Houston-based independent producer Callon Petroleum said Monday it’s entered into a deal to sell certain non-core assets in the Midland Basin to an unnamed buyer for $260 million in cash.
The agreement also provides for potential incremental cash payments of up to $60 million based upon future commodity prices with upside participation starting at the $60/Bbl West Texas Intermediate level, Kallanish Energy finds.
“We are delivering on our commitment to drive enhanced capital efficiency by monetizing lower margin, non-core properties that have not competed for capital on a sustained basis,” said Joe Gatto, Callon’s president and CEO.
The sale encompasses Callon’s Ranger operating area, in Reagan and Upton counties in the southern Midland Basin. Assets sold include roughly 9,850 net Wolfcamp acres (66% working interest), over 80 currently producing horizontal wells that have been drilled since 2012 and 70 net, delineated locations that exceed the company’s internal threshold of an internal rate of return of greater than 25% at strip pricing.
Daily production from these assets averaged roughly 4,000 barrels of oil-equivalent per day (Boe/d) (52% oil) in February.
Gatto said proceeds from the divestitures will accelerate Callon’s debt reduction initiatives and also provide the opportunity to retire its preferred stock, reducing cash financing costs.
“The transaction streamlines our business with a resulting focus on three core operating areas (all in the Permian). We are actively optimizing our operations, which we believe will reduce capital intensity and increase returns on capital for our shareholders,” Gatto said.
Jefferies acted as exclusive financial advisor to Callon in connection with the Ranger divestiture.
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