CPE - Earnings call transcript Q1 2021

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Operator

Good day, and welcome to the Callon Petroleum Company First Quarter 2021 Earnings Conference Call. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Mark Brewer, Director of Investor Relations. Please go ahead.

Mark Brewer

Thank you, Sean. you first the and quarter thank us to webcast. and our on ‘XX morning, for time taking join Good conference call Chief With our are morning Executive and me Officer; Joe Dr. this President Gatto, Officer. Chief our Jim Chief Officer; Jeff Balmer, Operating Ulm, and our Financial

prepared download the results During you already. the posted presentation remarks, presentation I so be our to if afternoon website, we’ll encourage we referencing our earnings yesterday everyone to haven’t

of the find within on our website Presentations and located section slides Events the page Investors You our www.callon.com. at can

I’d we review today’s Before Slide disclosures remind our cautionary like of begin, to included everyone statements, presentation. X important to disclaimers, and on

We will across measures these today, in to to our results today’s Actual could financial that make differ We’ll help facilitate some comparisons periodic materially non-GAAP with SEC peers. slides refer and filings. and the during also on call to due refer which estimates noted plans. forward-looking some believe our and to periods we statements factors

reference, reconciliation For measures provide to GAAP corresponding any measure. we the nearest non-GAAP we a

reconciliations find website. press earnings presentation the and slides which may Appendix to in our You both available on in of are our release, the these

we call With I’d over for to Following open that, call prepared to turn Q&A. the Gatto. will like Joe remarks, the

Joe Gatto

Mark. Thank you,

those as that asset waver from in establishing of critical and a measured, improving can a us our results as backdrop, for terms execution are its the is not differentiate rebounded, commitment maintain sector capital. glad companies through quarter everyone sustainable investors We’re has to could themselves discipline to firmly join this to another on and and with of longer-term reinvestment have goal Against footing levels today shift moderated activity solid assess we rates industry review returns improving business Callon. models quality prices found of corporate more cycles. Commodity the and it

ultimately We free reducing Callon for the our a monetization asset since and a capital our an position financial for evidenced organization, increasing at flow flow million recent base will last full-year as flow and the quarter to cost to value at consecutive by continuing delivered of strip methodical remains streams. down Delaware by absolute top-tier generating million cash focus ongoing visibility, are cash overlay estimate further on prices. This and of Our middle supplemented program unchanged, roughly fourth of strengthen our Basin debt $XXX our robust our XXXX almost decrease levels, which year. recent $XXX divestitures, free cash

margin metrics rate also EBITDA of We increases as the credit alongside profile. our improvement our XXXX an acceleration production anticipate in of cash strength and

to generation flow process We field we value on financial In to across the and are into while that have our value optimize priorities, full development steadfastly the our operational and efficiency lockstep sustainability longer-term our committed improved targets program proposition. lasting and preserving impacts of capitalize believe we company with over free our reinvestment changes translate rates asset and incorporated time. will shareholder have cash

compensation impact Earlier our and top was boxes reaffirmation this the from a the by to the million. solidifying per Including and we’ve operating received $XX second included that debt consensus came quarter fourth commitment last sales from operating have base capital significantly outlining we ESG of as changes And quarters year with new accountability gas steadily Comprehensive workover face nearly we important have street our of quarter day the expenses. our exceeded and million up release and a changes $XX year, the a improved term. with expectations. Operational of oil balances the our credit estimates our driving press than acreage, program of free goals million in to of week, in our the since the borrowing associated Turning liquidity internal we consensus quantitative generation issued highlights adjusted XX% cash posted three to margin end. weather cash our In of now EBITDA first of achieving winter roughly solid checked pre-hedge of against higher-than-anticipated both we bank by unanimous medium efforts consensus delivered below we XXXX. X, decrease. reductions Field In our flow $XXX position for levels, quarter and agreements for Add that hit that greenhouse announced $XXX approximately to lease total qualitative proceeds emissions and $XXX reduction combined a remaining several million, compensation Delaware operations pricing, BOE XX,XXX the flow in impacts, will an both continue facility of in advanced generation our free targets. to million. cut. program March, executive our produced Slide and more executive proceeds of announcing year control monetization noncore and estimates our the the near

projects several we environmental will see on footprint. sample impact to you updates left-hand And X, last that provided quarters, our the the a have side of can address Over initiatives XXXX. regarding the of Page our key

a believe can’t at time the in remaining which to and and are the our decrease addresses incentive compensation X programs list our charts, set ESG redesign XX% value to I with with including has investor all organization, based on strategic flaring a XX the broader by illustrated program of goals. of across firmly toward outcomes frame. meaningful we the metrics The summarizes page, and our on a executive goals annual the accomplished board’s us that dynamic the The the XXXX on corporate seen specific the to the ambitious Slide of components creation. sustainability. progress XX% on GHG to bar on and based corporate intensity both and This elimination projects. mindset to longer-term in assessment financial in changes positioned only XX% change same long-term now Callon. last of priorities routine entire the It powerful requires stressed quantitative short-term I outlined through aligned top have As be call, is the progress incentivize emphasize occur

program stock performance over by plan The be units total undergone Importantly, flow has being traditional the a replaced performance payout of period. a for meaningful will based value with that on capped at change be free event the calculated XXX% for return relative will annual negative. shareholder generation price cash year also cash the maximum the of three- year target is long-term incentive in units

on if threshold performance will flow payouts returns are capped of on period. corporate over calculated employed be the LTI achieved free addition, based not cash the levels In capital

any cash with light $XX impressive bar is to the On per-unit difference margins. considering the conversation hedge the building margins, in lost blue This first-quarter margin On a expenses is corporate increase X, diamond caused the Storm the the can you on per of cash by in an stack BOE cash of event-driven of between production generation, blocks over Uri. Winter hedged basis. which topic expansion free all-in see Slide starts flow the from

benefit and Jeff. In continue increasing our Over of upside the the up increased of to regions of margin per to XX% will contributing hedge corporate XXXX. level benchmark pricing book significantly to BOE meaningfully margin to of and quarter At the XXXX, portfolio the a we going full-year chart course point, quarter operating Ford field operating call pricing approaching $XX.XX, right, fourth Eagle in cash Overall, increase realized Permian the of diversification to with assuming $XX.XX our pricing corporate realized both progression per from profitability. this the the an the oil. our $XX current our our representing to for participation, both barrel XXXX, on turn all-in of I’m was resulting in for over consensus over expose the

Dr. Jeff Balmer

Thanks, Joe, everybody. good and morning,

X So on right we’ll now. Slide be

loading something our development of with charts lower of Over has productivity our oil, In team on been well both that working a an quarters, been start overall. can well cut reduced water oil acceleration Basin having to to reduced an in and peak designs, reaching our in development real able completion time, program. and overall number you in see water costs. levels on that’s improved cost, trend an here, ongoing which for in impact resulted our a Midland and we’ve the shift has Let’s

All contribute a the from well we these lower timing perspective. as of greater forward to bring profitability cost revenue and

Spraberry feet operations. was Wolfcamp impacts recently reduced, volumes. in fleets powered vertical by the impacts total, infrastructure say lateral standard And project. we our three after completed work averaged did a In Northwest setups our Howard the this than together contains using we so team gas fleet. par electric could multi-well The leveraging an speaking completed fleet proud completion XX,XXX multi-zone, pulling that In in wells on multi-zone further County. Wolfcamp per job some addition, efficiency to A development environmental X, access I’m of the fantastic through Lower per be a completion on on our our that fuel produced of Completion frac and the B and first well expectations that very for our with is initial more water of the usage mitigates meaningfully which to Slide environmental

and successful are to with using expand operational currently dual Callon this our lower test costs, we fuel its avenue environment. continue the reshaping how impact completion for we efficiency, activities, fleets While other another provides

weather, in trajectory. As the and a that Eagle average production see it And these And see the well. older Pad on wells, around were well, in quarter. we vintage disrupted our in Gardendales strong tend first long pad our with with par pad right-hand which only flat XX to production our the Gardendale of our pads impacts fact, existing year on that mentioned, nearly XX. previously quarter. again, was which for after you new per exhibit focused resumption -- tracking activity off-line can our quite while Delaware producers laterals, foot hold right project turned These on Richmond its over the XX,XXX alongside day on wells longest-time even Eagle can are portfolio, during to the production side, XX the was Slide also in the expectations. the freezing offset much expectations, Ford. production directly is the when winter are for our rates weather nice right impacted chart of are was previous these the some the early And our that production very production by that during it returned the producing completion on And curves days accounting West placed these to In and you Ford, the of has the

than showing That’s produce of successes. the again, posted outdone, impressive to on Slide continued nearly program management Ford Callon and new area that really feet lateral leading-edge significant be the slide efficiency, this both speaks for just costs we drilling accomplished, to also are very can efficiency. forward a what all approaching the drilling gain very our And, efficiency, feet and of have we drilling operations techniques in of effort see and the very well improvement these drilling asset in XXX to continuous choke in extensive our where without a the than in improvements upcoming Our Delaware, Reeves not I’m and areas the with under we yet asset. team set look also course, or and a history performance. in day to all asset incremental our execution. more our Midland to team mature lateral per The activity This the is changes for advance the Recently, where In in the asset this XX, mature an long-term exemplify what XX continue quality charts four have has for to and XX,XXX continued completion teams in in figures strides. I in hours improvement Delaware has area. efficiency, sacrificing only Basin, more those proud record of the savings Eagle time achieve On of improved area, area, of lower-left quarters. reliable continue County to flowback covering our our operations. of XX% more the team a seeing chart, completions to overall a cost Ford shown our results have development exhibit Eagle drilling completion the reduce

things to over So I’m going to Jim. turn

Jim Ulm

provided Thank On XX, positions. and morning, you, our Jeff, good current of everyone. Slide a we hedge recap

we have to flow. slowly about risen positions protecting been XXXX, for strategic With be to approach the forward in continued having we curve our layering have lately, cash and in methodical

slide our made facility majority MEH our through XX, successful we’ve cash I’m both the organization of end value still pay cash to chart early significant in XXXX credit in growth in flow, us that positions, points. free the into cash generating a XXXX. leverage and shifted our price five to the at cumulative You in of support changes half cumulative see by pleased between allowing as physical which the maximize in barrel XX can sales allows XXXX to quarters. of for and opportunities our excess XXXX, Callon reflected of monetization over and of upside, The move various of barrel be between prices regional with first $XX the into the past Slide positions the executing and price commodities. addressing the with the with we’ve our at pricing half balance the $XXX move The in collars was to free earlier continued oil. providing XXX $XX cash weather second what the WTI as at trajectory, in current NYMEX point progress diversity On several that very million we us worked bottom realizations On further entire our has reflect price of we of proceeds the will we gained our per and this part flow I’ll million. right down is of and upside into in analysis our free flow reiterate margin our see

our proceeds As in a Joe the two we approximately that of transactions, mentioned was production X,XXX effectively and harvest an and earlier, years, cash generation from benefit separate day expecting these Despite flow the operating cash oil and are to several the for from I gas-weighted free per and has cut a assets continue. minimal, past we million. the around XX%, in $XX recently transactions undeveloped reductions signed the consistently which demonstrated credit-accretive expect agreements roughly acreage. packages second gross incremental one to impact expect is Callon will to Delaware, expenses. property ability value over that two BOE we was of of current Between noncore

as provides cost Joe our we over production operating The critical brief leverage significant coming goals other quarter, strength more see control is we jump realizations. the and our continued this see pieces advancing and to commodity reduction position shifting remain our financial margin to expect our a that of of to Brent-linked the mentioned pricing quarters. in priorities. XX our Slide overview and

reduction million our banks advance associated Our second With week. by we XX the approximate the credit should in at secured senior X.X meaningfully currently on million year cash and efforts. borrowing reaffirmed this of half cash standing our base, earlier flow unanimously our borrowings XXX an current facility of at hand, and billion free

we make lows the sense. since exchanges appreciation significant economic window any of debt seen are have where beyond debt last bonds for now Our year, and

opportunistic We with managing will our maturities. and to be continue refinancings regards to near-term

call short rather and continue period coming team look to goal the Joe. of the have long initiatives half times continue lower point, we pursuing a to would toward Overall, in EBITDA net truly the adjusted XXXX, to these debt this end I two than I we to seeing forward and we the a quarters. of like been Importantly, to significantly ratio track of am leverage what able accomplish back At see less I our a clear with path over a term. to by and to pleased time, turn progressing

Joe Gatto

Thanks, Jim.

you second, it’s most know, earnings of last to team, questions entire call on take us to here get we of with call Jim’s in time away in thank behalf Jim, well-deserved family. to some you. spend his a the Before with

an game such part both really our upping you. cases. organization, You’re personal integral our Thank and of on professional

contributions to of because and a you We company better are your certainly Callon.

Jim Ulm

you. Thank

Joe Gatto

Operator, Q&A. like the that to remarks. I’d concludes for open line prepared

Operator

question Dingmann with go instructions] from [Operator come first will Securities. The you. today Please Neal Thank Truist ahead.

Neal Dingmann

of are really you to Joe, -- they Nice do are expectations the when continue really lot sort I And I’m you you days? I’d versus kind question, these kind so Midland, one, talk you continue going Good call for with with what around about Can that. this bit a you of regionally Thank all. -- nice, you diversified and Jeff, talk run ask cadence. of a -- you morning, if you same -- talk, about you. continue question diverse little you guys or at I just is to look -- but program. guys my people details. noticed about well what asking think maybe are similar regionally when of plan. more to Delaware Could

Joe Gatto

to the speaking, cadence Generally much pretty what stay it is going Yes. is.

over of luxury really when we to XXXX work having basins from to the And on and projects, the longer with in wonderful opportunity in Ford this equivalent the to were more capital that. a cycle So of Basin. shift see in Eagle spread the multiple time than the pretty per-well expensive of some shift Midland basis XXXX able Delaware and a paid you off

going anticipate the would that we strength So being forward.

the with of less that asset. course, nice a mature of the One Delaware, things it’s is

but the what the to where And of in or have we types put different algorithms so learnings we not look programs rock at contributes. opens, ability and try it breaks or since to how geomechanical contains, just it

in rotate more couple over did you’re consistent overcapitalizing little pads, of be. a then you improvements come then capital that and in program and Midland then a without like we back to short And some than efficient being and a with over having would into the relatively potentially mature and less expenditures have we can the areas we Delaware Ford. well that Eagle time have learning we’re can where what progress While some the make

statement that’s areas. in the operational a to why about of progress kind continue we’ve all able to make So general been

Neal Dingmann

Well thought said. a would on debt, be to sort like last beat just trend I’m to of one, higher, do bit Joe. just of to days? my the in the around I guess, guess really lower. my that how one output? -- little you the of No. Or the is CAPEX -- guess, Again, And continue sort come flexibility is as details. overall about a I prices continues sticking then that of plan keep I again, more is is? CAPEX question, if production you go point? kind these think wondering, And an as of I question my you’ll still is strategy that going the of sort

Joe Gatto

it And in Yes. plan. you sticking there terms the to I got of think

As you out XX laid release program, visibility recall and the types how sort and sense earnings years out see to of plan, in those over intend stay range. with three-year the will to our things XX% in you we last of gave we a reinvestment roll given next rates a presentation, the three in we of that

production you for reinvestment but disciplined small it around an as of about production CAPEX is output really being ‘XX. the said, there is growth -- As that,

to those locked we increases We’re out in there’s sticking some for driving a next part, in flow really couple But on years, this this and next is program. rates cash slight our some the guns What large outsized the years. free on of reinvestment over over laid capital. couple

Neal Dingmann

hear. to guys. hoping was I what That’s Great. Thanks,

Joe Gatto

Yes.

Operator

will come go from Citigroup. with question Please next instructions] Downey The today Brian [Operator ahead.

Brian Downey

or to of you from that asset are past else for sales we one the disposition clearly comments, Jim, Is on items The the Good wish the is embedded and best all the certainly transacted potentially in something this couple side, target? retire of divestiture assets, your options going menu Maybe potential recent help. you’re that water still or as haven’t following yet. quarters. for still remaining contemplating, nice key year’s believe, the A&D the on you you We appreciate over you questions, what on and Joe, progress taking Joe’s family Callon. Thanks the morning. I

Joe Gatto

water that’s still partner benefited water clarity Yes. to right is an that’s It’s the not discussion find as They yes, only more that’s the of off this we ongoing. the we’re short for right prospects and and business looking term provided portfolio business, strength potential see the It discussions asset a I’ll time. long-term take our find that And, on but really streams opportunity the over the partners. -- with really That’s those that. something and really and the fit, progressing. underwriting helps business. of the the durability medium anticipated

we As lot put that be in are is we’ve there, but water talked a put there have in that divestiture similar The our with way. various of out, across ways noncore a about in other component our progress. this we right, monetization of to it footprint that line there’s Right? opportunities targets Delaware stages

going credit We’ve it’s quite So a the methodical us. point come quarters, metric gotten we’re you sell the last basis. a nicely, like market where only I letting on of and can questions and we’re developing I lot this. said, over assets, to think them to And sell make a couple be a accretive not but about you can to getting

to is encouraged the others the So see mix, the but market. are the I broadly And activity to we’re in more are there more in think Yes. that Water queue. in come.

Brian Downey

Slide efficiency into the in benefits we or prior Jeff, the achieved perhaps environmental compare that Great. laid embedded translates clearly, the fluid-loading How And you quantifying what’s the think coupled XQ you and you’ve out How should all test guidance? there. that noted versus what then, D&C X, about on on all slide. costs changes full-year some e-frac with how does in

Dr. Jeff Balmer

Sure. the The technical group enjoys challenges problem -- e-frac solving. test and was fantastic. really Really

if enjoyment, makes -- it test. just was from was sense. a obstacles that and so It system a a lot beyond that And of opportunities provided any a of

more on a and fleets. already than the And of anything. fleets, fuel the be my dual probably opinion course, just there’ll that, those I diesel a And cost done are there’s perspective, think relative moving in pretty Generally historic fleets, that groups neutral. -- has that’s Callon it’s which, premium from e-frac speaking, potentially to to so

program baked So right now. capital into all our that’s

the addition plug that you potentially some sound, and emissions, reducing tremendous benefits at that noise, the both see from grid CNG to use power field the supply. in think for opportunity to into the gas point I even maybe

from overall though, grid. That’s cost, particular, in couple obviously, slide, z And little away the D&C what $XX happy into costs and relative that the shown the oil is flat, looking on to us an been North even market cost to we’re of with I’ve Basin. that to and the a in allowed a continue So from Midland was, and the reductions relatively to been we’ve you a operations. power on to sand not -- when course, grind -- very bit the labor side from anymore. on But overall, we’ve our very, keep

Brian Downey

that that evaluate And is as you against you per any that, infrastructure something in on or grid existing require would well that power already savings? weigh where there’s place, capital upfront that point,

Dr. Jeff Balmer

Yes. kind That’s a you great where question, of and it are. on depends

which, multiple to better So in flexibility committed the a and already of has past, than ring more Callon gives course, -- to our over. doorbell coming areas have substations of lot having somebody’s some us

area of it be So you’re optimal just have have reasonable place, where substantial you be But most an that’s the you for that you’re we’ll and you activity, that. would there anywhere if infrastructure looking to depends. into amount opportunity a that while really in going have. in or a Obviously,

Operator

now would turn At conference to Gatto instructions] for remarks. no closing are this any back further questions, I there like will the and session. to question-and-answer Joe [Operator conclude over time, this our

Joe Gatto

on wrap earlier. to user A I’m going you, bit up part. Thank my and error little of

even before different Jim’s his over personal to entire every such So Jim with an heard been our time thank I’m better family call of of to us years. what me, behalf certainly important part if for to We’ll wanted professional him, something we’re because for and before. on a gear saying twice basis here and them just And and I you’ve of upped with a worth and and at time. at last finds of said enjoy with earnings going some you reiterate day. both us I game, he the the this know team three-plus miss He’s because last it the his hopefully is a end I it’s and takes on But Jim. done our and he’s Callon personally. truly day, to team company leadership us, being our you

that. appreciate really So,

frequently. to we’ll miss I keep tabs going you, you We’ll We’re but on very you. know see

wrap forward later updating that, the you. business. wanted and up continued with I this So everyone with we’ll to look summer to Thank with our progress

Operator

conference for now attending today’s Thank concluded. disconnect. is now you And may The you presentation.

Callon Petroleum (CPE) 6 May 212021 Q1 Earnings call transcript