APA has agreed to acquire Callon Petroleum, an oil and natural gas company operating in the Permian Basin, US, in an all-stock deal valued at around $4.5bn, inclusive of the latter’s net debt.

As per the terms of the deal, shareholders of the New York Stock Exchange (NYSE) listed Callon Petroleum will exchange each of their shares in the company for 1.042 shares of APA common stock. This represents an implied value of $38.31 to each of the shares of Callon Petroleum, based on the closing price of APA common stock on 3 January 2024.

APA, which is listed on NASDAQ, is anticipated to release around 70 million common stock shares during the transaction. Following the completion of the deal, the current APA shareholders are projected to hold approximately 81% of the merged company, while the existing Callon Petroleum’s shareholders will own about 19%.

Callon Petroleum president and CEO Joe Gatto said: “We are very proud of the significant steps we have taken to enhance Callon’s asset base, operational performance and balance sheet over the past several years.

“This combination with APA now provides for an enhanced value proposition for our shareholders built on their depth of experience and strong execution in the Permian Basin, flexibility for increased capital allocation, and ongoing delineation and optimisation efforts.”

Callon Petroleum is engaged in acquiring, exploring, and sustainably developing high-quality assets in the Permian Basin in West Texas. Its assets are expected to contribute significant scale to APA’s operations in the Permian Basin, particularly in the Delaware Basin, where it holds nearly 120,000 acres.

On a pro forma basis, the expanded company’s daily production surpasses 500,000 barrels of oil equivalent (BOE), and its enterprise value rises to over $21bn.

APA’s global portfolio features ongoing development in substantial legacy assets in the US and Egypt. Furthermore, the company is in the process of advancing the front-end engineering design (FEED) for a large-scale floating production storage and offloading (FPSO) development offshore Suriname.

Alongside its current production and development activities worldwide, APA maintains a distinctive exploration portfolio. This includes recently acquired large-scale blocks offshore Uruguay and onshore state-land leases in Alaska.

APA CEO and president John Christmann IV said: “This transaction is aligned with APA’s overall portfolio strategy and fits all the criteria of our disciplined approach to evaluating external growth opportunities. 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.

“The acquisition is accretive and unlocks value for both shareholder bases, as increased scale will enable us to realise significant overhead and cost-of-capital synergies. The pro forma footprint in the Permian will also create opportunities to capture meaningful operating synergies.”

The boards of directors of both firms have unanimously approved the transaction, which is anticipated to be concluded in Q2 2024.

The closure is contingent upon customary closing conditions, the termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the approval of the transaction by shareholders of both companies.

APA has enlisted Citi and Wells Fargo Securities as financial advisors, with legal counsel provided by Wachtell, Lipton, Rosen & Katz.

On the other hand, Callon Petroleum has engaged Morgan Stanley & Co. as its lead advisor, and RBC Capital Markets as a financial advisor. Legal guidance is being provided by Kirkland & Ellis.

Last May, Callon Petroleum announced the acquisition of Percussion Petroleum Operating II in a deal worth up to $537.5m to gain access to certain core Delaware assets.