Carrizo Oil & Gas — Merger or Acquisition (November 2019)
28 slides from Carrizo Oil & Gas's merger presentation, Nov 19, 2019
Slide 1: Rule 425 filing cover note
Filed by: Callon Petroleum Company Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to 14a‐12 under the Securities Exchange Act of 1934 Subject Company: Carrizo Oil & Gas, Inc. Commission File No.: 000‐29187‐87 On November 18, 2019, Callon Petroleum Company (“Callon”)
Slide 2: Callon Acquisition of Carrizo: Amended Merger Agreement
CALLON ACQUISITION OF CARRIZO: AMENDED MERGER AGREEMENT November 2019
Slide 3: Important Disclosures
IMPORTANT DISCLOSURES No Offer or Solicitation Communications herein do not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval with respect to the proposed transaction or otherwise, nor shall there be any sale of securities in
Slide 4: Important Disclosures (Continued)
IMPORTANT DISCLOSURES (CONTINUED) Additional factors that could cause results to differ materially from those described above can be found in Callon's Annual Report on Form 10-K for the year ended December 31, 2018 and in its subsequent Quarterly Reports on Form 10-Q for the quarter ended March 31,
Slide 5: Amended Agreement Creates Value for Both Shareholders
AMENDED AGREEMENT CREATES VALUE FOR BOTH SHAREHOLDERS THE BOARDS OF DIRECTORS OF BOTH CALLON AND CARRIZO HAVE UNANIMOUSLY SUPPORTED THE INDUSTRIAL AND FINANCIAL MERITS OF THE REVISED TRANSACTION ▪ Low premium, all-stock consideration of 1.75 shares of Callon “Since announcing the transaction, we hav
Slide 6: Creating a Stronger Combined Company
CREATING A STRONGER COMBINED COMPANY INCREASED SCALE PERMIAN - DELAWARE 2x Core Delaware Basin Footprint >17 Years Permian Inventory >107 Mboed Production (3Q19) >$1.2B Q3 2019 Annualized Adj. EBITDA (1) FINANCIAL STRENGTH Incremental Free Cash Flow in 2020 (2) 2020E Capital Allocation: ~$100MM ~50%
Slide 7: Self-Funded, High-Margin Oil Growth Company
SELF-FUNDED, HIGH-MARGIN OIL GROWTH COMPANY MORE ATTRACTIVE COMBINED ASSET BASE WITH FREE CASH FLOW TO DEVELOP DEEP PERMIAN INVENTORY ▪ Accelerated value realization from deep drilling inventory in the Permian ▪ Significant scale improves operating flexibility in the Permian ▪ Long-term growth drive
Slide 8: Better Positioned for the Changing Industry Landscape
BETTER POSITIONED FOR THE CHANGING INDUSTRY LANDSCAPE CALLON IS GAINING SIZE AND SCALE TO ENHANCE OPERATING EFFICIENCIES AND IMPROVE FREE CASH FLOW PRO FORMA CALLON SELECTED OBSERVATIONS POSITIONING ▪ Increases size and scale to better position Callon to meet capital needs of large ENHANCES LARGE sc
Slide 9: Improved FCF Outlook (Before Capital Optimization)
IMPROVED FCF OUTLOOK (BEFORE “CAPITAL OPTIMIZATION”) ▪ Over 350% increase in FCF generation relative to ▪ Since July proxy presentation, Callon reduced aggregate capex by 15% Callon stand-alone (with an associated reduction in production) in reaction to reduced ▪ Sustainable FCF throughout outlook p
Slide 10: Focused on Protecting Cash Flow
FOCUSED ON PROTECTING CASH FLOW ▪ Callon has consistently employed a strategic and methodical hedging strategy to protect cash flow ▪ Oil volumes have provided the bulk of revenue for both companies over the past two years (~90% over the past 7 quarters) ▪ Diversification in point of sale allows for
Slide 11: Shareholders Benefit from Achievable Synergies
SHAREHOLDERS BENEFIT FROM ACHIEVABLE SYNERGIES NPV OF $2 PER CALLON SHARE REPRESENTS ~50% OF CALLON’S CURRENT SHARE PRICE 10 YR TOTAL (OPERATIONAL AND ANNUAL RUN RATE OPERATIONAL SYNERGIES (2021+) ($MM) CAPITAL) NPV OF SYNERGIES ($MM) Corporate Cash Delaware Drilling Improved Permian Uptime Optimize
Slide 12: Scaled Program Drives Two Distinct Sources of Synergies
SCALED PROGRAM DRIVES TWO DISTINCT SOURCES OF SYNERGIES SIMOPS IMPROVE COST EFFICIENCY MEGA-PAD STRATEGY IMPROVES PERMIAN UPTIME ▪ Multiple rigs / frac crews focused on a single project in a ▪ During completion of new wells, nearby wells are shut-in distinct location ▪ Deferred production during shu
Slide 13: Structural Benefits from Scale
STRUCTURAL BENEFITS FROM SCALE DELAWARE D&C SYNERGIES (1) PERMIAN UPTIME SYNERGIES (2) $1.3 4% $1.2 $25 - $30 MM $10 MM $1.2 2020E 3.0% 2020E 3% $1.1 2.6% $1.1 2% 1.8% $45 - $65 MM $20 MM $1.0 $1.0 Run Rate Run Rate 1% D&C ($MM/ 1,000 Lateral Ft) Lateral 1,000 ($MM/ D&C $0.9 Frac Interference Impact
Slide 14: Meaningful Scheduling Benefits from Integrated Program
MEANINGFUL SCHEDULING BENEFITS FROM INTEGRATED PROGRAM PRO FORMA SCHEDULING EFFICIENCIES ENHANCED SCHEDULING INTEGRATION ▪ Combined entity cash flow base supports capital program with Illustrative 2019 Stand-Alone Schedules (5 Crews) ample capacity for simultaneous operations development of mega-pad
Slide 15: Enhances Credit Trajectory
ENHANCES CREDIT TRAJECTORY HIGHLIGHTS PRO FORMA CORPORATE FCF BREAKEVEN ($/BBL WTI) ▪ Significantly improves flexibility and critical mass added through increased reserves, production and EBITDA ▪ Upgraded by Moody’s to B1 with stable outlook and placed on ~ $60 CreditWatch Positive by S&P (current
Slide 16: Scale and FCF Enhancement Is Credit Positive
SCALE AND FCF ENHANCEMENT IS CREDIT POSITIVE POSITIVE COMMENTARY FROM CREDIT AGENCIES CURRENT NET DEBT / LQA EBITDA (1)(2) “The CreditWatch positive placement reflects our expectation that the acquisition of Carrizo will materially improve the scale, scope, and diversity of 2.4X 2.5X Callon's busine
Slide 17: Pro Forma Maps to Higher Implied Credit Rating
PRO FORMA MAPS TO HIGHER IMPLIED CREDIT RATING PRO FORMA MOODY’S CREDIT RATING MAPPING FOR SIZE Improved Selected Callon Current Indicative Moody’s Credit Rating: B1 Credit Rating? Credit Factors Indicative Credit Rating Baa Ba B 15x 10x 6x 2.5x Interest 2022E+ 2021E 2020E 2020E Coverage Pro Forma P
Slide 18: Transaction Advances Strategic Financial Objectives
TRANSACTION ADVANCES STRATEGIC FINANCIAL OBJECTIVES Achieved by a Callon’s Stated Strategic Financial Objectives Merger with Carrizo? INCREASE CASH ▪ Ongoing compensation alignment with shareholder interests RETURN ON ▪ Retain best-in-class margins INVESTED (1) CAPITAL ▪ Reduce capital intensity of
Slide 19: Appendix
APPENDIX chp
Slide 20: Illustrative Free Cash Flow Reconciliation
ILLUSTRATIVE FREE CASH FLOW RECONCILIATION CPE STANDALONE 2019 2020E 2021E COMBINED (CPE + CRZO) 2019 2020E 2021E Net daily production 39.5 42.4 44.8 Net daily production 105.0 112.8 126.3 Net daily oil production 30.9 33.7 36.1 Net daily oil production 73.8 78.4 85.5 Adjusted EBITDAX $ 493 $ 593 $
Slide 21: Callon Is a Premier Operator of Upstream Assets
CALLON IS A PREMIER OPERATOR OF UPSTREAM ASSETS CALLON HAS DEMONSTRATED ABILITY TO ACHIEVE SIGNIFICANT WELL COST SAVINGS AND PRODUCTIVITY IMPROVEMENT THROUGH LARGER PROJECT DEVELOPMENT HIGHER CUMULATIVE OIL PRODUCTION LOWER COST BEST-IN-CLASS EBITDA MARGINS (6 MONTH CUMULATIVE OIL / 1,000’) (DRILLIN
Slide 22: Strong Integration Track Record
STRONG INTEGRATION TRACK RECORD CALLON HAS MADE SEVERAL SUCCESSFUL VALUE ENHANCING ACQUISITIONS AND DIVESTED NON-CORE ASSETS PREMIER SOUTHERN DELAWARE OPERATOR (1) IMPROVED PERFORMANCE FROM 2018 WARD ACQUISITION 20,000 15 18,000 Boe 16,000 14 14,000 12,000 13 10,000 8,000 6,000 12 (20:1 Conversion)
Slide 23: Leading Southern Delaware Well Performance
LEADING SOUTHERN DELAWARE WELL PERFORMANCE (1) SOUTHERN DELAWARE WCA WELLS ACROSS PEERS WCA RESULTS BY OPERATOR (2017+) (2) 100% 90% 80% 70% 60% 50% 40% 30% 20% CPE Well Count and Production Distribution Plot P(x) Plot Distribution Production and Count Well 10% CRZO 0% Average 6 Month Cumulative Pro
Slide 24: Callon Corporate Strategy
CALLON CORPORATE STRATEGY THE EVOLUTION FROM CORE ASSETS TO A SUSTAINABLE OPERATING BUSINESS MODEL Core Permian Evolving to Full Field Sustainable Growth Footprint Established Development and FCF Generation 2014 - 2018 2019 2020 + ▪ Increased Permian position from ▪ Harvest asset value through ▪ Sus
Slide 25: Hedge Portfolio: WTI NYMEX
HEDGE PORTFOLIO (1) 4Q19 1Q20 2Q20 3Q20 4Q20 FY 2020 FY 2021 WTI NYMEX (Bbls, $/Bbl) Swaps & Swaps with Puts Total Volumes 276,000 546,000 546,000 552,000 552,000 2,196,000 - Total Daily Volumes 3,000 6,000 6,000 6,000 6,000 6,000 - Avg. Sw ap $60.17 $56.06 $56.06 $56.06 $56.06 $56.06 - Avg. Short P
Slide 26: Hedge Portfolio: Differentials and Henry Hub
HEDGE PORTFOLIO (1) 4Q19 1Q20 2Q20 3Q20 4Q20 FY 2020 FY 2021 MIDLAND-CUSHING DIFFERENTIAL (Bbls/$/Bbl) Swaps Total Volumes 2,176,000 1,092,000 1,092,000 1,196,000 1,196,000 4,576,000 1,095,000 Total Daily Volumes 23,652 12,000 12,000 13,000 13,000 12,503 3,000 Avg. Sw ap Price ($2.50) ($1.73) ($1.73
Slide 27: Non-GAAP Reconciliation
NON-GAAP RECONCILIATION (1) Adjusted EBITDA Reconciliation 3Q18 4Q18 1Q19 2Q19 3Q19 Net income (loss) $ 37,931 $ 156,194 $ (19,543) $ 55,180 $ 55,834 (Gain) loss on derivatives, net of settlements 25,100 (105,512) 66,970 (15,193) (20,798) Non-cash stock-based compensation expense 2,587 770 3,402 904
Slide 28: Non-GAAP Reconciliation: Pro Forma Combined LTM Adjusted EBITDA
NON-GAAP RECONCILIATION (1) Pro Forma Callon Carrizo Combined COMBINED PRO FORMA LTM ADJUSTED EBITDA 3Q19 3Q19 3Q19 Net income (loss) available to common shareholders $ 47,180 $ 102,958 $ 150,138 Dividends on preferred stock 350 4,474 4,824 Accretion on preferred stock — 869 869 Loss on redemption o
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