Mineral Rights & Royalties

Kimmeridge Vehicle Purchases ORRI in Callon-Operated Leaseholds

By Mahati K L
October 02, 2020
a minute read
Pumpjack Texas

NYSE-listed Callon Petroleum Co. signed an agreement with a private investment vehicle managed by private equity firm Kimmeridge Energy Management Company LLC for the sale of a 2% overriding royalty interest (ORRI) on all of its operated oil & gas leaseholds in the United States, for gross cash proceeds of US$140 million.

Callon has also issued US$300 million of principal value second lien secured notes to Kimmeridge. The proceeds from the Kimmeridge transactions will be used to reduce borrowings under the company’s credit facility by nearly a third to approximately US$1 billion.

The divested assets include a 2% ORRI on approximately 200,000 net acres of Permian and Eagle Ford Shale basins in Texas (on an 8/8ths royalty-adjusted basis). The interest will be burdened by ad valorem and severance taxes, and post-production costs, including gathering, handling, processing, separating, treating, compression, dehydrating, transportation, and marketing costs.

The transaction represents significant financial position improvements for Callon from the monetization of around 3.5% of current average daily production, with a resulting 74% average net revenue interest (on an 8/8ths basis) for both existing producing wells, as well as the undeveloped location inventory.

“These transactions represent an important step forward in delivering on our stated goals to improve Callon’s liquidity position,” said Joe Gatto, Callon’s CEO.

“The asset monetizations are accretive to our 2021 leverage metrics given a blended transaction multiple of approximately 6.5 times projected operating cash flow at current strip pricing,” he added.

Houston-based Callon is currently focused on the acquisition, exploration, and development in the leading oil plays of West and South Texas.

RBC Capital Markets and Jefferies acted as financial advisors to Callon, while Barclays advised Kimmeridge on the transaction.

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