The Daley Note: May 16, 2023
The latest merger in the Permian oil patch will cost Midstream a few rigs. Several G&P systems are at risk of losing rigs later this year following Callon Petroleum’s (CPE) purchase of Percussion Petroleum Operating II, LLC.
In a bevy of dealmaking, CPE plans to exit the Eagle Ford shale in South Texas while adding to its position in the Permian. The producer announced on May 3 it will acquire the Delaware assets of Percussion Petroleum for $475MM and sell its Eagle Ford assets to Ridgemar Energy Operating, LLC for $655MM. CPE expects to close the two deals effective July 2023.
The sale of the Eagle Ford assets will make Callon an exclusively Permian operator with assets in the Midland and Delaware sub-basins. The combination with Percussion would give CPE estimated production of 107 Mboe/d as of April 2023.
According to CPE’s investor deck, the more streamlined producer does not expect to grow output through 2023. In fact, CPE is guiding to a lower drilling program, cutting back to 5 rigs by YE23 from prior plans for running 6-7 rigs. CPE said it also intends to consolidate 1 Percussion rig into its existing program, suggesting the latest Permian merger could cost up to 3 rigs total.
Rig data from East Daley’s Energy Data Studio shows there is currently 1 Percussion rig on Targa Resource’s (TRGP) Delaware system. We are tracking 6 CPE rigs across the Permian that we allocate to EnLink Midstream (ENLC), Enterprise Products (EPD) and Kinetik (KNTK) G&P systems.
We don’t know which midstream companies are vulnerable when CPE pulls back, but based on sheer numbers, Kinetik would be the most susceptible to a cut. The KNTK - Raptor system in the Delaware has the most CPE activity with 4 rigs operating as of May 5, according to our rig allocations. Each of the other systems has 1 CPE rig (see table).
Using the “G&P System Analysis” interface in Energy Data Studio, we can screen for exposure to CPE activity for each of these G&P systems. For example, CPE is a top 4 producer on the KNTK – Raptor system with a 10% share (107 MMcf/d) of processed natural gas volumes (see figure). Other leading producers on the Raptor system include EOG (211 MMcf/d; 21% of total), Permian Resources (154 MMcf/d; 15%) and PDC (123 MMcf/d; 12%). – Kristine Oleszek Tickers: CPE, ENLC, EOG, EPD, KNTK, PDCE, TRGP.
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1Q23 Earnings Reviews are now available for AM, CEQP, DTM, ENB, ENLC, EPD, ET, ETRN, GEL, KMI, KNTK, MMP, MPLX, OKE, PAA, PBA, NS, SMLP, TRGP, TRP, WES and WMB. Subscribers can access these reports on the Energy Data Studio platform. For more information about Earnings Reviews, please reach out.
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