Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Callon Petroleum Stock Is Surging Today

By Matthew DiLallo - Updated Apr 26, 2019 at 3:25PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The oil company has reached a key turning point.

What happened

Shares of Callon Petroleum ( CPE -4.13% ) 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.

A oil pump in the evening.

Image source: Getty Images.

"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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Callon Petroleum Company Stock Quote
Callon Petroleum Company
CPE
$50.84 (-4.13%) $-2.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
673%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.