Callon: A Permian Pick

10/30/2014 7:00 am EST

Focus: STOCKS

James Oberweis

President, Oberweis Asset Management, Inc.

Our latest featured small-cap idea is an energy exploration and production company focused primarily on the Permian Basin in Texas, suggests Jim Oberweis, Jr., small-cap money manager and editor of The Oberweis Report.

In late 2013, Callon Petroleum (CPE) completed its strategic repositioning that began in 2009, shifting its operations from the offshore waters in the Gulf of Mexico to onshore operations in Texas.

Following the impending acquisition of over 3,800 net acres in the Permian Basin for $212 million in cash, which is expected to close later this year, Callon will operate just over 18,000 net acres in the region.

Production, which grew 46% year-over-year in the second quarter to 5,280 BOE per day, is expected to grow over 125% in 2014 and another 50% in 2015; production is over 80% crude oil.

The company is drilling horizontal wells from pads in three different zones, with a fourth zone being explored for its potential.

The company has also significantly lowered its lease operating expenses (LOE) as production growth has accelerated; LOE’s have declined from over $20 per barrel in early 2013 to under $10 in the June 2014 quarter.

As of December 31, 2013, Callon had estimated net proved reserves of 14.9 MMBOE, all of which were located in the Permian Basin. Additionally, 80% of its proved reserves were crude oil and 50% were proved developed at yearend 2013, on a BOE basis.

In the company’s latest reported second quarter, sales increased approximately 78% to $40.5 million from $22.8 million in the second quarter of last year.

Callon Petroleum Company reported earnings per share of $.14 in the latest reported second quarter versus a loss in the same quarter of last year.

Clients of Oberweis Asset Management own approximately 88,000 shares. These shares may be appropriate for risk oriented investors.

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