APA Hurdles Regulatory Waiting Period for Callon Acquisition

APA Corp. expects to complete its merger with Callon Petroleum Co. in the second quarter after “the applicable statutory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired on Feb. 22, 2024”, APA said.

The law requires parties in certain acquisitions and mergers to notify the Federal Trade Commission (FTC) and the Department of Justice of the transactions. One of the two agencies then reviews such a transaction for 30 days—called a waiting period—before this can be consummated. If either agency determines during the waiting period that further inquiry is necessary, the legislation allows the determining agency to request additional information and documentary materials. This second request extends the waiting period for 30 days after all parties have complied with the initial request, according to a legal guide on the FTC website.

“Assuming both APA and Callon shareholder approvals are obtained, the closing of the acquisition is expected to occur on or about April 1, 2024”, oil and gas explorer and producer APA said in a news release.

The Houston, Texas-based companies announced the $4.5 billion all-stock transaction a month ago. The merger is expected to raise APA’s pro forma production to over 500,000 barrels of oil equivalent per day (boepd).

It follows several multi-billion merger agreements in the U.S. oil and gas industry over the last few months. Chevron Corp’s $60 billion all-stock, debt-inclusive purchase of Hess Corp. and Exxon Mobil Corp’s $64.5 billion all-share, debt-inclusive absorption of Pioneer Natural Resources Co. have both received “second requests” from the FTC.

APA and Callon have calendared separate meetings with their respective shareholders for March 27 to vote on the merger, APA said.

“This transaction is expected to be accretive on all financial metrics and offers significant cost synergies”, APA chief executive John J. Christmann IV said in a statement.

If successful, APA’s acquisition of Callon raises its enterprise value to $21 billion, according to the joint press release January 4 announcing the merger agreement.

“Callon has built a strong portfolio in the Permian Basin that is complementary to our existing Permian assets and rounds out our opportunity set in the Delaware”, Christmann said at the time.

In the fourth quarter of 2023 Callon produced 103,400 boepd with oil production averaging 58,700 barrels a day. Its estimated proved reserves as of yearend stood at 433.5 million boe, according to its quarterly earnings release Monday.

Callon logged $325.8 million in EBITDAX (earnings before income tax, depreciation and amortization excluding exploration costs) adjusted for extraordinary or nonrecurring items for the October–December period. Operating activities generated $298.3 million in net cash, while adjusted free cash flow stood at $120.2 million. Callon reported $170.5 million in capital expenditure.

Net profit landed at $169 million, or $2.51 per share assuming dilution. In the agreed merger transaction with APA, in which each outstanding Callon common stock will be exchanged for 1.0425 APA common stocks, Callon shares are valued at $38.31 each.

Meanwhile APA produced 414,000 boepd in the fourth quarter of 2023, while its estimated proved reserves stood at 807 boe as of December, according to its quarterly report February 21.

It reported $1.36 billion in adjusted EBITDAX. APA had $1 billion in net cash from operating activities, while free cash flow stood at $292 million. It spent $520 million in upstream capital in the fourth quarter.

“We have achieved top-tier well results and best-in-class productivity improvements in both the Midland and Delaware Basins”, Christmann affirmed in the latest update for the merger.

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