Callon Petroleum Company Reports Results For Fourth Quarter, Full Year 2009

NATCHEZ, Miss.-- Callon Petroleum Company (NYSE: CPE) today reported results of operations for both the three and 12-month periods ended December 31, 2009.

The company reported fourth quarter net income of $53.9 million, or $2.27 per share, compared to a net loss of $457.5 million or $21.19 per share for the 2008 fourth quarter. For the year ended December 31, 2009, Callon's net income was $54.4 million or $2.45 per share.

Highlights for 2009 include:

    --  Restructured Senior Notes due December 2010 and reduced the principal
        from $200.0 million to $154.0 million, extended debt maturities of
        $138.0 million until September 2016.
    --  Filed for recoupment of deepwater royalty payments and associated
        interest relating to the deepwater Medusa Field. Received $44.8 million
        in January 2010 representing the royalty recoupment.
    --  Initiated a new business strategy to reinvest strong offshore cash flow
        into lower-risk, longer-life onshore plays.
    --  Acquired conventional oil assets in the Permian Basin, providing a
        multi-year inventory of drilling locations in the promising onshore
        Wolfberry oil play.
    --  Established an initial position in the Haynesville Shale gas play of
        northern Louisiana.

"We exited the year 2009 with a new strategy and two new onshore assets in the Permian Basin in Texas and the Haynesville Shale play of northern Louisiana," Fred Callon, Chairman and CEO explains. "Our focus in 2010 will be on growing through the drill bit and making selective acquisitions in our core areas to further expand our inventory of drilling opportunities and strengthening our visible, long-term growth potential. Our strategy is supported by the strong cash flow from our deepwater Gulf of Mexico fields into our onshore conventional oil and shale gas projects."

Fourth Quarter and Full Year 2009 Net Income. For the year ended December 31, 2009, the company reported net income of $54.4 million, or $2.45 per share. Earnings include accruals for recoupment of royalties and interest from the U.S. Minerals Management Service (MMS) of $51.5 million, or $2.32 per share. The 2009 results compare to a 2008 net loss of $438.9 million, or $20.68 per share, which resulted primarily from a non-cash charge of $485.5 million due to the impairment of the company's oil and gas properties under full-cost accounting rules. In 2008, the book value of the company's oil and gas properties exceeded the full-cost ceiling due primarily to lower oil and natural gas prices at year-end 2008 and the announced suspension of operations at the deepwater Entrada Field during the fourth quarter of 2008. For the quarter ended December 31, 2009, the company reported net income of $53.9 million, or $2.27 per share, compared to a net loss of $457.5 million, or $21.19 per share for the fourth quarter of 2008.

Fourth Quarter and Full Year 2009 Operating Results. Operating results for the three months ended December 31, 2009 include oil and gas sales of $30.1 million from average production of 35.4 million cubic feet of natural gas equivalent per day (MMcfe/d). This compares with oil and gas sales of $15.5 million from average production of 20.7 MMcfe/d during the comparable 2008 period.

The average price received per thousand cubic feet of natural gas (Mcf) in the fourth quarter of 2009, after the impact of hedging, decreased to $5.01, compared to $7.12 during the fourth quarter of 2008. The average price received per barrel of oil (Bbl) in the fourth quarter of 2009, after the impact of hedging, increased to $77.94, compared to $55.23 during the same period in 2008. Oil and natural gas sales for full year 2009 totaled $101.3 million, excluding the MMS royalty recoupment of $40.9 million related to 2003 through 2008 production, from average production of 32.4 MMcfe/d. This corresponds to oil and natural gas sales of $141.3 million from average production of 31.4 MMcfe/d during 2008. The average price received per Mcf for full year 2009, after the impact of hedging, decreased to $4.78, compared to $9.99 during the full year of 2008. The average price received per Bbl during full year 2009, after the impact of hedging, decreased to $73.00, compared to $88.07 during the same period in 2008.

Fourth Quarter and Full Year 2009 Discretionary Cash Flow. Discretionary cash flow for the three-month period ended December 31, 2009 totaled $64.3 million compared to $3.8 million during the comparable prior year period. Net cash flow provided by operating activities, as defined by U.S. GAAP, was $9.4 million in the fourth quarter 2009, while net cash flow used in operating activities was $31.5 million in the fourth quarter of 2008. Discretionary cash flow for full year 2009 totaled $99.7 million, compared to $84.9 million in 2008. Net cash flow provided by operating activities, as defined by U.S. GAAP, totaled $26.4 million and $93.2 million for the years ended December 31, 2009 and 2008, respectively. (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.)

Liquidity. At December 31, 2009 the company's cash balance was $3.6 million. The company received $44.8 million in January 2010 from the MMS for the recoupment of royalties relating the Medusa Field. The company concluded a notes exchange offering on December 31, 2009 and exchanged 92% of the $200 million of senior secured notes due December 2010. At year-end the company had $164 million of principal outstanding, excluding the Callon Entrada non-recourse credit agreement in the amount of $84.8 million. In January 2010, the company announced a new $100 million credit facility with Regions Bank. The initial borrowing base of the new facility is $20 million which will be reviewed semi-annually. As of March 8, 2010, there is nothing drawn on the facility.

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.


Reconciliation of Non-GAAP       Three Months Ended        12 Months Ended
Financial Measure:

(In thousands)                   December 31,              December 31,

                                 2009         2008         2009         2008

Discretionary cash flow          $ 64,316     $ 3,774      $ 99,732     $ 84,935

Net working capital changes and    (54,958 )    (35,317 )    (73,377 )    8,297
other changes

Net cash flow provided by (used  $ 9,358      $ (31,543 )  $ 26,355     $ 93,232
in) operating activities




Production and Price Information:  Three Months           12 Months

                                   Ended                  Ended

                                   December 31,           December 31,

                                   2009       2008        2009        2008

Production:

Oil (MBbls)                          288        162         1,012       942

Gas (MMcf)                           1,524      926         5,740       5,839

Gas equivalent (MMcfe)               3,254      1,901       11,809      11,494

Average daily (MMcfe)                35.4       20.7        32.4        31.4

Average prices:

Oil ($/Bbl) (a)                    $ 77.94    $ 55.23     $ 73.00     $ 88.07

Gas ($/Mcf)                        $ 5.01     $ 7.12      $ 4.78      $ 9.99

Gas equivalent ($/Mcfe)            $ 9.25     $ 8.17      $ 8.57      $ 12.29

Additional per Mcfe data:

Sales price                        $ 9.25     $ 8.17      $ 8.57      $ 12.29

Lease operating expenses             1.47       2.87        1.56        1.67

Operating margin                   $ 7.78     $ 5.30      $ 7.01      $ 10.62

Depletion                          $ 2.68     $ 11.73     $ 2.83      $ 5.57

General and administrative (net    $ 0.97     $ 1.33      $ 1.13      $ 0.83
of management fees)

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

Average NYMEX oil price            $ 76.19    $ 58.76     $ 61.80     $ 99.67

Basis differentials and quality      (7.54 )    (15.66 )    (4.64  )    ( 1.15 )
adjustments

Transportation                       (1.27 )    ( 1.32 )    (1.32  )    ( 1.15 )

Hedging                              10.56      13.45       17.16       ( 9.30 )

Averaged realized oil price        $ 77.94    $ 55.23     $ 73.00     $ 88.07




Callon Petroleum Company

Consolidated Balance Sheets

(In thousands, except share data)

                                                 December 31,

                                                 2009            2008

ASSETS

Current assets:

Cash and cash equivalents                        $ 3,635         $ 17,126

Accounts receivable                                20,798          44,290

Accounts receivable-MMS royalty recoupment         51,534          --

Fair market value of derivatives                   145             21,780

Other current assets                               1,572           1,103

Total current assets                               77,684          84,299

Oil and gas properties, full-cost accounting
method:

Evaluated properties                               1,593,884       1,581,698

Less accumulated depreciation, depletion and       (1,488,718 )    (1,455,275 )
amortization

                                                   105,166         126,423

Unevaluated properties excluded from               25,442          32,829
amortization

Total oil and gas properties                       130,608         159,252

Other property and equipment, net                  2,508           2,536

Restricted investments                             4,065           4,759

Investment in Medusa Spar LLC                      11,537          12,577

Other assets, net                                  1,589           2,667

Total assets                                     $ 227,991       $ 266,090

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

Accounts payable and accrued liabilities         $ 12,887        $ 76,516

Asset retirement obligations                       4,002           9,151

9.75% Senior Notes                                 15,820          --

                                                   32,709          85,667

Callon Entrada (non-recourse) credit facility      84,847          --

Total current liabilities                          117,556         85,667

Senior Notes

Principal outstanding                              137,961         200,000

Deferred credit                                    31,213          --

Discount                                           --              (5,580     )

Total Senior Notes                                 169,174         194,420

Senior secured revolving credit facility           10,000          --

Callon Entrada (non-recourse) credit facility      --              81,154

Total long-term debt                               179,174         275,574

Asset retirement obligations                       10,648          33,043

Other long-term liabilities                        1,467           1,610

Total liabilities                                  308,845         395,894

Stockholders' equity (deficit):

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

Common Stock, $.01 par value; 60,000,000 shares
authorized; 28,742,926 shares and 21,621,142       287             216
shares issued outstanding at December 31, 2009
and 2008, respectively

Capital in excess of par value                     243,898         227,803

Other comprehensive income (loss)                  (7,478     )    14,157

Retained (deficit) earnings                        (317,561   )    (371,980   )

Total stockholders' equity (deficit)               (80,854    )    (129,804   )

Total liabilities and stockholders' equity       $ 227,991       $ 266,090
(deficit)




Callon Petroleum Company

Consolidated Statements of Operations

(In thousands, except per share amounts)

                           Quarter Ended December 31,  Year Ended December 31,

                           2009        2008            2009         2008

Operating revenues:

Oil sales                  $ 22,468    $ 8,947         $ 73,842     $ 82,963

Gas sales                    7,631       6,593           27,417       58,349

MMS royalty recoupment       40,886      --              40,886       --

Total operating revenues     70,985      15,540          142,145      141,312

Operating expenses:

Lease operating expenses     4,790       5,459           18,447       19,208

Depreciation, depletion      8,717       22,294          33,443       64,054
and amortization

General and                  3,145       2,519           13,355       9,565
administrative

Accretion expense            618         1,096           3,149        4,172

Acquisition expenses         298         --              298          --

Derivative expense           --          (888     )      --           498

Impairment of oil and gas    --          485,498         --           485,498
properties

Total operating expenses     17,568      515,978         68,692       582,995

Income (loss) from           53,417      (500,438 )      73,453       (441,683 )
operations

Other (income) expenses:

Interest expense             4,534       5,460           19,089       23,986

Callon Entrada
(non-recourse) interest      1,699       1,536           7,072        2,719
expense

Loss on early                --          --              --           11,871
extinguishment of debt

9.75% Senior Notes           1,024       --              1,024        --
restructuring expenses

Interest on MMS royalty      (7,681 )    --              (7,681  )    --
recoupment

Other income                 114         ( 439    )      190          (1,379   )

Total other (income)         (310   )    6,557           19,694       37,197
expenses

Income (loss) before         53,727      (506,995 )      53,759       (478,880 )
income taxes

Income tax (benefit)         --          ( 49,456 )      --           (39,725  )
expense

Income (loss) before
equity in earnings of        53,727      (457,539 )      53,759       (439,155 )
Medusa Spar LLC

Equity in earnings of
Medusa Spar LLC, net of      168         5               660          262
tax

Net income (loss)          $ 53,895    $ (457,534 )    $ 54,419     $ (438,893 )

Net income (loss) per
common share:

Basic                      $ 2.31      $ (21.19   )    $ 2.47       $ (20.68   )

Diluted                    $ 2.27      $ (21.19   )    $ 2.45       $ (20.68   )

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

Basic                        23,331      21,589          22,072       21,222

Diluted                      23,740      21,589          22,200       21,222




Callon Petroleum Company

Consolidated Statements of Cash Flows

(In thousands)

                                         Years Ended December 31,

                                         2009         2008          2007

Cash flows from operating activities:

Net income (loss)                        $ 54,419     $ (438,893 )  $ 15,194

Adjustments to reconcile net income
(loss) to cash provided by operating
activities:

Depreciation, depletion and                34,274       64,862        73,677
amortization

Impairment of oil and gas properties       --           485,498       --

Accretion expense                          3,149        4,172         3,985

Amortization of deferred financing         2,522        4,185         3,009
costs

Non-cash interest expense for Callon       3,693        --            --
Entrada credit agreement

Non-cash loss on early extinguishment      --           5,598         --
of debt

Equity in earnings of Medusa Spar, LLC     (660    )    (262     )    (507     )

Deferred income tax (benefit) expense      --           (39,725  )    8,506

Non-cash charge related to compensation    2,335        1,550         849
plans

Excess tax benefits from share-based       --           (2,050   )    (163     )
payment arrangements

Changes in current assets and
liabilities:

Accounts receivable                        (45,573 )    (22,215  )    6,658

Other current assets                       (468    )    5,489         (619     )

Current liabilities                        (27,260 )    22,987        (2,057   )

Change in gas balancing receivable         279          630           (938     )

Change in gas balancing payable            (312    )    156           889

Change in other long-term liabilities      (12     )    2,708         (10      )

Change in other assets, net                (31     )    (1,458   )    810

Cash provided by operating activities      26,355       93,232        109,283

Cash flows from investing activities:

Capital expenditures                       (35,790 )    (176,536 )    (127,409 )

ExL acquisition                            (15,756 )    --            --

Entrada acquisition                        --           --            (150,000 )

Proceeds from sale of mineral interests    --           167,349       60,931

Distribution from Medusa Spar, LLC         1,700        498           687

Cash used by investing activities          (49,846 )    (8,689   )    (215,791 )

Cash flows from financing activities:

Increases in debt                          20,337       94,435        229,000

Payments on debt                           (10,337 )    (216,000 )    (64,000  )

Deferred financing costs                   --           --            (6,429   )

Equity issued related to employee stock    --           (1,152   )    --
plans

Excess tax benefits from share-based       --           2,050         163
payment arrangements

Capital leases                             --           --            (872     )

Cash provided by (used in) financing       10,000       (120,667 )    157,862
activities

Net (decrease) increase in cash and        (13,491 )    (36,124  )    51,354
cash equivalents

Cash and cash equivalents:

Balance, beginning of period               17,126       53,250        1,896

Balance, end of period                   $ 3,635      $ 17,126      $ 53,250



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.

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 left side of 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