Oil Major APA Corporation to Acquire Callon Petroleum in $4.5 Billion All-Stock Deal

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Independent oil and gas producer APA Corporation has agreed to purchase rival Callon Petroleum Company in an all-stock transaction valued at approximately $4.5 billion including debt. The deal expands APA’s operations in Texas’ prolific Permian Basin as the company continues building out a diversified oil and gas portfolio.

Under the definitive agreement announced Thursday, each Callon share will be exchanged for 1.0425 shares of APA common stock. This represents a purchase price of $38.31 per Callon share based on APA’s closing stock price on January 3rd.

APA expects to issue around 70 million new shares to fund the acquisition, leaving existing APA shareholders with 81% of the combined company. Callon shareholders will own the remaining 19% once the deal closes.

Strategic Fit

According to APA CEO and President John J. Christmann IV, Callon’s Delaware Basin assets perfectly complement APA’s existing Permian footprint.

He stated the deal “fits all the criteria of our disciplined approach to evaluating external growth opportunities.” It provides additional scale across the Permian while increasing APA’s oil mix.

Notably, Callon holds nearly 120,000 net acres in the Delaware Basin, an oil-rich subsection of the larger Permian. APA’s Delaware acreage will expand by over 50% after absorbing Callon’s properties.

Meanwhile, APA’s Midland Basin presence will continue driving natural gas volumes. The combined Permian portfolio increases APA’s total company oil production mix from 37% to 43%.

Accretive Metrics

APA expects the deal will prove accretive to key financial and value metrics. Management sees over $150 million in annual overhead, operational, and cost of capital synergies resulting from the increased scale.

The company will also benefit from Callon’s inventory of short-cycle drilling opportunities in the Permian. APA believes the deal enhances its portfolio of low-risk, high-return investments.

What’s more, the transaction stands to improve APA’s credit profile. The company will retire all of Callon’s existing debt after closing, replacing it with $2 billion in APA term loan facilities. This is expected to provide flexibility for near-term debt pay-down.

Conditions and Close

The definitive agreement has received unanimous approval from the boards of directors at both companies. The deal now requires customary regulatory clearances along with a thumbs up from Callon shareholders.

APA anticipates the acquisition will close during the second quarter of 2024. Upon closing, a representative from Callon will join APA’s board of directors.

APA’s current executive team led by Christmann will continue managing the expanded company. Headquarters will remain in Houston, Texas.

Diversified Portfolio

According to Christmann, the deal aligns with APA’s strategy of maintaining a globally diversified oil and gas portfolio. The company runs both legacy and exploration assets across the United States, Egypt, the UK, and offshore Suriname.

Post-acquisition, 36% of APA’s total production will come from international plays. The remaining 64% stems from U.S. assets, with the bulk supplied by the newly expanded Permian footprint.

Callon Brings Strong Permian Position

Founded in 1950, Callon Petroleum has grown into a leading independent Permian producer. The Houston-based company focuses on acquiring, exploring, and developing high-quality assets across the prolific West Texas basin.

As of September 2022, Callon reported net production of over 106,000 barrels of oil equivalent per day. Its portfolio includes a mix of productive acreage, infrastructure, and upside opportunities in both the Midland and Delaware Basins.

According to Callon President and CEO Joe Gatto, the combination with APA will enhance value for Callon shareholders. It also provides increased capital flexibility and potential from APA’s robust Permian operations.

The proposed acquisition marks the latest move in APA’s ongoing growth strategy. The company continues positioning itself as a diversified, large-scale independent oil and gas producer able to drive value across business cycles.

Take a moment to take a look at Noble Capital Markets’ Senior Research Analyst Michael Heim’s coverage list.

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