Update on Callon Petroleum (CPE)

Callon Petroleum (CPE) is a small independent oil and gas company that engages in acquisition, exploration, development, and production in the onshore and offshore Gulf Coast region. I first wrote about the company last November in the context of an opportunity to arbitrage a distressed debt exchange offer.

The company's 13% senior notes due 2016 were issued last winter as part of Callon's distressed debt exchange offer. [When issued, they were secured notes, but the liens were released when the company paid off the Old Notes.] The company has $138 million of these notes outstanding and they are the only debt (there is a senior secured revolving credit facility with nothing drawn). The company has a market capitalization of $133 million.

The senior notes started out trading in the 60s, and after a series of positive developments for the company ($53 million in refunds from the Minerals Management Service) they have gradually traded higher throughout this year and indeed now trade at par.

The senior notes are callable, although not at par. Until September 15, 2012, up to 35% of the outstanding senior notes may be repaid at 113 with the proceeds from a common stock offering or from the liquidation of their Entrada properties. At any time after September 15, 2012 they can be called by the company at prices between 106.5 and par. [This SEC filing regarding the exchange offer is very helpful in understanding these notes.]

The company is generating annual EBITDDA of approximately $50 million. Net debt/EBITDDA is approximately 2x and EV/EBITDDA is approximately 5x. Thus, the notes would seem to be well covered by cash flow.