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Callon Petroleum Company Reports Results For Second Quarter, First Six Months Of 2011

Second Quarter and Six Months 2011 Discretionary Cash Flow. Discretionary cash flow for the quarter ended June 30, 2011 totaled $24.2 million compared to $10.6 million during the comparable prior year period. Net cash flow provided by operating activities, as defined by U.S. GAAP, totaled $17.5 million and $18.5 million during the quarter ended June 30, 2011 and 2010, respectively. Discretionary cash flow for the six months ended June 30, 2011 and 2010 totaled $37.0 million and $21.8 million, respectively. Net cash flow provided by operating activities, as defined by GAAP, totaled $31.0 million and $74.0 million for the six-month periods ended June 30, 2011 and 2010, respectively. Cash flow from operations in the first half of 2010 included a $44.8 million recoupment of royalties paid to the Bureau of Ocean Energy Management, Regulation and Enforcement (“BOEMRE;” formerly the Minerals Management Service), and related interest of $7.9 million. (See “Non-GAAP Financial Measure” that follows and the accompanying reconciliation of discretionary cash flow, a non-GAAP measure, to net cash flow provided by operating activities.)

Non-GAAP Financial Measure - This news release refers to a non-GAAP financial measure as “discretionary cash flow.” Callon believes that the non-GAAP measure of discretionary cash flow is useful as an indicator of an oil and gas exploration and production company’s ability to internally fund exploration and development activities and to service or incur additional debt. The company also has included this information because changes in operating assets and liabilities relate to the timing of cash receipts and disbursements which the company may not control and may not relate to the period in which the operating activities occurred. Discretionary cash flow should not be considered an alternative to net cash provided by operating activities or net income as defined by U.S. GAAP.

       
Three Months Ended June 30, Six Months Ended June 30,
2011     2010     Change 2011     2010     Change
Discretionary cash flow $ 24,238 $ 10,615 $ 13,623 $ 37,007 $ 21,764 $ 15,243
Net working capital changes and other changes   (6,737 )   7,839   (14,575 )   (6,049 )   52,240   (58,288 )
Net cash flow provided by operating activities $ 17,501   $ 18,454 $ (952 ) $ 30,958   $ 74,004 $ (43,045 )
 

The following table sets forth certain unaudited operating information with respect to the Company's oil and gas operations for the periods indicated:

 
Three Months Ended June 30,
2011   2010  

$ Change

  % Change
Net production:
Oil (MBbls) 275 215 60 28 %
Gas (MMcf) 1,388 1,085 303 28 %
Total production (Mboe) 506 396 110 28 %
Average daily production (MBoe) 5,564 4,350 1,214 28 %
 
Average realized sales price (a):
Oil (Bbl) $ 105.75 $ 74.03 $ 31.72 43 %
Gas (Mcf) 5.58 5.22 0.36 7 %
Total (Boe) 72.75 54.49 18.26 34 %
 
Oil and gas revenues (in thousands):
Oil revenue $ 29,087 $ 15,901 $ 13,186 83 %
Gas revenue   7,747     5,668     2,079   37 %
Total $ 36,834   $ 21,569   $ 15,265   71 %
 
Additional per Boe data:
Sales price $ 72.75 $ 54.49 $ 18.26 34 %
Lease operating expense   (10.47 )   (10.18 )   (0.29 ) 3 %
Operating margin $ 62.28   $ 44.31   $ 17.97   41 %
 
Other expenses per Boe:
Depletion, depreciation and amortization $ 25.58 $ 17.79 $ 7.79 44 %
General and administrative $ 7.50 $ 11.14 $ (3.64 ) (33 )%
 
(a) Below is a reconciliation of the average NYMEX price to the average realized sales price:
 
Average NYMEX price per barrel of oil $ 102.56 $ 78.03 $ 24.53 31 %
Basis differential and quality adjustments 5.50 (2.88 ) 8.38 nm
Transportation (1.04 ) (1.16 ) 0.12 (10 )%
Hedging   (1.27 )   0.04     (1.31 ) nm
Average realized price per barrel of oil $ 105.75   $ 74.03   $ 31.72   43 %
 
Average NYMEX price per thousand cubic feet of natural gas (“Mcf”) $ 4.37 $ 4.34 0.03 1 %
Basis differential and quality adjustments 1.21 0.70 0.51 73 %
Hedging   -     0.18     (0.18 ) 100 %
Average realized price per Mcf of gas $ 5.58   $ 5.22   $ 0.36   7 %
 
nm – Not Meaningful
 

The following table sets forth certain unaudited operating information with respect to the Company's oil and gas operations for the periods indicated:

 
Six Months Ended June 30,

2011

 

2010

 

$ Change

 

% Change

Net production:
Oil (MBbls) 476 438 38 9 %
Gas (MMcf) 2,730 2,252 478 21 %
Total production (MBoe) 931 813 118 14 %
Average daily production (Boe) 5,141 4,494 647 14 %
 
Average realized sales price (a):
Oil (Bbl) $ 100.71 $ 74.41 $ 26.30 35 %
Gas (Mcf) 5.27 5.50 (0.23 ) (4 )%
Total (Boe) 66.93 55.27 11.66 21 %
 
Oil and gas revenues (in thousands):
Oil revenue $ 47,891 $ 32,564 $ 15,327 47 %
Gas revenue   14,392     12,390     2,002   16 %
Total $ 62,283   $ 44,954   $ 17,329   39 %
 
Additional per Boe data:
Sales price $ 66.93 $ 55.27 $ 11.66 21 %
Lease operating expense   (11.12 )   (10.67 )   (0.45 ) 4 %
Operating margin $ 55.81   $ 44.60   $ 11.21   25 %
 
Other expenses per Boe:
Depletion, depreciation and amortization $ 24.43 $ 17.03 $ 7.39 43 %
General and administrative $ 8.62 $ 10.72 $ (2.10 ) (20 )%
 
(a) Below is a reconciliation of the average NYMEX price to the average realized sales price:
 
Average NYMEX price per barrel of oil $ 98.34 $ 78.37 $ 19.97 25 %
Basis differential and quality adjustments 4.48 (2.83 ) 7.31 nm
Transportation (1.17 ) (1.16 ) (0.01 ) 1 %
Hedging   (0.94 )   0.03     (0.97 ) nm
Average realized price per barrel of oil $ 100.71   $ 74.41   $ 26.30   35 %
 
Average NYMEX price per thousand cubic feet of natural gas (“Mcf”) $ 4.29 $ 4.69 $ (0.40 ) (9 )%
Basis differential and quality adjustments 0.98 0.73 0.25 34 %
Hedging   -     0.08     (0.08 ) (100 )%
Average realized price per Mcf of gas $ 5.27   $ 5.50   $ (0.23 ) (4 )%
 
nm – Not Meaningful

   

Callon Petroleum Company Consolidated Balance Sheets (in thousands, except share data)

 
June 30, 2011 December 31, 2010
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 52,018 $ 17,436
Accounts receivable 19,024 10,728
Fair market value of derivatives 1,704 -
Other current assets   1,610     2,180  
Total current assets   74,356     30,344  
 
Oil and gas properties, full-cost accounting method:
Evaluated properties 1,361,534 1,316,677
Less accumulated depreciation, depletion and amortization   (1,182,317 )   (1,155,915 )
Net oil and gas properties 179,217 160,762
Unevaluated properties excluded from amortization   6,889     8,106  
Total oil and gas properties   186,106     168,868  
 
Other property and equipment, net 11,480 3,370
Restricted investments 4,414 4,044
Investment in Medusa Spar LLC 10,213 10,424
Other assets, net   2,225     1,276  
Total assets $ 288,794   $ 218,326  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 25,069 $ 17,702
Asset retirement obligations 1,538 2,822
Fair market value of derivatives   600     937  
Total current liabilities   27,207     21,461  
 
13% Senior Notes
Principal outstanding 106,961 137,961
Deferred credit, net of accumulated amortization of $11,551 and $3,964, respectively   19,956     27,543  
Total 13% Senior Notes   126,917     165,504  
 
Asset retirement obligations 12,825 13,103
Other long-term liabilities   3,845     2,448  
Total liabilities   170,794     202,516  
 
Stockholders' equity:
Preferred Stock, $.01 par value, 2,500,000 shares authorized; - -

Common Stock, $.01 par value, 60,000,000 shares authorized; 39,368,473 and 28,984,125shares outstanding at June 30, 2011 and December 31, 2010, respectively

394 290
Capital in excess of par value 322,939 248,160
Other comprehensive loss (5,310 ) (8,560 )
Retained earnings (deficit)   (200,023 )   (224,080 )
Total stockholders' equity   118,000     15,810  
Total liabilities and stockholders' equity $ 288,794   $ 218,326  

   

Callon Petroleum Company Consolidated Statements of Operations (Unaudited) (in thousands, except per share data)

 

Three Months Ended June 30,

Six Months Ended June 30,

2011   2010 2011   2010
Operating revenues:
Oil sales $ 29,087 $ 15,901 $ 47,891 $ 32,564
Gas sales   7,747     5,668     14,392     12,390  
Total operating revenues   36,834     21,569     62,283     44,954  
 
Operating expenses:
Lease operating expenses 5,299 4,031 10,344 8,679
Depreciation, depletion and amortization 12,952 7,042 22,728 13,855
General and administrative 3,799 4,411 8,023 8,715
Accretion expense   583     622     1,198     1,202  
Total operating expenses   22,633     16,106     42,293     32,451  
Income from operations   14,201     5,463     19,990     12,503  
 
Other (income) expenses:
Interest expense 2,698 3,198 6,190 6,792
(Gain) loss on early extinguishment of debt - 339 (1,942 ) 339
Gain on acquired assets (3,688 ) - (3,688 ) -
Other (income) expense   (425 )   (111 )   (253 )   (472 )
Total other (income) expenses   (1,415 )   3,426     307     6,659  
 
Income before income taxes 15,616 2,037 19,683 5,844
Income tax benefit   (3,972 )   -     (3,972 )   -  
Income before equity in earnings of Medusa Spar LLC 19,588 2,037 23,655 5,844
Equity in earnings of Medusa Spar LLC   289     93     386     209  
Net income available to common shares $ 19,877   $ 2,130   $ 24,041   $ 6,053  
 
Net income per common share:
Basic $ 0.51   $ 0.07   $ 0.66   $ 0.21  
Diluted $ 0.50   $ 0.07   $ 0.65   $ 0.21  
 
Shares used in computing net income per common share:
Basic   39,225     28,762     36,485     28,750  
Diluted   39,844     29,583     37,191     29,406  

 

Callon Petroleum Company Consolidated Statements of Cash Flows (Unaudited) (in thousands)

 
Six Months Ended June 30,
2011   2010
Cash flows from operating activities:
Net income $ 24,041 $ 6,053

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation, depletion and amortization 23,203 14,245
Accretion expense 1,198 1,202
Gain on acquired assets (3,688 ) -
Amortization of non-cash debt related items 218 221
Amortization of deferred credit (1,583 ) (1,796 )
(Gain) loss on early extinguishment of debt (1,942 ) 179
Equity in earnings of Medusa Spar LLC (386 ) (209 )
Deferred income tax expense 8,186 2,021
Deferred income tax asset valuation allowance (12,158 ) (2,021 )
Non-cash derivative income due to hedge ineffectiveness (33 ) -
Non-cash charge related to compensation plans 1,239 2,049
Payments to settle asset retirement obligations (1,288 ) (180 )
Changes in current assets and liabilities
Accounts receivable (7,909 ) 53,362
Other current assets 573 658
Current liabilities 1,353 (921 )
Change in gas balancing receivable 186 285
Change in gas balancing payable (52 ) (249 )
Change in other long-term liabilities 100 (115 )
Change in other assets, net   (300 )   (780 )
Cash provided by operating activities   30,958     74,004  
 
Cash flows from investing activities:
Capital expenditures (42,018 ) (19,987 )
Investment in restricted assets for plugging and abandonment (75 ) (300 )
Proceeds from sale of mineral interest and equipment 6,417 -
Distribution from Medusa Spar LLC   597     818  
Cash used in investing activities   (35,079 )   (19,469 )
 
Cash flows from financing activities:
Payments on senior secured credit facility - (10,000 )
Redemption of remaining 9.75% senior notes - (16,052 )
Redemption of 13% senior notes (35,062 ) -
Proceeds from exercise of employee stock options - 5
Issuance of common stock   73,765     -  
Cash provided by (used in) financing activities   38,703     (26,047 )
 
Net change in cash and cash equivalents 34,582 28,488
Cash and cash equivalents:
Balance, beginning of period 17,436 3,635
Less: Cash held by subsidiary deconsolidated at January 1, 2010   -     (311 )
Balance, end of period $ 52,018   $ 31,812  
 

Callon Petroleum Company is engaged in the acquisition, development, exploration and operation of oil and gas properties in Louisiana, Texas, and the offshore waters of the Gulf of Mexico.

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