Callon Petroleum Company

Good day and welcome to the Callen Petroleum Company's second quarter 2020 financial and operating results conference call. All participants will be in listen-only mode. As a reminder, this call is being webcast, and a replay of the call will be archived on the company's website for approximately one year. I would now like to turn the call over to Mark Brewer, Director of Investor Relations, for opening remarks. Please go ahead, sir.

Thank you, Cole. Good morning, everyone, and thank you for taking the time to join our conference call. With me this morning are Joe Gatto, our President and Chief Executive Officer, Dr. Jeff Ballmer, our Chief Operating Officer, and Jim Alm, our Chief Financial Officer. During our prepared remarks, we'll be referencing the earnings results presentation we posted yesterday afternoon to our website. So I encourage everyone to download the presentation if you haven't already. You can find the slides on our events and presentations page located within the investor section of our website at www.calend.com. Before we begin, I'd like to remind everyone to review our cautionary statements, disclaimers, and important disclosures included on slide two and three of today's presentation. We'll make some forward-looking statements during today's call that refer to estimates and plans. Actual results could differ materially due to the factors noted on these slides and in our periodic FDC filings. We'll also refer to some non-GAAP financial measures today, which we believe help to facilitate comparisons across periods and with our peers. For any non-GAAP measures we reference, we provide a reconciliation to the nearest corresponding GAAP measure. You may find these reconciliations in the appendix to the presentation slides and in our earnings press release, both of which are available on our website. Following our prepared remarks, we'll open the call for Q&A. With that, I'd like to turn the call over to Joe Gatto. Joe?

Thanks, Mark. Our team posted impressive numbers for the second quarter amidst a very challenging commodity environment in our rapid change in our daily work routines. Development and operating costs saw meaningful declines. Synergy realization was ahead of targets and ahead of schedule. And importantly, Calend was free cash flow positive, setting the stage for future quarters of free cash flow for debt reduction. Our strong operational start to the year as a combined company continued to show its impact in the second quarter with an 8% sequential production gain to just under 109,000 VOE per day on operational CapEx of just 85 million. In addition, our lease operating expense dropped quarter-over-quarter, despite having placed more than 60 new wells on production since the beginning of the year. With the proactive changes we've made to right-size the combined organization and reductions in compensation for our leadership team and board of directors, we've reached an all-time low in cash G&A expense per BOE of 69 cents per BOE and an all-in total cash G&A, inclusive of capitalized costs. of $1.37 per BOE for the second quarter. In aggregate, our total operating costs plus full cash G&A were under $9.60 per BOE, yet another reflection of the benefits of a scaled operating model and the focus of the entire organization in lowering our cost structure for the future. Flipping to slide five, we've created a balanced portfolio of development opportunities that provides a high degree of optionality with respect to capital allocation. while we enjoy a deep inventory of larger scale projects across the asset base with strong IRRs of $35 to $40 per barrel. The added ability to pivot based on varying cash conversion cycles and capital intensity profiles provides us with the tools to navigate volatile markets and generate sustained cash flows and associated returns on capital. This flexibility combined with mature production base and the structural well cost savings we have delivered underpins our outlook for durable cash flow generation as we are able to reduce our reinvestment rate while maintaining production levels in a low-price environment. Importantly, all of our core operating areas reside in Texas, and we have no exposure to federal lands. Within the state of Texas, we also benefit from diversified basin exposure that provides pricing point optionality and a natural hedge against unforeseen offtake disruptions or pricing point dislocations that we've seen occur on several occasions in recent years. Moving to slide six, a few comments here. This year has certainly forced our team in the sector to radically shift gears and embrace a very different outlook. During our first quarter call, we detailed the initiatives we were undertaking in response to rapidly changing market conditions, including a complete halt in drilling completion activities during the second quarter. As we sit here today, we have an inventory of approximately 70 drilled uncompleted wells across the Eagleford and Permian after investments made during the first few months of the year. Beginning later this month, we will return to a reduced level of activity with a focus on working through that duct inventory and setting the stage for a maintenance capital plan in 2021. We plan to utilize one full-time completion crew and two to three drilling rigs over the remainder of 2020 as part of our modified development plan that calls for operational capital expenditures of approximately $150 million. This activity plan for the second half dovetails with our 2021 outlook for approximately $400 million of investment, with average annual production levels expected to be in line with average daily volumes for the fourth quarter of 2020, and a 2021 exit rate similar to the 100,000 BOE per day of projected average annual volumes for 2020. All the free cash flow we generate over this period of six quarters, which we currently estimate to be roughly $150 million, a $40 per barrel flat WTI, will be dedicated to credit facility repayment and complement potential proceeds from our asset monetization initiatives. While we have been constantly focused on driving down costs and streamlining our organization, we've also been determined to make sure that our sustainability efforts are improving at the same pace if not faster. On slide seven, you can see that we continue to raise the bar for safety metrics, water recycling capacity usage, and meaningful changes to our governance and compensation policies. Last year, we premiered the sustainability portion of our corporate website to quantify and expound on our ESG practices. Next month, we will publish our first formal sustainability report, which will set a new baseline for our reporting practices and disclosures as the initiatives are advanced in partnership with our investors over time. Moving to slide eight, much has been said about the need to right-size the G&A burden across the industry. We are firmly aligned with that sentiment and effected a meaningful reduction in our cost structure through the consolidation transaction with Carrizo. We've maintained momentum on this front in the first half of 2020 and implemented several measures to drive further reductions without impeding our ability to execute our future development plans and strategic initiatives. The left-hand chart captures a variety of payroll, non-payroll, and related synergy cost realizations, ultimately leading to projected cash G&A reduction, inclusive of our capitalized costs of $75 million over 2019. These are changes that we expect to endure as they are largely structural in nature and represent longer-term adjustments to Callan's cost structure. At this point, I'm going to turn the call over to Jeff to discuss operations.