Trump administration finalises Alaska oil development
The outgoing administration of US President Donald Trump has finalised plans to open up vast areas of once-protected Arctic Alaska territory to oil development.
On January 4, the US Bureau of Land Management released its plan for the National Petroleum Reserve in Alaska (NPR-A), a 23-million-acre swath of land on the western North Slope. The record, signed by Interior Secretary David Bernhardt on December 21, allows for lease sales to proceed under relaxed standards.
This decision is one of several pro-drilling activities taken by the Trump administration in its final days in power. On January 6, the Bureau is scheduled to auction off drilling rights in the Arctic National Wildlife Refuge, on the eastern North Slope.
The plan will allow oil development on approximately 80 percent of the reserve – under Obama-era rules, about half of the reserve was available for leasing, with the other half protected for environmental and indigenous reasons.
“We are expanding access to our nation’s great energy potential and providing for economic opportunities and job creation for both Alaska Natives and our nation,” says Casey Hammond, principal deputy secretary for the Department of the Interior.
The Trump plan will allow leasing in the largest lake in Arctic Alaska – Teshekpuk Lake – which is a haven for migrating birds and local wildlife. The lake has been off-limits to leasing since the Regan administration.
It is unclear whether the decision to make this acreage available will have a significant impact on Alaskan oil production, which peaked at two million barrels a day, 30 years ago. The state currently produces around 500,000 bpd of crude.
The NPR-A plan has been condemned by environmentalists, who have already sued to overturn the plan.
“On its way out the door, this administration is sticking to its blunt and destructive approach to management solely for oil development,” states David Krause, assistant Alaska director for The Wilderness Society, in a statement.
Incoming President Joe Biden made climate action a core theme of his candidacy, pledging to take bold action to achieve a 100 percent clean energy economy and net-zero emissions no later than 2050. Click here to read his Top 10 energy priorities.
Callon Petroleum Company buys Primexx for $788 million
Callon Petroleum Company has enhanced its profile in the Delaware Basin after buying Primexx for $788 million.
Primexx is a private oil and gas operator in the basin with a contiguous footprint of 35,000 net acres in Reeves County and second quarter 2021 net production of approximately 18,000 barrels of oil equivalent per day. The transaction, which involves $440 million in cash and 9.19 million shares of CPE stock issued to the seller, aims to close in Q4.
With approximately 300 identified core net locations, around two-thirds of which are two-mile laterals, the acquired assets will support Callon's continued shift to larger, more capital efficient development projects in the area while increasing the oil cut of Callon's Delaware business and improving corporate cash margins. While Callon delivered production of 89 Mboe/d in Q2, it recorded a net loss of $11.7 million.
Callon President and Chief Executive Officer Joe Gatto said the transaction checks every operational and financial box on the list of compelling attributes of consolidation.
"The asset base adds substantial current oil production and a top-tier inventory to our Delaware portfolio, and fits squarely into our model of scaled, co-development of a multi-zone resource base," he said. "Our integrated, future development plans will benefit greatly from the combined Delaware scale and we expect to generate approximately 30% more adjusted free cash flow from the third quarter of 2021 through year-end 2023 under our conservative planning price assumptions."
He added the third quarter is off "to a tremendous start" with July production volumes well ahead of second quarter average and commodity price realisations are projected to benefit from the reduction in overall hedged production.
Under the transaction, Callon will:
- Capture the benefits of a larger Delaware operation
The acquisition will increase Callon's Delaware Basin position to over 110,000 net acres. Primexx's assets will immediately compete for capital within the Callon portfolio and increase Callon's capital allocation to the Delaware Basin. In addition, numerous opportunities for cost and capital efficiency gains, which Callon has proven to achieve in past transactions, create upside to current forecasted performance.
- Drive substantial FCF increases
The acquired asset base with substantial current production will immediately contribute to both near-term adjusted free cash flow1 and total cumulative adjusted free cash flow of almost $1.2 billion through 2023 at current strip prices. This forecasted free cash flow profile is the product of a reinvestment rate of less than 60% with an associated compounded annual production growth profile that remains under 5%. Importantly, the combined transactions are forecast to be accretive to adjusted free cash flow per share in 2022 and 2023 at both planning prices of $55 - $60/Bbl for oil and current NYMEX strip pricing for oil.
- Accelerate deleveraging goals
The transactions will position Callon to accelerate its debt reduction goals, reducing leverage to less than 2x net debt to adjusted EBITDA by year-end 2022 at current strip prices. This rapid deleveraging opportunity accelerates the timetable for the Company's future transition from balance sheet strengthening to exploring return of capital opportunities.
- Improve cash margins
The addition of Primexx is expected to further expand Callon's leading cash margins and increase the oil weighting of its Delaware Basin production profile. Given Callon's established operations, minimal incremental G&A will be needed to consolidate the Primexx assets into the newly combined footprint.
- Support sustainability initiatives: Primexx has invested in a robust gathering and water management infrastructure that includes 80 MBbl/d of water recycling capacity and 60 miles of water transfer lines, more than doubling Callon's current water recycling capacity. This significantly enhances Callon's ability to manage its freshwater impact in the Delaware Basin while reducing overall development and operating costs.