Callon Petroleum Company Reports Results of Operations For Second Quarter, First Six Months of 2009

NATCHEZ, Miss.-- Callon Petroleum Company (NYSE: CPE) today reported results of operations for both the three and the six-month periods ended June 30, 2009.

Second Quarter and Six Months 2009 Net Income. For the quarter ended June 30, 2009, the company reported a net loss of $0.9 million, or $0.04 per share, after a non-recurring charge of $2.2 million associated with staffing reductions and employee retirements, which reduced earnings per share by $0.10. Net income for the comparable period of 2008 was $5.2 million, or $0.23 per share. For the six months ended June 30, 2009, Callon reported net income of $1.5 million, or $0.07 per share. This compares with net income of $12.8 million, or $0.58 per share during the same period of 2008. All per share amounts are on a diluted basis.

Second Quarter and Six Months 2009 Operating Results. Operating results for the three months ended June 30, 2009 include oil and gas sales of $25.0 million from average production of 33.1 million cubic feet of natural gas equivalent per day (MMcfe/d) which exceeded the high-end of the company's published guidance range of 28.0 to 30.0 MMcfe/d. This corresponds to sales of $48.0 million from average production of 37.2 MMcfe/d during the comparable 2008 period. The average price received, after the impact of hedging, per thousand cubic feet of natural gas (Mcf) for the quarter ended June 30, 2009 decreased to $4.22, compared to $11.67 for the quarter ended June 30, 2008. The average price received, after the impact of hedging, per barrel of oil (Bbl) in the second quarter of 2009 decreased to $72.22, compared to $99.99 during the second quarter of 2008. Oil and gas sales for the first six months of 2009 totaled $49.8 million from average production of 33.3 MMcfe/d. This corresponds to sales of $93.0 million from average production of 39.6 MMcfe/d during the same period in 2008. The average price, after the impact of hedging, received per Mcf in the six-month period of 2009 decreased to $5.18, compared to $10.46 during the first six months of 2008, while the average price received, after the impact of hedging, per Bbl in the first half of 2009 decreased to $66.39, compared to $93.27 during the same period in 2008.

Second Quarter and Six Months 2009 Discretionary Cash Flow. Discretionary cash flow for the three-month period ended June 30, 2009 totaled $11.4 million compared to $30.2 million during the comparable prior year period. As defined by U.S. generally accepted accounting principles (GAAP), net cash flow used in operating activities totaled $0.2 million during the quarter ended June 30, 2009 and net cash flow provided by operating activities totaled $28.8 million during the quarter ended June 30, 2008. Discretionary cash flow for the first six months of 2009 totaled $25.6 million compared to $59.3 million during the same period in 2008. Net cash flow provided by operating activities, as defined by GAAP, totaled $2.1 million and $63.9 million during the six-month periods ended June 30, 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.)

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        Three Months Ended       Six Months Ended
Financial Measure:

(In thousands)                    June 30,                 June 30,

                                  2009         2008        2009         2008

Discretionary cash flow           $ 11,384     $ 30,245    $ 25,614     $ 59,288

Net working capital changes and     (11,577 )    (1,467 )    (23,561 )    4,621
other changes

Net cash flow (used in) provided  $ (193    )  $ 28,778    $ 2,053      $ 63,909
by operating activities




Production and Price           Three Months Ended       Six Months Ended
Information:

                               June 30,                 June 30,

                               2009        2008         2009        2008

Production:

Oil (MBbls)                      263         286          526         575

Gas (MMcf)                       1,433       1,668        2,880       3,759

Gas equivalent (MMcfe)           3,010       3,382        6,036       7,211

Average daily (MMcfe)            33.1        37.2         33.3        39.6

Average prices:

Oil ($/Bbl) (a)                $ 72.22     $ 99.99      $ 66.39     $ 93.27

Gas ($/Mcf)                    $ 4.22      $ 11.67      $ 5.18      $ 10.46

Gas equivalent ($/Mcfe)        $ 8.32      $ 14.20      $ 8.26      $ 12.90

Additional per Mcfe data:

Sales price                    $ 8.32      $ 14.20      $ 8.26      $ 12.90

Lease operating expenses         1.55        1.44         1.44      $ 1.39

Operating margin               $ 6.77      $ 12.76      $ 6.82      $ 11.51

Depletion                      $ 2.81      $ 4.50       $ 2.96      $ 4.19

General and administrative     $ 1.79      $ 0.87       $ 1.19      $ 0.78
(net 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        $ 59.62     $ 123.98     $ 51.35     $ 110.94

Basis differentials and          ( 3.30 )    ( 4.06  )    ( 3.68 )    ( 3.95  )
quality adjustments

Transportation                   ( 1.36 )    ( 1.34  )    ( 1.35 )    ( 1.30  )

Hedging                          17.26       ( 18.59 )    20.07       ( 12.42 )

Averaged realized oil price    $ 72.22     $ 99.99      $ 66.39     $ 93.27




Callon Petroleum Company

Consolidated Balance Sheets

(In thousands, except share data)

                                                 June 30,        December 31,

                                                 2009            2008

ASSETS                                           (Unaudited)

Current assets:

Cash and cash equivalents                        $ 735           $ 17,126

Accounts receivable                                19,528          44,290

Fair market value of derivatives                   7,064           21,780

Other current assets                               1,971           1,103

Total current assets                               29,298          84,299

Oil and gas properties, full-cost accounting
method:

Evaluated properties                               1,587,007       1,581,698

Less accumulated depreciation, depletion and       (1,473,139 )    (1,455,275 )
amortization

                                                   113,868         126,423

Unevaluated properties excluded from               26,147          32,829
amortization

Total oil and gas properties                       140,015         159,252

Other property and equipment, net                  2,392           2,536

Restricted investments                             4,784           4,759

Investment in Medusa Spar LLC                      11,926          12,577

Other assets, net                                  2,327           2,667

Total assets                                     $ 190,742       $ 266,090

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

Accounts payable and accrued liabilities         $ 11,379        $ 76,516

Asset retirement obligations                       22,374          9,151

                                                   33,753          85,667

Callon Entrada non-recourse credit facility        82,841          --

Total current liabilities                          116,594         85,667

9.75% Senior Notes                                 195,729         194,420

Callon Entrada non-recourse credit facility        --              78,435

Senior secured credit facility                     5,000           --

Total long-term debt                               200,729         272,855

Asset retirement obligations                       12,631          33,043

Callon Entrada non-recourse credit facility        --              2,719
interest payable

Other long-term liabilities                        1,503           1,610

Total liabilities                                  331,457         395,894

Stockholders' equity (deficit):

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

Common Stock, $.01 par value, 30,000,000 shares
authorized; 21,676,067 and 21,621,142 shares       217             216
outstanding at June 30, 2009 and December 31,
2008, respectively

Capital in excess of par value                     230,150         227,803

Other comprehensive income (loss)                  (581       )    14,157

Retained (deficit) earnings                        (370,501   )    (371,980   )

Total stockholders' equity (deficit)               (140,715   )    (129,804   )

Total liabilities and stockholders' equity       $ 190,742       $ 266,090
(deficit)




Callon Petroleum Company

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

                                  Three Months Ended      Six Months Ended

                                  June 30,                June 30,

                                  2009        2008        2009        2008

Operating revenues:

Oil sales                         $ 18,971    $ 28,554    $ 34,923    $ 53,650

Gas sales                           6,054       19,475      14,917      39,339

Total operating revenues            25,025      48,029      49,840      92,989

Operating expenses:

Lease operating expenses            4,656       4,870       8,695       10,048

Depreciation, depletion and         8,452       15,218      17,865      30,247
amortization

General and administrative          5,391       2,943       7,210       5,595

Accretion expense                   795         952         1,833       1,984

Total operating expenses            19,294      23,983      35,603      47,874

Income from operations              5,731       24,046      14,237      45,115

Other (income) expenses:

Interest expense                    4,854       4,434       9,636       14,374

Callon Entrada non-recourse         1,935       321         3,491       321
credit facility interest expense

Other (income) expense              61          (379   )    (34    )    (851   )

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

Total other (income) expenses       6,850       16,247      13,093      25,715

Income (loss) before income         (1,119 )    7,799       1,144       19,400
taxes

Income tax expense                  24          2,730       --          6,812

Income (loss) before equity in      (1,143 )    5,069       1,144       12,588
earnings of Medusa Spar LLC

Equity in earnings of Medusa        218         84          335         197
Spar LLC

Net income (loss) available to    $ (925   )  $ 5,153     $ 1,479     $ 12,785
common shares

Net income (loss) per common
share:

Basic                             $ (0.04  )  $ 0.25      $ 0.07      $ 0.61

Diluted                           $ (0.04  )  $ 0.23      $ 0.07      $ 0.58

Shares used in computing net
income per common share:

Basic                               21,645      20,966      21,626      20,919

Diluted                             21,645      22,074      21,626      21,859




Callon Petroleum Company

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

                                                         Six Months Ended

                                                         June 30,     June 30,

                                                         2009         2008

Cash flows from operating activities:

Net income                                               $ 1,479      $ 12,785

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

Depreciation, depletion and amortization                   18,285     30,615

Accretion expense                                          1,833      1,984

Amortization of deferred financing costs                   1,481      1,580

Callon Entrada non-recourse credit facility non-cash       1,687      --
interest expense

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

Equity in earnings of Medusa Spar LLC                      (335    )  (197     )

Deferred income tax expense                                --         6,812

Non-cash charge related to compensation plans              1,184      1,546

Excess tax benefits from share-based payment               --         (1,435   )
arrangements

Changes in current assets and liabilities:

Accounts receivable                                        6,441      (2,470   )

Other current assets                                       (868    )  3,226

Current liabilities                                        (28,993 )  3,482

Change in gas balancing receivable                         155        732

Change in gas balancing payable                            (123    )  359

Change in other long-term liabilities                      16         (6       )

Change in other assets, net                                (189    )  (702     )

Cash provided by operating activities                      2,053      63,909

Cash flows from investing activities:

Capital expenditures                                       (24,430 )  (78,441  )

Proceeds from sale of mineral interests                    --         167,493

Distribution from Medusa Spar LLC                          986        108

Cash (used in) provided by investing activities            (23,444 )  89,160

Cash flows from financing activities:

Proceeds from senior secured credit facility               9,337      51,435

Payments on senior secured credit facility                 (4,337  )  (216,000 )

Equity issued related to employee stock plans              --         (1,133   )

Excess tax benefits from share-based payment               --         1,435
arrangements

Cash provided by (used in) financing activities            5,000      (164,263 )

Net decrease in cash and cash equivalents                  (16,391 )  (11,194  )

Cash and cash equivalents:

Balance, beginning of period                               17,126     53,250

Balance, end of period                                   $ 735        $ 42,056



Callon Petroleum Company is engaged in the acquisition, development, exploration and operation of oil and gas properties in the Gulf Coast region. The majority of Callon's properties and operations are concentrated in 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