Callon Petroleum Co., Houston, has set an operational capital expenditure budget of $725 million for 2022 and expects 85% will be allocated to the Permian basin.
Some 83% of spend will be directed towards drilling, completion, and equipment expenditures. The $216 million increase from 2021 levels reflects an increase in the number of drilled wells and the impact of cost inflation on items such as fuel, steel, and labor.
The budget “reflects both our continued commitment to capital discipline and a greater focus on Callon’s high rate of return Permian basin assets,” said Joe Gatto, president and chief executive officer in a statement Feb. 23. Inclusive of capitalized expenses, the budget implies a reinvestment rate of about 60% of adjusted discretionary cash flow at $75/bbl WTI price and an adjusted free cash flow breakeven price of about $40/bbl, he said.
“After completing our work to transition the acquired assets to larger project developments in the first quarter, we expect to generate oil production growth in excess of 10% over the course of the year,” Gatto said. The company agreed to acquire the leasehold interests and related oil, gas, and infrastructure assets of Primexx Energy Partners and its affiliates in 2021 (OGJ Online, Aug. 4, 2021).
“Based on our planned operational activity and leading operating margins, we expect to generate over $500 million in adjusted free cash flow in 2022, based on $75 per barrel,” he continued.
Permian development activity will predominantly feature co-development of the Wolfcamp A and B in the Delaware basin and the Lower Spraberry and Wolfcamp A and B in the Midland basin. The company plans to transition to more efficient, larger scale development on its recently acquired southern Delaware properties with an expanded drilled and uncompleted well inventory and execute on identified opportunities to reduce lifting costs by 30%
The Eagle Ford program remains focused on the established target zone, the Lower Eagle Ford shale, with an expectation to test the Austin Chalk in the second half of the year.
In total, Callon expects to drill 125-130 gross wells and complete 113-118 gross wells. Annual production guidance is set at 101,000-105,000 boe/d (64% oil).
Currently, the operator has seven active rigs with four in the Delaware basin, one in the Eagle Ford, and two in the Midland basin. It plans to release one of the Delaware rigs in late April. Two completion crews are operating, currently in the Delaware basin.
Full-year 2021 production was 95,600 boe/d (64% oil), a decrease of 6% over 2020 volumes. Net cash provided by operating activities was $974.1 million and adjusted free cash flow of $274.2 million. Net income for the year was $365.2 million, adjusted EBITDA of $998.8 million, and adjusted income of $437.4 million. At Dec. 31, 2021, Callon had 1,326 gross (1,187.1 net) horizontal wells producing from established flow units in the Permian and Eagle Ford.
For the year, Callon incurred $508.6 million in operational capital expenditures on an accrual basis as compared to $488.6 million in 2020.
Fourth-quarter 2021 production was 112,400 boe/d (64% oil), up 18% from the same period in 2020, with 16.8 net wells placed on production. The company generated $366.3 million of net cash provided by operating activities and adjusted free cash flow of $123.6 million. Net income for the quarter was $285.4 million. For the three months ended Dec. 31, 2021, Callon drilled 27 gross (24.9 net) horizontal wells and placed a combined 19 gross (16.8 net) horizontal wells on production. Wells placed on production during the quarter were completed in the Lower Spraberry and Wolfcamp A in the Midland basin and the 3rd Bone Spring, Wolfcamp A, and Wolfcamp C in the Delaware basin.
For the quarter, Callon incurred $159.8 million in operational capital expenditures on an accrual basis, which represented a $44.8 million increase from third-quarter 2021.