Shale Consolidation: APA Acquiring Permian Player Callon for $4.5 Billion

Houston-based independents will combine to form a company with a production total above 500,000 BOE/D and valued at $21 billion.

Apache operations in Alpine High, spring, 2018.
Source: APA Corp.

In the first major deal of the New Year, APA Corp. is moving to buy Callon Petroleum in an all-stock transaction pegged at around $4.5 billion.

The definitive agreement between the two Houston-based firms will see APA, the parent company of legacy US shale producer Apache Corp., boost its Permian Basin holdings of 3.5 million acres with an additional 120,000 net acres.

The deal also creates a company valued at $21 billion with a global production volume above 500,000 BOE/D, two-thirds of which is from US-based assets. APA shareholders will own close to 81% of the combined company with Callon stockholders owning the remaining 19%.

APA also highlighted in its announcement that its “oil-prone” positions in both the Midland and Delaware basins will increase by more than 50%.

John Christmann, CEO of APA, said in a statement, “Callon has built a strong portfolio in the Permian Basin that is complementary to our existing Permian assets and rounds out our opportunity set in the Delaware.”

APA’s move follows several multibillion-dollar acquisitions by its rivals ExxonMobil, Chevron, and Occidental, all announced in the final quarter of 2023.

Andrew Dittmar, senior vice president at Enverus Intelligence Research, said the seller’s price reflects the value of its existing production and places little to no material value on undeveloped acreage which is somewhat of a break from past Permian deals.

He added that the “scorching hot” merger and acquisition market in the Permian hasn’t cooled off just yet but will eventually as the number of buyout targets continues to shrink.

“With fewer remaining private targets in the Permian, public company consolidation is going to take a more central role for companies looking to boost their exposure in the key oil region. However, these deals can be significantly harder to put together as it is challenging on the public side to find management teams interested in selling. In addition, there are a limited number of public companies that will have inventory and attractive valuations to interest large-cap buyers,” said Dittmar.

On a pro forma basis, APA’s Permian production for the combined positions was 311,000 BOE/D as of the third quarter of last year. The buyer noted that the figure represents an increase in oil production as a share of the BOE metric from 37 to 43%.

APA said the acquisition should result in an annual reduction of overhead, financing, and other operating costs by at least $150 million.

The all-stock deal includes the retirement of $2 billion in debts owed by Callon. Pending regulatory and shareholder approval, APA expects the deal to close in the second quarter of the year.