Why APA & Callon Petroleum Shares Are Moving In Opposite Direction On Merger Deal

APA Corp APA and Callon Petroleum Company CPE shares are moving in opposite directions after the companies inked a merger deal.

In particular, APA will acquire CPE in an all-stock transaction valued at about $4.5 billion (including CPE's debt).

As per the terms, each share of CPE common stock will be exchanged for a fixed ratio of 1.0425 shares of APA shares, representing an implied value to each CPE share of $38.31 based on the closing price of APA common stock on January 3, 2024.

Post closure, existing APA shareholders will own around 81% of the combined company, and CPE will own about 19%. 

APA expects to retire the existing debt at CPE and replace it with its term loan facilities totaling $2.0 billion, which is expected to offer improved optionality for near-term debt reduction.

The deal has been unanimously approved by the Boards of Directors of both companies and is expected to close during the second quarter of 2024, subject to customary closing conditions, 

CPE's assets are expected to boost APA's oil-prone acreage in the Midland and Delaware Basin by around 50%, and the transaction is projected to be accretive to all key financial metrics.

On a pro forma basis, total company production exceeds 500,000 BOE per day, and enterprise value increases to over $21 billion.

APA projects the overhead, operational, and cost-of-capital synergies to exceed $150 million annually.

On a combined Permian Asset basis, pro forma average daily production stood at 311 Mboe/d in Q3 2023, up 48% Y/Y vs. APA's Permian Basin production on a standalone basis. 

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. 

"This transaction is aligned with our strategy of maintaining and growing a diversified portfolio, underpinned by large-scale core areas of operation while continuing to build a portfolio of medium and longer-term exploration-driven development opportunities," said John J. Christmann, APA's CEO and president.

Following the deal closure, the worldwide pro forma production mix will be around 64% U.S. and 36% international.

Also Read: Several North American Oil & Gas Exploration And Production Companies Downgraded Amid Current Environment: Here's Why

Price Action: APA shares are down 4.35% at $35.15, and CPE shares are up 6.39% at $35.80 premarket on the last check Thursday.

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