range of $500-$525 million. The planned operational expenditures allotment for Delaware Basin is expected to increase to about 60% of the total amount, due to a shift to larger pad development in its Spur area as well as to optimize development in the multi-zone resource base.

The company estimates 2019 capitalized general & administrative expenses of about $25-$30 million and expects to benefit from 100% of cash interest expense that will otherwise be reflected on the income statement

As of Dec 31, 2018, the company posted proved reserves of crude and natural gas at 238.5 million barrels of oil equivalent (MMBoe), up 74% in total proved reserves and 85% in proved developed reserves from the level on Dec 31, 2017.Of the total proved reserves, 54% developed and 76% is oil. At the end of 2018, the PV-10 value1 of proved reserves totaled $3.1 billion, with a proved developed producing reserves value of $2.2 billion.

Callon Petroleum’s production growth rate is expected to be lower compared with previous years. However, the combination of a well-established Midland Basin operation and the rising impact of large pad development in the Delaware Basin position the company favorably in the longer term with capital expenditures within or below internal cash flows.

Zacks Rank & Key Picks

Callon Petroleum carries a Zacks Rank #3 (Hold).

A few better-ranked players in the energy space are Evergy, Inc EVRG, Canadian Solar Inc CSIQ and Contura Energy CTRA, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Evergy, through its operating subsidiaries — Kansas City Power & Light Company (KCP&L) and Westar Energy, Inc — provides clean, safe and reliable energy in Kansas and Missouri. The company delivered average negative earnings surprise of 11.1% in the last four quarters.

Headquartered in Ontario, Canada, Canadian Solar operates as a vertically integrated manufacturer of silicon ingots, wafers, cells, solar modules (panels) and custom-designed solar power applications. The company is expected to witness year-over-year earnings growth of 67.5% in 2018.

Bristol-based Contura Energy is a mining company. The company reported average negative surprise of 17.9% in the trailing four quarters.

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