Callon Petroleum (CPE)

[was builder]

Callon to buy producing assets rather than drill - CEO CALLON/ (INTERVIEW)
Thursday September 24, 2009 02:47:17 AM GMT

http://www.forexyard.com/en/reuters_inner.tpl?action=2009-09-22T174750Z_01_BNG515129_RTRIDST_0_CALLON-INTERVIEW

* Says current gas prices do not support drilling new wells

* Says focus on acquiring onshore properties * Says service costs could come down further

* Says not interested in selling co

By Arup Roychoudhury

BANGALORE, Sept 22 (Reuters) - Oil and natural gas company Callon Petroleum Co will focus on acquiring functional properties rather than drilling new wells given the low natural gas price environment, the company's Chief Executive Rick Callon said.

"At this time it's better to buy producing properties than to drill... There still are a number of good opportunities on the shelf but they don't make sense at $3 gas prices," Callon said by phone.

Drilling would be profitable in the shelf or shallow water Gulf of Mexico (GoM) at a rate above $6, but the timing of natural gas prices reaching that level was still anybody's guess, said the CEO.

The company, which has assets in shallow and deepwater of GoM, will now look to invest in and develop onshore activities, he said.

Callon said he expects gas prices to bounce back to $7-$8 as supply from the shale plays come down and demand picks up over the next 6 to 18 months

Oil prices have doubled from the lows touched earlier this year, while natural gas prices have remained depressed due to weak North American demand and increased production from shale plays due to advances in technology.

Two third of Callon Petroleum's total proved reserves is crude oil and the rest is natural gas.

"Longer term our view is that we would like to have a balance between oil and gas. In the short term like many, we are more bullish on oil prices in terms of oil being in the $70-80 range and recognising that we are going to see fluctuation," said the CEO.

However, Callon said he does not see oil prices going above $90 or falling below $50 in the short term.

Earlier this month Saudi Oil Minister Ali al-Naimi said he was completely happy with the oil price, which was driven by economic growth and was ignoring high levels of inventory as part of a fundamental shift in the market.

COSTS MAY DROP FURTHER

CEO Callon said oilfield services costs could drop further depending on what happened with gas prices.

However, he noted that reduction in service costs till now varied from region to region.

Callon said that day rates for Jackup rigs -- primarily used to drill in shallow waters -- have come down.

"But deepwater component of the offshore tends to keep some offshore costs up because there is enough activity out there," he added.

Lower commodity prices in the first two quarters of the year had brought down the cost of drilling wells, allowing producers to get more for their money.

WONT SELL OUT NOW

The rebound in oil prices has renewed investor interest in energy companies and the Dow Jones U.S. Exploration & Production Index is up 31 percent so far this year.

Last week, Callon Petroleum's peer Parallel Petroleum was acquired by investor Leon Black's buyout firm Apollo Global Management for $483 million, including debt.

However, Callon said he will not consider selling the company for the next several years even if an attractive offer came by.

"For a company our size we have got a lot of opportunity here to grow...I think for the next several years, there is certainly much more upside potential for our shareholders with us remaining independent." (Editing by Jarshad Kakkrakandy) ([e-mail]; within U.S. [phone]; outside U.S. [phone]; Reuters Messaging: [e-mail]))