APA Corp to Acquire Callon Petroleum for $4.5 Billion

The US-based oil firm APA Corporation has announced its plans to acquire Callon Petroleum Company in all–stock transaction valued around $4.5 billion inclusive of the latter’s debt and the two companies have entered into an agreement in this regard on Thursday.

The transaction 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, termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and approval of the transaction by shareholders of both APA and Callon.

Upon the closing of the transaction, 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.

Callon’s assets provide additional scale to APA’s operations across the Permian Basin, most notably in the Delaware Basin, where Callon has nearly 120,000 acres. On a pro forma basis, total company production exceeds 500,000 BOE per day and enterprise value increases to more than $21 billion.

In this all-stock transaction, each outstanding share of Callon common stock will be exchanged for 1.0425 shares of APA common stock, representing an implied value to each Callon share of $38.31 per share based on the closing price of APA common stock on January 3.

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 expects to retire the existing debt at Callon and replace it with APA term loan facilities totalling $2 billion. The term loan facilities are expected to offer improved optionality for near-term debt reduction. JPMorgan Chase Bank, N.A., Citigroup Global Markets Inc. and Wells Fargo Bank, National Association have jointly provided $2 billion of committed financing for the deal.

Key Highlights

Combination of Callon’s Delaware-focused footprint with APA’s Midland-focused footprint provides scale and balance in the Permian Basin and 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 and estimated overhead, operational and cost-of-capital synergies to exceed $150 million annually, and the additional scale anticipated to improve credit profile; pro forma balance sheet will remain strong with leverage at 1.1x net debt / adjusted EBITDAX.

John J. Christmann IV, APA’s CEO and President, said that the transaction was aligned with APA’s overall portfolio strategy and fits all the criteria of their 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, he noted.

 “The acquisition is accretive and unlocks value for both shareholder bases, as increased scale will enable us to realise significant overhead and cost-of-capital synergies. The pro forma footprint in the Permian will also create opportunities to capture meaningful operating synergies,” he added.

Joe Gatto, Callon’s CEO and President, said that the combination with APA provides for an enhanced value proposition for Callon’s shareholders built on their depth of experience and strong execution in the Permian Basin, flexibility for increased capital allocation, and ongoing delineation and optimisation efforts.

The average daily Permian Basin production was 311 Mboe/d in 3Q of 2023, which represented 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% during the same period.