What happened
Shares of Callon Petroleum (CPE) rallied on Wednesday, rising as much as 13% by 12:30 p.m. EST. Catapulting the oil producer's stock were its fourth-quarter results and outlook for 2019.
So what
Callon Petroleum generated $39.9 million, or $0.17 per share, of adjusted net income during the fourth quarter, which came in $0.03 per share below the consensus estimate. Cash flow, however, was healthy at $151.6 million despite falling crude prices during the quarter, and exceeded capital expenses of $127.8 million, enabling the company to generate some free cash flow. Production, meanwhile, was strong at 41,100 barrels of oil equivalent per day (BOE/D), up 18% from the third quarter and 55% year over year. That helped push the full-year average to 32,900 BOE/D, an increase of 44% from 2017 and at the top end of the company's guidance range.
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"The past year represented a significant inflection point in the maturity of our Permian operations and progression to a development model that will drive increased capital efficiency and corporate returns," stated CEO Joe Gatto. That's apparent in Callon's guidance for 2019. Overall, the company plans to spend $500 million to $525 million in capex this year, down from $583 million in 2018. That will provide the company with enough money to grow production up to a range of 39,500 to 41,500 BOE/D, which is a 23% increase at the midpoint. Further, the company can fund that capital plan with room to spare at an oil price in the low $50s.
Check out the latest Callon earnings call transcript.
Now what
Callon Petroleum is joining a growing list of oil companies that can deliver strong growth rates while generating free cash flow on oil prices in the low $50s. That will enable the company to thrive in the current market, since it can maintain its pace if oil declines but cash in if crude remains at its current level in the upper $50s. That ability to generate excess cash at lower prices gives the company the flexibility to shore up its balance sheet, make acquisitions, or return capital to investors.
