Stephens Doubles Down On Callon Petroleum, Sees $14/Share Upside

Callon Petroleum Company CPE has announced the acquisition of Big Star Oil and Gas, LLC as well as a joint development agreement with TRP Energy, LLC for $33 million. Stephens’ Will Green reiterated an Overweight rating for the company, while raising the price target from $11 to $14. The analyst noted that the company was expanding its footprint, and adding inventory via M&A.

Acquisition

Callon Petroleum plans to acquire 14K net acres mainly in Howard County, as well as Martin, Borden and Dawson Counties, for $220 million in cash and 9.3 million in shares. The acquisition price is estimated at ~$300 million.

“The new Howard County acreage expands the Company footprint while management believes an additional 275 locations could be added and the average lateral improved (8,300'),” analyst Will Green wrote.

Joint Development Agreement

Callon Petroleum also announced an agreement with TRP Energy in Reagan County, according to which the companies would be jointly acquiring 4,745 net acres north of the Garrison Draw field, Green said.

Estimates

The production, CFPS and Op EPS estimates for FY16 have been raised from 11.8 Mboepd to 14.5 Mboepd, from $0.72 to $0.82 and from $0.03 to $0.12, respectively. The production, CFPS and Op EPS estimates for FY17 have been raised from 13.1 Mboepd to 20.1 Mboepd, from $0.92 to $1.16 and from $0.05 to $0.16, respectively. The revisions reflect the recent transactions and equity offering, the analyst mentioned.