APA Corp., Houston, has agreed to acquire Callon Petroleum Co. in a $4.5-billion deal expected to add scale and short-cycle opportunities in the Permian basin and increase the company’s oil mix.
The all-stock deal, which includes Callon’s net debt, will give APA access to Callon’s nearly 120,000 acres in the Delaware basin, primarily in Reeves, Winkler, and Ward counties, where it had 4 rigs running in third-quarter 2023. Callon also holds about 26,000 acres in the Midland basin where it had a single rig running in third-quarter 2023.
On a pro forma basis, total company production exceeds 500,000 boe/d and increases the enterprise value to more than $21 billion, APA said in a release Jan. 4.
Pro forma average daily Permian basin production was 311,000 boe/d in this year’s third quarter, which represents a 48% increase from APA’s Permian basin production on a standalone basis, APA said.
APA expects its oil production as a percentage of boe in the Permian basin to increase to 43% from 37% in third-quarter 2023, on a pro forma basis.
In third-quarter 2023, APA averaged 3 rigs in the Southern Midland basin and placed 6 wells on production. In the Delaware basin, APA averaged 2 rigs and placed 9 wells on production. Twelve wells were connected in early October, with 18 additional wells expected late in the year’s fourth quarter, the company said in its quarterly presentation Nov. 1, 2023, with a sixth Permian rig expected to be added that month in the Delaware basin.
Estimated yearly overhead, operational, and cost-of-capital synergies are expected to exceed $150 million.
The deal is expected to close in second-quarter 2024, subject to customary closing conditions, including shareholder approval. Upon closing, a representative from Callon will join the APA board. APA’s executive management team will lead the combined company with the headquarters remaining in Houston, Tex.
Following closing, the company’s worldwide pro forma production mix will be about 64% US and 36% international.
Permian dealmaking continues
The between APA and Callon comes on the heels of a busy 2023 deal market that focused on Permian basin assets as ExxonMobil agreed to acquire Pioneer Natural Resources and Occidental inked a $12-billion deal with CrownRock (OGJ Online, Nov. 6, 2023; Dec. 11, 2023).
However, a “dwindling number of potential acquisition targets is likely to eventually slow a scorching hot Permian M&A market,” said Andrew Dittmar, senior vice-president at Enverus Intelligence Research.
“With fewer remaining private targets in the Permian, public company consolidation is going to take a more central role for companies looking to boost their exposure in the key oil region,” Dittmar said, while also noting challenges that come with such dealmaking. First is finding management teams interested in selling, and second is the view that a limited number of public companies have inventory and valuations of interest to larger buyers, he said.
Valuation of the APA-Callon deal looks attractive as Callon is “being acquired around the value of its existing production without paying a meaningful amount for the undeveloped acreage,” Dittmar continued. Further, Enverus views Callon as having “about 10 years of drilling inventory with a little more than half of that falling into [Enverus’] high-quality bucket or breaking even at $50/bbl WTI or less,” he said.