Callon Petroleum Co., Houston, signed agreements to solidify its Permian basin focus, selling its Eagle Ford assets to fund expansion in the Delaware basin.
Callon agreed to acquire the membership interests of Permian-based Percussion Petroleum Operating II LLC in a cash and stock transaction valued at about $475 million and potential contingent payments of up to $62.5 million. Callon Petroleum Operating Co. will acquire 100% of the limited liability company interests of Percussion.
Callon's operations will be focused on its 145,000 net acres in the Permian basin, where it will hold more than 1,500 locations on a concentrated acreage position, it said in a release May 3.
The deal will add some 18,000 net acres in Ward, Winkler, and Loving counties and about 70 high-return well locations in the 3rd Bone Spring, Wolfcamp A, and Wolfcamp B with an average lateral length of nearly 10,000 ft, with additional prospectivity in emerging zones, the company continued.
Estimated April average production from Percussion's assets, which are largely contiguous with Callon’s existing core position in the Delaware basin, is about 14,100 boe/d (70% oil).
At closing, Callon also assumes Percussion's existing oil and gas derivatives with a settlement value of about ($7) million as of May 2, 2023. On a proforma basis, Callon's oil production in second-half 2023 will be about 30% hedged.
As part of the deal, Callon agreed to assume Percussion's existing contingent payment liabilities of $12.5 million for calendar year 2023 and $25 million each for calendar years 2024 and 2025 if WTI NYMEX oil prices average more than $60bbl.
Eagle Ford exit
In a separate deal, Callon agreed to sell all its assets in the Eagle Ford shale to Ridgemar Energy Operating LLC for $655 million in cash and potential contingent payments of up to $45 million. In that deal, Ridgemar will acquire 100% of the limited liability company interests of Callon's wholly owned subsidiary Callon (Eagle Ford) LLC.
Callon's Eagle Ford assets are comprised of about 2,000 net acres with April estimated average production of 16,300 boe/d (70% oil).
As part of the divestment, Ridgemar agreed to pay Callon contingent payments of $20 million if oil prices average $75-80/bbl WTI NYMEX in 2024 and an additional $25 million if WTI NYMEX oil prices are $80/bbl or higher in 2024.
The transactions are subject to customary terms and conditions and are expected to simultaneously close in July 2023, both with an effective date of Jan. 1, 2023.
