Callon Petroleum Latest E&P to Fend Off Inflation by Boosting Capex

Morgan Stanley analysts said about 30% of the E&P companies they cover have increased capex to address inflationary pressures from service providers and raw materials.

Callon Petroleum Latest E&P to Fend Off Inflation by Boosting Capex

It wasn’t all bad news for Callon. The company’s increase in spending has been offset by higher commodity prices that will increase free cash flow to more than $900 million. (Source: Hart Energy)

Oilfield service inflation continues to burn through upstream operators’ capex, with Callon Petroleum Co. the latest E&P to raise its budget to address price increases.

Although the pain of higher services will be offset by Callon’s forecast for more adjusted free cash flow of $900 million, the company isn’t alone. Morgan Stanley analyst Devin McDermott said about 30% of their E&P coverage has raised capex to address inflationary pressures with an average increase of 11%.

“Within that group, nearly all noted that the increase was due to inflationary impacts,” McDermott wrote in a June 6 report. “Heading into the back half of the year, we see risk for modest budget increases, mainly across the shale-focused producers that have not yet adjusted guidance to account for higher inflation.”

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Darren Barbee

Darren Barbee is senior editor for Oil and Gas Investor magazine.