Callon Petroleum Company Q1 2023 Earnings Call

May 4, 2023

After the company's prepared remarks, there will be a question and answer session. Please note that each caller will be limited to one question and one follow up question. Just a reminder, today's conference call is being recorded to ask a question during the Q&A session Press Star one on your telephone keypad to withdraw your question Press Star one.

After the Companys prepared remarks, there will be a question and answer session. Please note that each caller will be limited to one question and one follow up question. Just a reminder, today's conference call is being recorded to ask a question during the Q&A session Press Star one on your telephone keypad to withdraw your question Press Star.

One again I will turn the call over to <unk> head of Investor Relations. Kevin Smith. Please go ahead Sir.

Then I will turn the call over to <unk> head of Investor Relations. Kevin Smith. Please go ahead Sir.

Thank you, Matt and good morning, everyone I am joined by our CEO , Joe Gatto, our COO, Jeff Balmer, and our CFO , Kevin Hagger during our prepared remarks today, we will reference our release on the first quarter and our recently announced Permian Eagle Ford transaction as well as supplemental slide deck related to both all of these materials are available.

Thank you, Matt and good morning, everyone I am joined by our CEO, Joe Gatto, our COO, Jeff Balmer, and our CFO, Kevin Hagger during our prepared remarks today, we will reference our release on the first quarter and our recently announced Permian Eagle Ford transactions as well as supplemental slide X related about all of these materials are available on our.

<unk> on our website at Www Dot Alan Dot Com today's call will include forward looking statements that refer to estimates and plans actual results could differ materially due to risk factors noted in our presentation and SEC filings. We will also refer to some non-GAAP financial measures to help facilitate comparisons across periods and with our peers.

Website at Www Dot Alan Dot com.

Today's call will include forward looking statements that refer to estimates and plans actual results could differ materially due to risk factors noted in our presentation and SEC filings.

We'll also refer to some non-GAAP financial measures to help facilitate comparisons across periods and with our peers for any non-GAAP measures referenced we provide a reconciliation to the nearest corresponding GAAP measure in the appendix to our slide deck and in our earnings press release, both of which are available on our website. Following our prepared remarks, we will open the call for Q&A I will now turn the call.

For any non-GAAP measures referenced we provide a reconciliation to the nearest corresponding GAAP measure in the appendix to our slide deck and in our earnings press release, both of which are available on our website. Following our prepared remarks, we will open the call for Q&A I will now turn the call over to Joe got it.

Over to Joe got it.

Kevin Good morning, everyone. We're thrilled to have you with US today on this very exciting day for for Cowen. We delivered another strong quarter performance highlighted by improved Permian cycle times and continued debt reduction.

Thank you Kevin Good morning, everyone. We're thrilled to have you with US today on this very exciting day for for Cowen. We delivered another strong quarter performance highlighted by improved Permian cycle times and continued debt reduction.

I'll cover the first quarter highlights later in my remarks, but we are off to a great start in 2023 I'll.

Color the first quarter highlights later in my remarks, but we are off to a great start in 2023.

I'll spend most of my time today discussing our accretive and transformative transaction in the Delaware Basin simply put this deal is a great fit for us it solidifies, our focus and positions us as a leading operator in the Permian with more than 145000 net acres and 107000 Boe per day of production, it's contiguous with and.

It's contiguous with and complements our existing Delaware position, where we have proven history of adding value in these high quality assets will be seamlessly integrated into our development model and we will immediately compete for capital within <unk> broader Permian portfolio.

Complements our existing Delaware position, where we have proven history of adding value in these high quality assets will be seamlessly integrated into our development model and will immediately compete for capital within calendar broader Permian portfolio.

The cash portion of the transaction totaling approximately $265 million will be funded with the sale of our Eagle Ford position for $655 million in upfront cash.

Transactions will be accretive to our absolute leverage and credit metrics, our strengthened balance sheet achieves our initial debt reduction milestone, allowing us to launch a share buyback program upon closing.

The transactions will be accretive to our absolute leverage and credit metrics, our strengthened balance sheet achieves our initial debt reduction milestone, allowing us to launch a share buyback program upon closing.

Let's tick through some more of the deal highlights.

Let's pick through some more of the deal highlights.

We're adding 18000 net acres about 14000 barrel of oil equivalent per day of production from oil assets that sit contiguous to our core Delaware acreage we.

We're adding 18000 net acres about 14000 barrel of oil equivalent per day of production from oil assets that sit contiguous to our core Delaware acreage.

We are gaining a larger footprint in the Permian and increasing the critical mass of our operations. This will create opportunities for further capital efficiency improvements and economies of scale.

This deal expands our decade long Permian inventory of high return oil weighted drilling locations we.

We are adding 70 operated long lateral locations of which 90% have a positive PV 10 at $45 oil <unk>.

These locations are in the well established third bone shale wolfcamp, a and wolfcamp b intervals with additional potential in both shallower and deeper zones.

This contiguous acreage position with stacked pay horizons sets up perfectly for the application of our proven life of field co development model.

Earnings deck highlights sustained well productivity benefits across our asset base in both the Delaware and Midland basins that are driven by this model.

These transactions will improve our operating margins due to a similar pro forma oil weighting and lower LOE per Boe.

We've also identified more than $10 million in annual G&A savings and are confident that we will find other cost saving opportunities through the integration of the asset.

We have also identified more than $10 million in annual G&A savings and are confident that we will find other cost saving opportunities through the integration of the asset.

This deal is priced right at two five times EBITDA and provides an efficient way for us to exit the Eagle Ford.

And it's highly accretive to key financial metrics, including a 15% uplift to adjusted free cash flow in 2023, and 55% increase in 2024 at recent strip commodity prices.

And is highly accretive to key financial metrics, including a 15% uplift to adjusted free cash flow in 2023, and 55% increase in 2024 at recent strip commodity prices.

It also improves free cash flow per share by 10% in 2023, and after a full year of integration and synergies 40% in 2024.

Per share metric accretion has the opportunity to further improve even before share repurchases since the number of shares issued to the selling parties decreases to the extent the calendar 'twenty Davy Wap is above $32 50 at closing.

And importantly, we will focus 100% of our capital and operational teams on the Permian.

This will yield stronger well level economics enhanced flexibility in project scheduling and improved cycle times.

Together this will reduce our reinvestment rates and increase the conversion of EBITDAX in the free cash flow.

<unk>, we will generate more free cash flow with our investment dollars through significant capital efficiency gains and cost savings as a focused Permian company.

Bottom line, we will generate more free cash flow with our investment dollars through significant capital efficiency gains and cost savings as a focused Permian company.

From a forecast you will see the 2023 production will be relatively unchanged with a lower capital spend despite the fact that we are selling more current production that we are buying welcome.

From a forecast Youll see the 2023 production will be relatively unchanged with a lower capital spend despite the fact that we are selling more current production that we are buying look.

Looking into 2024, we expect production to grow at a low single digit rate year over year as contributions from the newly acquired assets increase.

Looking to 2024, we expect production to grow at a low single digit rate year over year as contributions from the newly acquired assets increase.

The final point I'll make is a culmination of everything I've covered on this call and perhaps the most important.

The final point I'll make is the culmination of everything I've covered on this call and perhaps the most important.

As you know from recent conversations reducing debt and initiating a shareholder return program are our top objectives for 2023.

These transactions get us there on both counts.

Upon closing our debt will be reduced by more than $300 million to approximately $1 9 billion below our $2 billion initial that milestone.

In closing our debt will be reduced by more than $300 million to approximately $1 9 billion below our $2 billion initial that milestone we.

We will continue to focus on deleveraging and see substantial progress in 2024 towards our optimal debt target of less than $1 5 billion and leverage below one times.

Subject to closing our board has approved a $300 million share buyback that we plan to execute over a two year period, we believe the calendar intrinsic value proposition, which will be significantly improved by these accretive transactions is not reflected in the public market valuation, creating a very compelling case for repurchase program moving forward.

Subject to closing our board has approved a $300 million share buyback that we plan to execute over two year period.

We believe the calendar intrinsic value proposition, which will be significantly improved by these accretive transactions is not reflected in the public market valuation, creating a very compelling case for repurchase program moving forward.

We're taking your questions. Let me quickly give you the main takeaways from the first quarter.

First we are executing extremely well, our first quarter financial and operating results were in line or better across all key metrics.

This gives us high confidence in our ability to deliver on our 2023 business plan. We are also maintaining our focus on capital discipline and balance sheet strength, we generated $7 million and adjusted free cash flow for the quarter, allowing us to realize our 11th straight quarter of debt reduction.

Second our life of field co development model is differentiating Cowan from the pack.

We provided a great deal of insight into this model last quarter and had discussions with many of you on the road over the last few months.

We've implemented this model consistently over the last five plus years and it underpins our longer term asset value proposition.

Third we are seeing significant operational improvements. These gains are owed to scale larger project sizes, and deep knowledge and experience within our teams.

We are drilling wells faster pumping more completion stages per day, and using multiple rigs and completion crews on single projects.

Increased D&C efficiencies combined with our focus on simultaneous drilling and completion operations are rapidly reducing cycle times and increasing capital efficiency.

All of these factors contribute to strong momentum for our production outlook.

All of these factors contribute to strong momentum for our production outlook, we forecast that our second quarter production will be up over 5% to 105 to 108000 Boe per day.

<unk> forecast that our second quarter production will be up over 5% to 105 to 108000 Boe per day.

We've updated our <unk> guidance in today's materials and have also provided updated guidance for 2023 that assumes six months of impact from the transactions.

In closing note that our results year to date are strong and in line with our top priorities of investing in premier assets generating free cash flow and reducing debt today.

Today's transaction fits us perfectly both financially and operationally.

Financially it allows us to achieve our near term debt milestone and launch a share buyback program. This year.

Operationally it solidifies our focus on the Permian basin.

Similar to past acquisitions, we are highly confident that our life of field co development model will allow us to add significant value on our new acreage in the Permian and enhance our cost structure and capital efficiency outlook.

Similar to past acquisitions, we are highly confident that our life of field Codevelopment model will allow us to add significant value on our new acreage in the Permian and enhance our cost structure and capital efficiency outlook.

And finally I'd like to personally thank our talented Eagle Ford employees for their commitment and hard work.

They have done an exceptional job operating safely and efficiently.

And have consistently made valued contributions to count.

And have consistently made valuable contributions to count.

This concludes our prepared remarks, we're now happy to take your questions.

This concludes our prepared remarks, and we're now happy to take your questions.

Valerie.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

At this time I would like to remind everyone in order to ask a question Press Star then the.

Number one on your telephone keypad.

We will pause for just a moment to compile the Q&A roster.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Jack <unk> with Jpmorgan.

Your first question comes from Jack <unk> with J P. Morgan.

Hey, guys. Thanks for taking my questions.

Joe first one for you you mentioned, 55% higher 2020 for free cash flow at 40% higher free cash flow per share following the transactions.

So first one for you you mentioned, 55% higher 2020 for free cash flow at 40% higher free cash flow per share following the transactions could.

Can you just walk us through some of the underlying assumptions, particularly on pro forma capex and production volumes that underwrite that number.

Could you just walk us through some of the underlying assumptions, particularly on pro forma capex and production volumes that underwrite that number.

Yes.

What we've talked about you saw on the release, we're moving over the course of this year from seven rigs down to 5%, we'd expect similar type of cadence going into 'twenty four will fill in some more details going ahead, but obviously with the efficiencies we pick up with just operating the Permian Gulf go a long way on that front.

What we've talked about you saw in the release, we're moving over the course of this year from seven rigs down to five we would expect similar type of cadence going into 'twenty four will fill in some more details going ahead, but obviously with the efficiencies we pick up with just operating the Permian Gulf go a long way on that front.

Underlying assumptions with strip pricing as of a couple days ago are going to go into that and production growth. Now this is compared to a higher baseline in 'twenty three because we had six months of higher Eagle Ford production in the first half, but we see on top of that higher baseline.

Low single digits of our production growth and a 24.

Got it thanks, Joe.

And then maybe one just on well productivity and kind of your expectations from <unk>.

Percussion.

The 70 locations that you're acquiring how do you think about the timing of developing those in your prepared remarks, you mentioned they'd be immediate or they would immediately compete for capital, but maybe just any thoughts on how those returns compare with your current Delaware Basin drilling program.

The 70 locations that you're acquiring how do you think about the timing of developing those in your prepared remarks, you mentioned they'd be immediate with or they would immediately compete for capital, but maybe just any thoughts on how those returns compare with your current Delaware Basin drilling program.

Yes.

Think that they squarely compete for capital that talked about similar to what we've done with acquisitions.

Well, Phil fill out some completion activity on their asset base over the coming months, and then get going with our.

Well, Phil fill out some completion activity on their asset base over the coming months, and then get going with our overlay of our model over the next 12 months and really start seeing some more of an impact in 'twenty four.

I'll overlay of our model.

Over the next 12 months and really start seeing some more of an impact in 'twenty four I guess with this asset base in particular.

With this asset base and in particular.

It's always worth going back and explaining how these asset base have come to where they are in.

Southern Delaware Basin is about learnings right and we have as much learning because anybody in this part of the world to overlay our model so previous operators we've seen.

Southern Delaware Basin is about learnings right and we have as much learning does anybody in this part of the world to overlay our model so previous operators we've seen.

Pretty tight spacing seven to 10 wells per section in a couple of zones and under stimulation on completion designs.

It's evolved.

Evolved.

With the current operator took over.

Just under two years ago, they started moving to wider spacing. Some increased completion design intensity, we've seen some some progress there. They've also started very recently moving to what we've done over the last couple of years on artificial lift and removing gas lift and just going straight to ESP.

We see a lot of opportunities overlay our model just like we've done with prime Max and see the benefits over time. So you put that altogether with great rock that's here.

We see a lot of opportunities overlay our model just like we've done with prime ex and see the benefits over time. So you put that all together with great rock that's here.

This is going to be an asset that squarely competing for capital going forward.

Thanks, Joe and team congrats on the deal.

Thank you.

Your next question comes from Neal Dingmann with Securities.

Good morning, guys. Thanks for the time, Joe again, Congrats side I think it feels like my first question is maybe just comments around the creativeness of the deal can you walk through.

Good morning, guys. Thanks for the time, Joe again, you guys cited I think it feels like Ed. My first question is maybe just comments around the creativeness of the deal can you walk through how are you.

Maybe you and Kevin think about future free cash of the new deal versus the.

Maybe you and Kevin think about to teach a fee cash of the new deal versus the.

The existing that Youre, selling and also I assume part of that plays into the large amount of future future fee that.

The existing that Youre, selling and also I assume part of that plays into the large amount of future ctrip seats that.

But you now have to be drilled on this new acreage as well if you can maybe get both of those.

But you now have to be drilled on this new acreage as well if you can maybe hit both of those.

Okay.

Yes.

Yes, let me make sure I'm answering the right thing that Neil could you.

Let me make sure I'm answering the right thing that Theyre at Neal could you.

Just quickly.

Let me say that one more time, we are having a little bit of a hard time hearing you I apologize, Sean sorry, Im sorry, Yeah, just just on the deal.

Let me say that one more time, we are having a little bit of a hard time hearing you I apologize.

Im sorry, Im sorry, Yeah, just just on the deal.

Theres always with existing assets existing free cash flow.

Youre selling with those Eagle Ford assets, and just how that compares with.

When you look at the free cash flow with the new deal I mean, knowing that it didn't have.

When you look at the free cash flow with the new deal I mean, knowing that didn't have.

Given the production.

<unk> production.

And then where that was where I was going with that second part of that is knowing that the deal also has a large not an undeveloped inventory that with more feet to be drilled. So I'm. Just wondering if you could maybe hit both the free cash flow the two how those compare.

And then what I was what I was going.

And with that second part of that is knowing that the deal also has a large not an undeveloped inventory that with more feet to be drilled and so I'm. Just wondering if you could maybe hit both the free cash flow the two how those compare.

The deal being sold the Dolby, but and then the future feed being drilled.

Yes.

Got it.

A couple things.

Dress there one is like if you look at the assets just sort of in a vacuum right in terms of their profile.

What's what's great about this asset we are acquiring we typically with private equity backed type of companies, we will see a lot of drilling and maybe some steeper declines. This is not the case here.

We see PDP declines around below 30%, which is depending on what point in time, you look at our Eagle Ford similar maybe even a little bit better depending on the timing. There. So you have that nice base of PDP production, helping you out on the free cash flow side.

We see PDP declines around low, 30%, which is depending on what point in time, you look at our Eagle Ford similar or maybe even a little bit better depending on the timing. There. So you have that nice base of PDP production, helping you out on the free cash flow side.

Obviously, both assets in the Eagle Ford or with this new position in the Delaware They have attractive inventory to develop so they get their share of development dollars.

So from a free cash flow standpoint there.

So from a free cash flow standpoint.

<unk>.

Yeah.

Somewhat similar on the baseline PDP, but we're going to have more opportunities for development on a longer term basis in this new Delaware asset just because our Eagle Ford inventory was getting a little bit short, but thats.

Vacuum so if you move to putting this asset base into our model right.

In a vacuum so if you move to putting this asset base into our model.

Alright.

In a more consolidated critical mass of Permian activity Theres, just if there's efficiencies that we're going to get improved free cash flow from being able to do that on a more streamline basis.

More consolidated critical mass of Permian activity Theres, just if there is efficiencies we're going to get improved free cash flow from being able to do that on a more streamlined basis going forward. So there is some pickups in terms of synergies that add to that baseline of.

Going forward. So there is some pickups in terms of synergies that add to that baseline of.

Shallower declines on the PDP.

Yeah, great color and then.

Okay, great color and then.

I appreciate that and then my second question just on shareholder return I know early in the plan.

My question deals for you or Kevin I know Youre always clearly looking to keep your options open but just any thoughts on how large you believe the shareholder return maybe you should initially be or how that should grow again I don't want to pin you down yet, but maybe just your kevins thoughts on how you're thinking about what would make sense.

My question Jill for you or Kevin I know Youre always clearly looking to keep your options open but just any thoughts on how large you believe the shareholder return maybe you should initially be or how that should grow again I don't want to pin you down yet, but maybe just your kevins thoughts on how you're thinking about what would make sense.

Thanks.

Yeah, Thanks, Neil it's Kevin so.

Yes, Thanks, Neil it's Kevin.

At this point, we have a two year period of time authorized once this deal closes so that would run through the second quarter of 2025, and Thats a $300 million program, we havent set quarterly targets for percentage of free cash flow or allocation percentages. The magnitude of the time and each quarter is going to depend on free cash flow of commodity prices stock.

Price et cetera. So we're trying to have some retain some optionality here to create shareholder value or the best way, we see to use that free cash flow.

I'll give you some additional guidelines here, we expect to pursue the additional $400 million of debt paydown to reach that $1 5 billion number and.

I'll give you some additional guidelines here, we expect to pursue the additional $400 million of debt paydown to reach that one 5 billion number and.

Do that side by side with that two year $300 million share repurchase program.

That side by side with that two year to $300 million share repurchase program.

I guess I'd offer one other point of data here I would say in the mid to low 70, <unk> oil price.

I guess I'd offer one other one other point of data here I would say in the mid to low 70, <unk> oil price.

Theres more than enough cash flow to cover both the share repurchase objectives and the debt pay down over that two year period of time.

No love the Optionality, Thanks, Kevin Thanks, Joe Congrats again.

No love the Optionality. Thanks, Kevin Thanks, Joe Congrats again thanks.

Thanks, Dan.

Yes.

Your next question comes from Derrick Whitfield from Stifel.

Yes.

Thanks, Good morning, all and congrats on your transformative transactions.

Thanks Derek.

With regard to the acquisition could you speak I think you've referenced earlier has some degree of activity, but could you maybe outline current activity on the asset two day and your plans to integrate within the portfolio and the degree of synergies you see with the acquisition.

Yes.

So today.

He will be stepping in and we're going to do some completions as the year rolls on and they've moved.

We'll be stepping in we're going to do some completions as the year rolls on and they've moved.

Taken down their rigs so theres no.

Taken down their rigs there is no.

It's actually current activities as we step in which is which is good right. So it allows us to direct activity in our development model the way we want.

Is that going be current activities as we step in which is which is good right. So it allows us to direct activity in our development model the way we want but.

A lot of times, that's not the case so.

Starting with a bit of a clean slate, but we are going to have a chance to employ our completion designs on some of the activity that we're stepping into.

Moving forward, it's hard to just discreetly point out where the synergies are like again it goes with a broader models. We go in and really try to optimize the combined development program, but I think you get a sense of that certainly from the free cash flow.

Moving forward, it's hard to just discreetly point out where the synergies are like again it goes with a broader model as we go in and really try to optimize the combined development program, but I think you get a sense of that certainly from the free cash flow.

Per share and an absolute pickup.

For share in absolute pickup.

Going forward, but the flexibility in scheduling.

Employing our learnings and models does go a long way and I think we've shown those synergies.

To a large degree with the prime mix transaction over the last couple of years.

Terrific and then with regard to the acquisition could you just speak to how it came together and if it was your or the sellers preference for Cowen stock.

Terrific and then <unk>.

With regard to the acquisition could you just speak to how it came together and if it was your or the sellers preference for Cowen stock.

Okay.

Yes.

These deals come together over many many months certainly when you have two pieces of the puzzle. It takes a lot of time, so that's a whole another sidebar conversation but.

Lot of these deals come together over many many months certainly when you have two pieces of the puzzle. It takes a lot of time, so that's a whole another sidebar conversation but.

Our assets that we've kept an eye on for a long period of time going back to one there.

These are assets that we've kept an eye on for a long period of time going back to when they are.

Originally were sold by forward. So we know this area quite well.

Originally were sold by four so we know this area quite well.

And then we have been thinking about what is the best way to approach an acquisition as Cowen today and achieve all of our objectives that we talked about the financial side and start thinking about the Eagle Ford how that fits into the mix. So it's been something we've been percolated on for quite some time and.

And then we have been thinking about what is the best way to approach an acquisition as Cowen today and achieve all of our objectives, we talked about the financial side and start thinking about the Eagle Ford how that fits into the mix. So it's been something we've been percolated on for quite some time and.

Took a long time to get here, but.

It took a long time to get here, but.

It's great that we're here.

It's great that we're here on the equity side.

The equity side.

It was a clear.

Ask out of the sellers that they wanted some upside here right.

Ask out of the sellers that they wanted some upside here.

They have other opportunities to sell for all cash but.

They have other opportunities to sell for all cash.

It was clear.

It took some time forget our head around that just given where were trading but given the accretion we saw on this transaction and also overlaying this mechanism that.

We hope that the stock performs well between now and closing we will be able to claw back some of those shares as well.

We hope that the stock performs well.

Now in closing, we'll be able to claw back some of those shares as well.

That's terrific credit pick us thanks for your time.

That's terrific great pick us thanks for your time.

Thanks Sarah.

Thanks Kurt.

Your next question comes from Philip Johnston with capital one.

Your next question comes from Phillips Johnston with capital one.

Hey, guys. Thanks, and congrats just just one from me.

It looks like the rig count on the <unk>.

<unk> properties is trended down from around three years or so at this time last year to one as of a few months ago.

The production does seem to have kind of leveled off over the last six to nine months or so so I'm guessing that.

PDP decline rate on the properties isn't Super high but can you maybe talk about how these two transactions will affect your companywide 12 month PDP decline rate.

Yes.

Youre right the activity has been coming down and it has helped to shallow out the PDP decline profile right now.

Somewhere in the low <unk>, which as you know.

Somewhere in the low <unk>, which is.

Somewhat where we are as a company, maybe even a little bit better. So overall, it's a neutral to maybe a slight benefit to overall corporate decline.

Alright.

Great. Thank you.

Okay. Thank you.

Sure.

Your next question comes from Paul Diamond with Citi.

Good morning, all and thanks for taking my time and congratulations on the transaction.

Good morning, Thanks for taking my time and congratulations on the transaction I just wanted to touch base quickly on some of the efficiency gains we've seen in the drilling program over the course of the last 18 to 24 months.

I wanted to touch base quickly on some of the efficiency gains we've seen in the drilling program over the course of the last year.

18 to 24 months.

How does the.

I guess, how does the kind of repositioning away from Eagle Ford in two.

How does the kind of repositioning away from Eagle Ford in two.

Primarily in the Permian.

Do you see any kind of step change in that trend or should we would expect that to kind of continue on path.

Yeah generally speaking it's been absolutely outstanding performance, both on the drilling and completion side.

Yes, generally speaking it's been absolutely outstanding performance, both on the drilling and completion side.

The teams are never satisfied so what we do is we take a look at what we call. The the perfect well. So we apply a limiter theory, where we break down each individual component of the drilling and completions everything from starting in moving the equipment in to how we turn the wells online and connect into the facilities and flow lines. So.

The teams are never satisfied so what we do is we take a look at what we call. The perfect World. So we apply a limiter theory, where we break down each individual component of the drilling and completions everything from starting in moving the equipment in to how we turn the wells online and connect into the facilities and flow lines. So.

We anticipate that this new acreage that we have coming in which is which has been developed very nicely.

Integrated extremely well into the things that we do well so we would anticipate.

Integrated extremely well into the things that we do well.

We would anticipate.

Beth.

Can't stand here hand on heart and say, we will see another 20% in the next six months.

Can't stand here hand on heart and say, we will see another 20% in the neck.

Six months.

But we're extremely proud of the performance that we've had in <unk> and the results speak for themselves.

Understood. Thanks for the clarity in just a minute.

Understood. Thanks for the clarity I missed.

Quick kind of housekeeping one.

A quick kind of housekeeping one.

As far as your hedging strategy does the transaction really shift any of that kind of 30000 foot strategy should.

As far as your hedging strategy.

Transaction really shift any of that kind of 30000 foot strategy for.

Should we expect that to really continue on on path.

Should we expect that to really continue on path.

Yes.

Yes. Thanks.

That's a good question.

Our strategy Hasnt changed which is really we kind of are targeting around a 30% wty hedging over the next 12 months on a rolling basis.

Our strategy Hasnt changed which is really we kind of are targeting around a 30% <unk> over the next 12 months on a rolling basis.

Right now we did we.

Right now we did.

We did inherit a will inherit some hedges from their book, which will take us closer to <unk>.

We did inherit a will inherit some hedges from their book.

It will take us closer to <unk>.

On a hedged basis for the back half of the year and we are currently in the 17 18, 19% range on that hedging. So we gained some incremental hedges from from them, but it doesn't take us over the level, we view as our strategy, which is that 30% of next 12 months WTS.

Yes.

Understood. Thanks for the clarity congratulations again.

Thanks, Paul.

Your next question comes from Fernando Zavala with Pickering energy.

Partners.

Hey, guys. Good morning, just a quick one from me so pro forma for the deals do you see any material changes to your cash tax status heading forward.

Yes.

A good question and the answer is.

Good question and the answer is.

We're still sticking with our original guidance.

For cash taxes for 2000.

23, and that is $5 million to $15 million guidance, which as we offered on the Q4 call no change from either of these two transactions no additional limitations on Nols or et cetera.

23, and that is $5 million to $15 million guidance, which we offered on the Q4 call no change from either of these two transactions no additional limitations on Nols et cetera.

Okay, great. Thanks, and then just another follow up on your comments around the low single digit production growth is that similar on oil and equivalent or is it weighted to one or the other.

Pretty similar we're stepping into asset base with 70 plus percent oil, which is relatively similar eagle Ford So no.

No meaningful changes there.

Great.

Your next question comes from Ken <unk> with Keybanc.

Yes.

Hey, good morning, everybody. Thanks for taking my question first one maybe for Kevin.

When we think about the net cash proceeds I guess $390 million is there any tax leakage, we should be baking in is there anything else that would affect that net balance.

When we think about the net cash proceeds I guess $390 million is there any tax leakage, we should be baking in.

Or anything else that would affect that net balance.

Alright, So I think I heard you say, it's 300 got about $310 million.

Alright, So I think I heard you say, it's 300 about $310 million.

Net cash that will be applicable to paying off the <unk>.

Net cash that will be applicable to paying off the <unk> as a result of this transaction and no no cash tax leakage here.

As a result of this transaction and no no cash tax leakage here.

Okay 300 tenants in that amount okay.

After adjustments yes.

After tax adjusted yes.

Okay.

And then my follow up I guess more for Joe.

In the past in our discussions with investors some of the hesitancy from buying <unk> shares.

Kind of stem from the frequency and size of acquisitions that you have.

Undergone and as you think about it.

Undergone and as you think about coming up on the close on this in July.

In July .

I guess, what's the new message to investors about the willingness or appetite for future deals now that you have.

Transform the portfolio like you have.

Transforming the portfolio like you have.

I think we've shown.

Okay.

We've shown.

Over the last couple of years.

We are very focused on our financial objectives and this is a very important step that we're taking here, but we've figured out creative ways too.

We are very focused on our financial objectives and this is a very important step that we're taking here, but we figured out creative ways too.

Number one find assets are going to compete for capital and benefit from our overall methodology.

One find assets are going to compete for capital and benefit from our overall methodology.

We'll continue to look for opportunities to overlay, our model and add value to asset basis paying reasonable prices.

I think every company should be looking for opportunities like that.

I think it will ultimately add value, but we have to be realistic and we're going to be very selective just given the quality of the inventory. We have is a high bar to find assets like that.

And then certainly how do we finance these items I mean, this is a pretty unique situation in terms of.

Having the Eagle Ford.

<unk> of proceeds here. So we don't have another eagle Ford position.

I guess, it's a long way of sand.

Very smart about it obviously laser focused on continued debt reduction and now share returns, but we're in the business of looking for opportunities to step into positions and add value as an operator that has done that in the past.

Okay. Okay, I appreciate that and congratulations on the deal.

Pretty impressive transformation.

Thanks, Tim.

There are no further questions at this time I would now like to turn the call back over to Joe for closing remarks.

Yeah.

Thank you everyone for joining.

Hopefully we've been able to provide you a lot of detail on a transaction that we are very excited about here I think checks all the boxes for what we've been talking about with you all over the last couple of years frankly to get to this point. So we're all excited by them.

Hopefully we've been able to provide you a lot of detail on a transaction.

Very excited about here I think checks all the boxes for what we've been talking about with you all over the last.

Couple of years frankly to get to this point. So we're all excited I'm sure we'll be talking more.

Sure we'll be talking more.

Going forward and as always please let us know if you have any more questions. Thanks again.

Going forward and as always please let us know if you have any more questions. Thanks, Ken.

This concludes today's conference call you may now disconnect.

Callon Petroleum Company Q1 2023 Earnings Call

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