Fitch Ratings has upgraded Callon Petroleum Company's Long-Term Issuer Default Rating (IDR) to 'BBB-' from 'B+', equalizing it with APA Corporation (APA) following close of the acquisition.

Fitch also upgraded Callon's senior unsecured debt ratings to 'BBB-'/'RR4' from 'BB-'/'RR3'. The ratings are equalized under Fitch's Parent-Subsidiary Criteria given the strong strategic and operational ties between the two entities. The Rating Outlook is Stable.

Fitch has removed the Rating Watch Positive from all entities and issuance ratings and subsequently withdrawn the IDR and all unsecured notes ratings of Callon Petroleum Company given reorganization of the rated entity and the de minimus amount of notes outstanding following the tenders. Fitch expects to transfer the residual amount outstanding of Callon's 2028 and 2030 notes to APA.

Fitch has also withdrawn Callon's 'BB+'/'RR1' RBL rating as the facility was terminated at close.

Key Rating Drivers

Ratings Equalized and Withdrawn: Callon's IDR and senior unsecured notes ratings have been upgraded to 'BBB-', equalized with APA and subsequently withdrawn. The residual notes outstanding will be transferred to APA.

APA's ratings reflect the company's solid credit metrics and diversified upstream portfolio with above-average liquids-weighting; good unit economics; the favorable impacts of the Callon acquisition on the company's business profile in terms of increased size and scale; and APA's exposure to production sharing contracts (PSCs), which have valuable counter-cyclical features in a downturn.

Rating concerns center on increased gross debt stemming from the acquisition; letters of credit (LOCs) associated with decommissioning which represent a structural reduction in liquidity; historically above-average use of the revolver relative to investment grade peers; and high shareholder distributions.

RATING SENSITIVITIES

Not applicable as the ratings have been withdrawn.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

RATING ACTIONS

Entity / Debt

Rating

Recovery

Prior

Callon Petroleum Company

LT IDR

BBB-

Upgrade

B+

LT IDR

WD

Withdrawn

BBB-

senior unsecured

LT

BBB-

Upgrade

RR4

BB-

senior unsecured

LT

WD

Withdrawn

BBB-

senior secured

LT

WD

Withdrawn

BB+

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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