What happened

Shares of Callon Petroleum (CPE) rallied 11% by 2:30 p.m. EDT on Monday. Fueling the oil stock was a proposed debt offering. 

So what

Callon Petroleum announced today it intends to offer $650 million of senior unsecured notes due in 2028. The oil and gas company expects to use the bulk of those proceeds to redeem all $542.7 million of its existing 6.25% senior notes due in 2023. It would use any remaining proceeds to pay down its senior secured revolving credit facility. It had $950 million drawn on that $1.6 billion facility at the end of the first quarter.   

The silhouette of some people pointing to an oil well.

Image source: Getty Images.

This proposed bond deal will do a few things for Callon Petroleum:

  • It will extend its debt maturity profile by pushing out its nearest-term maturity by five years.
  • The move could save some money on interest expenses depending on the interest rate of the new notes. Thanks to higher oil prices, asset sales, and debt exchanges, the company has reduced its debt burden, putting it in a better position to refinance these notes at an attractive rate.
  • It will enable it to pay down more of its credit facility, enhancing its liquidity. 

Now what

Callon Petroleum is taking advantage of improving oil market conditions to refinance its nearest debt maturity. That will enhance its financial flexibility, allowing it to use its free cash flow to pay down its credit facility or repurchase other notes. With its financial profile improving, Callon Petroleum could one day be able to use its excess cash on shareholder-friendly activities like dividends and share repurchases. That could give its stock even more fuel to head higher.