Ladies and gentlemen, welcome to the Callon Petroleum First Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the company's prepared remarks, there will be a question-and-answer session. Please note that each caller will be limited to one question and one follow-up question. Just a reminder, today's conference call is being recorded. To ask a question during the Q&A session, press star one on your telephone keypad. To withdraw your question, press star one again. I will turn the call over to Callon's Head of Investor and Relations, Kevin Smith. Please go ahead, sir. Thank you, Mallory. Good morning, everyone. I am joined by our CEO, Joe Gatto, our COO, Jeff Balmer, and our CFO, Kevin Haggard. During our prepared remarks today, we will reference our release on the first quarter and our recently announced Permian and Eagle Ford transactions, as well as supplemental slide decks related to both. All these materials are available on our website at www.callon.com. Today's call will include forward-looking statements that refer to estimates and plans. Actual results could differ materially due to risk factors noted in our presentation and SEC filings. We will also refer to some non-GAAP financial measures that help facilitate comparisons across periods and with our peers. For any non-GAAP measures referenced, we provide a reconciliation to the nearest corresponding GAAP measure in the appendix to our slide deck and in our earnings press release, both of which are available on our website. Following our prepared remarks, we'll open the call for Q&A. I will now turn the call over to Joe Gatto. Joe? Thank you Kevin. Good morning, everyone. We are thrilled to have you with us today on this very exciting day for Callon. We delivered another strong quarter of performance, highlighted by improved Permian cycle times and continued debt reduction. I'll cover the first quarter highlights later in my remarks. We are off to a great start in 2023. I'll spend most of my time today discussing our accretive and transformative transaction in the Delaware Basin. Simply put, this deal is a great fit for us. It solidifies our focus and positions us as a leading operator in the Permian with more than 145,000 net acres and 107,000 BOE per day of production. It's contiguous with and complements our existing Delaware position where we have proven history of adding value. These high-quality assets will be seamlessly integrated into our development model and will immediately compete for capital within Callon's broader Permian portfolio. The cash portion of the transaction, totaling approximately $265 million, will be funded with the sale of our Eagle Ford position for $655 million in upfront cash. The transactions will be accretive to our absolute leverage and credit metrics. Our strengthened balance sheet achieves our initial debt reduction milestone, allowing us to launch a share buyback program upon closing. Let's tick through some more of the deal highlights. We're adding 18,000 net acres and about 14,000 BOE per day of production from oil assets that sit contiguous to our core Delaware acreage. We are gaining a larger footprint in the Permian and increasing the critical mass of our operations. This will create opportunities for further capital efficiency improvements and economies of scale. This deal extends our decade-long Permian inventory of high-return oil-weighted drilling locations. We are adding 70 operated long lateral locations, of which 90% have a positive PV-10 at $45 oil. These locations are in the well-established Third Bone Shale, Wolfcamp A, and Wolfcamp B intervals, with additional potential in both shallower and deeper zones. This contiguous acre position with stack pay horizons sets up perfectly for the application of our proven life of field co-development model. Today's earnings deck highlights sustained well productivity benefits across our asset base in both the Delaware and Midland basins that are driven by this model. These transactions will improve our operating margins due to a similar pro forma oil weighting and lower LOE per BOE. We have also identified more than $10 million in annual G&A savings and are confident that we will find other cost-saving opportunities through the integration of the asset. This deal is priced right at 2.5x EBITDA and provides an efficient way for us to exit the Eagle Ford, and is highly accretive to key financial metrics, including a 15% uplift to adjusted free cash flow in 2023 and a 55% increase in 2024 at recent strip commodity prices. It also improves free cash flow per share by 10% in 2023 and after a full year of integration and synergies, 40% in 2024. Per share metric accretion has the opportunity to further improve even before share purchases since the number of shares issued to the selling parties decreases to the extent that Callon's 20-day VWAP is above $32.50 at closing. Importantly, we will focus 100% of our capital and operational teams on the Permian. This will yield stronger well-level economics, enhanced flexibility in project scheduling, and improved cycle times. Together, this will reduce our reinvestment rates and increase the conversion of EBITDAX into free cash flow. The bottom line, we will generate more free cash flow with our investment dollars through significant capital efficiency gains and cost savings as a focused Permian company. From our forecast you'll see that 2023 production will be relatively unchanged with a lower capital spend despite the fact that we are selling more current production than we are buying. Looking to 2024, we expect production to grow at a low single-digit rate year-over-year as contributions from the newly acquired assets increase. The final point I'll make is a culmination of everything that I've covered on this call and perhaps the most important. As you know from recent conversations, reducing debt and initiating a shareholder return program are our top objectives for 2023. These transactions get us there on both counts. Upon closing, our debt will be reduced by more than $300 million to approximately $1.9 billion, below our $2 billion initial debt milestone. We will continue to focus on deleveraging and see substantial progress in 2024 towards our optimal debt target of less than $1.5 billion and leverage below 1x. Subject to closing, our board has approved a $300 million share buyback that we plan to execute over a two-year period. We believe that Callon's intrinsic value proposition which will be significantly improved by these accretive transactions, is not reflected in the public market valuation, creating a very compelling case for a repurchase program moving forward. Before taking your questions, let me quickly give you the main takeaways from the first quarter. First we are executing extremely well. Our first quarter financial and operating results were in line or better across all key metrics. This gives us high confidence in our ability to deliver on our 2023 business plan. We are also maintaining our focus on capital discipline and balance sheet strength. We generated $7 million in adjusted free cash flow for the quarter, allowing us to realize our 11th straight quarter of debt reduction. Second, our life of field co-development model is differentiating Callon from the pack. We provided a great deal of insight into this model last quarter and had discussions with many of you on the road over the last few months. We've implemented this model consistently over the last 5-plus years, and it underpins our longer-term asset value proposition. Third, we are seeing significant operational improvements. These gains are owed to scale, larger project sizes, and deep knowledge and experience within our teams. We are drilling wells faster, pumping more completion stages per day, and using multiple rigs and completion crews on single projects. Increased D&C efficiencies, combined with our focus on simultaneous drilling and completion operations, are rapidly reducing cycle times and increasing capital efficiency. All these factors contribute to strong momentum for our production outlook. We forecast that our second quarter production will be up over 5% to 105,000-108,000 BOE per day. We've updated our 2Q guidance in today's materials and have also provided updated guidance for 2023 that assumes six months of impact from the transactions. In closing, know that our results year to date are strong and in line with our top priorities of investing in premier assets, generating free cash flow, and reducing debt. Today's transaction fits us perfectly, both financially and operationally. Financially, it allows us to achieve our near-term debt milestone and launch a share buyback program this year. Operationally it solidifies our focus on the Permian Basin. Similar to past acquisitions, we are highly confident that our life of field co-development model will allow us to add significant value on our new acreage in the Permian and enhance our cost structure and capital efficiency outlook. Finally, I'd like to personally thank our talented Eagle Ford employees for their commitment and hard work. They have done an exceptional job operating safely and efficiently and have consistently made valued contributions to Callon. This concludes our prepared remarks. We're now happy to take your questions. Mallory, take it. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Zach Parham with JPMorgan. Hey, guys. Thanks for taking my questions. Joe, first one for you. You mentioned 55% higher 2024 free cash flow and 40% higher free cash flow per share following the transactions. Could you just walk us through some of the underlying assumptions, particularly on pro forma CapEx and production volumes that underwrite that number? Yeah. You know, what we've talked about as you saw in the release, we're moving over the course of this year from seven rigs down to five. Would expect similar type of cadence going into 2024. We'll fill in some more details going ahead. Obviously, with the efficiencies we pick up with just operating the Permian go a long way on that front. Underlying assumptions of strip pricing as of a couple days ago are gonna go into that and production growth. Now this is compared to a higher baseline in 2023 because we had 6 months of higher Eagle Ford production in the first half. We see on top of that higher baseline, you know, that low single digits of production growth into 2024. Got it. Thanks, Joe. Then maybe one just on well productivity and kind of your expectations from Percussion. You know, the 70 locations that you're acquiring, how do you think about the timing of developing those? You know, in your prepared remarks, you mentioned they would immediately compete for capital. Maybe just any thoughts on how those returns compare with your current Delaware Basin drilling program. Yeah. Look, we think that they squarely compete for capital. They talked about, you know, similar to what we've done with acquisitions. You know, we'll fill out some completion activity on their asset base over the coming months, and then get going with our overlay of our model over the next 12 months and really start seeing some more of an impact in 2024. You know, I guess with this asset base in particular, you know, it's always worth going back and explaining how these asset bases have come to where they are. The Southern Delaware Basin is about learnings, right? We have as much learnings as anybody in this part of the world to overlay our model. You know, previous operators, we've seen pretty tight spacing, 7-10 wells per section in a couple zones and under stimulation on completion designs. You know, that's evolved with the current operator that took over just under two years ago. They started moving to wider spacing, some increased completion design intensity. We've seen some progress there. They've also started very recently moving to what we've done over the last couple of years on artificial lift and removing gas lift and just going straight to ESPs. We see a lot of opportunities to overlay our model, just like we've done with Primexx and see the benefits over time. You put that all together with, you know, great rock that's here. This is gonna be an asset that is squarely competing for capital going forward. Thanks, Joe and team. Congrats on the deal. Thank you. Your next question comes from Neal Dingmann with Truist Securities. Good morning, guys. Thanks for the time. Joe again, congrats. I think the deals look good. My first question is, maybe just comments around the creativeness of the deal. Can you walk through how you, maybe you and Kevin think about the future free cash of the new deal versus, you know, the existing that you're selling? Also I assume part of that plays into the large amount of future feet that you now have to be drilled on this new acreage as well. If you could maybe hit both of those? Yeah, let me make sure I'm answering the right thing there, Neal. Could you just quickly run me through that one more time? We are having a little bit of hard time here, I apologize. Oh, sure. I'm sorry. I'm sorry. Yeah, just on the deal. I mean, you know there's always with existing assets, existing free cash flow that, you know, you're selling with those Eagle Ford assets. You know, just how that compares with, you know, when you look at the free cash flow with the new deal, I mean, knowing that it doesn't have given production. Where I was going with that second part of that is knowing that the deal also has a large amount of undeveloped inventory that's with more feet to be drilled. So, I'm just wondering if you could maybe hit both the free cash flow of the two, how those compare, and, you know, the deal being sold, the deal being bought, and then the future feet being drilled. Yeah. I think it's - g ot it. A couple things that I'll address there. One is, like if you look at the assets just sort of in a vacuum, right, in terms of their profile, what's great about this asset we're acquiring, I mean, typically with private equity backed type of companies, you know, we'll see a lot of drilling and maybe some steeper declines. This is not the case here. We see PDP declines around low 30%, which is, you know, depending on what point in time you look at our Eagle Ford similar, maybe even a little bit better, depending on the timing there. So you have that nice base of PDP production helping you out on the free cash flow side. Obviously, both assets in the Eagle Ford or with this new position in the Delaware, they have, you know, attractive inventory to develop, so they get their, you know, share of development dollars. From a free cash flow standpoint, you know, they're somewhat similar on the baseline PDP, but we're gonna have more opportunities for development on a longer-term basis in this new Delaware asset, just 'cause our Eagle Ford inventory was getting a little bit short. That's, you know, in a vacuum. If you move to putting this asset base into our model, right, in a more consolidated critical mass of Permian activity, there's efficiencies we're gonna get in improved free cash flow from being able to do that on a more streamlined basis going forward. There's some pickups in terms of synergies that add to that baseline of shallower declines on the PDP. Yeah, great color. I really appreciate that. My second question, just on sharehold return. I know early in the plan, you know, my question, Joe, for you or Kevin, I know you're always prudently looking to keep your, you know, your options open, but just any thoughts on how large you believe the sharehold return maybe should initially be or how that should grow? You know, again, I don't want to pin you down yet, but maybe just your or Kevin's thoughts on, you know, how you're thinking about what would make sense. Yeah. Thanks, Neal. This is Kevin. At this point, we have a two-year period of time authorized once this deal closes. That would run through the second quarter of 2025, and that's a $300 million program. We haven't set quarterly targets for percentage of free cash flow or allocation%. The magnitude of the time in each quarter is gonna depend on free cash flow, commodity prices, stock price, etc. We're trying to retain some optionality here to create shareholder value the best way we see to use that free cash flow. I would give you some additional guidelines here. We expect to pursue the additional $400 million of debt paydown to reach that one and a half billion number, and to do that side by side with that two-year $300 million share repurchase program. I guess I'd offer one other point of data here. I would say in the mid to low 70s WTI oil price, there's more than enough cash flow to cover both the share repurchase objectives and the debt paydown over that 2-year period of time. No, love the optionality. Thanks, Kevin. Thanks, Joe. Congrats again. Thanks, Neal. Your next question comes from Derrick Whitfield from Stifel. Thanks. Good morning, all. Congrats on your transformative transactions. Thanks, Derrick. With regard to the acquisition, I think you re-referenced earlier some degree of activity. Could you maybe outline current activity on the asset today and your plans to integrate it within the portfolio and the degree of synergies you see with the acquisition? Yeah. Today, we'll be stepping in. We're gonna do some completions as the year rolls on. They've taken down their rigs. There's not gonna be current activities we, as we step in, which is good, right? It allows us to direct activity in our development model the way we want. A lot of times that's not the case. You know, we're starting with a clean slate, we are gonna have a chance to employ our completion designs on some of the activity that we're stepping into. You know, moving forward, it's hard to just discreetly point out where the synergies are. Like again, it goes with a broader model as we go in and really try to optimize the combined development program. I think you get a sense of that, certainly from the free cash flow per share and absolute pickup going forward. You know, the flexibility in scheduling, employing our learnings and models does go a long way. I think we've shown those synergies to a large degree with the Primexx transaction over the last couple of years. Terrific. Then with regard to the acquisition, could you just speak to how it came together and if it was your or the seller's preference for Callon stock? Yeah. You know, a lot of these deals come together over many, many months. Certainly when you have two pieces of the puzzle, it takes a lot of time. That's a whole another sidebar conversation. You know, these are assets that we've kept an eye on for a long period of time, going back to when they're, you know, originally were sold by Forge. We know this area quite well. And then we have been thinking about what is the best way to approach an acquisition as Callon today and achieve all of our objectives. We talked about the financial side and start thinking about the Eagle Ford and how that fits into the mix. This has been something we've been percolating on for quite some time and, you know, took a long time to get here, but it's great that we're here. Yeah, on the equity side, it was a clear ask out of the sellers that they wanted some upside here, right? They have other opportunities to sell for all cash. But it was clear and you know, it took some time for get our head around that, just given where we were trading. Given the accretion we saw on this transaction and also overlaying this mechanism that, you know, we hope that the stock performs well, between now and closing, we'll be able to claw back some of those shares as well. That's terrific. Great update, guys. Thanks for your time. Thanks, sir. Your next question comes from Phillips Johnston with Capital One. Hey, guys. Thanks. Congrats. Just one for me. Looks like the rig count on Percussion properties has trended down from around 3 or so at this time last year to 1 as of a few months ago, and the production does seem to have kind of leveled off over the last six to nine months or so. I'm guessing the PDP decline rate on the properties isn't super high. Can you maybe talk about how these two transactions will affect your company-wide 12-month PDP decline rate? Yeah. you're right. The activity has been coming down, and it has helped to shallow out the PDP decline profile that right now, somewhere in the low 30s, which is, you know, somewhat where we are as a company, maybe even a little bit better. Overall, it's neutral to maybe a slight benefit to overall corporate decline. All right. Perfect. Thank you. Sure. Your next question comes from Paul Diamond with Citi. Good morning, all. Thanks for taking my time, and congratulations on the transaction. I just wanna touch base quickly on some of the efficiency gains we've seen in your drilling program over the course of the last, you know, 18, 24 months. How does the, I guess, how does the kind of repositioning away from Eagle Ford and into or primarily into Permian, you know, do you see any kind of step change in that trend, or should we expect that to kind of continue on path? Yeah, generally speaking, it's been absolutely outstanding performance both on the drilling and completion side. You know, the teams are never satisfied. What we do is we take a look at what we call the perfect well. We apply a limiter theory where we break down each individual component of the drilling and completions, everything from starting and moving the equipment in, to how we turn the wells online and connect into the facilities and flow line. We anticipate that this new acreage that we have coming in, which has been developed very nicely, will integrate extremely well into the things that we do well. We would anticipate - Now, I can't stand here hand on heart and say, "We'll see another 20% in the next six months," but we're extremely proud of the performance that we've had, and the results speak for themselves. Understood. Thanks for the clarity. A quick kind of housekeeping one. As far as your hedging strategy, does the does this transaction really shift any of that, you know, kind of 30,000-foot strategy or should we expect that to really continue on path? Yeah. Thanks. That's a good question. Our strategy hasn't changed, which is really we kind of are targeting around a 30% WTI hedging over the next 12 months on a rolling basis. Right now, we did, we did inherit or will inherit some hedges from their book, which will take us closer to high 20s on a hedged basis for the back half of the year. We are currently in the 17%, 18%, 19% range on that hedging. We gained some incremental hedges from them, but it doesn't take us over the level we view as our strategy, which is that 30% of next 12 months WTI. Understood. Thanks for the clarity. Congratulations again. Thanks, Paul. Your next question comes from Fernando Zavala with Pickering Energy Partners. Hey, guys. Good morning. Just a quick one from me. Pro forma for the deals, do you see any material changes to your cash tax status heading forward? Yes, it's a good question and the answer is we're still sticking with our original guidance for cash taxes for 2023, and that is $5 million-$15 million guidance, which we offered on the Q4 call. No change from either of these two transactions. No additional limitations on NOLs or et cetera. Okay, great. Thanks. Just another one, a follow-up on your comments around the low single-digit production growth. Is that similar on oil and equivalent, or is it weighted to one or the other? Pretty similar. You know, we're stepping into asset base with 70%+ oil, which is relatively similar to Eagle Ford. No meaningful changes there. Great. Thanks. Your next question comes from Tim Rezvan with KeyBanc. Hey, good morning everybody. Thanks for taking my question. First one maybe for Kevin. When we think about the net cash proceeds, I guess it's $390 million, is there any tax leakage we should be baking in, or anything else that would affect that net balance? Sorry. I think I heard you say $310 million of net cash that will be applicable to paying off the RBL as a result of this transaction, no cash tax leakage here. Okay. $310 is the net amount. Okay. Yeah. After purchase price adjust - Appreciate that. Yeah. Okay. then my follow-up, I guess that more for Joe. you know, in the past, in our discussions with investors, you know, some of the hesitancy from buying Callon shares kinda stem from the frequency and size of acquisitions that you've undergone. As you think about, you know, coming up on the close on this in July, you know, I guess what's the new message to investors about the willingness or appetite, you know, for future deals now that you've, you know, transformed the portfolio like you have? Look, I think we've shown over the last couple of years, you know, we are very focused on our financial objectives and this is a very important step that we're taking here. We've figured out creative ways to, you know, number one, find assets are going to compete for capital and benefit from our overall methodology. You know, we'll continue to look for opportunities to overlay our model and add value to asset bases paying reasonable prices. I think every company should be looking for opportunities like that. I think it will ultimately add value, but, you know, we have to be realistic, and we're gonna be very selective just given the quality of the inventory we have. It's a high bar to find assets like that. Certainly, you know, how do we finance these items? I mean, this is a pretty unique situation in terms of having the Eagle Ford be a source of proceeds here, so we don't have another Eagle Ford position. I guess it's a long way of saying, you know, we'll be very smart about it. We're obviously laser focused on continued debt reduction and now share returns. You know, we're in the business of, you know, looking for opportunities to step into positions and add value as an operator that's done that in the past. Okay. I appreciate that, and congratulations on the deal. It's gonna be a pretty impressive transformation. Thanks. Thanks, Tim. There are no further questions at this time. I would now like to turn the call back over to Joe for closing remarks. Thank you, everyone for joining. Hopefully, we've been able to provide you a lot of detail on a transaction that we're very excited about here. I think checks all the boxes for what we've been talking about with you all over the last couple of years, frankly, to get to this point. We're all excited. I'm sure we'll be talking more going forward. As always, please let us know if you have any more questions. Thanks again. This concludes today's conference call. You may now disconnect.