Callon Reduces 2020 Capital Program by Over 25pc and Provides Operational and Hedging Updates

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allon Petroleum Company (NYSE: CPE) today provided an update on its 2020 development program, prioritizing free cash flow and financial flexibility in 2020 and beyond.

The revised plan accounts for recent changes in the macroeconomic outlook, including the following highlights

Reducing operational capital plan for full-year 2020 to $700 to $725 million from $975 million, significantly reducing average quarterly expenditures for the remainder of 2020 by approximately 50% from a previously budgeted first quarter level of over $275 million and resulting in relatively flat year-over-year production growth versus the predecessor companies' combined 2019 production volumes

Reducing current operated rig count of nine to five before the end of the second quarter of 2020

Reducing frac crew count from five to two upon the completion of currently in-process projects

2H20 and preliminary 2021 plans employ three to four drilling rigs (two to three in the Permian Basin and one in the Eagle Ford) and one to two completion crews focused on a high-graded set of shorter cycle projects

Shifting capital allocation to high return, shorter cash cycle projects in the Midland Basin and Eagle Ford Shale while preserving the long-term, co-development strategy in the Delaware Basin

Forecasted free cash flow1 generation of $75 to $100 million for the balance of the year (second quarter through year-end) assuming no service cost deflation and flat NYMEX prices of $35/Bbl and $2.00/MMBtu for the balance of the year

Assuming $40/Bbl and $2.25/MMBtu average NYMEX prices in 2021, no service cost deflation and a capital allocation strategy similar to the revised 2020 program, expectations for over $100 million of free cash flow1 in 2021 under an operational capital program of $400 to $500 million with the upper end of the range supporting a maintenance capital program and the lower end of the range resulting in modestly lower year-over-year production volumes

Joe Gatto, President and Chief Executive Officer commented, Our ability to pivot quickly to shorter cycle, less capital-intensive projects reflects Callon's inherent optionality across our expanded pro forma portfolio. This will allow us to continue with capital efficient, scaled development, while also focusing on a program that shortens cash conversion cycles in a lower commodity price environment. Our differentiated development model is underpinned by 'flexibility with continuity', optimizing near-term returns without sacrificing long-term value or the balance sheet. The diversification of our asset base means that we can and will stay true to our strategy of large scale, co-development of our Delaware position. Although we will be reducing the amount of activity in the near-term, our opportunity set will be preserved for future development and not be compromised by near-term high grading at the expense of optimal multi-zone development over time. Moreover, Callon's enhanced, pro forma scale affords us the ability to preserve the cost and cycle time efficiencies that are driven by the key tenets of scaled development—namely, the deployment of simultaneous operations and the continuous utilization of drilling rigs and completion crews—despite the substantial reduction in our planned capital spend. Lastly and most importantly, our rapid shift in capital allocation gives us the free cash flow profile to reduce absolute leverage and protect our financial position. We will continue to adapt to any changes in the commodity price environment with the same vigor, discipline and priorities in the coming months. On a final note, we have instituted a company-wide work policy grounded in a remote workplace and social distancing to protect our employees, reduce potential COVID-19 transmission risks and maintain business continuity for our operations.

Callon plans to provide additional detail on updated guidance for 2020 as part of its first quarter conference call and, as such, the 2020 guidance issued on February 26th should no longer be relied upon.

✔️ Callon Reduces 2020 Capital Program by Over 25pc and Provides Operational and Hedging Updates

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