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 September 30, 1999 Commission File Number 0-25192 CALLON PETROLEUM COMPANY (Exact name of Registrant as specified in its charter) Delaware 64-0844345 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 North Canal Street Natchez, Mississippi 39120 (Address of principal executive offices)(Zip code) (601) 442-1601 (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 requirements for the past 90 days. Yes X No As of November 9, 1999, there were 11,763,581 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 September 30, 1999 and December 31, 1998 3-4 Consolidated Statements of Operations for Each of the three and nine-months in the periods ended September 30, 1999 and September 30, 1998 5 Consolidated Statements of Cash Flows for Each of the nine-months in the periods ended September 30, 1999 and September 30, 1998 6 Notes to Consolidated Financial Statements 7-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14 Part II. Other Information 15 Callon Petroleum Company Consolidated Balance Sheets (In thousands, except share data) September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) ASSETS - ------ Current assets: Cash and cash equivalents $ 7,935 $ 6,300 Accounts receivable 8,415 6,024 Other current assets 2,205 1,924 --------- --------- Total current assets 18,555 14,248 --------- --------- Oil and gas properties, full cost accounting method: Evaluated properties 488,341 444,579 Less accumulated depreciation, depletion and amortization (357,347) (345,353) --------- --------- 130,994 99,226 Unevaluated properties excluded from amortization 42,167 42,679 --------- --------- Total oil and gas properties 173,161 141,905 --------- --------- Pipeline and other facilities 5,940 6,182 Other property and equipment, net 1,525 1,753 Deferred tax asset 15,446 16,348 Long-term gas balancing receivable 216 199 Other assets, net 2,088 1,017 --------- --------- Total assets $ 216,931 $ 181,652 ========= ========= The accompanying notes are an integral part of the financial statements. Callon Petroleum Company Consolidated Balance Sheets (In thousands, except per share data) September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable and accrued liabilities $ 7,295 $ 11,257 Deferred revenue on sale of production payment interest - current portion 4,844 -- Undistributed oil and gas revenues 2,061 1,720 Accrued net profits payable 1,312 129 --------- --------- Total current liabilities 15,512 13,106 --------- --------- Accounts payable and accrued liabilities to be refinanced -- 3,000 Long-term debt 107,250 78,250 Deferred revenue on sale of production payment interest 8,453 -- Accrued retirement benefits 2,161 2,323 Long-term gas balancing payable 536 489 --------- --------- Total liabilities 133,912 97,168 --------- --------- Stockholders' equity: Preferred stock, $0.01 par value, 2,500,000 shares authorized; 1,045,461 shares of Convertible Exchangeable Preferred Stock, Series A, issued and outstanding with a liquidation preference of $26,136,525 at September 30, 1999 10 13 Common stock, $0.01 par value, 20,000,000 shares authorized; 8,557,906 and 8,178,406 outstanding at September 30, 1999 and at December 31, 1998, respectively 86 82 Treasury stock (98,578 shares at cost) (1,177) (915) Capital in excess of par value 108,415 109,429 Retained earnings (deficit) (24,315) (24,125) --------- --------- Total stockholders' equity 83,019 84,484 --------- --------- Total liabilities and stockholders' equity $ 216,931 $ 181,652 ========= ========= The accompanying notes are an integral part of the financial statements. Callon Petroleum Company Consolidated Statements Of Operations (Unaudited) (In thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------------- 1999 1998 1999 1998 -------- --------- --------- --------- Revenues: Oil and gas sales $ 10,240 $ 8,627 $ 26,777 $ 28,949 Interest and other 344 712 1,212 1,615 -------- -------- --------- --------- Total revenues 10,584 9,339 27,989 30,564 -------- -------- --------- --------- Costs and expenses: Lease operating expenses 1,803 1,935 5,289 6,024 Depreciation, depletion and amortization 4,284 4,303 12,236 14,769 General and administrative 999 1,402 3,439 4,134 Interest 1,900 279 4,371 1,262 -------- -------- --------- --------- Total costs and expenses 8,986 7,919 25,335 26,189 -------- -------- --------- --------- Income from operations 1,598 1,420 2,654 4,375 Income tax expense 543 487 902 1,488 -------- -------- --------- --------- Net income 1,055 933 1,752 2,887 Preferred stock dividends 555 699 1,942 2,097 -------- -------- --------- --------- Net income (loss) available to common shares $ 500 $ 234 $ (190) $ 790 ======== ======== ========= ========= Net income (loss) per common share: Basic $ 0.06 $ 0.03 $ (0.02) $ 0.10 ======== ======== ========= ========= Diluted $ 0.06 $ 0.03 $ (0.02) $ 0.10 ======== ======== ========= ========= Shares used in computing net income (loss) per common share: Basic 8,459 8,042 8,465 8,026 ======== ======== ========= ========= Diluted 8,567 8,104 8,465 8,200 ======== ======== ========= ========= The accompanying notes are an integral part of these financial statements.
Callon Petroleum Company Consolidated Statements Of Cash Flows (Unaudited) (In thousands) Nine Months Ended ------------------------------- September 30, September 30, 1999 1998 ------------- ------------- Cash flows from operating activities: Net income $ 1,752 $ 2,887 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, depletion and amortization 12,612 15,147 Amortization of deferred costs 464 471 Amortization of deferred production payment revenue (1,470) -- Deferred income tax expense 902 1,488 Noncash compensation related to compensations plans 206 1,670 Changes in current assets and liabilities: Accounts receivable (2,391) 4,900 Other current assets (281) 86 Current liabilities (199) (1,743) Changes in gas balancing receivable (17) 9 Changes in gas balancing payable 47 (61) Change in other long-term liabilities (162) -- Change in other assets, net (1,535) (82) --------- --------- Cash provided (used) by operating activities 9,928 24,772 --------- --------- Cash flows from investing activities: Capital expenditures (30,870) (45,882) Cash proceeds from sale of mineral interests -- 10,471 Cash proceeds from sale of mineral interest burdened by a net profits interest -- 1,825 --------- --------- Cash provided (used) by investing activities (30,870) (33,586) --------- --------- Cash flows from financing activities: Change in accounts payable and accrued liabilities to be refinanced (3,000) -- Payment on debt (35,500) -- Increase in debt 64,500 7,000 Equity issued related to employee stock plans 121 163 Purchase of treasury shares (262) (43) Common stock cancelled (1,615) (145) Dividends on preferred stock (1,667) (2,097) --------- --------- Cash provided (used) by financing activities 22,577 4,878 --------- --------- Net increase (decrease) in cash and cash equivalents 1,635 (3,936) Cash and cash equivalents: Balance, beginning of period 6,300 15,597 ---------- ----------- Balance, end of period $ 7,935 $ 11,661 ========== =========== The accompanying notes are an integral part of these financial statements CALLON PETROLEUM COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999 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, 1998 included in the Company' Annual Report on Form 10-K dated arch 29, 1999. 2. Per Share Amounts In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("FAS 128"), Earnings Per Share, which generally simplified the manner in which earnings per share are determined. The Company adopted FAS 128 effective December 15, 1997. Basic earnings or loss per common share were computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the quarter. Diluted earnings per common share for the three and nine-months periods of 1998 and the three months ended September 30, 1999 were determined on a weighted average basis using common shares issued and outstanding adjusted for the effect of stock options considered common stock equivalents computed using the treasury stock method and the effect of the convertible preferred stock (if dilutive). The earnings per share computations for the nine months ended September 30, 1999 excluded all stock options from the computation of diluted loss per share because they were antidilutive. The conversion of the preferred stock was not included in any calculation due to their antidilutive effect on diluted income or loss per share. A reconciliation of the basic and diluted earnings per share computation is as follows (in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------ 1999 1998 1999 1998 ------- ------- ------- ------- (a) Net income (loss) available to common shares $ 500 $ 234 $ (190) $ 790 (b) Weighted average shares outstanding 8,459 8,042 8,465 8,026 (c) Dilutive impact of stock options 108 62 -- 174 (d) Total diluted shares 8,567 8,104 8,465 8,200 Basic earnings (loss) per share a/b $ 0.06 $ 0.03 $ (0.02) $ 0.10 Diluted earnings (loss) per share a/d $ 0.06 $ 0.03 $ (0.02) $ 0.10 3. Hedging Contracts The Company periodically uses derivative financial instruments to manage oil and gas price risks. Settlements of gains and losses on commodity price swap contracts are generally based upon the difference between the contract price or prices specified in the derivative instrument and a NYMEX price and are reported as a component of oil and gas revenues. Gains or losses attributable to the termination of a swap contract are deferred and recognized in revenue when the oil and gas is sold. Approximately $1.6 million was recognized as additional oil and gas revenue in the first three quarters of 1998 and $862,000 was recognized as a reduction of oil and gas revenues for the same period in 1999 related to contract settlements. As of September 30, 1999, the Company had open collar contracts with third parties whereby minimum floor prices and maximum ceiling prices are contracted and applied to related contract volumes. These agreements in effect for 1999 are for average gas volumes of 200,000 Mcf per month through September 2000 at (on average) a ceiling price of $2.82 and floor price of $2.53. In addition, the Company had open oil collar contracts averaging 27,500 barrels per month at (on average) a ceiling price of $16.15 and a floor price of $13.82 from October 1999 through December 1999. 4. Preferred Stock During the first quarter of 1999 certain preferred stockholders through private transactions, agreed to convert 210,350 shares of Preferred Stock into 502,632 shares of the Company's Common Stock. Any non-cash premium negotiated in excess of the conversion rate was recorded as additional preferred stock dividends and excluded from the Consolidated Statements of Cash Flows. 5. Senior Subordinated Notes On July 14, 1999 the Company issued $40 million of 10.25% Senior Subordinated Notes due 2004. Interest is payable quarterly beginning September 15, 1999. The net proceeds to the Company, after costs of the transaction, were used to repay the outstanding balance on the Credit Facility. 6. Deferred Revenue on Sale of Production Payment Interest In June 1999, the Company acquired a working interest in the Mobile Block 864 Area in which the Company already owned an interest. Concurrent with this acquisition, the seller received a volumetric production payment, valued at approximately $14.8 million, from production attributable to a portion of the Company's interest in the area over a 39 month period. The Company deferred the revenue associated with the sale of this production payment interest because a substantial obligation for future performance exists. Under the terms of the sale, the Company is obligated to deliver the production volumes free and clear of royalties, lease operating expenses, production taxes and all capital costs. The production payment was recorded at the present value of the volumetric production committed to the seller at market value and, beginning in June 1999, is amortized to oil and gas sales on the units-of- production method as associated hydrocarbons are delivered. 7. Subsequent Event On November 3, 1999 the Company completed a public offering of 3,200,000 shares of common stock at a price to the public of $11.875 per share. The Company granted the underwriters the right to purchase up to an additional 480,000 shares of common stock to cover over-allotments. Net proceeds are expected to be approximately $35.3 million from this offering ($40.7 million if the underwriters' over-allotment option is exercised in full) after deducting the underwriting discount and estimated offering expenses. The Company intends to use all of the net proceeds, together with its cash flows and borrowings under its Credit Facility to fund its remaining 1999 and 2000 capital expenditure budgets. Pending the use of funds to pay capital expenditures, the Company will use a portion of the net proceeds to repay borrowings under the Credit Facility and the remainder will be invested in short-term money market instruments. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This report includes "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. All statements other than statements of historical facts included in this report regarding the Company's financial position, adequacy of resources, estimated reserve quantities, business strategies, plans, objectives and expectations for future operations and covenant compliance, are forward-looking statements. The Company can give no assurances that the assumptions upon which such forward-looking statements are based will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are disclosed below, in the section "Risk Factors" included in the Company's Form 10-K, elsewhere in this report and from time to time in other filings made by the Company with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified by the Cautionary Statements. 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 and its ability to find, develop and acquire additional oil and gas reserves that are economically recoverable. The Company's ability to maintain or increase its borrowing capacity and to obtain additional capital on attractive terms is also influenced 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. The Company uses derivative financial instruments for price protection purposes on a limited amount of its future production and does not use them for trading purposes. The following discussion is intended to assist in an understanding of the Company's historical financial position and results of operations. 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 following discussion. Liquidity and Capital Resources The Company's primary sources of capital are its cash flows from operations, borrowings from financial institutions and the sale of debt and equity securities. Net cash and cash equivalents during the nine months ending September 30, 1999 increased by $1.6 million and net cash flows from operations before working capital changes totaled $14.5 million. During the nine-month period long-term debt increased $29 million. This net increase was the result of the issuance of $40 million in Senior Subordinated Notes and net repayments on the Credit Facility of $11 million. Decreases in cash flows for the nine-month period included a $3.0 million reduction in accounts payable and accrued liabilities to be refinanced, $1.6 million related to the surrender and cancellation of common stock in satisfaction of payroll taxes associated with performance shares previously issued pursuant to the Company's Stock Incentive Plans, and $1.7 million paid to the preferred stockholders as dividends. Net capital expenditures for the period totaled $30.9 million. These funds were expended in drilling and completion of six wells and the completion of three additional wells. At September 30, 1999, the Company had working capital of $ 3.0 million and a current ratio of 1.2 to 1. On November 3, 1999 the Company completed a public offering of 3,200,000 shares of common stock at a price to the public of $11.875 per share. The Company intends to use all of the net proceeds, together with its cash flows and borrowings under its Credit Facility to fund its remaining 1999 and 2000 capital expenditure budgets. See additional information contained in Note 7 to the consolidated financial statements of the Company included in this report. On July 15, 1999, the Company announced its offering of $40 million Senior Subordinated Notes due 2004 at a yield of 10.25 percent. A portion of the net proceeds from the offering was used to repay amounts borrowed under the Company's Credit Facility. The balance of the proceeds, together with cash flows and additional borrowings under its credit facility, will be used to fund the Company's remaining 1999 and a portion of its 2000 capital expenditure budget. For the remainder of the year, the Company will continue evaluating property acquisitions and drilling opportunities. The Company has budgeted up to $16.9 million in capital expenditures for the fourth quarter of 1999. The major portion of the capital expenditure budget will be used to drill development and exploratory wells to increase total proved reserves and increase production for the Company. The capital budget will be financed with available cash, projected cash flow from operations and unused capacity under the Company's Credit Facility. Disclosure About Market Risks The Company's revenues are derived from the sale of its crude oil and natural gas production. In recent months, the prices for oil and gas have increased; however, they remain extremely volatile and sometimes experience large fluctuations as a result of relatively small changes in supplies, weather conditions, economic conditions and government actions. From time to time, the Company enters into derivative financial instruments to hedge oil and gas price risks for the production volumes to which the hedge relates. The hedges reduce the Company's exposure on the hedged volumes to decreases in commodity prices and limit the benefit the Company might otherwise have received from any increases in commodity prices on the hedged volumes. The Company also enters into price "collars" to reduce the risk of changes in oil and gas prices. Under these arrangements, no payments are due by either party so long as the market price is above the floor price set in the collar and below a ceiling. If the price falls below the floor, the counter- party to the collar pays the difference to the Company and if the price is above the ceiling, the counter-party receives the difference. The Company enters into these agreements from time to time to reduce the effects of volatile oil and gas prices and do not enter into hedge transactions for speculative purposes. See Note 3 to the Consolidated Financial Statements for a description of the Company's hedged position at September 30, 1999. Approximately $862,000 related to hedging was recognized as a reduction of oil and gas revenue in the first nine months of 1999. There have been no significant changes in market risks faced by the Company since the end of 1998. Year 2000 Compliance There have not been any significant developments nor significant additional risks identified since the end of 1998. The Company continues to focus efforts on identifying and solving the many threats to its business posed by the Year 2000 issue. These risks are generally divided into three areas, (1) failure of our financial and administrative systems, (2) failure of the embedded systems which control our automated production facilities and (3) failure of our suppliers and purchasers to correct their Year 2000 problems. The Company believes that its financial accounting software and the embedded systems affecting its automated production facilities are in compliance. The Company continues to correspond with our suppliers and purchasers to assess compliance. Since we are unable to independently verify that they are taking appropriate steps to remedy problems, no assurances can be made that the Company will not encounter adverse effects caused by Year 2000 problems. Although the Company does not separately account for its internal costs incurred for its Year 2000 compliance efforts, consisting mainly of payroll and related benefits for our information systems personnel, we are still projecting the compliance costs to be less than $200,000. Results of Operations The following table sets forth certain unaudited operating information with respect to the Company's oil and gas operations for the periods indicated. Three Months Ended Nine Months Ended September 30, September 30, ------------------- ----------------- 1999 1998 1999 1998 ------- ------- ------- ------- Production volumes: Oil (MBbls) 81 59 257 252 Gas (MMcf) 3,996 3,496 10,839 11,172 Total (MMcfe) 4,481 3,848 12,379 12,683 Average sales price: (a) Oil (MBbls) $ 12.27 $ 11.60 $ 12.06 $ 12.72 Gas (MMcf) 2.31 2.27 2.18 2.30 Total (MMcfe) 2.29 2.24 2.16 2.28 Average costs (per Mcfe): Lease operating (excluding severance taxes) $ 0.34 $ 0.47 $ 0.36 $ 0.42 Severance taxes 0.06 0.03 0.06 0.06 Depreciation, depletion and amortization 0.96 1.12 0.99 1.16 General and administrative (net of management fees) 0.22 0.36 0.28 0.33 ______________ (a) Includes hedging gains and losses Comparison of Results of Operations for the Three Months Ended September 30, 1999 and the Three Months Ended September 30, 1998. Oil and Gas Production and Revenues Total oil and gas revenues increased 19% from $8.6 million in 1998 to $10.2 million. Oil and gas production and prices were higher when compared to the same period in 1998. Gas production during the third quarter of 1999 totaled 4.0 billion cubic feet and generated $9.2 million in revenues compared to 3.5 billion cubic feet and $7.9 million in revenues during the same period in 1998. The average sales price for the third quarter of 1999 averaged $2.31 per thousand cubic feet compared to $2.27 per thousand cubic feet at this time last year. When compared to the same quarter last year, the Company's gas production increased by 14% as a result of an acquisition, new discoveries, and the recompletion of an existing well. Production declines for other properties were expected and considered normal. Oil production during the third quarter of 1999 totaled 81,000 barrels and generated $1.0 million in revenues compared to 59,000 barrels and $0.7 million in revenues for the same period in 1998. Third quarter average daily production increased 38% from 638 barrels per day in 1998 to 879 barrels per day in 1999. Average oil prices received in the third quarter of 1999 were $12.27 compared to $11.60 in 1998. When the third quarter of 1999 is compared to the same period in 1998, production increases are attributed to the Main Pass 26, Main Pass 36 and the Eugene Island 335 properties. The following table summarizes oil and gas production from the Company's major producing properties for the comparable periods. Oil Production Gas Production (Barrels) (Mcf) Three Months Ended Three Months Ended September 30, September 30, ------------------- --------------------- 1999 1998 1999 1998 ------- ------- --------- --------- Mobile Block 864 Area -- -- 1,465,000 1,237,000 Chandeleur Block 40 -- -- 163,000 525,000 Main Pass 26 7,000 -- 146,000 -- Main Pass 31 5,000 5,000 175,000 215,000 Main Pass 36 10,000 -- 302,000 -- Main Pass 163 Area -- -- 477,000 617,000 Eugene Island 335 6,000 -- 326,000 -- High Island A-494 -- -- 553,000 -- North Dauphin Island Field -- -- 110,000 452,000 Escambia Mineral properties 38,000 36,000 63,000 59,000 Other properties 15,000 18,000 216,000 391,000 ------- ------- --------- --------- Total 81,000 59,000 3,996,000 3,496,000 ======= ======= ========= ========= Lease Operating Expenses Lease operating expenses, including severance taxes, for the three-month period ending September 30, 1999 were $1.8 million compared to $1.9 million for the same period in 1998. Depreciation, Depletion and Amortization Depreciation, depletion and amortization for the three months ending September 30, 1999 and 1998 was $4.3 million, or $0.96 per Mcfe, and $4.3 million, or $1.12 per Mcfe, respectively. When compared the same quarter in 1998, higher production volumes and a lower average rate in 1999 resulted in the same total expense. General and Administrative General and administrative expense for the three months ended September 30, 1999 was $1.0 million compared to $1.4 million for the three months ended September 30, 1998. Expenses for 1998 included certain costs associated with bonuses under the incentive compensation plan and the non-cash costs associated with the vesting of performance shares. These expenses were not incurred in 1999. In addition, 1999 expenses reflected lower personnel costs as a result of staffing reductions effective in June 1999. Interest Expense Interest expense increased from $279,000 during the three months ended September 30, 1998 to $1.9 million during the three months ended September 30, 1999 reflecting the increase in the Company's long-term debt. Comparison of Results of Operations for the Nine Months Ended September 30, 1999 and the Nine Months Ended September 30, 1998. Oil and Gas Production and Revenues For the nine months ended September 30, 1999, total oil and gas revenues decreased by $ 2.1 million, or 8%, to $26.8 million when compared to $28.9 million for the same period in 1998. Natural gas production and revenue for the nine-month period ending September 30, 1999 were 10.8 billion cubic feet and $23.7 million, respectively, decreasing from 11.2 billion cubic feet and gas revenues of $25.7 million in the first nine months of 1998. The average sales price for natural gas in the first nine months in 1999 was $2.18 per Mcf, a $0.12 per Mcf decrease over the same period in 1998. When compared to the same nine-month period last year, the Company's gas production increased as a result of an acquisition, new discoveries being brought online and the recompletion of an existing well. The offsetting production declines in the other properties were expected and considered normal. For the nine months ending September 30, 1999, oil production and oil revenues increased to 257,000 barrels and $3.1 million, respectively. For the comparable period in 1998, oil production was 252,000 barrels while revenues totaled $3.2 million. Oil prices during the first nine months of 1999 averaged $12.06, compared to $12.72 for the same period in 1998. Oil production was slightly higher and gas production was slightly lower than 1998. Both oil and gas prices declined from the 1998 levels. The following table summarizes oil and gas production from the Company's major producing properties for the comparable periods. Oil Production Gas Production (Barrels) (Mcf) Nine Months Ended Nine Months Ended September 30, September 30, ------------------- ---------------------- 1999 1998 1999 1998 -------- ------- ---------- ---------- Mobile Block 864 Area -- -- 4,018,000 4,141,000 Chandeleur Block 40 -- -- 672,000 1,985,000 Main Pass 26 41,000 -- 723,000 -- Main Pass 31 32,000 33,000 1,083,000 863,000 Main Pass 36 10,000 -- 302,000 -- Main Pass 163 Area -- -- 1,537,000 2,423,000 Eugene Island 335 20,000 -- 832,000 -- High Island A-494 -- -- 553,000 -- North Dauphin Island Field -- -- 373,000 855,000 Black Bay -- 57,000 -- -- Escambia Mineral properties 108,000 116,000 190,000 194,000 Other properties 46,000 46,000 556,000 711,000 -------- -------- ---------- ---------- Total 257,000 252,000 10,839,000 11,172,000 ======== ======== ========== ========== Lease Operating Expenses Lease operating expenses, excluding severance taxes, for the first three quarters of 1999 decreased 15% to $4.5 million from $5.3 million for the 1998 comparable period. This decrease is primarily the result of expenses associated with Black Bay, which was sold in May 1998. Severance taxes were $0.8 million during the first nine months of 1999 and $0.7 million for the same period in 1998. Depreciation, Depletion and Amortization Depreciation, depletion and amortization for the first nine months of 1999 was $12.2 million, or $0.99 per Mcf equivalent. For the same period in 1998, the total was $14.8 million and $1.16 per Mcf equivalent. Since the total production volume on a Mcfe basis remain almost constant, the reduced rate per Mcfe is responsible for the decrease in the total expense when compared to 1998. General and Administrative During the first nine months of 1999, general and administrative expenses decreased by 17% to $3.4 million when compared to $4.1 million for the nine-month period in 1998. While expenses associated with bonuses under the incentive compensation plan and the vesting of performance shares were incurred during the first nine months of 1998, there were no similar 1999 expenses incurred. In addition, 1999 expenses reflected lower costs associated with personnel reductions which were effective in June 1999. Interest Expense Interest expense during the first three quarters of 1999 was $4.4 million compared to $1.3 million for the first three quarters of 1998 as a result of the increase in the Company's long-term debt. CALLON PETROLEUM COMPANY PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. None Item 6. Exhibits and Reports on Form 8-K (a.) Exhibits 2. Plan of acquisition, reorganization, arrangement, liquidation or succession* 3. Articles of Incorporation and By-Laws 3.1 Certificate of Incorporation of the Company, as amended (incorporated by reference from Exhibit 3.1 of the Company's Registration Statement on Form S-4, filed August 4, 1994, Reg. No. 33-82408) 3.2 Certificate of Merger of Callon Consolidated Partners, L. P. with and into the Company dated September 16, 1994 (incorporated by reference from Exhibit 3.2 of the Company's Report on Form 10-K for the period ended December 31, 1994) 3.3 Bylaws of the Company (incorporated by reference from Exhibit 3.2 of the Company's Registration Statement on Form S-4, filed August 4, 1994, Reg. No. 33-82408) 4. Instruments defining the rights of security holders, including indentures 4.1 Specimen stock certificate (incorporated by reference from Exhibit 4.1 of the Company's Registration Statement on Form S-4, filed August 4, 1994, Reg. No. 33-82408) 4.2 Specimen Preferred Stock Certificate (incorporated by reference from Exhibit 4.2 of the Company's Registration Statement on Form S-1, Reg. No. 33-96700) 4.3 Designation for Convertible Exchangeable Preferred Stock, Series A (incorporated by reference from Exhibit 4.3 of the Company's Registration Statement on Form S-1/A, filed November 13, 1995, Reg. No. 33-96700) 4.4 Indenture for Convertible Debentures (incorporated by reference from Exhibit 4.4 of the Company's Registration Statement on Form S-1/A, filed November 13, 1995, Reg. No. 33-96700) 4.5 Certificate of Correction on Designation of Series A Preferred Stock (incorporated by reference from Exhibit 4.4 of the Company's Registration Statement on Form S-1/A, filed November 22, 1996, Reg. No. 333-15501) 4.6 Form of Note Indenture for the Company's 10% Senior Subordinated Notes due 2001 (incorporated by reference from Exhibit 4.6 of the Company's Registration Statement on Form S-1/A, filed November 22, 1996, Reg. No. 333-15501) 4.7 Form of Note Indenture for the Company's 10.25 Senior Subordinated Notes due 2004 (incorporated by reference from Exhibit 4.10 of the Company's Registration Statement on Form S-2, filed June 14, 1999, Reg. No. 333-80579) 10. Material contracts 10.1 Purchase and Sale Agreement between Callon Petroleum Operating Company and Murphy Exploration Company, dated May 26, 1999 (incorporated by reference from Exhibit 10.11 on Form S-2, filed on June 14, 1999, Reg. No. 333-80579) 10.2 Registration Rights Agreement dated September 16, 1994 between the Company and NOCO Enterprises, L. P. (incorporated by reference from Exhibit 10.2 of the Company's Registration Statement on Form 8-B, filed October 3, 1994) 10.3 Registration Rights Agreement dated September 16, 1994 between the Company and Callon Stockholders (incorporated by reference from Exhibit 10.3 of the Company's Registration Statement on Form 8-B, filed October 3, 1994) 10.4 Callon Petroleum Company 1994 Stock Incentive Plan (incorporated by reference from Exhibit 10.5 of the Company's Registration Statement on Form 8-B, filed October 3, 1994) 10.5 Credit Agreement dated October 14, 1994 by and between the Company, Callon Petroleum Operating Company and Internationale Nederlanden (U.S.) Capital Corporation (incorporated by reference from Exhibit 99.1 of the Company's Report on Form 10-Q for the quarter ended September 30, 1994) 10.6 Third Amendment dated February 22, 1996, to Credit Agreement by and among the Company, Callon Petroleum Operating Company and Internationale Nederlanden (U.S.) Capital Corporation (incorporated by reference from Exhibit 10.9 of the Company's Report on Form 10-K for the fiscal year ended December 31, 1995) 10.7 Consulting Agreement between the Company and John S. Callon dated June 19, 1996 (incorporated by reference from Exhibit 10.10 of the Company's Registration Statement on Form S-1, filed November 5, 1996, Reg. No. 333-15501) 10.8 Employment Agreement effective September 1, 1996 between the Company and Fred L. Callon (incorporated by reference from Exhibit 10.4 of the Company's Registration Statement on Form S-1/A, filed November 14, 1996, Reg. No. 333-15501) 10.9 Employment Agreement effective September 1, 1996 between the Company and Dennis W. Christian (incorporated by reference from Exhibit 10.7 of the Company's Registration Statement on Form S-1/A, filed November 14, 1996, Reg. No. 333-15501) 10.10 Employment Agreement effective September 1, 1996 between the Company and John S. Weatherly (incorporated by reference from Exhibit 10.8 of the Company's Registration Statement on Form S-1/A, filed November 14, 1996, Reg. No. 333-15501) 10.11 Callon Petroleum Company's Amended 1996 Stock Incentive Plan (incorporated by reference from Exhibit 4.4 of the Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-8, filed February 5, 1999, Reg. No. 333-29537) 11. Statement re computation of per share earnings 11.1 Computation of Per Share Earnings 15. Letter re unaudited interim financial information* 18. Letter re change in accounting principles* 19. Report furnished to security holders* 22. Published report regarding matters submitted to vote of security holders* 23. Consents of experts and counsel* 24. Power of attorney* 27. Financial Data Schedule 99. Additional exhibits* (b.) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. ____________________ *Inapplicable to this filing SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CALLON PETROLEUM COMPANY Date: November 11, 1999 By: /s/ John S. Weatherly ----------------- --------------------- John S. Weatherly, Senior Vice President and Chief Financial Officer (on behalf of the registrant and as the principal financial officer) Exhibit 11.1 CALLON PETROLEUM COMPANY COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 1999 1998 1999 1998 ------- ------ ------- ------- Net income $ 1,055 $ 933 $ 1,752 $ 2,887 Preferred stock dividends 555 699 1,942 2,097 ------- ------ ------- ------- Net income (loss) available to common shares $ 500 $ 234 $ (190) $ 790 ======= ====== ======= ======= Net income (loss) per common share: Basic $ 0.06 $ 0.03 $ (0.02) $ 0.10 ======= ======= ======= ======= Diluted $ 0.06 $ 0.03 $ (0.02) $ 0.10 ======= ======= ======= ======= Shares used in computing net income (loss) per common share: Basic 8,459 8,042 8,465 8,026 Dilutive impact of stock options 108 62 -- 174 ------- ------- ------- ------- Diluted 8,567 8,104 8,465 8,200 ======= ======= ======= ======= Note: Basic earnings or loss per common share were computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the quarter. Diluted earnings per common share for the three and nine-month periods of 1998 and the three months ended September 30, 1999 were determined on a weighted average basis using common shares issued and outstanding adjusted for the effect of stock options considered common stock equivalents computed using the treasury stock method and the effect of the convertible preferred stock (if dilutive). The earnings per share computations for the nine months ended September 30, 1999 excluded all stock options from the computation of diluted loss per share because they were antidilutive. The conversion of the preferred stock was not included in any calculation due to their antidilutive effect on diluted income or loss per share.