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Shale Consolidation: Callon Acquiring Carrizo in $3.2 Billion Stock Deal

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Callon Petroleum Company is making a move to acquire Carrizo Oil & Gas in an all-stock deal that is worth $3.2 billion, according to a release issued by the two Houston-based companies on 15 July.

Based on current share prices, the equity value of the deal is about $1.2 billion. Callon shareholders will own about 54% of the combined company, while Carrizo shareholders will own the rest.  

“Together with Carrizo, we will accelerate our free cash flow, capital efficiency, and deleveraging goals through an optimized model of large-scale development across the portfolio,” Callon’s Chief Executive Officer Joe Gatto said in a statement.

The combined company will produce more than 102,000 BOE/D (71% oil). Its land holdings will amount to approximately 200,000 acres in the Permian Basin and Eagle Ford Shale—the two largest oil-rich basins in Texas. This includes 90,000 acres in the Delaware Basin side of the Permian, where Callon estimates it will have about 2,500 horizontal well locations upon the deal finalizing late this year.  

Callon also said it will have between 9-10 drilling rigs and 3-4 completion crews working in 2020. Most of its focus will be in the Permian acreage where the acquisition will achieve “the critical mass to realize supply chain savings and sustain simultaneous operations initiatives.”

Corporate presentations detailing the acquisition outline how the combined entity will find new cost efficiencies, including up to $45 million in general and administrative costs.

Callon also hopes to find between $65-$80 million in savings through “operational synergies” that include switching to “mega-pads” (or cube drilling) to reduce impacts caused by the well-to-well interactions known as frac hits. This means the company will transition away from developing mostly on single well pads and toward creating pads where most of the wells are being drilled and completed around the same time, a tactic adopted to preserve reservoir pressures and mitigate fracture driven interactions.

Last month, Comstock Resources announced plans to purchase its Haynesville Shale peer Covey Park for $2.2 billion in cash and stock. The year’s biggest blockbuster acquisition, Occidental Petroleum’s takeover of Anadarko, is expected to be approved by Anadarko shareholders in August. 

Shale Consolidation: Callon Acquiring Carrizo in $3.2 Billion Stock Deal

15 July 2019

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