APA Corporation and Callon Petroleum Company have entered into a definitive agreement under which APA will buy Callon in an all-stock transaction valued at approximately $4.5 billion, inclusive of Callon’s net debt. Under the terms of the transaction, each share of Callon common stock will be exchanged for a fixed ratio of 1.0425 shares of APA common stock. The deal is expected to be accretive to all key financial metrics and add to APA’s inventory of high quality and-cycle opportunities. Plus, Callon’s assets provide additional scale to APA’s operations across the Permian Basin, most notably in the Delaware Basin, where Callon has about 120,000 acres. On a pro forma basis, the total company production exceeds 500,000 BOE per day and enterprise value increases to more than $21 billion.
These are the key highlights of the deal:
— Combination of Callon’s Delaware-focused footprint with APA’s Midland-focused footprint provides scale and balance in the Permian Basin
— APA’s oil-prone acreage in the Midland and Delaware Basin combined will increase by more than 50% following the transaction
— The deal is expected to be accretive on key financial and value metrics
— The estimated overhead, operational and cost-of-capital synergies to exceed $150 million annually and
— Additional scale anticipated to improve credit profile; pro forma balance sheet will remain strong with leverage at 1.1x net debt / adjusted EBITDAX
Combined Permian Asset Position and Preliminary 2024 Planned Activity
The pro forma average daily Permian Basin production was 311 Mboe/d in 3Q 2023, which represents a 48% increase from APA’s Permian Basin production on a standalone basis. APA’s oil production as a percentage of BOE’s in the Permian increases from approximately 37% to 43% in 3Q 2023, on a pro forma basis. And APA will provide additional activity plans and details post closing.
Deal Details
In this all-stock transaction, each outstanding share of Callon common stock will be exchanged for 1.0425 shares of APA common stock, which represents an implied value to each Callon share of $38.31 per share based on the closing price of APA common stock on January 3, 2024. And APA is expected to issue approximately 70 million shares of common stock in the transaction. After closing, existing APA shareholders are expected to own approximately 81% of the combined company and existing Callon shareholders are expected to own approximately 19% of the combined company. APA plans to retire the existing debt at Callon and replace it with APA term loan facilities totaling $2 billion. The term loan facilities are expected to offer improved optionality for near-term debt reduction. JPMorgan Chase Bank, Citigroup Global Markets, and Wells Fargo Bank, National Association have jointly provided $2 billion of committed financing for the deal.
The deal has been unanimously approved by the Boards of Directors of both APA and Callon and is expected to close during the second quarter of 2024, subject to customary closing conditions and approval of the transaction by shareholders of both APA and Callon. Upon the closing of the deal, 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, Texas.
Following the closing, the company’s worldwide pro forma production mix will be about 64% U.S. / 36% international. And APA’s global portfolio includes ongoing development on large-scale legacy assets in the U.S. and Egypt. The company is also advancing a FEED process for a large-scale FPSO development offshore Suriname. Plus, the current production and development activities across the globe, APA maintains a differentiated exploration portfolio, which includes newly acquired large-scale blocks offshore Uruguay and onshore state-land leases in Alaska.
KEY QUOTES:
“This transaction is aligned with APA’s overall portfolio strategy and fits all the criteria of our disciplined approach to evaluating external growth opportunities. Callon has built a strong portfolio in the Permian Basin that is complementary to our existing Permian assets and rounds out our opportunity set in the Delaware. The acquisition is accretive and unlocks value for both shareholder bases, as increased scale will enable us to realize significant overhead and cost-of-capital synergies. The pro forma footprint in the Permian will also create opportunities to capture meaningful operating synergies.”
“APA has a proven ability to deliver strong results from its unconventional assets in the Permian Basin, and we look forward to building on the progress that the team at Callon has made within its asset base. This transaction is aligned with our strategy of maintaining and growing a diversified portfolio, underpinned by large-scale core areas of operation while continuing to build a portfolio of medium and longer-term exploration-driven development opportunities.”
— John J. Christmann IV, APA’s CEO and president
“We are very proud of the significant steps we have taken to enhance Callon’s asset base, operational performance and balance sheet over the past several years. This combination with APA now provides for an enhanced value proposition for our shareholders built on their depth of experience and strong execution in the Permian Basin, flexibility for increased capital allocation, and ongoing delineation and optimization efforts. Importantly, I would like to personally thank each and every Callon employee for their role in building this company. I am very proud of this team and what we have achieved together.”
— Joe Gatto, Callon’s president and CEO
