Callon Petroleum (CPE 1.59%)
Q1 2020 Earnings Call
May 11, 2020, 6:00 a.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good morning, and thank you for listening to our first-quarter webcast. Today, our president and CEO, Joe Gatto, will provide a brief discussion of our quarterly results and a summary of recent actions and the current outlook. During these prepared remarks, we'll be referencing the earnings results presentation we posted this morning to our website. You can find the slides on our events and presentations page, located within the investors section of our website at www.callon.com.
Before we begin, I'd like to remind everyone to review our cautionary statements, disclaimers, and important disclosures included on Slide 2 of today's presentation. We'll make some forward-looking statements during today's call that refer to estimates and plans. Actual results could differ materially due to the factors noted on these slides and in our periodic SEC filings. We may also refer to some non-GAAP financial measures today, which we believe help to facilitate comparisons across periods and with our peers.
For any non-GAAP measures we reference, we provide a reconciliation to the nearest corresponding GAAP measure. You may find these reconciliations in the appendix to the presentation slides and in our earnings press release, both of which are available on our website. Please note, this webcast will be archived on the company's website for approximately one year. And with that, I'd like to turn the call over to Joe Gatto.
Joe Gatto -- President and Chief Executive Officer
Thanks, Mark, and thanks, everyone, for joining us here this morning. A great deal has changed since our last call. People around the world have had to react quickly and alter how they manage not only their businesses, but their day-to-day lives. It is our sincere hope that all of our friends and families, business partners and investors are safe and doing the best they can to endure during these very trying times.
As if a global pandemic wasn't enough, the rapid drop in commodity prices has disrupted our industry and placed everyone in a position to reevaluate their current plans and forecasts. Fortunately, we have seen our recently combined organization galvanize, support one another, and work tirelessly to strategize and execute a realigned plan in the current market. I'm very proud of the sacrifices our team has made in their support of ongoing operations in a safe and responsible way by quickly adapting to social-distancing standards and working remotely from home. I would also like to pay special thanks to our IT department, who had us up and running remotely overnight back in March, and have spent countless hours since then finding ways to make working from home as seamless as possible.
The transition has not been an easy one, but our team's execution has been phenomenal, and I applaud all of them for the hard work and long hours to get us where we are today. Callon has always sought to support the communities where we live and work. And over the past two months, that dedication has not wavered. Across our various offices, we've had numerous employees come forward and offer ideas as to how we can be of service to those in need.
We spent time feeding our first responders, providing support to our local hospitals, and even designing and manufacturing PPE to assist in filling a shortage for this necessity. Our employees have given selflessly to assist their communities. They exemplify the spirit of Callon. Despite the turmoil caused by recent events, the goals for our business have not changed.
While our current activity levels have been greatly reduced, our goals and priorities for the business remain the same. And with the successful integration of the legacy Callon and Carrizo organizations, we are better-positioned to address the current environment. Simply put, we've created a platform with increased optionality and improved cash generation from synergies that have been delivered above expectations. After a strong start to the year, as seen in our first-quarter results, we quickly pivoted to reduce operational activity in March and increased our cash flow protection through additional hedging and elimination of three-way collar structures.
Our management team and board also took decisive moves to lower 2020 cash G&A by 15%, including the election to reduce their cash compensation by 25% to 35%. These savings are incremental to the significant reductions achieved as part of our recent corporate combination and bring total run rate cash G&A reductions down over $60 million from combined 2019 levels. These are meaningful accomplishments, which put us on the right path. The suspension of most of our development activity is the right move at this time.
Our updated activity scenarios, which are dependent on an improving outlook for oil prices in the second half of 2020 and into 2021, reflect a minimum reduction of 40% compared to our initial budget, and imply a maximum capital spend of 150 to $225 million in the second half of the year. Given the lack of visibility at this time, we will not be providing full-year guidance. Instead, in our press release and investor presentation, we have outlined our near-term expectations for the second quarter in a directional view of production and, importantly, free cash flow for the year based on a range of return to reduced activity scenarios under consideration. We have also provided some insight into 2021 since our near-term decisions have longer-term implications, and we are focused on the sustainability of the business over time.
We currently estimate maintenance capital for the next year to be below $500 million, providing a solid starting point for continued free cash flow generation. We have positioned the company to quickly resume efficient development across all three of our areas when economically justified, albeit at reduced levels relative to where we began 2020. Our growing DUC backlog, which will be around 70 wells heading into the third quarter, along with nine recent completions that are being deferred from flowback operations, provide capital-efficient sources of production once activity resumes. When we return to completion activity, we will continue to optimize capital allocation, focusing on shorter cash conversion cycle projects with lower capital intensity profiles, while retaining our life-of-field co-development philosophy in the Permian.
There are multiple examples in our slide deck that show how we are driving our development cost to new record-lows for the company and are pairing those with improved well performance. These are the cornerstones of competing in a challenging commodity environment, and our team continues to build on that solid foundation. Callon remains on track to progress our goals of deleveraging the business through measured development of a top-tier inventory, complemented by thoughtful asset monetizations. We will not rush to take actions that damage the long-term value of our asset base or impair our ability to create value for our shareholders.
Our focus remains on doing what is necessary to protect our liquidity over the next few months and focus on generating free cash flow as we monitor market conditions. I want to thank you for joining us today, and we look forward to updating everyone in the coming months. This concludes our call.
Duration: 8 minutes
Joe Gatto -- President and Chief Executive Officer