Callon Petroleum Company

Good morning, my name is Chantal and I'll be your conference operator today. At this time, I would like to welcome everyone to the Callum Petroleum fourth quarter and full year 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star one again. Thank you. Kevin Smith, Director in Best Relations, you may begin your conference.

Thank you, Chantel. Good morning, and thank you for taking the time to join our conference call. With me on today's call are Joe Gatto, President and Chief Executive Officer, Dr. Jeff Balmer, SVP and Chief Operating Officer, and Kevin Haggard, SVP and Chief Financial Officer. During our prepared remarks, we may reference the earnings results presentation and our fourth quarter and full year earnings press release, both of which are available on our website. So I encourage everyone to download both documents if you haven't already. You can find the slides on our events and presentations page and the press release under the new settings, both of which are located within the investor section of our website at www.galwin.com. Before we begin, I would like to remind everyone to review our cautionary statements, disclaimers, and important disclosures included on slide two of the 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 will 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 earnings presentation slides and in our earnings press release, both of which are available on our website. Upon our prepared remarks, we will open up the call for Q&A. And with that, I'd like to turn the call over to Joe Gatto. Joe?

Thank you, Kevin, and good morning to everyone joining us for the call, especially on a day with concerning developments in other parts of the world. As we run through our introductory comments, I encourage everyone to take a look at the earnings presentation on our website for additional background on our commentary. But before we get started, I'd like to formally introduce Kevin Smith, our new Director of Investor Relations. Kevin has over 15 years of industry experience in the energy sector, working most recently in investor relations and previously as a research analyst covering the E&P industry. We are excited to have him here with us, and I'm sure you'll all enjoy working with him. I'd like to start by discussing the fourth quarter, during which we once again achieved stellar results and beat expectations. For the quarter, total production came in at over 112,000 barrels of oil equivalent per day. This was at the high end of guidance, driven by strong well results from the Permian Basin and an efficient integration of the Delaware South acquisition. Additionally, operating cost categories came in at either the midpoint or below guidance, as our strong cost controls were effective at mitigating inflationary pressures. Overall, Town's operating performance, combined with our disciplined capital spending program that was below budget for the year, drove free cash flow generation to a new record of approximately $125 million for the quarter. As I went back to 2021, we began the year with ambitious goals for leverage improvement while maintaining a disciplined reinvestment model and advancing our sustainability initiatives. I'm very pleased to say that we delivered across the board on those commitments. Early in 2021, we outlined a capital allocation framework reinvestment rates of 65% to 75% of our operating cash flow and planning prices. In 2021, Calend's actual CapEx ultimately represented less than 60% of our operating cash flow, as commodity prices proved to be higher than our planning prices, while our capital plan remained unchanged, setting the stage for excess free cash flow to flow directly to debt reductions. This cash flow profile was a clear product of our operating profit margin that grew by roughly 141% year over year and remains top tier in the industry. As I mentioned earlier, aggressive debt reduction on both an absolute and leverage metric basis was a key focus for the team in 2021. Our free cash flow generation, combined with our asset monetizations and liability management initiatives, contributed to $760 million of absolute debt reduction and resulted in a net debt to adjusted EBITDA ratio of two times on a fourth quarter annualized basis. These are impressive achievements that have put us in an advantage position for further balance sheet improvement and disciplined reinvestment in a robust portfolio of drilling locations. Alongside our operational financial performance, we are all proud of the work the collective organization has done to reduce greenhouse gas emissions and improve Calend's overall carbon footprint. As you may recall, Last spring, we announced meaningful goals to reduce flaring and GHG emissions by 2025. Given our progress in reducing flaring in 2021, paired with increased methane emissions initiatives that are in process, it has accelerated our goal timeline by one year to 2024 and increased our GHG reduction target to at least 50%. As part of raising that bar relative to our original GHG goals, We also expect to reduce our methane intensity to less than 0.2% by 2024, reduce total flaring to below 1% by 2024, and eliminate all routine flaring this year. In the presentation materials, we've outlined an inventory that represents 15 years of locations that are economic at $50 per barrel and below, based on third-party estimates. But I also want to highlight our substantial approved reserve base of 485 million barrels of oil equivalent at year-end, comprised of 60% oil and 85% Permian volumes. Importantly, we increased PDP volumes by almost 30% in 2021, and PDP now represents 57% of total approved reserves. In addition to adding improved volumes at an attractive valuation through acquisition, we replaced over 100% of our 2021 production through the drill bit at a PDP F&D cost of approximately $8 per BOE. In total, Our SEC PV10 valuation increased by nearly $5 billion as we exited the year with an SEC PV10 value of $7.1 billion. For 2022, we have set a capital budget of $725 million, which represents an operating cash flow reinvestment rate of approximately 60% at $75 per barrel WTI and is expected to generate free cash flow of well over $500 million using that oil price assumption. At recent strip pricing levels, The implied reinvestment rate would decline to approximately 52%, and free cash flow would increase to nearly $700 million. Our capital allocation to the Permian will increase to 85% this year as we advance our scale development model across a recently expanded opportunity set of over 135,000 net acres in the basin. Importantly, Calum's steady development program and proactive contracting strategy for key services, which we began last year, will help mitigate inflationary pressures being seen in the spot markets. As a result, we are forecasting cost inflation for our drilling completion and equipment costs in the range of 10%, driven primarily by labor, steel, and fuel costs. We are also budgeting approximately $20 million for environmental projects and initiatives, which are being accelerated this year to achieve the new goals and missions that I discussed earlier. Looking at our 2022 production profile, We expect a production reset in the first quarter of 2022 as our production levels are impacted by fourth quarter divestitures of approximately 3,000 VOE per day and a shift to a larger scale development model on the newly acquired properties, which will impact the timing of wells placed on production. More specifically, the number of wells placed online in the fourth quarter of 2021 and the first quarter of 2022 combined will be similar to the number in the third quarter of 2021 alone. Our POPs will rebound to over 30 net wells in the second quarter of this year in conjunction with an expansion in our duck inventory to over 45 wells in the first half. This increased inventory will accommodate larger project sizes in the Permian and create operational flexibility for future quarters. Note that this shift in production timing will not compromise the sustained level of strong free cash flow generation with a forecast of over $125 million in the first quarter. With this positioning for more efficient scale development across a larger portion of our asset base, we expect to deliver 10% growth in our oil volumes during the course of the year and an average annual total production rate for the year in line with 2021 that came in at approximately 105,000 VOE per day after adjusting for acquisition and divestiture activity during the year. Based on the forward curve, we also forecast sequential increases in operating cash flow through 2022 despite market backwardation. To sum up our outlook for the upcoming year, I'll leave you with a few key points. Talent's extraordinary pace of deleveraging in 2021 will continue into 2022 on the strength of bleeding cash margins and a maintenance capital program that has benefited by a scaled development model. With free cash flow potential and excess of 10% of enterprise value at recent strip pricing, we see a clear path to adding shareholder value as enterprise value is transferred from debt balances to equity value. The value proposition has a strong foundation and an inventory of 15 years of locations at $50 per barrel WTI and below, with additional upside and ongoing delineation from a multi-zone resource base. In other words, this is a sustainable business model, not a story of near-term liquidation of high-graded inventory. I will now turn it over to Jeff to discuss operations.