Callon Petroleum (CPE) PT Raised to $13 at Imperial Capital On Smaller Equity Issuance

Imperial Capital analyst Irene Haas raised the price target on Callon Petroleum (NYSE: CPE) to $13.00 (from $10.00) after the company announced that it completed the acquisition of Carrizo Oil and Gas and amended merger agreement resulting in fewer new CPE shares to be issued.

The analyst stated "On 11/14/19, CPE announced an amendment to its previous agreement to acquire Carrizo Oil and Gas. Carrizo shareholders will receive 1.75 shares of CPE stock for each Carrizo common share (versus the previous ratio of 2.05), or at a 6.7% premium (versus 18% previously) based on the share prices prior to the initial merger announcement. Post transaction, CPE’s shareholders will own 58% of the combined company versus 54% previously". "The merger should raise production from about 44,000boepd to 112,00boepd. We believe the merger will make CPE more durable and a stronger operator in the Delaware Basin with additional diversification from owning assets in the Eagle Ford. The new entity should be able to generate incremental free cash flow generation (FCF) of $100mn in 2020. In addition, the $300-400mn of asset sales should position CPE for meaningful debt reduction. The combined entity should improve debt metrics and make FCF generation more sustainable, and this should result in a lower cost of capital in the future". No change to the Outperform rating.

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