SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997 Commission File Number 0-25192
CALLON PETROLEUM COMPANY
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(Exact name of Registrant as specified in its charter)
Delaware 64-0844345
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 North Canal Street
Natchez, Mississippi 39120
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(Address of principal executive offices)(Zip code)
(601) 442-1601
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(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days.
Yes X No
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As of April 25, 1997, there were 5,763,407 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
CALLON PETROLEUM COMPANY
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheets as of March 31,
1997 and December 31, 1996 3
Consolidated Statements of Operations for the
three-month periods ended March 31, 1997 and
March 31, 1996 4
Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 1997 and
March 31, 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Part II. Other Information 11
CALLON PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1997 1996
---------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,679 $ 7,669
Accounts receivable 9,836 12,661
Other current assets 810 516
----------- ----------
Total current assets 21,325 20,846
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Oil & gas properties, full cost accounting method:
Evaluated properties 330,708 322,970
Less accumulated depreciation, depletion and amortization (270,455) (266,716)
----------- ----------
60,253 56,254
Unevaluated properties excluded from amortization 26,918 26,235
----------- ----------
87,171 82,489
----------- ----------
Pipeline facilities, net 6,541 6,618
Other property and equipment, net 1,848 1,594
Deferred tax asset 3,679 5,412
Long-term gas balancing receivable 806 660
Other assets, net 901 901
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Total assets $ 122,271 $ 118,520
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 7,715 $ 8,273
Undistributed oil and gas revenues 2,705 2,260
Accrued net profits interest payable 5,946 5,435
----------- ----------
Total current liabilities 16,366 15,968
Long-term debt 24,250 24,250
Other long-term liabilities 109 48
Long-term gas balancing payable 621 390
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Total liabilities 41,346 40,656
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Stockholders' equity:
Preferred Stock, $0.01 par value; 2,500,000 shares
authorized; 1,315,500 shares of Convertible Exchange-
able Preferred Stock, Series A, issued and outstanding
with a liquidation preference of $32,887,500 13 13
Common stock, $0.01 par value; 20,000,000 shares
authorized; 5,763,407 at March 31, 1997 and
5,758,667 shares outstanding at December 31, 1996 58 58
Capital in excess of par value 74,105 74,027
Retained earnings 6,749 3,766
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Total stockholders' equity 80,925 77,864
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Total liabilities and stockholders' equity $ 122,271 $ 118,520
=========== ==========
The accompanying notes are an integral part of these financial statements.
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except per share data)
Three Months Ended
-------------------------
March 31, March 31,
1997 1996
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Revenues:
Oil and gas sales $ 12,474 $ 6,375
Interest and other 307 105
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Total revenues 12,781 6,480
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Costs and expenses:
Lease operating expenses 2,408 1,792
Depreciation, depletion and amortization 3,816 2,385
General and administrative 1,031 907
Interest 111 25
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Total costs and expenses 7,366 5,109
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Income from operations 5,415 1,371
Income tax expense 1,733 --
----------- ----------
Net income 3,682 1,371
Preferred stock dividend 699 699
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Net income available to common shares $ 2,983 $ 672
=========== ==========
Earnings per common share:
Primary $ .47 $ .12
=========== ==========
Assuming full dilution $ .39 $ .12
=========== ==========
Shares used in computing earnings per common share:
Primary 6,342 5,755
=========== ==========
Assuming full dilution 9,332 5,755
=========== ==========
The accompanying notes are an integral part of these financial statements.
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
Three Months Ended
---------------------------
March 31, March 31,
1997 1996
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Cash flows from operating activities:
Net income $ 3,682 $ 1,371
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 3,909 2,461
Amortization of deferred costs 94 35
Deferred income tax expense 1,733 --
---------- ----------
9,418 3,867
Changes in current assets & liabilities:
Accounts receivable 2,825 (791)
Other current assets (294) 194
Current liabilities 398 2,737
Change in gas balancing receivable (146) 28
Change in gas balancing payable 231 (24)
Change in deferred income 61 (8)
Change in other assets, net (94) (70)
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Cash provided by operating activities 12,399 5,933
---------- ----------
Cash flows from investing activities:
Capital expenditures (8,813) (1,744)
Cash proceeds from sale of mineral interests 45 299
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Cash used in investing activities (8,768) (1,445)
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Cash flows from financing activities:
Common stock issued pursuant to employee benefit plan 78 --
Dividends on preferred stock (699) (699)
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Cash used in financing activities (621) (699)
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Net increase in cash and cash equivalents 3,010 3,789
Cash and cash equivalents:
Balance, beginning of period 7,669 4,265
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Balance, end of period $ 10,679 $ 8,054
========== ==========
The accompanying notes are an integral part of these financial statements.
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
1. Basis of Presentation
The financial information presented as of any date other than December 31, has
been prepared from the books and records without audit. Financial information
as of December 31, has been derived from the audited financial statements of
the Company, but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of
the financial information for the period indicated, have been included. For
further information regarding the Company's accounting policies, refer to the
Consolidated Financial Statements and related notes for the year ended December
31, 1996 included in the Company's Annual Report on Form 10-K dated March 24,
1997.
2. Earnings Per Share
Fully diluted earnings per share for the quarter ended March 31, 1997 was cal-
culated assuming the conversion of the Company's preferred stock into common
stock. The preferred stock was not included in prior calculations due to their
antidilutive effect on fully diluted earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FAS 128"), "Earnings Per Share", which simplifies the computation
of earnings per share. FAS 128 is effective for financial statements issued
for periods ending after December 15, 1997 and requires restatement for all
prior period earnings per share data presented. Accordingly, basic earnings
per share and diluted earnings per share calculated in accordance with FAS
128 were $.50 and $.39 per share, respectively, for the first quarter of 1997
and $.12 and $.12 per share, respectively, for the first quarter of 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company's revenues, profitability and future growth and the carrying value
of its oil and gas properties are substantially dependent on prevailing prices
of oil and gas. The Company's ability to maintain or increase its borrowing
capacity and to obtain additional capital on attractive terms is also in-
fluenced by oil and gas prices. Prices for oil and gas are subject to large
fluctuations in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
beyond the control of the Company. These factors include weather conditions
in the United States, the condition of the United States economy, the actions
of the Organization of Petroleum Exporting Countries, governmental regulations,
political stability in the Middle East and elsewhere, the foreign supply of oil
and gas, the price of foreign imports and the availability of alternate fuel
sources. Any substantial and extended decline in the price of oil or gas would
have an adverse effect on the Company's carrying value of its proved reserves,
borrowing capacity, revenues, profitability and cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of producing
properties for acquisition and often cause disruption in the market for oil and
gas producing properties, as buyers and sellers have difficulty agreeing on such
value. Price volatility also makes it difficult to budget for and project the
return on acquisitions and development and exploitation projects.
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for the three-
month periods ended March 31, 1997 and 1996. The Company's historical financial
statements and notes thereto included elsewhere in this quarterly report contain
detailed information that should be referred to in conjunction with the follow-
ing discussion.
Liquidity and Capital Resources
Net cash provided by operating activities for the three months ending March 31,
1997 totaled $12,399,000. An additional $45,000 was generated from the sale of
mineral interests. During the quarter, a total of $8,813,000 was paid for
capital expenditures and $699,000 was paid as dividends to the preferred stock-
holders. The balance of the cash flow was retained for future operating
expenses and potential drilling and acquisition opportunities.
At March 31, 1997, the Company had working capital of $4,959,000 and a current
ratio of 1.3 to 1.
For the balance of the year, the Company will continue evaluating producing
property acquisitions and drilling opportunities. The Company has budgeted up
to $60 million in capital expenditures for 1997. The major portion of the
capital expenditure budget will be used to drill development and exploratory
wells in an attempt to replace current production and increase total proved
reserves for the Company. The capital budget will be financed with projected
cash flow from operations and unused borrowings under the Company's Credit
Facility.
Comparison of Results of Operations for the Three Months Ended March 31, 1997
and the Three Months Ended March 31, 1996.
Results of Operations
The following table sets forth certain unaudited operating information with
respect to the Company's oil and gas operations.
Three Months Ended
March 31,
--------------------
1997 1996
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Production:
Oil (MBbls) 129 143
Gas (MMcf) 3,391 1,468
Total (MMcfe) 4,162 2,325
Average sales price:
Oil (per Bbl) $ 21.11 $ 18.38
Gas (per Mcf) 2.88 2.55
Total (per Mcfe) 3.00 2.74
Average costs (per Mcfe):
Lease operating (excluding severance taxes) $ .47 $ .57
Severance taxes .11 .20
Depreciation, depletion and amortization .92 1.03
General and administrative (net of management fees) .25 .39
The following table summarizes oil and gas production for the comparable
periods.
Oil Production Gas Production
(Barrels) (Mcf)
Three Months Ended Three Months Ended
March 31, March 31,
------------------ --------------------
1997 1996 1997 1996
------- ------ --------- ---------
Chandeleur Block 40 -- -- 1,172,000 337,000
Main Pass 163 -- -- 1,231,000 --
Main Pass 164/165 -- -- 131,000 --
North Dauphin Island Field -- -- 458,000 800,000
Black Bay 47,000 48,000 -- --
Escambia Mineral properties 50,000 41,000 84,000 60,000
Other properties 32,000 54,000 315,000 271,000
------- ------- --------- ---------
Total 129,000 143,000 3,391,000 1,468,000
======= ======= ========= =========
Oil and Gas Production and Revenues
Total oil and gas revenues increased 96% from $6.4 million in 1996 to $12.5
million in 1997. This $6.1 million increase is largely attributed to the three
wells drilled and completed in the Shallow Miocene area during the fourth
quarter of 1996.
Oil production during the first quarter of 1997 totaled 129,000 barrels and
generated $2.7 million compared to 143,000 barrels and $2.6 million in the same
period in 1996. The first quarter average daily production decreased from 1,569
per day in 1996 to 1,428 per day in 1997. Average oil prices received in 1997
were $21.11 compared to $18.38 in 1996. Oil production volumes for 1996
included approximately 16,000 barrels attributable to properties which have
now been sold. Other properties experienced a natural decline in production
and was primarily offset by increased production from the Escambia Minerals
properties. The loss of revenues as a result of reduced total production was
more than offset by a favorable increase in the sales price received.
Gas production volumes during the first quarter of 1997 totaled 3.4 billion
cubic feet and generated $9.8 million in revenues compared to 1.5 billion cubic
feet and $3.8 million in revenues during the same period in 1996. The average
sales price for the first quarter of 1997 averaged $2.88 per thousand cubic
feet compared to $2.55 per thousand cubic feet at this time last year. The
increased production volume and the price increase combined to produce a 160%
increase in gas revenues.
Lease Operating Expenses
Lease operating expenses, including severance taxes, for the three-month period
ending March 31, 1997 were $2.4 million, an increase from the $1.8 million as of
March 31, 1996. Although lease operating expenses, excluding severance taxes
increased in total, the amount on a per Mcf equivalent basis actually declined
from $.57 to $.47 as a result of higher production volumes without proportion-
ate increases in field operating costs in the Shallow Miocene properties. A
severance tax decrease was attributed to a shift in production from state to
federal waters and the loss of production from those properties which were sold
subsequent to the first quarter in 1996.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months ending March 31,
1997 and 1996 was $3.8 million and $2.4 million, respectively. This increase
reflects the higher total production level when compared to the first quarter
of 1996. For the three month period ending March 31, 1997, the per Mcf equiv-
alent amount was $.92 and compares to $1.03 for the same period in 1996.
General and Administrative
General and administrative expense as of March 31, 1997 was $1.0 million com-
pared to $0.9 million as of March 31, 1996. On a per Mcf basis, general and
administrative expenses declined from $.39 in the first quarter of 1996 to
$.25 in the current quarter.
Interest Expense
Interest expense for the current period increased as a result of increased
long-term debt when compared to the first quarter debt level in 1996. For
the period ending March 31, 1996, interest expense was $25,000 and compares
to $111,000 for the first quarter of 1997, net of interest capitalized as
unevaluated property costs.
Income Taxes
Income taxes were provided at 32% of net income. The statutory rate of 34% was
adjusted for the permanent tax benefit of allowable percentage depletion in
excess of remaining leasehold basis.
CALLON PETROLEUM COMPANY
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Regis-
trant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CALLON PETROLEUM COMPANY
Date: May 9, 1997 By /s/ John S. Weatherly
John S. Weatherly, Senior Vice
President, Chief Financial Officer
and Treasurer