MGY - APA: Callon Deal Is No Homerun But It Doesn't Have To Be
2024-06-02 12:55:31 ET
Summary
- APA is a leading US E&P with significant international exposure through assets in Egypt, the North Sea and a 50% stake in Suriname's Block 58.
- In Suriname APA has partnered with TotalEnergies to develop the block with 700Mboe of current estimated resource expected to support a first 200Kboed FPSO from 2028 on.
- In January the company announced the acquisition of Callon Petroleum, in my opinion a crucial step to improve low reserve depth to bridge the time until Suriname delivers first oil.
- While I acknowledge weaknesses in the deal regarding acreage quality and valuation, concerns should be largely derisked with current valuation at 30% discount to peers vs 10% pre-deal average.
- I view APA as a standout asset among US E&Ps due to its unique Suriname exposure which should drive scarcity value as it matures and initiate shares at Overweight (PT $40).
APA Corp ( APA ), previously known as Apache Corp, is a Houston-based Oil & Gas producer with an asset base spread across the US Permian basin, Egypt and the North Sea. Over the past year shares have performed significantly below both smallcap peers and the broader US Oil & Gas industry ( XLE ). Share prices further diverged from January 2024 on when APA announced the $4.5B acquisition of Texas driller Callon Petroleum.
While crucially reinforcing reserves through both depth (+1.3 years R/P vs APA standalone) and increasing liquids mix (+4%), the acquisition seems pricey compared to other recent smallcap E&P deals with expected synergy potential also below comparable acquisitions. Geographic overlap between APA and Callon acreage is limited with Callon's largely Delaware-based wells screening behind peers on productivity....
APA: Callon Deal Is No Homerun, But It Doesn't Have To Be