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Why Callon Petroleum Stock Rallied 16% at the Open Today

By Reuben Gregg Brewer – Nov 4, 2021 at 11:30AM

Key Points

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Callon reported earnings and investors clearly liked what they saw, with higher energy prices helping things along.

What happened

Shares of U.S. exploration and production (E&P) company Callon Petroleum (CPE 2.60%) rose as much as 16% or so in the first hour of trading on Nov. 4. The company's third-quarter earnings update, which came after the market closed on Nov. 3, was one of two catalysts here.

So what

With a market cap of around $3.3 billion, Callon Petroleum is a fairly small energy company. That was a major problem in 2020 when oil and natural gas prices were plunging due to the economic shutdowns used to slow the spread of the coronavirus. However, now that energy prices are on the rise again, with the world economy starting to come back to life, Callon's performance has improved dramatically. For example, third-quarter 2021 sales came in at $552.6 million, up from $290 million in the same quarter last year. Adjusted income per share was $2.93 per share, up from $0.64 in the third quarter of 2020. So it was a pretty good quarter, helped materially by the fact that Callon's average realized sales price per barrel of oil equivalent increased from $28.14 in the third quarter of 2020 to $42.84 this year. 

A person in protective gear with oil wells in the background.

Image source: Getty Images.

In addition, the company made some other moves, including working to shore up its balance sheet, sell non-core assets, and integrate newly acquired energy properties. That said, Callon's production was lower by about 2% year over year. So higher oil prices were a critical factor in its improved results. However, production in the third quarter was 12% higher than it was in the second quarter of 2021, so things are moving in the right direction. And Callon expects to be able to benefit from increased economies of scale thanks to the asset purchases and sales it recently made to help strengthen its asset footprint, which bodes well for production from here. 

Investors were clearly pleased with all of the news. However it would be hard to suggest that earnings were the only factor in play today. Indeed, higher oil and gas prices in early trading also added, at least a little, to the early share price advance.

Now what

Callon Petroleum's stock is up more than 900% over the past year. A material amount of that gain is thanks to rising energy prices, which have shifted the story from one of mere survival to one focused on how well this E&P can take advantage of the industry recovery. So far, investors appear pleased with the progress. That said, given the price gains, this stock is probably only appropriate for more aggressive investors who continue to have a positive outlook for energy prices.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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