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Callon highlights up to $400M in asset monetizations after merger with Carrizo

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Callon highlights up to $400M in asset monetizations after merger with Carrizo

Amid shareholder opposition to its announced $3.2 billion merger with Carrizo Oil & Gas Inc., Callon Petroleum Co. has set a target to earn $300 million to $400 million from monetization efforts by 2020 following a review of the deal by an independent board.

The monetization proceeds would come from select acreage in the Eagle Ford Shale, non-operated Permian Basin properties and noncore Delaware properties and a possible joint venture for water infrastructure assets in the Permian Basin and Eagle Ford Shale, according to a Sept. 26 news release from Callon.

Callon said its core position in the Permian would be augmented by a "well-established and repeatable" business in the Eagle Ford following deal closing. Before entering into the deal, Callon's board evaluated alternatives to boost shareholder value over the past two years, the company said.

The leadership of Paulson & Co. Inc., which owns around 9.5% of Callon stock, had expressed concerns that Callon is departing from its strategy to become a leading pure-play Permian producer with the acquisition of Carrizo, which is a primarily Eagle Ford producer. "Permian pure-play companies trade at meaningfully higher valuations than multi-basin peers," Paulson said.

The independent board's review found the merger creates a self-funded and high-margin oil growth company with a leading cost of supply, Callon said. The combined company would generate incremental free cash flow of $100 million in 2020 at current strip pricing, which is expected to double in 2021, according to the review.

The merger would also result in $850 million in synergies, the company said. Callon plans to return these synergies, monetization proceeds and free cash flow to shareholders over time.

Under the deal, Callon shareholders will own around 54% of the merged entity, while Carrizo shareholders will hold approximately 46% on a fully diluted basis. The merger is still expected to close in the fourth quarter.