APA Corp. to acquire Callon Petroleum in $4.5B all-stock transaction

APA Corp. (APA) and Callon Petroleum (CPE) have entered into a definitive agreement under which APA will acquire Callon in an all-stock transaction valued at approximately $4.5B, inclusive of Callon’s net debt. Under the terms of the transaction, each share of Callon common stock will be exchanged for a fixed ratio of 1.0425 shares of APA common stock. The transaction is expected to be accretive to all key financial metrics and add to APA’s inventory of high quality, short-cycle opportunities. Callon’s assets provide additional scale to APA’s operations across the Permian Basin, most notably in the Delaware Basin, where Callon has nearly 120,000 acres. On a pro forma basis, total company production exceeds 500,000 BOE per day and enterprise value increases to more than $21B. Pro forma average daily Permian Basin production was 311 Mboe/d in Q3, which represents a 48% increase from APA’s Permian Basin production on a standalone basis. APA’s oil production as a percentage of BOE’s in the Permian increases from approximately 37% to 43% in Q3, on a pro forma basis. APA will provide additional activity plans and details post closing. In this all-stock transaction, each outstanding share of Callon common stock will be exchanged for 1.0425 shares of APA common stock, representing an implied value to each Callon share of $38.31 per share based on the closing price of APA common stock on January 3. APA is expected to issue approximately 70M shares of common stock in the transaction. After closing, existing APA shareholders are expected to own approximately 81% of the combined company and existing Callon shareholders are expected to own approximately 19% of the combined company. APA expects to retire the existing debt at Callon and replace it with APA term loan facilities totaling $2B. The term loan facilities are expected to offer improved optionality for near-term debt reduction. JPMorgan Chase Bank, Citigroup and Wells Fargo Bank have jointly provided $2B of committed financing for the deal. The transaction has been unanimously approved by the boards of directors of both APA and Callon and is expected to close during the second quarter of 2024, subject to customary closing conditions, termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and approval of the transaction by shareholders of both APA and Callon. Upon the closing of the transaction, a representative from Callon will join the APA board. APA’s executive management team will lead the combined company with the headquarters remaining in Houston, Texas. Following the closing, the company’s worldwide pro forma production mix will be approximately 64% U.S. / 36% international. APA’s global portfolio includes ongoing development on large-scale legacy assets in the U.S. and Egypt. The company is also advancing a FEED process for a large-scale FPSO development offshore Suriname. In addition to current production and development activities across the globe, APA maintains a differentiated exploration portfolio, which includes newly acquired large-scale blocks offshore Uruguay and onshore state-land leases in Alaska.