Callon Petroleum Company

Good day, and welcome to the Cowland Petroleum Company first quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mark Brewer, Director of Investor Relations. Please go ahead.

Thank you, Sean. Good morning, and thank you for taking the time to join us on our first quarter 21 conference call and webcast. 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 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 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 prepared remarks, we will open the call for Q&A. With that, I'd like to turn the call over to Joe Gatto.

Thank you, Mark. We're glad everyone could join us today as we review the results of another solid quarter for Callen. Commodity prices have rebounded, activity levels are measured, and our sector has found its footing with a shift to more moderated reinvestment rates and a commitment to improving corporate returns on capital. Against this improving industry backdrop, it is critical to maintain discipline and not waver from the goal of firmly establishing sustainable business models as investors assess those companies that can differentiate themselves in terms of asset quality and execution through longer-term cycles. Our focus at Callen remains unchanged, continuing to strengthen our financial position to overlay on a top-tier asset base and organization, ultimately reducing our cost of capital and increasing the value of our cash flow streams. We delivered free cash flow for a fourth consecutive quarter, an estimate generating roughly $200 million for full year 2021 at recent strip prices. This robust free cash flow visibility, supplemented by an ongoing methodical monetization program as evidenced by our recent Delaware Basin divestitures, will further decrease our absolute debt levels, which are down almost $400 million since the middle of last year. We also anticipate an acceleration of the rate of improvement in our credit metrics, as EBITDA increases alongside our cash margin strength and 2021 production profile. We are steadfastly committed to reinvestment rates that capitalize on the efficiency of our full field development program and optimize our free cash flow generation while preserving our longer-term asset value proposition. In lockstep with our operational financial priorities, we've incorporated sustainability targets and process changes across the company that we believe will have lasting impacts and translate into improved shareholder value over time. Turning to slide four, we've hit the highlights of a solid first quarter that checked several important boxes and delivered against both internal and street consensus expectations. In the face of winter weather impacts, we produced 81,000 VOE per day with a higher than anticipated oil cut. Field operations continue to control our lease operating and work over expenses, And combined with the impact of improved pre-hedge pricing, we posted an operating margin that was up nearly 60 percent from the fourth quarter of 2020. Operational capital came in below $100 million in our adjusted EBITDA top consensus estimates by roughly $10 million, driving free cash flow generation of approximately $25 million. Earlier this week, we received a unanimous reaffirmation of our credit facility borrowing base and associated commitment levels. solidifying our liquidity position as our bank balances steadily decrease, including the proceeds from the announced sales agreements of our non-core Delaware acreage. Our total monetization proceeds since the second quarter of last year have now exceeded $200 million. Add to that the consensus estimates of more than $160 million in free cash flow generation for the remaining three quarters of the year, and we will have significantly advanced our debt reduction efforts by year end. In March, We issued a press release announcing changes to our executive compensation program and outlining our new greenhouse gas emissions reductions targets. Comprehensive changes to our executive compensation program included accountability for achieving both quantitative and qualitative ESG goals in the near and medium term. Over the last several quarters, we have provided updates regarding our initiatives to address our environmental footprint. And on the left-hand side of page five, you can see a sample of the key projects that will impact 2021. As I stressed on our last call, meaningful progress can't be accomplished only through a list of projects. It requires a change in mindset across the entire organization, which I have seen occur at Callum. This powerful dynamic has now positioned us to set the ambitious goals illustrated on the bar charts, including a 40% to 50% decrease in GHG intensity by 2025 and the elimination of all routine flaring in the same time frame. Slide 6 summarizes the broader changes to our executive and corporate incentive compensation programs that we believe are firmly aligned with the investor priorities that emphasize financial outcomes and corporate sustainability. The redesign addresses both short-term and long-term components to incentivize value creation. The annual program outlined on the top of the page is 80% based on specific quantitative metrics with the remaining 20 percent based on the Board's assessment of progress towards our longer-term ESG and strategic goals. Importantly, the calculated payout for the annual program will be capped at a maximum of 100 percent of target value in the event total shareholder return for the year is negative. The long-term incentive plan has also undergone meaningful change, with traditional relative stock price performance units being replaced by cash performance units. that will be based on free cash flow generation over a three-year period. In addition, the calculated LTI payouts based on free cash flow performance will be capped if threshold levels of corporate returns on capital employed are not achieved over the period. On the topic of free cash flow generation, any conversation starts with the building blocks of corporate cash margins. On slide seven, you can see the expansion of first quarter all-in cash margins which is the difference between the light blue diamond and the stacked bar, to over $20 per BOE on a hedged basis. This is an impressive hedged margin considering the event-driven increase in per-unit expenses caused by lost production from winter storm URI. Over the course of 2021, the progression of our hedge book will expose realized pricing to increasing upside participation, resulting in an all-in corporate cash margin approaching $25 per BOE for full year 2021, assuming current consensus benchmark pricing of $58.67 per barrel of oil. In the chart on the right, our field level realized pricing for the quarter was up significantly in both operating regions and increased our corporate operating margin to $33.46, representing a 58 percent increase over the fourth quarter of 2020. Overall, we continue to benefit from the diversification of our portfolio with both the Permian and Eagleford contributing meaningfully to our profitability. At this point, I'm going to turn the call over to Jeff.