Callon Petroleum’s [stock_market_widget type="inline" template="generic" color="default" assets="CPE" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] solid start to the year has turned into a nightmare as the company is facing operational challenges that have derailed the strong start to the year it originally enjoyed. The company’s performance took a beating in the first quarter of 2019 as oil prices retreated, which is probably why it has been forced to take steps to streamline production.
Let’s take a look at the reasons why Callon performed woefully last quarter, and also why its future looks bleak as of now.
Callon is in a Soup
Callon Petroleum’s first-quarter results were good at first sight. The company registered a 20% increase in revenue to $153 million, which allowed it to beat the Wall Street estimate. Its adjusted earnings of $0.16 per share were also better than the consensus estimate by a penny.
But this is where the positive part ends. The company swung to a GAAP loss of $0.09 per share as compared to a profit of $0.27 per share a year ago. That’s because Callon saw a massive dip in the average realized price of oil during the quarter.
The company’s average realized sales price of oil fell to $49.37 per barrel as compared to $62.28 per barrel in the prior-year period. What’s more, the average realized price of natural gas was also down to $2.59 per Mcf as compared to $3.75 per Mcf in the year-ago period.
The combined average realized price recorded by Callon during the quarter came in at $42.18 per barrel of oil equivalent as compared to $53.30 in the year-ago period, a drop of nearly 21%.
A Positive Move
Callon Petroleum announced recently that it has closed the sale of its non-core assets in the Midland Basin. The company has executed the sale for a consideration of $245 million, with an additional $60 million to be received based on the average WTI price over the next three years.
However, this move is going to impact the company’s production. Callon now expects production between 38,000-39,500 BOE/day this year as compared to its original expectation of 39,500-41,500 BOE/day. The good part is that its capital expenditures will also decline to a range of $495 million to $520 million from the earlier range of $500 million to $525 million.
So the company is trying to streamline its asset base for the better. What’s more, Callon also says that it is making a move towards larger pads in the Permian basin to lower drilling and completion costs. This could further lower its cost base.
In the first quarter, Callon reported that its drilling and completion costs were averaging less than $1,000 per lateral feet. This represented a drop of 20% as compared to the 2018 average completion cost.
In the end, it can be concluded that Callon Petroleum is making the right moves to make its production more efficient so it makes sense to keep an eye on the company as it could make a comeback in the future.
