On Thursday, APA Corporation announced an agreement to acquire Callon Petroleum Company in an all-stock deal valued at around $4.5 billion including debt. The deal consolidates APA’s position as a leading independent oil and gas producer in the prolific Permian Basin of West Texas and New Mexico.
Key Details of the Deal
Under the terms of the agreement, Callon shareholders will receive 0.5719 shares of APA common stock for each share of Callon common stock owned, representing an implied total enterprise value of around $4.5 billion including net debt. This values Callon at $13.85 per share based on APA’s 10-day volume-weighted average price.
The deal has been unanimously approved by both companies’ boards of directors and is expected to close in H2 2024, subject to regulatory and shareholder approvals. Once completed, APA shareholders will own around 73% of the combined company, while Callon shareholders will own 27%.
|All-stock (0.5719 APA shares per Callon share)
|Premium to Callon Shareholders
|15% based on 10-day VWAP
Rationale and Benefits
The acquisition significantly expands APA’s presence in the Permian Basin, adding over 100,000 net acres in the Midland and Delaware basins. The deal also boosts APA’s net production by over 40% to around 525,000 barrels of oil equivalent per day (boepd).
According to APA CEO John J. Christmann, the deal creates a “premier independent oil and gas company with scale, resilience, and cash flow generation that competes across all price cycles.” He highlighted the benefits of expanded margins, lower costs, and increased cash flow.
For Callon, the deal provides improved scale, diversification, and access to cash flow for accelerating development. Callon CEO Joe Gatto called it a “win-win transaction.”
- Expanded Permian footprint and production
- Improved economies of scale
- Lower unit costs
- Increased cash flow generation
- Accelerated development opportunities
Outlook and Implications
The deal is the latest sign of consolidation in the US shale industry as companies seek scale and efficiencies to thrive amid volatility. It gives APA expanded low-cost Permian inventory to drive future growth.
With commodity prices recovering and increased focus on capital discipline, the combined entity is well-positioned to accelerate cash flow-focused development. The deal is expected to be immediately accretive to key financial metrics.
Some analysts view the 15% premium paid as reasonable given the potential synergies. However, investors initially reacted cautiously, with APA shares falling over 5% on the news while Callon stock jumped 15%.
The transaction comes after Colgate Energy Partners III LLC acquired APA’s non-operated Permian position for $1.5 billion last year. The Callon deal redeploys proceeds from that asset sale to expand APA’s operated footprint in the basin.
With its fortified position in the Permian, APA is likely to continue focusing development in the region while optimizing its portfolio. However, the company could still pursue selected consolidation deals to augment its operations if the value proposition is compelling.
Overall, the Callon acquisition strengthens APA’s capacity to deliver sustainable long-term returns to shareholders across market cycles. It demonstrates the company’s confidence in the Permian and its commitment to building scale as the basin continues growing in importance for US oil production.
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