Mikaila Adams
OGFJ Associate Editor
Company shifting to focus on onshore operations
With its shift to diversify its asset base to onshore properties with growth in mind, Natchez, Miss.-based Callon Petroleum Co. has earmarked most of its 2010 budget to both its Permian, and newly-acquired Haynesville interests.
Marking its first first acquisition in the North Louisiana Haynesville Shale play, the company paid $3 million for a 70% operating interest in a 577-acre Haynesville unit in Bossier Parish. The company plans to drill and complete two horizontal wells in 2010, the first planned to spud by summer. The Unit will be developed with up to seven horizontal wells. The company estimates the gross ultimate gas recovery to be 6.4 billion cubic feet of natural gas per well at an estimated cost of $9.0 million to drill and complete. Of the company’s proposed 2010 budget of $61.7 million, $14.5 million (24%) is expected to be spent on shale gas development.
In the Permian play, the company plans to begin drilling this month, with a goal of up to 16 Wolfberry wells in 2010. The company has set aside $20 million (33%) of its 2010 budget for its Permian operations.
“We’ve been working on this strategy shift over the past 18 months, developing the plan, working to find the right assets and building the right team to set the foundation for our plan to diversify our asset base,” Fred Callon, chairman and CEO points out. “The cash flow generated from our two deepwater fields with quality, long-lived reserves will be reinvested into onshore conventional oil and shale gas properties.”
On Monday, the company announced its $100 million credit agreement signed with Regions Bank. The facility will have an initial borrowing base of $20 million and replaces the company’s existing credit agreement. Borrowings, if needed, will be used for capital expenditures and general corporate purposes.
Callon’s hedging strategy is to employ hedges as a tool for mitigating price-related risk for up to 50% of its annual production. Currently, the company has approximately 15% of its natural gas hedged in the form of costless collars with an average floor of $5.00 and an average ceiling of $8.30.
