CPE - Earnings call transcript Q1 2022

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Callon Petroleum First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Kevin Smith, Director of Investor Relations. Please go ahead, sir.

Kevin Smith

Julian. you, Thank thank our and taking time the Good call. you join conference to morning for With call on Officer; me today's Dr. Chief President Executive and are Joe Gatto, and Officer; Jeff Kevin Chief SVP Officer. Operating Balmer, Haggard, and SVP Chief Financial and

to During and results release, of our our on available press presentation which earnings earnings are made quarter our prepared we both remarks, reference first website.

download have not already. So you I done if encourage both documents everyone to so

the the slides section the on our headings, Presentations are and which and under at of www.callon.com. Investors find Events Press page located Release can news website the of both You within our

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

refer due and differ in will results could the Actual to our to estimates these We forward-looking periodic call some make slides materially plans. noted statements factors on during filings. and SEC that today's

financial to with which will some today, we also and periods measures across help non-GAAP believe our comparisons to refer We peers. facilitate

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

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

we'll that, Following Joe? the open call prepared And the with remarks, our over to Q&A. I'd for turn to Gatto. like up call Joe

Joe Gatto

you, and to good everyone morning on Thank Kevin, the call.

review and guidance website As the to always, a I first We for consensus with exceeding year financial our background as our commentary. great results, both earnings to our will a review on encourage to got with of expectations. you quarter presentation start I start operating and the off results.

over and that formations. from in A productivity well XXX,XXX the both total oil by XX% top equipment of total Delaware Wolfcamp end area Wolfcamp barrels South of B scale of our quarter of production driven a above larger initial the per the came better was day, outperformance of guidance content than and was projects in Part the at a XX%. For carrying round liquids code new oil the forecast in

make in operating meaningful by we by lease sequential We're Just gathering pressures operating progress on as able despite inflationary and both costs million, million a field. expense lowering transportation $X.X impactful basis. $X.X to reduce costs absolute the

in discuss in price first remarks, year. the growth we margins, also are the driving costs realizations while a quarterly As operating in the up XX% of leading BOE the free over in during disciplined per for his the efficient of further with to us steps capital course setting quarter. oil program, quarterly the in the decrease Switching reinvestment will increase experienced consecutive operating to rate year. drove Jeff flow, our and cost margin cash half $XX exceeding additional second in prepared the gas over natural taking quarter, improvements of another increase Strong resulted structure combined operating second production just

second savings the $XXX quarter portion of million pace. This our previously quarter, operational between first addition February. outlined we deferral $XXX we a increased more quarter activity to a in increasing driven XXXX the spending positioned projected XX% our uncompleted a a increase million capital uptake are Permian of backlog the realized drive of a in wells. now to fourth by and daily our which spend, now completion During infrastructure the XX our normalized oil at but With total DUC expect guidance Callon’s capital was to production backlog in below level, operational our plan start in for as by drilled, to of in The was in efficiencies. our occur will by quarter XX we $XXX million.

in inflationary and the cost starting have chain to build across the this heard have value labor season energy equipment As materials companies all from markets. continued we pressures

reminder, year to XXXX the gave inflation our synergies Delaware beginning account capital in a from expected longer at estimates of for budget factored capital price As to efficiencies and the for also This average to consideration outlook XX% integration laterals an of South. at related escalator we that time.

drilling have service and casing XXXX. and steel that oil pleased all Given we some of the months key for to providers. been completion and rapid tier into resulting top our into these of a recent increase with or certainty secured market ensure program in agreements say for for entering prices I'm And that crews, provide in to proactive we've tightness, new modified needs services execution rings, of of categories our XXXX. materials sand

In these to varying reliable certainty. price of level access, a addition agreements with come

of the example, year agreement crews provides full XXXX. in firm a completion for For one pricing our of

agreements, However, of in experiencing industry price course are typical types discussions reopening over we which year, is for other agreements. the the of these

upcoming on the impacts year Depending of pace service on for oil the Given into scenario service industry impacts field program to incremental some price our inflation and as of capital increases several the and the we pricing the rapidly XXXX. and evaluating market recent of developing show for moving scenarios upper dynamics mid discussions the data are unfold, inflation headline digits. overall continues single points,

price environment, mitigate we by quarters. first in to efficiency operating completion initiatives potential our continue in help drilling that to evidence related as coming and the rising quarter However, increases will capital our increase a spend drive price

to our operational four targeted below the year strip. call if This both a invented range agreements months well our our and to from EBITDA by intact we some metric XXXX certainty is covers confident X extending between remain into year-end outlook of leverage of existing end. year our achieving a remains current price program outcomes the and from service X.XX of vendor a Importantly, of times discussions wide and pricing benefits us behind having in

We lease we been with have example. part from delivered margins. good decrease We cash inflationary to has serving our progress from expense south sequential results absolute as operating and the synergies a preserve first event to realized offset Delaware focused cost also large on area. a in remain Good made differentiated pressures quarter LOE

faster strengthen and Lastly, in balance sheet quarter, strong first the our cash start we at our the pace. quarterly consecutive continue free million in debt to which generating down quarter generating free cash to the eighth than flow $XXX a and was After thanks anticipated over year third consecutive to pay increase.

We pace EBITDA a exiting approaching are on to $X one goals absolute nearing billion. our this with times year debt of achieve ratio leverage and

a the outlook, portion As some bottlenecks to recently navigate year and second we quarter turn saw the our we in Eagle Permian accelerated of Ford mitigate timing earlier XXXX pricing the to of potential program we that pressures.

relatively XX with the similar volume while but XXXX, second number relatively of quarter increased net second to our first on wells production quarter flat production into rebound quarter builds of at the quarter, The expect will half the the Looking first wells versus wells. to our year. be second we to momentum from be over the are activity profile, of placed in drilled expected completion

With to the meaningful forecast on accrual from $XXX uptick to capital now in I’m basis, on over spending be discuss and turning some deferred is quarter. operational including million activity, $XXX operations. the an spending to million a Jeff first our between catch up

Jeff Balmer

morning, Thank everyone. you, Good Joe.

ongoing in our Operationally, capital forecast. we well mentioned, discipline below basins and a Midland we environment, our results we coming with the met expectations. the exceeded our Delaware inflationary maintain of had Joe forecast costs beat production despite and start As year. in great the as And

proud our we prices. reduce Delaware gas to assets, on Lastly, to increase to natural partly strategy are operating and I'm that our response report successfully oil the South expenses in implementing in

months. Workovers three periods workover initial rig add a month months. During elected some in we electric payback portfolio these by the only period, recompletion our months rate and pace of activities return of less over pumps work and highest of million to production versus sequentially. after to elected $X the increase with quarter, normal of of the are ESPs submersible company's we activity the installing the two increase than projects ESPs of some installation during two or four of And approximately

of overall improvements such sourcing the in efforts average in of out extremely our operating within chemicals. advancements as increases reduce our the of to also and had efficiencies our downhole intensity I'm We've pneumatics cheaper the track the very by our change And overall XXXX artificial start. of as Specifically in expenses of and we supplies inflationary excited offset, lift large methane that many a pumps. all production on excellent wells, [indiscernible] realized remain start XX% on has great at an our strategy, pressures compression focused We days remain like operational areas. increased installing part mention to had program to

you like each Now areas. our update of on I'd operating to provide an

for pads part on development of Ford, on plan starting the during third So the the pads April nine in pads well, remaining XXXX We and XX in of the yield five quarter, these completion Eagle three commenced ongoing early pad quarters. the first our as and operations wells second we program. with to complete drilled

in in discussed in average Midland well X,XXX-foot success lower completed four-well development formations quarter. we placed we the were XX% Austin oil. and production XX-day this philosophies. we have we'll the completed rate as multibench bound lateral to part third year our pads had eight Sprayberry and day two complete in and an this development B our test A, that of boe quarter, wells end. One example to Basin, production X,XXX side with development The life-of-field As multibench completing be Chalk program, on we of that drilling per and plan this we last at with area to Shifting the Wolfcamp of well targeting continue are our

running Wells we the and program acreage April. rig the the Midland We for basin two commencing rigs dropdown on of drilling year. rig of the the quarter, had completion the nine and remainder at beginning quarter operations second During then planned in two one drilled to with

well laterals the our to like results, average on Delaware wells was made both wells we’ve this got Delaware, this of these strides Besides per XX.XX we in B quarter, highlight payout during and level well our rate profile acreage are XX months the the X,XXX-plus costs operating six key cash Delaware expect focused in to Wolfcamp pads day results capacity and A year the to strong average lowering free increasing production for a activity unit five rate South and completion we the an wells of generating in well XX the with Delaware first boosting wells. completed flow. the strong Boe to generated that were XX respectively, wells to we five with development XX-day general unit production on XX-day key of pads completed formations. The South from foot Wolfcamp XX strong quarter Two Moving all our These two By to and asset. the peak cost acreage. multibench and XX% Campbell targeting realize in to our three I’d and a the and the given per pad of Boe size around XX.XX were and benefits, able And day. six lower cost well. wells our on

on pricing. in This which favorable During Delaware and the by quarter, to enter rollout helped reduce increase on costs. facility rates asset the per also switched for we chemicals We’ve Boe later South feature more some opportunity providers our our items to scheduled asset further efficiency should service XX% provide the LOE year, into sequentially. upgrades like the our

current call over to volatility. to and needs service the contract that discuss our the service to the taken mitigate I’d environment and steps we’ve turning price like Before price Kevin,

many felt we’ve fuel, different materials quarters, inflationary and cost several last services, also on equipment. such sand, labor like as pressures the steel, the Over

the provides the multi-basin flex in is asset to second our is service the in program opportunity Permian we’ve Eagle basin, in as flexibility not as Ford Our done which base the us market provided it the quarter. as as tied

one We and we’ll we’ve greater plan, XXXX. steady year staggered service reduce used provide operating price the And that to be locked maturities our it our it seven most assurance. next with grid base volatility dropping month. enter for original entered Additionally, scale in contracts and in rigs of with development keeping service

for contract that completion is side, We an crews. crews of two long-term XXXX years annual into the renewable performance embedded utilizing completion On of with additional quarter entered in the one on the basis fourth for incentives. two we’re a

sourced we’ve the now really our Therefore, taken while service to acing of needs for steel program completion XXXX. margin locally the feel in focus steps over our improvement. we contracted lock to Kevin the assurance on provide about turn with handle And We’ve our financials. it for good program two year. to We contractor sand our drilling requirements meet our that, to restructured the quarter maintaining supply in I’ll for remainder to crew also the sand

Kevin Haggard

I sequentially this great operating like up those adjusted the generation achieved margin Thank generating quarter quarter. cash increased a XX% you, net with to results the one a our times. to continued start financial by resulted we debt in strong starts X.XX Jeff. free XX% am The out sequentially. able of our It’s when handle EBITDA We metric we was point debt happy be our [indiscernible] reduction. now year at EBITDA and

go let’s details. Now through the

again, XX% Our in peer by once per a price unit margin, realizations driven increased, of basis. production operating leading oil on increase a

the that On last cost quarter. Jeff the expenses lower to lease side, actions helped discussed compared operating

We in and transportation increase our cost. dollar also the realized processing total gathering

to reduction on unit basis However, both production the per increased LOE due and a volumes. [indiscernible] sequential of

in adjusted increase an expense EBITDA a significant adjusted reduction combined us helped Our million top continued sequential drove the and tier increase free cash. conservatism capital in adjusted The the $XXX of interest with generate in quarter. first EBITDA in margins

first the our also a was free that XXXX year. remind cash million. you of hedge This first the hedges half in to the And highest adjusted of first generated quarter place quarter flow oil more our year. quarter, the good weighted the approximately particular, $XXX During of Callon to is are

be to flow use continues pre cash plan debt. to down near-term our to Our pay

drawn we quarter, approximately the quarter $XXX the with debt over our $XX During on exiting pay million bank down just facility. the by million,

debt end prices, with continuing down. drawn at For look an $XXX our less second on using early we the than current quarter, strip credit the million facility, would QX pay

debt and work the to our some increase balance term year. look of As flow, cash will we sheet optimize cost retire our to this of high part

As the lien retire callable second expect we they’re October mentioned to call, on last when the X% X. notes, on

this portion free and at with small as that generating flow of are have year. are the bonds anticipating we cash callable eight premiums well. also quarter We reasonable Thankfully,

rate. our maturities a We our average options overall on extending weighted of to quarter the these one of reduce We further process deck. earning continue slide our debt of have out at XX and interest many lowering options balance while Page laid our time, same first

hedging. to Turning

hedging program complete of production Our approximately of the for hedge with is the our XX% for balance XXXX essentially year. oil

to look layer hedges have with natural year. the of the the and of portfolio base in good hedges. this we’ll we add we over XXXX oil XXXX, gas positioned As remainder opportunistically strength [indiscernible], With the

our note as leverage balance our decline we’ll However, strengthens. continues

that lower or to we a less set hedge way, expect We volumes another have historically. percentage of production

questions I to are achieve billion the using are from current we our timing targeting debt. and Xx hit session in want repay ratio Finally, returns. to to Q&A of below regarding cash of likely the a until on At shareholder we debt commodity net-to-debt EBITDA flow total $X prices, free

second and like discussed sheet In year, some balance cleanup the addition, would flexibility we optimization the I including to earlier. time this and redemption game do

and Before with sure WTI oil as support price, $XX. to that a starting low make cycle prices, downside a capital to including we can a as want balance sheet return shareholders, a to range of commodity we full mid have case

working mentioned last achieve offer continue returns. objectives, sustainable to also we and retain While corporate call, we important shareholder our to capacity be for financial will evaluate turn on to things our us to the internally flexibility to in leverage to it to business, as of And work back I’m I is Q&A. our our we us ultimately shareholders sustainable phases to going with Joe, all deliver invest And through that, before cycle. which to returns commodity long-term to over move allows to

Joe Gatto

Thanks, Jeff.

wrap in leverage the exceeded quarter reduction having commitments operational performance. entered up, Just to our consistently second we to

has times, debt-to-EBITDA cash Xx rising. net been free and LTM ratio generation repeatable now and Our below flow

reduction, over allocation and time. This business. you an for flow will Operator, options sustainability us of lines to capital Q&A. top the our amongst deepest component longer shareholder peer the term critical the visibility may debt value, numerous provide further a Callon projects putting being tier free position reinvestment capital for for That in including inventory the group, of discussion. is one in cash return enviable of Importantly, open

Operator

[Operator comes Our question Securities. Truist first from Dingmann Thank Instructions] Please go Neal you. ahead. from

open. is line Your

Neal Dingmann

the to upside for Good future But do will about that I of heard around this Jeff, of operations. hear acreage. think what specifically. then bill on scale sort you during like others building talk be first as My or the more is duct a that will out that what really South to larger on this morning, bit I inventory – and know developments full question new the Delaware some the duct liked inventory results? all, around development. well, more unlike to when this. Can maybe Joe just just and I’m Joe, curious I are in you really you out I’m the really on team. a you that wondering

Joe Gatto

off store is was the But if recall, types development, really if position this you one, operator Jeff to of on know, as co-developments not we doing stepped and you I’ll Joe. That’s from Neal, mindset. field into our and end. in wants the philosophy, pads. back chime start what two the global that

to projects, out the So after in flexibility getting it five-well we over quarters, and started a order a to larger couple had to inventory and by six-well the create with pad. move first pad build DUC last we the quarter

we sort we’re event a deploy. of it to steady area now, get that for really of ready that but operational was the one-time state type development So, that

Jeff Balmer

And Yes. acreage. development fulsome got that add other one throughout just to is, program thing nice we’ve a

pads Wolfcamp So stack jumping areas the acreage, Very, over, wells Wolfcamp the with extremely very so we Delaware the entire performing are the A, B, well each across and far. that South different in that taken have putting some of we’re entire the acquisition. well, happy

Neal Dingmann

Jeff, of, everybody facing – I maybe, you specifically, know sort it guys is and so be for this cetera. overcome continue one guys appear spreads, more just follow et Casey, a nice product concern everybody more else seeing to have to just potential sure that day. My pipe then sort are there. logistical potential about of you, any And I’m that doesn’t you issues you again, each of you’re logistics do one out shortages, inflation job doing both. Great details on that whether again up upcoming What to

of to really front doing what because job. like more of seem about, does guys are you love stay sort great a do you just it this, to So hear in

Jeff Balmer

work of things give generally folks the supplies. to the partners. do Eagle that of some base, course, sourcing our a more partners agreements we’ve that tends the a might a a of Yes. Ford large the did Thank It’s discipline upon shift we both pipe environment. going a some or of kind into relatively And early XXXX part saying advantage because in We’ve for allow took asset to of they’re profit we bank in relief relative by and our delivery also some team much. just outstanding current you when the so to that – for changing market basin XXXX. to gray supplier. things the and of then that XXXX got And partners, to figured ones compliment very just or dependent and in and particulars, the got could in whole labor we area, that security situation be able up, little been other we’re a the win-win margins in the individual that But as big would what entering are to sat down foresight things more pop effectively look the us items for out and when of work like together multi little of started a for having

into ability program ground ongoing and we’d XXXX. good So for we the like feel discussions do very some our to about effectively what have XXXX about continued to

Neal Dingmann

guys. Thanks good. the Very details

Operator

Please from next Our Whitfield go ahead. Stifel. comes question from Derrick

Your open. line is

Derrick Whitfield

operational all and Hi, thanks congrats [indiscernible] good morning and on progress. and certainly your quarter

Joe Gatto

Thanks, Derrick.

Derrick Whitfield

With build could. question, plan I if focus first wanted I and to question your my Neal’s on capital on

quantified you've self pressures, help increases firmly first ask progress again, health made secondly, to or CapEx. if has or holding of – wanted As on messaging inflationary or operational effectively CapEx the line complement on capital your you've quantify you're the self the majority achieving on could the you sector budget? of efficiency the in degree And announced

Jeff Balmer

Yes, in We had I that beginning of that that year plan the the guess, at I of at with operational some time. our off. start

saw And continue – to then reap headline say We inflation or at at point be So whether to you XX% it of Primexx wells sector bit were we that increased to I'd over called the get that acquisition. the deliver closer the us incorporating to across efficiencies, XX% self in that to that time, some down little a was point. some so over what help, we synergies time. faster maybe from able being unique XX%

of the the water Basin two fuel help we us. of hopefully lowered saw the delivering what gives modifications some a points to our we design sense the you that percentage particular Delaware operational the So in self kind And side, loading. South on and we of of completion on that made some where on assets

et And sand preparation the changed so amount completion scheme, within from design same of cetera. the

the And regular crews the so then of effective water out the going knocking basis on wells completion having little from out of on work costs. overall you upfront well into and the And very a larger a money on costs, efficiencies distribution better bit operational consistently. some the just the pads upfront save

So always good far and the in Callon to has first of that's all tried standard been XXXX. kind what so do part of so a

Derrick Whitfield

Delaware quantify to focusing of question, could from I That's a guys speak the of maintenance the well for you the you year? planned of those have amount products the ops volume congrats to operating installation improvement perhaps the balance great. the my absolute to And ESPs and gross again cost wanted on Slide side, follow-up, X, ask as you on referencing measures. And

Jeff Balmer

of the same. Well, react because don’t ongoing all kind effort, It’s question. good wells it’s the an a necessarily

heavier for quoted we’ve water So wells the side. a here on bit little that

being ESPs lighter so put in in density than to came And water. issue we and give that, proactively while it’s a

worse mechanisms process are So the water, period. little if pullback more lifting you the initial that a [ph] from have

you going the are that we’re wells look on. a you time. that of our installation usually look all portfolio of an months, instance for do the and long-term it at well done then at best over has what in to determine put to see, we if projection is some to artificial Normally in systematically the have XX lift lift not time the what that is when at so point on component those And being

And so what be necessarily every uplift, generally we an to single uplifts speaking, to immediate and These expect see of well don’t happen initially. be have consistent XX% do those you some to sustainable. are going

other the you a tend going having of achieve instance installations. The are just [indiscernible] for ones benefited these process I to from life overall kind well wells installed. necessarily do These normal part be to believe the be of the wouldn’t but ESP and greater for

Derrick Whitfield

great And again time. for your and update. That’s thanks great color, Jeff

Jeff Balmer

you. Thank you. Thank

Operator

Davis [Operator ahead. comes Petros Please RBC from Our Instructions] next Capital from question go Markets.

Your line is open.

Davis Petros

Yes. Thanks for taking my questions.

when discussions think now. shareholder to aggregate ahead times you billion of met there kind Just those those of I remains on is level that start, or quarter can do towards targets an and two one debt first focus need of kind until I be mean, of around for a start a kind of return reduction or X a kind can one strategy work leverage time? realize But debt you the and update

Joe Gatto

Yes.

one. this take me let So,

on say to is I at end I think headed all want we the of towards numbers we’re these XXXX. this

can future and balance get cycles. a in flow helping the our So we that commodity free sheet where year this focus weather taking cash position is

we’re heading those at to numbers towards is want I say all XXXX. So in

homework sensitivity up gives to ensure the at some We’re frankly of needs is on through our then going the of corporate shareholder to whatever and returns cash our that cycle meets cost be work on decide flows debt and us sustainable high we this on doing flexibility same shareholders. time cleaning homework includes and some

this So to we’re specific the end at I going put get close of XXXX. to there than want at out a to numbers these point, other timing don’t

Davis Petros

bolt-on kind sense. right, Makes a if you’re in recently one of M&A I it. consolidation of role on moving backyard of a I’m in wondering peers thoughts as today. of of kind kind County. of any acquisition announced guess as in there’s how your just forward follow-up Ward your the Got well seeing updated kind as market industry Callon’s And kind

Joe Gatto

asset cash per results that, Jeff talked quality, and share. going thought, a advance was Yes, for on finance to little to able just that free it in question. for effectively more us, challenging well attract a Certainly say about example uptick to that sheet, we're little flow And, we capital, but it's to have more acquisition markets, very the the but property, get front. that's compete sometimes bit like, balance this Primexx a an great is anything the things good any bar were be of on and importantly, volatile we've as although with to of seen that just our we had activity, to focus size high will in that's going the and XX% accretive done, equity be bit accruing on

So market. overall very that. a I lot But opportunities like to high We'll boxes. of evaluate certainly terms the we bar in a of checked M&A continue it's think

coming hope private the of year, moving their assets positions, a the this out there'll I be a and trying of think of getting lot monetize to run lot up. gate there's sellers

look. the, think a comes bit along, as We the inventory, Right I nothing becomes I there an opportunity it a ask to at tough all deep we've got boxes. chase. this those us certainly about, but talked now take we'll again, for checks if pretty there's point,

Davis Petros

it. Got

remind of or if squeeze the how that kind Can in, prior, question building the is I of Okay. exactly LOE over a last I doing. cost one, that are kind capital would can me financials, those a one And regarding short that off cost? of work it just y'all one, through flow you cycle be projects kind

Joe Gatto

but fall the some It's, on exact depending a expense. into breakdown, of it'll be –over project mix type summer an

Davis Petros

time the it. Got Appreciate

Operator

no call questions further I'd turn over the remarks. in We Gatto like to Joe have queue. to any closing for

Joe Gatto

retiring Thank from short, board all last Larry's we in moment family. I'd the go, Callon for upcoming joining years to McVay like best and at the Larry to annual the us on behalf our will wish our All we XX the great. quick contributions meeting. That's And Larry his have be nothing thanks in and you. of before who Board future. invaluable

Okay. you. Thanks quarter. talking look dialing next today to everyone for to we forward you Thank and in

Operator

joining continued call to with Callon. This and interest for you speaking Thank conference you quarter. We for call. forward on again, today's this your next look concludes us in

now may You disconnect.

Callon Petroleum (CPE) 5 May 222022 Q1 Earnings call transcript