Callon Petroleum Company

Good day, ladies and gentlemen, and welcome to Callum Petroleum's company's fourth quarter and full year 2020 results and operating out of webcast. All participants will be in listen-only mode, and as a reminder, a replay of webcast for the call will be archived on the company's website for approximately one year. I will now turn the call over to Mark Brewer, Director of Investor Relations, for opening remarks. Please go ahead, sir.

Thank you, Chris. Good morning, and thank you for taking the time to join our conference call today. With me this morning are Joe Gatto, 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 earning 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 or under the general presentation page. 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 will 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 SEC filing. 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 the website. Following our prepared remarks today, we will open the call for Q&A. And with that, I'd like to turn the call over to Joe Guy.

Thanks, Mark, and thanks everyone for joining us this morning. We're certainly glad to be back in the office this week following a very different situation just one week ago in the state of Texas. However, we clearly recognize the hardships that continue for so many, even though temperatures have risen and basic services are mostly back online, and we certainly look forward to brighter days ahead for all. Over the last several days and months, our industry has once again been in the headlines and opinion polls for very good reasons. The evolution of the broader energy landscape will not be an easy path and certainly not move in a straight line, but we firmly believe that there is a substantial role for low-cost, sustainable producers like Callen to play in underpinning the global economy and our way of life for years to come. Focusing on that future, our actions and decisions this past year have enabled us to deliver on our promises to investors, including meaningful free cash flow generation and improved financial strength. As we further our life of field development model across our balanced portfolio in coming years, we project $500 to $800 million of free cash flow generation through 2023 in a band of $50 to $60 per barrel benchmark oil prices, adhering to reinvestment rates at 75% of discretionary cash flow and below. That cash flow will be directed to absolute debt reduction, keeping us squarely on the path to a leverage ratio goal below two and a half times by the end of next year. This operational financial outlook doesn't carry much weight unless it is complemented by our commitment to improve sustainability throughout our organization and day-to-day processes. Meaningful change in this area can't be accomplished merely through just redesigned protocols and initiatives. It requires a change in mindset across the company, and our achievements in 2020 clearly demonstrate that our team has embraced that perspective. You can see on slide five the performance for the fourth quarter, as well as the full year of 2020, exceeded expectations in every category. At a high level, we generated approximately $125 million of free cash flow over the last three quarters after pivoting our capital plan and portfolio allocation in March. Obviously, this free cash flow number captures several components of our business model, the most impactful of which were better than expected capital efficiency and cost synergies achieved this year as the organization did a remarkable job integrating in a far from normal environment. In sum, There is an impressive list of achievements on this page that came together to advance our debt reduction goals. And over the second half of 2020, we were able to reduce our net debt by $350 million. 2020 was also a year that saw our overall ESG program and sustainability initiatives progress significantly. Our preliminary emissions figures and flare volumes were much improved. Spill volumes saw a reduction of over 60%. And our water recycling program continued to grow. Safety has always been a core tenet of our business, and this past year marked a new record low for total recordable incidents for the second consecutive year. Importantly, this progress is complemented by a change on the governance front. We recently formalized responsibility for ESG oversight within our committee structure, which will drive increased focus and accountability going forward. Since it doesn't always get as much attention as the improvements on our environmental scorecard, I wanted to highlight and commend our employees' engagement and support of those in need during this pandemic. Outreach to first responders, support for our schools, and direct contributions to food banks were just a few of the ways the people of Cowan chose to make a difference. We will be publishing more detail on these and many other topics in our next SASB-aligned sustainability report this summer. And we will also be providing an update in the coming weeks regarding changes to our compensation design which will include enhanced linkages to ESG performance. Slide seven provides a snapshot of our approved reserve base. While the more than 30 percent reduction in benchmark oil prices certainly made an impact on our PB10 valuation, the fact that it only reduced total reserve volumes by approximately 5 percent pro forma for divestitures speaks to the strong margins and quality of projects inherent in our asset base. In terms of approved undeveloped reserves, we lowered the number of locations within our development window to align with our moderated development activity and projected reinvestment levels. Separately, certain undeveloped opportunities were removed as we continued with the application of more tailored spacing and stacking design and select operating areas. In the right-hand chart, we provided an alternative, forward-looking view of our approved reserve value, utilizing the same reserve database and development assumptions. with the only change coming in the way of pricing. Utilizing flat benchmark pricing of $50 per barrel for WTIO, $22.75 per MMBQ for Henry Hub natural gas, and $22.50 per barrel for natural gas liquids, our approved reserve value increases to just over $4.6 billion, almost doubling from year-end SEC pricing, and highlighting a significant foundation of approved reserve value and future cash flow generation potential. I'll also point out our PDP F&D cost is just over $10.50 per BOE that highlights our low-cost resource base and will be a key element on the next slide. After ending our first full-year reporting cycle as a combined company, we have introduced additional detail to provide investors insights into the building blocks of our balanced multi-basin model, which is outlined on slide eight. On a total company basis, Our cash margins, including corporate and interest expenses, is projected to be amongst the leaders in the industry at over $20 per BOE. This is a great chart in that it captures so many important elements of our business, including commodity mix, physical marketing strategy and risk management, operating cost control, and corporate expense management. When paired with a low-cost resource base, it allows us to reduce our reinvestment rates while sustaining reserves and production our strong corporate cash margins will drive long-term free cash flows that are durable through periods of volatility. As I've discussed, our priority remains debt reduction, which will translate into interest expense reduction. Once our leverage targets are met, we see the opportunity to redirect those interest expense savings to shareholders over time. Before I leave this page, I'll point out a new element of our go-forward IR materials and financial reporting. We've provided an overview production, realizations, and operating costs for both the Permian and Eagleford areas. Overall, both operating areas provide support for resilient cash margins and significant flexibility for capital allocation decisions and diversification across physical pricing points and commodity mix. As a follow-on to our debt reduction priorities that I highlighted earlier, slide 9 illustrates our path to attaining our goals on that front. As a baseline, our $430 million operational capital budget for 2021 implies a 75 percent reinvestment rate based on $50 per barrel WTI. We are committed to no more than this level of activity, so the implied reinvestment rate will only move down with a higher oil price outlook. Looking out to 2022 and 2023, our 2021 investment plan will provide us optionality for multiple paths depending on our outlook for commodity prices and capital costs after global supply and demand dynamics play out in 2021. Overall, we envision reinvestment rates below 75 percent under these planning price scenarios that will generate cumulative free cash flow of $500 million to $800 million over the next three years and drive leverage to potentially below two times by the end of 2023 just from organic free cash flow, excluding the impact of monetization. While the best shares are not explicitly captured in these numbers, any transaction that we pursue must result in improvement to our credit metrics and overall leverage profile. We recognize the importance of aligning these key financial metrics with the strength of our operations and asset base and are very encouraged by the magnitude and pace of improvement that we see in the coming quarters. At this point, I'm going to turn things over to Jeff to discuss operations.