Callon Petroleum Company Reports Results For Second Quarter, First Six Months of 2010

NATCHEZ, Miss.-- Callon Petroleum Company (NYSE: CPE) today reported net income of $2.1 million, or $0.07 per fully-diluted share, for the second quarter, and $6.1 million, or $0.21 per fully-diluted share, for the six-month period ended June 30, 2010. These results represent two consecutive quarters of improved earnings over the corresponding periods of 2009, during which the company reported a net loss of $0.9 million, or $0.04 per fully-diluted share for the second quarter of 2009 and net income of $1.5 million, or $0.07 per fully-diluted share, for the six month period ended June 30, 2009.

Highlights during the first half of 2010 include:

    --  Drilled and placed on production six Permian Basin wells during the
        first six months of 2010. As of June 30, 2010 we were in the process of
        completing our seventh well of the year and drilling the eighth.
    --  Spud the company's first Haynesville shale well, which we expect to be
        completed and producing by September 2010. This is the first of seven
        planned Haynesville wells.
    --  Received $7.9 million from the Minerals Management Service (MMS) for
        interest on royalties recouped on our Medusa Field. Inclusive of the
        principal reimbursement received during the first quarter of 2010, the
        receipt of this interest payment increased our total received from the
        MMS to $52.7 million.
    --  Completed the redemption of the remaining $16.1 million of 9.75% Senior
        Notes outstanding. This redemption reduced our debt outstanding to $138
        million as of June 30, 2010, reduced interest expense by $0.3 million
        during the second quarter, and will reduce full year 2010 interest
        expense by approximately $1.0 million.

Second Quarter and Six Months 2010 Operating Results. Operating results for the three months ended June 30, 2010 include oil and gas sales of $21.6 million from average production of 26.1 million cubic feet of natural gas equivalent per day (MMcfe/d). This corresponds to sales of $25.0 million from average production of 33.1 MMcfe/d during the comparable 2009 period. The average price per thousand cubic feet of natural gas (Mcf) received during the quarter ended June 30, 2010, after the impact of hedging, increased to $5.22, compared to $4.22 for the quarter ended June 30, 2009. The average price per barrel of oil (Bbl) received in the second quarter of 2010, after hedging impact, increased to $74.03, compared to $72.22 for the same period in 2009.

Oil and gas sales for the first six months of 2010 totaled $45.0 million from average production of 26.9 MMcfe/d. This corresponds to sales of $49.8 million from average production of 33.3 MMcfe/d during the same period in 2009. The average price received per Mcf in the six-month period of 2010, after the impact of hedging, increased to $5.50, compared to $5.18 during the first six months of 2009. Likewise, the average price received per Bbl in the first half of 2010, after hedging impact, increased to $74.41, compared to $66.39 during the same period in 2009.

Second Quarter and Six Months 2010 Discretionary Cash Flow. Discretionary cash flow for the three-month period ended June 30, 2010 totaled $10.5 million compared to $8.8 million during the comparable prior year period. Net cash flow provided by operating activities, as defined by GAAP, totaled $18.3 million during the quarter ended June 30, 2010 while net cash flow used in operating activities was $2.8 million for the second quarter of 2009. Discretionary cash flow for the first six months of 2010 totaled $21.8 million compared to $23.0 million during the same period in 2009. Net cash flow provided by operating activities, as defined by GAAP, totaled $74.0 million during the six-month period ended June 30, 2010, while net cash flow used in operating activities was $0.5 million during the same period in 2009. (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 GAAP.



Reconciliation of Non-GAAP Financial Measures:

(in thousands)

               Three-Months Ended June 30,      Six-Months Ended June 30,

               2010      2009         $ Change  2010      2009         $ Change

Discretionary  $ 10,497  $ 8,783      $ 1,714   $ 21,764  $ 23,013     $ (1,249 )
cash flow

Net working
capital          7,839     (11,577 )    19,416    52,240    (23,561 )    75,801
changes and
other changes

Net cash flow
provided by
(used in)      $ 18,336  $ (2,794  )  $ 21,130  $ 74,004  $ (548    )  $ 74,552
operating
activities




The following tables set forth certain unaudited operating information with
respect to the company's oil and gas operations for the periods indicated:

                                    Three-Months Ended June 30,

                                    2010        2009        Change      % Change

Net production:

Oil (MBbls)                           215         263         (48    )  (18  )%

Gas (MMcf)                            1,085       1,433       (348   )  (24  )%

Total production (MMcfe)              2,374       3,010       (636   )  (21  )%

Average daily production (MMcfe)      26.1        33.1        (7.0   )  (21  )%

Average sales price: (a)

Oil (Bbl)                           $ 74.03     $ 72.22     $ 1.81      3    %

Gas (Mcf)                             5.22        4.22        1.00      24   %

Total (Mcfe)                          9.09        8.32        0.77      9    %

Oil and gas revenues (in
thousands):

Oil revenue                         $ 15,901    $ 18,971    $ (3,070 )  (16  )%

Gas revenue                           5,668       6,054       (386   )  (6   )%

Total                               $ 21,569    $ 25,025    $ (3,456 )  (14  )%

Additional per Mcfe data:

Sales price                         $ 9.09      $ 8.32      $ 0.77      9    %

Lease operating expense               (1.70  )    (1.55  )    (0.15  )  10   %

Operating margin                    $ 7.39      $ 6.77      $ 0.62      9    %

Other expenses on a per Mcfe
basis:

Depletion, depreciation and         $ 2.97      $ 2.81      $ 0.16      6    %
amortization

General and administrative (net of  $ 1.86      $ 1.79      $ 0.07      4    %
management fees)

(a) Below is a reconciliation of the average NYMEX price to the average realized
sales price per barrel of oil / Mcf of gas:

Average NYMEX oil price             $ 78.03     $ 59.62     $ 18.41     31   %

Basis differential and quality        (2.88  )    (3.30  )    0.42      (13  )%
adjustments

Transportation                        (1.16  )    (1.36  )    0.20      (15  )%

Hedging                               0.04        17.26       (17.22 )  (100 )%

Average realized oil price          $ 74.03     $ 72.22     $ 1.81      3    %

Average NYMEX gas price             $ 4.34      $ 3.82      $ 0.52      14   %

Natural gas liquid content and        0.70        0.40        0.30      75   %
volume conversion adjustments

Hedging                               0.18        -           0.18      100  %

Average realized gas price          $ 5.22      $ 4.22      $ 1.00      24   %




                                    Six-Months Ended June 30,

                                    2010        2009        Change      % Change

Net production:

Oil (MBbls)                           438         526         (88    )  (17  )%

Gas (MMcf)                            2,252       2,880       (628   )  (22  )%

Total production (MMcfe)              4,877       6,036       (1,159 )  (19  )%

Average daily production (MMcfe)      26.9        33.3        (6.4   )  (19  )%

Average sales price: (a)

Oil (Bbl)                           $ 74.41     $ 66.39     $ 8.02      12   %

Gas (Mcf)                             5.50        5.18        0.32      6    %

Total (Mcfe)                          9.22        8.26        0.96      12   %

Oil and gas revenues (in
thousands):

Oil revenue                         $ 32,564    $ 34,923    $ (2,359 )  (7   )%

Gas revenue                           12,390      14,917      (2,527 )  (17  )%

Total                               $ 44,954    $ 49,840    $ (4,886 )  (10  )%

Additional per Mcfe data:

Sales price                         $ 9.22      $ 8.26      $ 0.96      12   %

Lease operating expense               (1.78  )    (1.44  )    (0.34  )  24   %

Operating margin                    $ 7.44      $ 6.82      $ 0.62      9    %

Other expenses on a per Mcfe
basis:

Depletion, depreciation and         $ 2.84      $ 2.96      $ (0.12  )  (4   )%
amortization

General and administrative (net of  $ 1.79      $ 1.19      $ 0.60      50   %
management fees)

(a) Below is a reconciliation of the average NYMEX price to the average realized
sales price per barrel of oil / Mcf of gas:

Average NYMEX oil price             $ 78.37     $ 51.35     $ 27.02     53   %

Basis differential and quality        (2.83  )    (3.68  )    0.85      (23  )%
adjustments

Transportation                        (1.16  )    (1.35  )    0.19      (14  )%

Hedging                               0.03        20.07       (20.04 )  (100 )%

Average realized oil price          $ 74.41     $ 66.39     $ 8.02      12   %

Average NYMEX gas price             $ 4.69      $ 4.15      $ 0.54      13   %

Natural gas liquid content and        0.73        0.39        0.34      87   %
volume conversion adjustments

Hedging                               0.08        0.64        (0.56  )  (88  )%

Average realized gas price          $ 5.50      $ 5.18      $ 0.32      6    %




Callon Petroleum Company

Consolidated Balance Sheets

(in thousands, except share data)

                                               June 30, 2010   December 31, 2009

ASSETS                                         (Unaudited)

Current assets:

Cash and cash equivalents                      $ 31,812        $ 3,635

Accounts receivable                              16,632          20,798

Accounts receivable - MMS royalty recoupment     -               51,534

Fair market value of derivatives                 1,106           145

Other current assets                             914             1,572

Total current assets                             50,464          77,684

Oil and gas properties, full-cost accounting
method:

Evaluated properties                             1,248,051       1,593,884

Less accumulated depreciation, depletion and     (1,137,978 )    (1,488,718 )
amortization

Net oil and gas properties                       110,073         105,166

Unevaluated properties excluded from             30,482          25,442
amortization

Total oil and gas properties                     140,555         130,608

Other property and equipment, net                2,724           2,508

Restricted investments                           4,365           4,065

Investment in Medusa Spar LLC                    10,928          11,537

Other assets, net                                2,215           1,589

Total assets                                   $ 211,251       $ 227,991

LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)

Current liabilities:

Accounts payable and accrued liabilities       $ 12,111        $ 12,887

Asset retirement obligations                     3,377           4,002

9.75% Senior Notes, net of $0 and $232           -               15,820
discount, respectively

Subtotal                                         15,488          32,709

Callon Entrada non-recourse credit facility      -               84,847

Total current liabilities                        15,488          117,556

13% Senior Notes

Principal outstanding                            137,961         137,961

Deferred credit, net of accumulated              29,417          31,213
amortization of $2,090 and $294, respectively

Total 13% Senior Notes                           167,378         169,174

Senior secured revolving credit facility         -               10,000

Asset retirement obligations                     11,542          10,648

Other long-term liabilities                      2,424           1,467

Total liabilities                                196,832         308,845

Stockholders' equity (deficit):

Preferred Stock, $.01 par value, 2,500,000       -               -
shares authorized;

Common Stock, $.01 par value, 60,000,000
shares authorized; 28,792,290 and 28,742,926     288             287
shares outstanding at June 30, 2010 and
December 31, 2009, respectively

Capital in excess of par value                   246,571         243,898

Other comprehensive loss                         (6,027     )    (7,478     )

Retained earnings (deficit)                      (226,413   )    (317,561   )

Total stockholders' equity (deficit)             14,419          (80,854    )

Total liabilities and stockholders' equity     $ 211,251       $ 227,991
(deficit)




Callon Petroleum Company

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

                                  Three-Months Ended      Six-Months Ended

                                  June 30,                June 30,

                                  2010        2009        2010        2009

Operating revenues:

Oil sales                         $ 15,901    $ 18,971    $ 32,564    $ 34,923

Gas sales                           5,668       6,054       12,390      14,917

Total operating revenues            21,569      25,025      44,954      49,840

Operating expenses:

Lease operating expenses            4,031       4,656       8,679       8,695

Depreciation, depletion and         7,042       8,452       13,855      17,865
amortization

General and administrative          4,411       5,391       8,715       7,210

Accretion expense                   622         795         1,202       1,833

Total operating expenses            16,106      19,294      32,451      35,603

Income from operations              5,463       5,731       12,503      14,237

Other (income) expenses:

Interest expense                    3,198       4,854       6,792       9,636

Callon Entrada non-recourse         -           1,935       -           3,491
credit facility interest expense

Loss on early extinguishment of     339         -           339         -
debt

Other (income) expense              (111   )    61          (472   )    (34    )

Total other (income) expenses       3,426       6,850       6,659       13,093

Income (loss) before income         2,037       (1,119 )    5,844       1,144
taxes

Income tax expense                  -           24          -           -

Income (loss) before equity in      2,037       (1,143 )    5,844       1,144
earnings of Medusa Spar LLC

Equity in earnings of Medusa        93          218         209         335
Spar LLC

Net income (loss) available to    $ 2,130     $ (925   )  $ 6,053     $ 1,479
common shares

Net income (loss) per common
share:

Basic                             $ 0.07      $ (0.04  )  $ 0.21      $ 0.07

Diluted                           $ 0.07      $ (0.04  )  $ 0.21      $ 0.07

Shares used in computing net
income (loss) per common share:

Basic                               28,762      21,645      28,750      21,626

Diluted                             29,583      21,645      29,406      21,626




Callon Petroleum Company

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

                                                      Six-Months Ended June 30,

                                                      2010         2009

Cash flows from operating activities:

Net income                                            $ 6,053      $ 1,479

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

Depreciation, depletion and amortization                14,245       18,285

Accretion expense                                       1,202        1,833

Amortization of non-cash debt related items             221          3,168

Amortization of deferred credit                         (1,796  )    -

Equity in earnings of Medusa Spar LLC                   (209    )    (335    )

Non-cash charge for early debt extinguishment           179          -

Non-cash charge related to compensation plans           2,049        1,184

Payments to settle asset retirement obligations         (180    )    (2,601  )

Changes in current assets and liabilities:

Accounts receivable                                     53,362       6,441

Other current assets                                    658          (868    )

Current liabilities                                     (921    )    (28,993 )

Change in gas balancing receivable                      285          155

Change in gas balancing payable                         (249    )    (123    )

Change in other long-term liabilities                   (115    )    16

Change in other assets, net                             (780    )    (189    )

Cash provided by (used in) operating activities         74,004       (548    )

Cash flows from investing activities:

Capital expenditures                                    (19,987 )    (21,829 )

Investment in restricted assets related to plugging     (300    )    -
and abandonment obligations

Distribution from Medusa Spar LLC                       818          986

Cash used in investing activities                       (19,469 )    (20,843 )

Cash flows from financing activities:

Borrowings from senior secured credit facility          -            9,337

Payments on senior secured credit facility              (10,000 )    (4,337  )

Redemption of remaining 9.75% senior notes              (16,052 )    -

Proceeds from exercise of employee stock options        5            -

Cash (used in) provided by financing activities         (26,047 )    5,000

Net change in cash and cash equivalents                 28,488       (16,391 )

Cash and cash equivalents:

Balance, beginning of period                            3,635        17,126

Less: Cash held by subsidiary deconsolidated at         (311    )    -
January 1, 2010

Balance, end of period                                $ 31,812     $ 735



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

This news release is posted on the company's website at www.callon.com and will be archived there for subsequent review. It can be accessed from the "News Releases" link on the homepage.

It should be noted that this news release contains projections and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These projections and statements reflect the company's current views with respect to future events and financial performance. No assurances can be given, however, that these events will occur or that these projections will be achieved and actual results could differ materially from those projected as a result of certain factors. Some of the factors which could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements are discussed in our filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K, available on our website or the SEC's website at www.sec.gov.


    Source: Callon Petroleum Company