Natchez, MS (February 24, 2000)-Fred L. Callon, president and chief executive officer, and John S. Weatherly, senior vice president and chief financial officer, Callon Petroleum Company (NYSE: CPE/CPE.PrA), provided comments regarding 1999 fourth quarter and year-end activities to the investment community during a conference call this morning. A summarization of their remarks follows.
1999 In Review
For the fourth quarter of 1999 Callon reported net income of $875,000 or $0.03 per diluted share. This brought net income for calendar year 1999 to $2.6 million, or $0.01 per diluted share.
1999 year-end proved reserves were reported at 23.8 million barrels of oil and 116.4 billion cubic feet of natural gas, representing a total of 259 billion cubic feet of natural gas equivalent (Bcfe). This represents a 101% increase from 129 Bcfe at the end of 1998. Gross reserve additions strictly from drilling were 133 Bcfe. A significant portion of these additions was from the company's Habanero and Medusa deepwater discoveries. Approximately 20 Bcfe of additions from drilling came from three Outer Continental Shelf discoveries.
The 10% present value of the company's proved reserves increased from $98 million at year-end 1998 to $297 million at year-end 1999. The 1999 reserve report is based on natural gas at $2.29 per Mcf and oil at $24.31 per barrel. The 1998 year-end reserve report was based on natural gas at $2.00 per Mcf and oil at $10.00 per barrel. Although improved prices were a factor, new discoveries accounted for most of the increase in reserve value.
Production levels were up for both the fourth quarter and the year, and approximately 89% of the company's production was natural gas. Fourth quarter production averaged 45.8 million cubic feet of natural gas equivalent per day (MMcfe/d). This was 31% higher than the fourth quarter of last year when Callon averaged 34.9 MMcfe/d. For the year 1999 production averaged 45.4 MMcfe/d. This was a 4% increase over year-end 1998 production of 43.5 MMcfe/d. Natural gas prices for calendar year 1999 averaged $2.27 per thousand cubic feet (Mcf), substantially unchanged from the 1998 average of $2.26 per Mcf.
For 1999 the company's reserve replacement cost was $0.46 per Mcfe (less than $3.00 per barrel).
Operational Activity Since January 1, 2000
South Marsh Island Block 261 - As reported in early January, Callon experienced a blowout while drilling the #2 natural gas well. All rig personnel were evacuated safely and there was no pollution. The #2 well has been plugged and abandoned and the #3 replacement well is currently drilling at 8,500 feet and should be at total depth in about two weeks. Although the #2 well had encountered pay zones prior to year-end, no reserves were included in the reserve report, and loss of the #2 wellbore does not impact reported reserves or PV-10 value. Costs incurred to plug the #2 wellbore, repair minor damage to the rig and drill the #3 replacement wellbore to the depth at which the blowout occurred are estimated at $5 million. With the exception of approximately $150,000 in deductibles, Callon is fully insured against this loss.
Mississippi Canyon Blocks 538/582 - In early January a sidetrack well was drilled at Callon's Medusa deepwater discovery on Mississippi Canyon Blocks 538/582 to test the downdip limits of the T1 pay sand in Fault Block B. It encountered 90 feet (true vertical depth) of oil pay. An additional delineation well was spud on January 14th and is designed to test the updip limits of the T1 pay sand in Fault Block A. This latest well will be deepened to test an objective which is separate from that which was discovered by the original well.
Mississippi Canyon Blocks 815/816 - Diamond Offshore's Ocean Victory is drilling the company's initial deepwater exploratory well at the Anvil Prospect. The well currently is at 14,400 feet and should reach its primary objectives in a few weeks.
Mississippi Canyon Blocks 378/379 - On January 20th the company spud an initial deepwater exploratory well at its Chin Music Prospect. The well is currently at 11,300 feet and should reach its first objective by the end of March.
Ship Shoal Blocks 319/320 - The #1 well at Ship Shoal Block 320 is currently drilling at 11,500 feet and is scheduled to be drilled to below 14,000 feet to test an Upper Miocene objective adjacent to Anadarko's Tanzanite discovery. In addition, Callon spud its first shallow prospect at Ship Shoal Block 319. If the first prospect is successful the company anticipates drilling several additional prospects on the block.
Main Pass Block 32 - The well drilling the Parodi Prospect has reached a total depth of 14,100 feet and casing has been set. Callon will be testing the well during the next few weeks.
For further information contact: Terry Trovato P.O. Box 1287 Natchez, MS 39121 (601) 442-1601terryt@callon.com