In the latest of a wave of consolidation among oil and gas producers, Callon Petroleum Co. announced Monday, July 15, that it agreed to buy Carrizo Oil & Gas Inc. for $3.2 billion in stock and assumed debt.
Each Carrizo common shareholder will receive 2.05 shares of Callon common stock for each share of Carrizo they own, a 25% premium over Carrizo’s stock at the close of trading on Friday.
Kirkland & Ellis advised Callon with a team led by corporate partners Sean Wheeler, Doug Bacon, Anthony Speier, Alex Rose and Lanchi Huynh. The associates included Jennifer Rainey Singh, Lindsey Jaquillard, Camille Walker, Zach Savrick, Meghan Dupre, Cameron McCollum, Zack Montgomery and Eilidh Reid.
The firm’s specialists included tax partner David Wheat and associate William Dong; debt finance partners Mary Kogut Brawley and Will Bos and associates Brandon Elliot, Jordan Roberts and Mahalia Burford; executive compensation partner Scott Price and associates Laura Gallo and Annemarie Mierzejewski; and capital markets associates Terry Bokosha and Trevor Crowley.
Others were antitrust partners Ian John, Carla Hine and Christina Shin and associate Evan Turnage; government and internal investigations partners Asheesh Goel and Nick Niles; environmental transactions partner Paul Tanaka and associate James Dolphin; employee benefits partner Alexandra Mihalas and associate Adria Crowe; and labor and employment partner Michael Schulman.
Michol Ecklund is the senior vice president, general counsel and corporate secretary for Callon. Ecklund, an alum of both Harvard Law School and Baker Botts, was with Marathon Oil Co. for 15 years as deputy general counsel before she joined Callon in November 2017.
The firm’s specialists on the deal included Houston partner Rob Fowler and associate Gabriela Alvarez on employee benefits; partners Derek Green and Jon Lobb and associate Dominick Constantino on tax; and partner Andrew Thomison on finance. Washington, D.C., partner Thomas Fina weighed in on antitrust matters.
Carrizo’s in-house counsel on the deal included general counsel and VP of business development Gerry Morton and associate general counsel Mike Kennington.
Morton joined Carrizo in 2008 after spending 14 years at Pogo Producing Co., including as senior VP of its Asia Pacific operations. He earned his law degree from the University of Houston Law Center and his MBA from the University of Houston’s C.T. Bauer College of Business. He has a bachelor of science degree in engineering geology from Brigham Young University.
RBC Capital Markets’ Hank Hilliard and Lazard’s Kevin Bonebrake in Houston advised Carrizo while JP Morgan’s Jonathan Cox in Houston assisted Callon. Hilliard joined RBC just last year from Goldman Sachs.
Carrizo shareholders will own 46% of the combined companies and three members of Carrizo’s board will join Callon’s board.
The parties expect the merger to create a top mid-cap oil and gas company with scaled development operations across oil-weighted assets in the Permian Basin and Eagle Ford Shale.
Shareholders from both companies and regulators have to clear the deal, which the parties expect to close in the fourth quarter.
Callon was thought of as a takeover target since its namesake founder and CEO Fred Callon died unexpectedly on a business trip to Denver in 2017, with RSP Permian rumored to have knocked on Callon’s door at one point (RSP was later scooped up by Concho Resources for $9.5 billion).
Callon was replaced by former investment banker and CFO Joe Gatto, who has worked to improve the company’s margins.
Callon has since moved from target to buyer, with analysts at Tudor, Pickering, Holt saying in a note Monday that Callon was rumored to be interested in buying QEP Resources.
The firm believes the Carrizo deal will give Callon increased scale that will drive free cash flow, which could reach $100 million in 2020 if oil prices are above $50 per barrel.
The combined company will have 200,000 net acres between the Permian and the Eagle Ford. The two companies expect the deal to generate synergies of $65 million to $80 million per year from operations and $35 million to $45 million per year from cash general and administrative expenses.
Kashy Harrison, an analyst at Piper Jaffray’s Simmons Energy, said there could be some investor pushback as many viewed Callon as more of a “consolidatee” over time.
“Accordingly, with the innate complexity associated with successful integration of two organizations and the shift in one of the underlying premises of the stock, we expect there could be an increased risk premium associated with the equity for a period of time,” he said.