Callon Petroleum(US:CPE)2023-11-02 20:35Financial Data and Key Metrics Changes - For the third quarter, total production averaged 102,000 BOE per day, with oil sales averaging about 58,000 barrels per day. The shortfall in oil volumes was attributed to extreme temperatures and related power issues, impacting production in the Delaware Basin [6][27] - The company generated nearly $50 million in adjusted free cash flow this quarter, allowing for debt reduction and share repurchase initiatives [26][27] - Total long-term debt was approximately $1.9 billion, down more than $300 million from the prior period, with expectations for higher free cash flows in the fourth quarter to continue reducing debt [27][28] Business Line Data and Key Metrics Changes - The company added quality assets in the Permian and extended its runway of high-return long-lateral development locations, with a focus on the Delaware acquisition [1] - The Delaware West area, which is gas-weighted, saw higher gas-to-oil ratios than expected, impacting overall oil production [7][17] - The company expects to turn 14 gross wells in line in the fourth quarter, primarily in oilier areas, which will benefit the 2024 production mix [23] Market Data and Key Metrics Changes - The company anticipates fourth quarter oil production in the range of 56,000 to 59,000 barrels per day, with total production expected to be between 100 to 103 BOE per day, comprised of approximately 79% liquids [23] - The company is focused on maximizing free cash flow and reducing debt while also planning to use up to 40% of adjusted free cash flow for share repurchases in the fourth quarter [28] Company Strategy and Development Direction - The company is focused on maximizing free cash flow, reducing costs, and returning cash to shareholders through a share buyback program [44] - The strategy includes a shift to a fit-for-purpose design in operations, optimizing costs through various initiatives, including reducing casing strings and improving cycle times [9][30] - The company plans to prioritize high-value developments while maintaining a disciplined approach to capital investments [34] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of learning from operational experiences, particularly in the Delaware West area, to optimize future development plans [17][73] - The company expects to continue improving capital efficiency and free cash flow conversion of EBITDA, with a forecasted average DC&F cost per well down over 15% versus 2023 [34][106] - Management acknowledged the ongoing challenges in the operating environment but remains optimistic about the company's ability to adapt and improve [99] Other Important Information - The company has implemented a cash return program for shareholders and is serious about achieving debt reduction goals [28] - The leadership team has been strengthened, with a focus on enhancing operational practices and creating sustainable efficiencies [29] Q&A Session Summary Question: What are the primary drivers for capital allocation moving forward? - Management emphasized a balanced approach between investing in asset base, debt reduction, and share repurchase programs [13] Question: Can you provide insights on the Delaware West area and future development? - Management noted that the Delaware West area is gas-weighted, and while it remains attractive, adjustments will be made in development strategies based on recent learnings [16][17] Question: How does the company view consolidation in the industry? - Management acknowledged the trend of consolidation and indicated that having a robust inventory and improving balance sheet positions the company well for future opportunities [77][99] Question: What are the expectations for LOE trends into 2024? - Management highlighted that reducing failure rates in artificial lift systems is a significant focus for improving LOE [107]