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Why Is Callon (CPE) Down 67.4% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Callon Petroleum (CPE). Shares have lost about 67.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Callon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Callon’s Q4 Earnings Top Estimates on Oil Production

Callon Petroleum Company reported fourth-quarter 2019 adjusted earnings of 23 cents per share, beating the Zacks Consensus Estimate of 16 cents. Moreover, the bottom line rose from 17 cents a year ago.

Operating revenues of $196.1 million surpassed the Zacks Consensus Estimate of $180 million and increased from the year-ago quarter’s $161.9 million.

The strong quarterly results were driven by a surge in oil and gas production volumes, and higher crude price realizations.

Proved Reserves

At the end of 2019, the company had net estimated proved reserves of 540 MMBoe, rising 126% from 2018 levels. Of the total net proved reserves, 346.4 MMBbls was crude oil. Notably, it replaced 212% of production in 2019.

Production Surges

In the quarter, net production volumes averaged 46,641 barrels of oil equivalent per day (Boe/d), reflecting an increase from the year-ago period’s 41,087 Boe/d. The improved volumes were supported by the company’s large-scale development project in the Delaware Basin. Of the total fourth-quarter production, 75% was oil.

Oil production in the quarter was 3,234 thousand barrels (MBbls), higher than year-ago level of 3,076 MBbls. Natural gas production rose to 5,530 MMcf from 4,225 in fourth-quarter 2018. Also, NGLs production in the quarter was recorded at 135 MBbls.

Price Realizations (Without the Impact of Cash-Settled Derivatives)

The average realized price per barrel of oil equivalent was $45.70. The figure rose from the year-ago quarter’s $42.83 a barrel. Average realized price for oil was $56.61 per barrel compared with $48.89 a year ago. However, average realized price for natural gas came in at $1.98 per thousand cubic feet, down from $2.72 in the prior-year quarter. Notably, average realized price per barrel of NGLs was recorded at $15.37.

Total Expenses Increase

Total operating expenses in the quarter amounted to $177.7 million, higher than the year-ago level of $103.6 million. However, lease operating expenses were recorded at $5.90 per Boe in the quarter under review compared with $6.47 a year ago.

Capital Expenditure & Balance Sheet

Capital expenditure in the reported quarter was almost $137.1 million, lower than the year-ago figure of $155.8 million.

As of Dec 31, 2019, the company’s total cash and cash equivalents amounted to $13.3 million, and long-term debt was $3.2 billion, with a debt-to-capitalization ratio of 49.7%.

Guidance

For 2020, Callon’s production is expected in the range of 115-120 Mboe/d, indicating an increase from 41.3 Mboe/d in 2019. Of the total output, 66%, 17% and 17% are expected to be oil, NGL and natural gas, respectively. Of the total crude oil production, 60% is already hedged.

In the first quarter, the company’s production is expected in the range of 95-100 MBoe/d, of which 65% will be oil. Of the total first-quarter crude oil output, 70% is hedged.

Operational capital expenditure guidance for 2020 is expected to be $975 million, suggesting a rise from the 2019 level of $515.1 million. Of the total drilling, completion and equipment expenditure budget, 70% will be directed toward the Permian Basin.

It expects 165 gross operated horizontal wells to be drilled in 2020.

The company expects lease operating expenses in the range of $195-$235 million for 2020, implying an increase from $91.8 million in 2019. Gathering, processing and transportation costs per BOE are expected within $1.55-$1.95.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -21.99% due to these changes.

VGM Scores

Currently, Callon has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Callon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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