APA's $4.5B buy out of Callon Petroleum targets Permian Basin oil and gas assets

A $4.5 billion merger of Permian Basin oil and gas companies was completed last week after the deal was announced in January to increase the consolidated company’s scale in the booming region.

APA Corporation said it completed its purchase of Callon Petroleum Company on April 1 after approval from shareholders on March 27.

The acquisition brought APA’s oil production to 500,000 barrels of oil per day (bopd), with about two thirds of that coming from the Permian in southeast New Mexico and West Texas. Callon produced about 103,000 bopd in the fourth quarter of 2023.

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Assets included in the sale were 120,000 acres in the western Delaware sub-basin along the New Mexico-Texas border and 25,000 acres in the Midland Basin of West Texas.

APA Chief Executive Officer John Christmann said the deal would help his company increase returns to investors quickly, consolidating existing production assets in the Permian.

“We are very pleased to close this transaction as Callon’s assets bring scale to our Delaware position and balance to our overall Permian asset base — all at what we believe is a compelling valuation,” Christmann said in a statement. “We are confident this transaction will create shareholder value, as we expect to drive improved capital productivity and well performance, while realizing significant cost synergies.”

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The merger came on the heels of a wave of multi-billion acquisitions targeting Permian Basin oil and gas assets earlier this year and in late 2023, following the most recent $26 billion buyout of Endeavor Resources by Diamondback Energy in February.

That came on the heels of ExxonMobil’s $63 billion acquisition of Permian-focused Pioneer Natural Resources in and Chevron’s $50 billion purchase of Hess in October, both transactions expected to bring more production in the Permian from two of its major operators.

The region’s oil production was expected to grow by 8,000 bopd in April for a total of about 6.1 million bopd, according to the Energy Information Administration, while natural gas production was forecast to rise by 134 million cubic feet per day (cf/d) for a total of about 25.2 billion cf/d in April. That means the Permian is first and second in oil and gas production, respectively, among all U.S. shale regions, the EIA reported.

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This year could bring uncertainty to the oil and gas industry, according to analysts. A recent report from international energy analytics firm, Enverus, pointed to tightening environmental regulations and global conflicts impacts energy demand across the U.S.

Enverus predicted domestic oil prices could hold in the $90 a barrel range amid supply cuts by the Organization of Petroleum Exporting Countries (OPEC). Increased demand could drive down the U.S.’ fossil fuel supplies, the report read, leading companies to seek further consolidations targeting the Permian Basin’s oil and gas deposits.

The report predicted Permian Basin mergers would slow in 2024 as attractive targets for buyouts were taken up, while oil production was expected to stabilize.

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“Producers will remain laser focused on improving capital efficiency and adding low-cost drilling inventory through mergers and acquisitions, and stratigraphic exploration primarily within the Permian basin,” said Dan Gregoris, managing director at Enverus Intelligence Research.  

Oil prices were trending toward the $90 a barrel mark predicted by Enverus, as domestic crude was trading at about $85 a barrel on Monday, according to the Chicago Mercantile Exchange. That’s one of the highest oil prices of the year, up about $15 a barrel from a price of $70 per barrel reported at the start of 2024, according to data from Nasdaq.

Energy industry consulting firm, GlobalData, said market and supply chain disruptions could continue to impact international oil and gas supplies amid the Russia-Ukraine war and rising tensions in the Middle East. This could slow the transition to “clean energy,” the report read, putting more strain on fossil fuel producers and driving up production.

“The Ukraine conflict has also exposed the vulnerabilities in clean energy generation and, in a way, pushed back the prospect of peak oil for the time being,” said GlobalData analyst Ravindra Puranik.

Adrian Hedden can be reached at 575-628-5516,achedden@currentargus.com or@AdrianHedden on the social media platform X.