cpe-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 001-14039

Callon Petroleum Company


			(Exact Name of Registrant as Specified in Its Charter)


Delaware		64-0844345
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

One Briarlake Plaza
2000 W. Sam Houston Parkway S., Suite 2000
Houston,	Texas	77042
Address of Principal Executive Offices		Zip Code


			(281)						589-5200
			Registrant’s Telephone Number, Including Area Code

			Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

CPE

New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The Registrant had 67,773,848 shares of common stock outstanding as of October 27, 2023.

For certain industry specific terms used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), please see “Glossary of Certain Terms” in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”).

Table of Contents


Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets			3

Consolidated Statements of Operations			4

Consolidated Statements of Stockholders’ Equity			5

Consolidated Statements of Cash Flows			6

Notes to Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26

Item 3. Quantitative and Qualitative Disclosures about Market Risk			35

Item 4. Controls and Procedures			36

Part II. Other Information

Item 1. Legal Proceedings			36

Item 1A. Risk Factors			36

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities			36

Item 3. Defaults Upon Senior Securities			36

Item 4. Mine Safety Disclosures			37

Item 5. Other Information			37

Item 6. Exhibits			37

Part I. Financial Information

Item 1. Financial Statements

Callon Petroleum Company

Consolidated Balance Sheets

(In thousands, except par and share amounts)

(Unaudited)


	September 30, 2023	December 31, 2022*
ASSETS
Current assets:
Cash and cash equivalents	$3,456	$3,395
Accounts receivable, net	262,394	237,128
Fair value of derivatives	1,196	21,332

Other current assets	29,665	35,783
Total current assets	296,711	297,638
Oil and natural gas properties, successful efforts accounting method:


Proved properties, net	4,815,776	4,851,529
Unproved properties	1,287,019	1,225,768
Total oil and natural gas properties, net	6,102,795	6,077,297

Other property and equipment, net	26,398	26,152
Deferred income taxes	199,734	—
Deferred financing costs	14,235	18,822
Fair value of derivatives	21,742	454
Other assets, net	66,908	68,106
Total assets	$6,728,523	$6,488,469
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$585,529	$536,233


Fair value of derivatives	61,189	16,197

Other current liabilities	103,077	150,384
Total current liabilities	749,795	702,814
Long-term debt	1,948,619	2,241,295

Asset retirement obligations	41,290	53,892

Fair value of derivatives	44,807	13,415
Other long-term liabilities	82,954	51,272
Total liabilities	2,867,465	3,062,688
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 130,000,000 shares authorized; 67,770,721 and 61,621,518 shares outstanding, respectively	678	616
Capital in excess of par value	4,225,183	4,022,194
Accumulated deficit	(364,803)	(597,029)
Total stockholders’ equity	3,861,058	3,425,781
Total liabilities and stockholders’ equity	$6,728,523	$6,488,469

*Financial information for the prior period has been recast to reflect retrospective application of the successful efforts method of accounting. See “Note 2 - Summary of Significant Accounting Policies” for additional information.

The accompanying notes are an integral part of these consolidated financial statements.

Callon Petroleum Company

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022*	2023	2022*
Operating Revenues:
Oil	$438,665	$575,852	$1,269,996	$1,748,913
Natural gas	25,045	81,018	63,054	189,907
Natural gas liquids	46,489	67,548	130,488	210,696
Sales of purchased oil and gas	109,099	111,459	278,089	377,199
Total operating revenues	619,298	835,877	1,741,627	2,526,715

Operating Expenses:
Lease operating	73,525	76,121	225,415	216,389
Production and ad valorem taxes	30,592	43,290	88,019	125,841
Gathering, transportation and processing	27,255	27,575	80,570	71,617
Exploration	3,588	2,942	7,702	7,237
Cost of purchased oil and gas	111,118	111,439	285,947	378,107
Depreciation, depletion and amortization	138,598	129,895	391,911	359,494
Impairment of oil and gas properties	—	—	406,898	—
Gain on sale of oil and gas properties	(20,570)	—	(20,570)	—
General and administrative	29,339	24,253	86,905	71,485
Merger, integration and transaction	4,925	—	6,468	769

Total operating expenses	398,370	415,515	1,559,265	1,230,939
Income From Operations	220,928	420,362	182,362	1,295,776

Other (Income) Expenses:
Interest expense	43,149	46,929	136,694	141,020
(Gain) loss on derivative contracts	55,804	(134,850)	24,218	305,098
(Gain) loss on extinguishment of debt	(1,238)	—	(1,238)	42,417
Other (income) expense	3,220	2,861	(3,140)	3,130
Total other (income) expense	100,935	(85,060)	156,534	491,665

Income Before Income Taxes	119,993	505,422	25,828	804,111
Income tax benefit (expense)	(509)	(3,383)	206,398	(6,536)
Net Income	$119,484	$502,039	$232,226	$797,575

Net Income Per Common Share:
Basic	$1.76	$8.14	$3.64	$12.94
Diluted	$1.75	$8.11	$3.63	$12.88

Weighted Average Common Shares Outstanding:
Basic	67,931	61,703	63,827	61,624
Diluted	68,083	61,870	64,016	61,927

The accompanying notes are an integral part of these consolidated financial statements.

Callon Petroleum Company

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


	Common		Capital in		Total
	Stock		Excess	Accumulated	Stockholders’
	Shares	$	of Par	Deficit	Equity


Balance at December 31, 2022*	61,622	$616	$4,022,194	($597,029)	$3,425,781
Net income	—	—	—	220,638	220,638
Restricted stock units	3	—	3,339	—	3,339


Balance at March 31, 2023	61,625	$616	$4,025,533	($376,391)	$3,649,758
Net loss	—	—	—	(107,896)	(107,896)
Restricted stock units	263	3	807	—	810


Balance at June 30, 2023	61,888	$619	$4,026,340	($484,287)	$3,542,672
Net income	—	—	—	119,484	119,484
Restricted stock units	2	—	3,881	—	3,881
Common stock issued for Percussion Acquisition	6,267	63	209,937	—	210,000
Repurchase and retirement of common stock	(386)	(4)	(14,975)	—	(14,979)
Balance at September 30, 2023	67,771	$678	$4,225,183	($364,803)	$3,861,058


	Common		Capital in		Total
	Stock		Excess	Accumulated	Stockholders’
	Shares	$	of Par	Deficit	Equity
Previously reported at December 31, 2021	61,371	$614	$4,012,358	($2,147,204)	$1,865,768
Effect of change in accounting principle	—	—	—	530,732	530,732
Balance at December 31, 2021 as recast*	61,371	$614	$4,012,358	($1,616,472)	$2,396,500
Net loss	—	—	—	(7,715)	(7,715)
Restricted stock units	6	—	2,790	—	2,790
Common stock issued for Primexx Acquisition	117	1	6,294	—	6,295
Balance at March 31, 2022*	61,494	$615	$4,021,442	($1,624,187)	$2,397,870
Net income	—	—	—	303,251	303,251
Restricted stock units	244	2	(1,901)	—	(1,899)
Common stock issued for Primexx Acquisition	(22)	—	(1,363)	—	(1,363)
Balance at June 30, 2022*	61,716	$617	$4,018,178	($1,320,936)	$2,697,859
Net income	—	—	—	502,039	502,039
Restricted stock units	1	—	3,893	—	3,893
Common stock issued for Primexx Acquisition	(110)	(1)	(3,830)	—	(3,831)
Balance at September 30, 2022*	61,607	$616	$4,018,241	($818,897)	$3,199,960

*Financial information for prior periods has been recast to reflect retrospective application of the successful efforts method of accounting. See “Note 2 - Summary of Significant Accounting Policies” for additional information.

The accompanying notes are an integral part of these consolidated financial statements.

Callon Petroleum Company

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
Cash flows from operating activities:	2023	2022*
Net income	$232,226	$797,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	391,911	359,494
Impairment of oil and gas properties	406,898	—
Amortization of non-cash debt related items, net	7,979	9,680
Deferred income tax (benefit) expense	(206,041)	1,110
(Gain) loss on derivative contracts	24,218	305,098
Cash received (paid) for commodity derivative settlements, net	13,274	(433,518)
Gain on extinguishment of debt	(1,238)	42,417
Gain on sale of oil and gas properties	(20,570)	—
Non-cash expense related to share-based awards	9,524	4,427


Other, net	4,563	8,704
Changes in current assets and liabilities:
Accounts receivable	14,219	(52,423)
Other current assets	(13,178)	(12,229)
Accounts payable and accrued liabilities	(69,522)	(8,649)


Net cash provided by operating activities	794,263	1,021,686
Cash flows from investing activities:
Capital expenditures	(751,004)	(648,149)
Acquisition of oil and gas properties	(278,434)	(17,006)

Proceeds from sales of assets	551,446	9,313

Cash paid for settlement of contingent consideration arrangement	—	(19,171)
Other, net	(2,850)	13,497
Net cash used in investing activities	(480,842)	(661,516)
Cash flows from financing activities:
Borrowings on credit facility	2,629,500	2,535,000
Payments on credit facility	(2,736,500)	(2,684,000)
Issuance of 7.5% Senior Notes due 2030	—	600,000
Redemption of 8.25% Senior Notes due 2025	(187,238)	—
Redemption of 6.125% Senior Notes due 2024	—	(467,287)
Redemption of 9.0% Second Lien Senior Secured Notes due 2025	—	(339,507)







Payment of deferred financing costs	(560)	(11,623)


Cash paid to repurchase common stock	(14,980)	—
Other, net	(3,582)	1,715
Net cash used in financing activities	(313,360)	(365,702)
Net change in cash and cash equivalents	61	(5,532)
Balance, beginning of period	3,395	9,882
Balance, end of period	$3,456	$4,350

The accompanying notes are an integral part of these consolidated financial statements.

Index to the Notes to the Consolidated Financial Statements


1.	Description of Business	10.	Fair Value Measurements
2.	Summary of Significant Accounting Policies	11.	Income Taxes
3.	Change in Accounting Principle	12.	Share-Based Compensation
4.	Revenue Recognition	13.	Stockholders’ Equity
5.	Acquisitions and Divestitures	14.	Accounts Receivable, Net
6.	Property and Equipment, Net	15.	Accounts Payable and Accrued Liabilities
7.	Earnings Per Share	16.	Supplemental Cash Flow
8.	Borrowings	17.	Subsequent Events
9.	Derivative Instruments and Hedging Activities

Note 1 — Description of Business

Callon Petroleum Company is an independent oil and natural gas company focused on the acquisition, exploration and sustainable development of high-quality assets in the Permian Basin in West Texas. As used herein, the “Company,” “Callon,” “we,” “us,” and “our” refer to Callon Petroleum Company and its predecessors and subsidiaries unless the context requires otherwise.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of the Company after elimination of intercompany transactions and balances. These financial statements have been prepared pursuant to the rules and regulations of the SEC and therefore do not include all disclosures required for financial statements prepared in conformity with GAAP. In the opinion of management, these financial statements reflect all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial position, results of operations and cash flows. However, the results of operations for the periods presented are not necessarily indicative of the results of operations that may be expected for the full year. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications did not have a material impact on prior period financial statements.

Significant Accounting Policies

The Company’s significant accounting policies are described in “Note 2 — Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in its 2022 Annual Report and are supplemented by the notes included in this Form 10-Q. The financial statements and related notes included in this Form 10-Q should be read in conjunction with the Company’s 2022 Annual Report.

Recast Financial Information for Change in Accounting Principle

In the first quarter of 2023, the Company voluntarily changed its method of accounting for its oil and gas exploration and development activities from the full cost method to the successful efforts method of accounting. Accordingly, the financial information for prior periods has been recast to reflect retrospective application of the successful efforts method, as prescribed by the FASB Accounting Standards Codification (“ASC”) 932 “Extractive Activities — Oil and Gas.” Although the full cost method of accounting continues to be an accepted alternative, the successful efforts method of accounting is the generally preferred method of the SEC and, because it is more widely used in the industry, the Company expects the change to improve the comparability of its financial statements to its peers. The Company also believes the successful efforts method provides a more representational depiction of assets and operating results and provides for its investments in oil and natural gas properties to be assessed for impairment in accordance with ASC Topic 360 “Property Plant and Equipment,” rather than valuations based on prices and costs prescribed under the full cost method as of the balance sheet date. As required by ASC 250 “Accounting Changes and Error Corrections,” the Company has presented the accumulated effect of the change in accounting principle as a change in the beginning balance of retained earnings (accumulated deficit) of the earliest period presented in the consolidated financial statements. For detailed information regarding the effects of the change to the successful efforts method, see “Note 3 — Change in Accounting Principle.”

Oil and Natural Gas Properties

Proved Oil and Natural Gas Properties. The Company follows the successful efforts method of accounting for its oil and gas properties. Under this method, drilling and completion costs, including lease and well equipment, intangible development costs, and operational support facilities in the field, associated with development wells are capitalized to proved oil and gas properties and are depleted on an asset group basis (properties aggregated based on geographical and geological characteristics) using the units-of-production method based on estimated proved developed oil and gas reserves. The calculation of depletion expense takes into consideration estimated asset retirement costs, net of estimated salvage values.

Proved oil and gas properties are assessed for impairment on an asset group basis whenever events and circumstances indicate that there could be a possible decline in the recoverability of the net book value of such property. The Company estimates the expected

future net cash flows of its proved oil and gas properties and compares these undiscounted cash flows to the net book value of the proved oil and gas properties to determine if the net book value is recoverable. If the net book value exceeds the estimated undiscounted future net cash flows, the Company will recognize an impairment to reduce the net book value of the proved oil and gas properties to fair value. The factors used to determine fair value include, but are not limited to, estimates of reserves, future commodity prices, future production estimates, estimated future development costs and operating costs, and discount rates, which are based on a weighted average cost of capital. See “Note 5 — Acquisitions and Divestitures” for details of the impairment recorded in the second quarter of 2023 associated with the sale of all the Company’s interests of Callon (Eagle Ford) LLC to Ridgemar Energy Operating, LLC.

The partial sale of a proved property within an existing asset group is accounted for as a normal retirement and no net gain or loss on divestiture is recognized as long as the treatment does not significantly alter the units-of-production depletion rate. The sale of a partial interest in an individual proved property is accounted for as a recovery of cost. A net gain or loss on divestiture is recognized in the consolidated statements of operations for all other sales of proved properties.

Unproved Oil and Natural Gas Properties. Unproved oil and gas properties consist of costs incurred in obtaining a mineral interest or a right in a property such as a lease, in addition to broker fees, recording fees and other similar costs. Leasehold costs are classified as unproved until proved reserves are discovered on or otherwise attributed to the property, at which time the related unproved oil and gas property costs are reclassified to proved oil and gas properties and depleted on an asset group basis using the units-of-production method based on estimated total proved oil and gas reserves.

The Company evaluates significant unproved oil and gas property costs for impairment based on remaining lease term, drilling results, reservoir performance, seismic interpretation or changes in future plans to develop acreage. Unproved oil and gas properties that are not individually significant are aggregated by asset group, and the portion of such costs estimated to be nonproductive prior to lease expiration is amortized over the average holding period. The estimate of what could be nonproductive is based on the Company’s historical experience or other information, including current drilling plans and existing geological data. Impairment and amortization of unproved oil and gas properties are recognized as “Impairment of oil and gas properties” in the consolidated statements of operations.

Exploratory. Exploratory costs, including personnel and other internal costs, geological and geophysical expenses and delay rentals for oil and gas leases, are expensed as incurred. Exploratory well costs are initially capitalized pending the determination of whether proved reserves have been discovered. If proved reserves are discovered, exploratory well costs are capitalized as proved oil and gas properties. If proved reserves are not found, exploratory well costs are expensed as dry holes. The application of the successful efforts method of accounting requires management’s judgment to determine the proper designation of wells as either development or exploratory, which will ultimately determine the proper accounting treatment of costs of dry holes.

Capitalized Interest. The Company capitalizes interest on expenditures made in connection with exploration and development projects that meet certain thresholds and are not subject to current amortization. For projects that meet these thresholds, interest is capitalized only for the period that activities are in process to bring the projects to their intended use. Capitalized interest cannot exceed interest expense for the period capitalized. During both the three and nine months ended September 30, 2023 and 2022, the Company did not have any projects that met the thresholds and, therefore, had no capitalized interest.

Share Repurchase Program

The Company repurchases shares of its common stock from time to time under a program authorized by the Board of Directors. The Company retires shares acquired through share repurchases and returns those shares to the status of authorized but unissued. The repurchased and retired shares are recorded as a reduction to “Common stock” and “Capital in excess of par value” in the consolidated balance sheets. See “Note 13 — Stockholders’ Equity” for further discussion.

Recently Issued Accounting Standards

As of September 30, 2023, and through the filing of this report, no new accounting standards have been issued and not yet adopted that are applicable to the Company and that would have a material effect on the Company’s unaudited interim consolidated financial statements and related disclosures.

Subsequent Events

The Company evaluates subsequent events through the date the financial statements are issued. See “Note 17 — Subsequent Events” for further discussion.

Note 3 — Change in Accounting Principle

In the first quarter of 2023, the Company voluntarily changed its method of accounting for oil and natural gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In general, under successful efforts, exploration costs such as exploratory dry holes, exploratory geophysical and geological costs, delay rentals, unproved leasehold impairments and

exploration overhead are expensed as incurred as opposed to being capitalized under the full cost method of accounting. The successful efforts method also provides for the assessment of potential proved oil and gas property impairments by comparing the net book value of proved oil and gas properties to associated estimated undiscounted future net cash flows. If the net book value exceeds the estimated undiscounted future net cash flows, an impairment is recorded to reduce the net book value to fair value. Under the full cost method of accounting, an impairment would be required if the net book value of oil and natural gas properties exceeds a full cost ceiling using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are recognized more frequently on the divestitures of oil and gas properties under the successful efforts method, as opposed to an adjustment to the net book value of the oil and gas properties under the full cost method.

The “Impairment of oil and gas properties” and “Gain on sale of oil and gas properties” line items presented in the tables below are in connection with the sale of all of the Company’s interests of Callon (Eagle Ford) LLC to Ridgemar Energy Operating, LLC. See “Note 5 — Acquisitions and Divestitures” for additional details.

The following tables present the effects of the change to the successful efforts method in the consolidated balance sheets:


	As of September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)


Oil and natural gas properties:
Proved properties	$11,191,350	($1,947,545)	$9,243,805
Accumulated depreciation, depletion, amortization and impairments	(6,734,174)	2,306,145	(4,428,029)
Unproved properties	1,807,300	(520,281)	1,287,019
Total oil and gas properties, net	6,264,476	(161,681)	6,102,795
Deferred income taxes	170,001	29,733	199,734
Total assets	$6,860,471	($131,948)	$6,728,523
Stockholders’ equity:
Accumulated deficit	(232,855)	(131,948)	(364,803)
Total stockholders' equity	3,993,006	(131,948)	3,861,058
Total liabilities and stockholders' equity	$6,860,471	($131,948)	$6,728,523


	As of December 31, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Oil and natural gas properties:
Proved properties	$10,367,478	($1,099,343)	$9,268,135
Accumulated depreciation, depletion, amortization and impairments	(6,343,875)	1,927,269	(4,416,606)
Unproved properties	1,711,306	(485,538)	1,225,768
Total oil and gas properties, net	5,734,909	342,388	6,077,297
Total assets	$6,146,081	$342,388	$6,488,469
Deferred income taxes (1)	4,279	2,029	6,308
Stockholders’ equity:
Accumulated deficit	(937,388)	340,359	(597,029)
Total stockholders' equity	3,085,422	340,359	3,425,781
Total liabilities and stockholders' equity	$6,146,081	$342,388	$6,488,469

(1) Included in “Other long-term liabilities” in the consolidated balance sheets.

The following tables present the effects of the change to the successful efforts method in the consolidated statements of operations:


	Three Months Ended September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share amounts)
Operating Expenses:
Exploration	$—	$3,588	$3,588
Depreciation, depletion and amortization	138,313	285	138,598

Gain on sale of oil and gas properties	—	(20,570)	(20,570)
General and administrative	22,016	7,323	29,339
Income From Operations	211,554	9,374	220,928

Other Expenses:
Interest expense	14,145	29,004	43,149

Income Before Income Taxes	139,623	(19,630)	119,993
Income tax benefit (expense)	10,663	(11,172)	(509)
Net Income	$150,286	($30,802)	$119,484
Net Income Per Common Share:
Basic	$2.21		$1.76
Diluted	$2.21		$1.75


	Three Months Ended September 30, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share amounts)
Operating Expenses:
Exploration	$—	$2,942	$2,942
Depreciation, depletion and amortization	122,833	7,062	129,895
General and administrative	14,022	10,231	24,253
Income From Operations	440,597	(20,235)	420,362

Other Expenses:
Interest expense	19,468	27,461	46,929

Income Before Income Taxes	553,118	(47,696)	505,422
Income tax expense	(3,515)	132	(3,383)
Net Income	$549,603	($47,564)	$502,039
Net Income Per Common Share:
Basic	$8.91		$8.14
Diluted	$8.88		$8.11


	Nine Months Ended September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share amounts)
Operating Expenses:
Exploration	$—	$7,702	$7,702
Depreciation, depletion and amortization	396,348	(4,437)	391,911
Impairment of oil and gas properties	—	406,898	406,898
Gain on sale of oil and gas properties	—	(20,570)	(20,570)
General and administrative	56,305	30,600	86,905
Income From Operations	602,555	(420,193)	182,362

Other Expenses:
Interest expense	52,818	83,876	136,694

Income Before Income Taxes	529,897	(504,069)	25,828
Income tax benefit	174,636	31,762	206,398
Net Income	$704,533	($472,307)	$232,226
Net Income Per Common Share:
Basic	$11.04		$3.64
Diluted	$11.01		$3.63


	Nine Months Ended September 30, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share amounts)
Operating Expenses:
Exploration	$—	$7,237	$7,237
Depreciation, depletion and amortization	335,221	24,273	359,494
General and administrative	42,052	29,433	71,485
Income From Operations	1,356,719	(60,943)	1,295,776

Other Expenses:
Interest expense	61,717	79,303	141,020

Income Before Income Taxes	944,357	(140,246)	804,111
Income tax expense	(7,008)	472	(6,536)
Net Income	$937,349	($139,774)	$797,575
Net Income Per Common Share:
Basic	$15.21		$12.94
Diluted	$15.14		$12.88

The following tables present the effects of the change to the successful efforts method in the consolidated statements of cash flows:


	Nine Months Ended September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Cash flows from operating activities:
Net income	$704,533	($472,307)	$232,226
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	396,348	(4,437)	391,911
Impairment of oil and gas properties	—	406,898	406,898
Amortization of non-cash debt related items, net	3,064	4,915	7,979
Deferred income tax benefit	(174,279)	(31,762)	(206,041)
Gain on sale of oil and gas properties	—	(20,570)	(20,570)
Non-cash expense related to share-based awards	3,848	5,676	9,524




Net cash provided by operating activities	905,850	(111,587)	794,263
Cash flows from investing activities:
Capital expenditures	(854,889)	103,885	(751,004)
Acquisition of oil and gas properties	(286,136)	7,702	(278,434)
Net cash used in investing activities	(592,429)	111,587	(480,842)
Net change in cash and cash equivalents	61	—	61
Balance, beginning of period	3,395	—	3,395
Balance, end of period	$3,456	$—	$3,456


	Nine Months Ended September 30, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Cash flows from operating activities:
Net income	$937,349	($139,774)	$797,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	335,221	24,273	359,494
Amortization of non-cash debt related items, net	4,263	5,417	9,680
Deferred income tax expense	1,626	(516)	1,110
Non-cash expense related to share-based awards	1,055	3,372	4,427
Changes in current assets and liabilities:


Accounts payable and accrued liabilities	(8,693)	44	(8,649)
Net cash provided by operating activities	1,128,870	(107,184)	1,021,686
Cash flows from investing activities:
Capital expenditures	(754,225)	106,076	(648,149)
Acquisition of oil and gas properties	(18,114)	1,108	(17,006)
Net cash used in investing activities	(768,700)	107,184	(661,516)
Net change in cash and cash equivalents	(5,532)	—	(5,532)
Balance, beginning of period	9,882	—	9,882
Balance, end of period	$4,350	$—	$4,350

The following tables present the effects of the change to the successful efforts method in the consolidated statements of stockholders’ equity:


	As of September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Accumulated deficit	($232,855)	($131,948)	($364,803)
Total stockholders’ equity	$3,993,006	($131,948)	$3,861,058


	As of December 31, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Accumulated deficit	($937,388)	$340,359	($597,029)
Total stockholders’ equity	$3,085,422	$340,359	$3,425,781

Note 4 — Revenue Recognition

Revenue from Contracts with Customers

The Company recognizes oil, natural gas, and NGL production revenue at the point in time when control of the product transfers to the purchaser, which differs depending on the applicable contractual terms. Transfer of control also drives the presentation of gathering, transportation and processing expenses in the consolidated statements of operations. See “Note 3 — Revenue Recognition” of the Notes to Consolidated Financial Statements in the 2022 Annual Report for more information regarding the types of contracts under which oil, natural gas, and NGL production revenue is generated.

Oil and Gas Purchase and Sale Arrangements

The Company proactively evaluates development plans and looks to enter into pipeline transportation contracts to mitigate market exposures and help ensure certainty of flow for its oil and gas production, in some cases multiple years in advance of development. Additionally, as the Company looks to optimize its operations and reduce exposures, in certain instances, the Company purchases oil and gas from third parties which is utilized to fulfill portions of its pipeline commitments. Sales of purchased oil and gas represent revenues the Company receives from sales of commodities purchased from a third party. The Company recognizes these revenues and the purchase of the third-party commodities, as well as any costs associated with the purchase, on a gross basis, as the Company acts as a principal in these transactions by assuming control of the purchased commodity before it is transferred to the customer.

Accounts Receivable from Revenues from Contracts with Customers

Net accounts receivable include amounts billed and currently due from revenues from contracts with customers of our oil and natural gas production, which had a balance at September 30, 2023 and December 31, 2022 of $169.3 million and $174.1 million, respectively, and are presented in “Accounts receivable, net” in the consolidated balance sheets.

Prior Period Performance Obligations

The Company records revenue in the month production is delivered to the purchaser. However, settlement statements for sales may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. The Company records the differences between estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. The Company has existing internal controls for its revenue estimation process and related accruals, and any identified differences between its revenue estimates and actual revenue received historically have not been significant.

Note 5 — Acquisitions and Divestitures

Eagle Ford Divestiture

On May 3, 2023, the Company entered into an agreement with Ridgemar Energy Operating, LLC (“Ridgemar”) for the sale of all its oil and gas properties in the Eagle Ford (the “Eagle Ford Divestiture”) for consideration of $655.0 million in cash, subject to customary purchase price adjustments, as well as contingent consideration where the Company could receive up to $45.0 million if the WTI price of oil exceeds certain thresholds in 2024 (“Contingent Eagle Ford Consideration”). See “Note 9 — Derivative Instruments and Hedging Activities” for further discussion of the Contingent Eagle Ford Consideration. Upon signing, Ridgemar paid approximately $49.1 million as a deposit into a third-party escrow account. The transaction was structured as the acquisition by Ridgemar of 100% of the limited liability company interests of the Company’s wholly owned subsidiary, Callon (Eagle Ford) LLC.

During the second quarter of 2023, the Company classified the assets and liabilities associated with the Eagle Ford Divestiture as held for sale, and recorded an impairment of $406.9 million against properties associated with the Eagle Ford Divestiture as the fair value less cost to sell was less than the carrying amount of the net assets. On July 3, 2023, the Company closed the Eagle Ford Divestiture. The Eagle Ford Divestiture has an adjusted purchase price of approximately $549.3 million in cash, inclusive of the deposit paid at signing, subject to customary post-closing purchase price adjustments. As a result, the Company recorded a gain on sale of assets of $20.6 million.

Percussion Acquisition

On May 3, 2023, the Company entered into an agreement (the “Percussion Agreement”) with Percussion Petroleum Management II, LLC (“Percussion”) for the purchase of its oil and gas properties in the Delaware Basin (the “Percussion Acquisition”) for

consideration of $475.0 million, which consisted of $255.0 million in cash, inclusive of the repayment of Percussion’s indebtedness of approximately $220.0 million, and $210.0 million of shares of the Company’s common stock, subject to customary purchase price adjustments. Upon signing, the Company paid $36.0 million as a deposit into a third-party escrow account. The transaction was structured as the acquisition by Callon Petroleum Operating Company of 100% of the limited liability company interests of Percussion’s wholly owned subsidiary, Percussion Petroleum Operating II, LLC (“Percussion Operating”).

On July 3, 2023, the Company closed the Percussion Acquisition for an adjusted purchase price of approximately $248.5 million in cash, inclusive of the deposit paid at signing and the repayment of Percussion Operating’s indebtedness of approximately $220.0 million, and approximately 6.3 million shares of the Company’s common stock for total consideration of $458.5 million, subject to customary post-closing purchase price adjustments. The Company funded the cash portion of the total consideration with proceeds from the Eagle Ford Divestiture. Additionally, the Company assumed Percussion Operating’s (as defined below) existing hedges and transportation contract liabilities, and could have to pay up to $62.5 million if the WTI price of oil exceeds certain thresholds in 2023, 2024, and 2025 (“Percussion Earn-Out Obligation”).

The Percussion Acquisition was accounted for as a business combination; therefore, the purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated acquisition date fair values with information available at that time. A combination of a discounted cash flow model and market data was used by a third-party specialist in determining the fair value of the oil and gas properties. Significant inputs into the calculation included future commodity prices, estimated volumes of oil and gas reserves, expectations for timing and amount of future development and operating costs, future plugging and abandonment costs and a risk adjusted discount rate. Certain data necessary to complete the purchase price allocation is not yet available. The Company expects to complete the purchase price allocation during the 12-month period following the acquisition date.

The following table sets forth the Company’s preliminary allocation of the total estimated consideration of $458.5 million to the assets acquired and liabilities assumed as of the acquisition date.


						Preliminary Purchase Price Allocation
						(In thousands)
Assets:
Accounts receivable, net						$30,135
Proved properties, net						491,367
Unproved properties						52,590
Total assets acquired						$574,092

Liabilities:
Accounts payable and accrued liabilities						$42,585
Fair value of derivatives - current						20,660
Other current liabilities						11,471
Asset retirement obligations						2,323
Fair value of derivatives - long-term						27,979
Other long-term liabilities						10,619
Total liabilities assumed						$115,637

Total consideration						$458,455

Approximately $57.8 million of revenues and $16.3 million of direct operating expenses attributed to the assets acquired in the Percussion Acquisition are included in the Company’s consolidated statements of operations for the period from the closing date on July 3, 2023 through September 30, 2023.

Pro Forma Operating Results (Unaudited). The following unaudited pro forma combined condensed financial data for the three and nine months ended September 30, 2023 and 2022 was derived from the historical financial statements of the Company and gives effect to the Percussion Acquisition, as if it had occurred on January 1, 2022. The below information reflects pro forma adjustments for the issuance of the Company’s common stock, as well as pro forma adjustments based on available information and certain assumptions that the Company believes provide a reasonable basis for reflecting the significant pro forma effects directly attributable to the Percussion Acquisition.

The pro forma consolidated statements of operations data has been included for comparative purposes only and is not necessarily indicative of the results that might have occurred had the Percussion Acquisition taken place on January 1, 2022 and is not intended to be a projection of future results.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022*	2023	2022*
	(In thousands, except per share amounts)
Revenues	$619,298	$928,218	$1,879,442	$2,815,342
Income from operations	220,928	480,459	252,809	1,490,205
Net income	119,484	708,355	360,850	856,610
Basic earnings per common share	$1.76	$10.42	$5.65	$12.62
Diluted earnings per common share	$1.75	$10.40	$5.64	$12.56

Note 6 — Property and Equipment, Net

As of September 30, 2023 and December 31, 2022, total property and equipment, net consisted of the following:


	September 30, 2023	December 31, 2022*
Oil and natural gas properties, successful efforts accounting method	(In thousands)
Proved properties	$9,243,805	$9,268,135
Accumulated depreciation, depletion, amortization and impairments	(4,428,029)	(4,416,606)
Proved properties, net	4,815,776	4,851,529
Unproved properties	1,287,019	1,225,768
Total oil and natural gas properties, net	$6,102,795	$6,077,297

Other property and equipment	$40,243	$40,530
Accumulated depreciation	(13,845)	(14,378)
Other property and equipment, net	$26,398	$26,152

Note 7 — Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding for the periods presented. The calculation of diluted earnings per share includes the potential dilutive impact of non-vested restricted stock units outstanding during the periods presented, as calculated using the treasury stock method, unless their effect is anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022*	2023	2022*
	(In thousands, except per share amounts)



Net Income	$119,484	$502,039	$232,226	$797,575
Basic weighted average common shares outstanding	67,931	61,703	63,827	61,624
Dilutive impact of restricted stock units	152	167	189	303

Diluted weighted average common shares outstanding	68,083	61,870	64,016	61,927

Net Income Per Common Share
Basic	$1.76	$8.14	$3.64	$12.94
Diluted	$1.75	$8.11	$3.63	$12.88

Restricted stock units (1)	54	100	75	28
Warrants (1)	481	481	481	416

(1) Shares excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.

Note 8 — Borrowings

The Company’s borrowings consisted of the following:


	September 30, 2023	December 31, 2022
	(In thousands)
8.25% Senior Notes due 2025	$—	$187,238
6.375% Senior Notes due 2026	320,783	320,783
Senior Secured Revolving Credit Facility due 2027	396,000	503,000
8.0% Senior Notes due 2028	650,000	650,000
7.5% Senior Notes due 2030	600,000	600,000
Total principal outstanding	1,966,783	2,261,021
Unamortized premium on 8.25% Senior Notes	—	1,715
Unamortized deferred financing costs for Senior Notes	(18,164)	(21,441)
Long-term debt (1)	$1,948,619	$2,241,295

(1) Excludes unamortized deferred financing costs related to the Company’s senior secured revolving credit facility of $14.2 million and $18.8 million as of September 30, 2023 and December 31, 2022, respectively, which are classified in “Deferred financing costs” in the consolidated balance sheets.

Senior Secured Revolving Credit Facility

The Company has a senior secured revolving credit facility with a syndicate of lenders (the “Credit Facility”) that, as of September 30, 2023, had a maximum credit amount of $5.0 billion, a borrowing base of $2.0 billion and an elected commitment amount of $1.5 billion, with borrowings outstanding of $396.0 million at a weighted-average interest rate of 7.50%, and letters of credit outstanding of $21.4 million. The credit agreement governing the Credit Facility (the “Credit Agreement”) provides for interest-only payments until October 19, 2027 when the Credit Agreement matures and any outstanding borrowings are due.

Borrowings outstanding under the Credit Agreement bear interest at the Company’s option at either (i) a base rate for a base rate loan plus a margin between 0.75% to 1.75%, where the base rate is defined as the greatest of the prime rate, the federal funds rate plus 0.50%, and the SOFR plus 0.1% (“Adjusted SOFR”) for a one month period plus 1.00%, or (ii) an Adjusted SOFR plus a margin between 1.75% to 2.75%. The Company also incurs commitment fees at rates ranging between 0.375% to 0.500% on the unused portion of lender commitments, which are included in “Interest expense” in the consolidated statements of operations.

The borrowing base under the Credit Agreement is subject to regular redeterminations in the spring and fall of each year, as well as special redeterminations described in the Credit Agreement, which in each case may reduce the amount of the borrowing base. On October 31, 2023, as part of the Company’s fall 2023 redetermination, the borrowing base of $2.0 billion and elected commitment amount of $1.5 billion were reaffirmed.

Redemption of 8.25% Senior Notes due 2025

On August 2, 2023, the Company used borrowings under the Credit Facility to redeem all $187.2 million of its outstanding 8.25% Senior Notes due 2025 (“8.25% Senior Notes”). The Company recognized a gain on extinguishment of debt of approximately $1.2 million in its consolidated statements of operations, which primarily related to the remaining unamortized premium.

Covenants

The Credit Agreement and the indentures governing the 6.375% Senior Notes due 2026, the 8.0% Senior Notes due 2028, and the 7.5% Senior Notes due 2030 (collectively, the “Senior Notes”) limit the Company and certain of its subsidiaries with respect to the amount of additional indebtedness, liens, dividends and other payments to shareholders, repurchases or redemptions of the Company’s common stock, redemptions of senior notes, investments, acquisitions, mergers, asset dispositions, transactions with affiliates, hedging transactions and other matters, along with maintenance of certain financial ratios.

Under the Credit Agreement, the Company must maintain the following financial covenants determined as of the last day of the quarter: (1) a Leverage Ratio (as defined in the Credit Agreement) of no more than 3.50 to 1.00 and (2) a Current Ratio (as defined in the Credit Agreement) of not less than 1.00 to 1.00. The Company was in compliance with these covenants at September 30, 2023.

The Credit Agreement and indentures are subject to customary events of default. If an event of default occurs and is continuing, the holders or lenders may elect to accelerate amounts due (except in the case of a bankruptcy event of default, in which case such amounts will automatically become due and payable).

Note 9 — Derivative Instruments and Hedging Activities

Objectives and Strategies for Using Derivative Instruments

The Company is exposed to fluctuations in oil, natural gas and NGL prices received for its production. Consequently, the Company believes it is prudent to manage the variability in cash flows on a portion of its oil, natural gas and NGL production. The Company utilizes a mix of collars, swaps, put and call options, and basis differential swaps to manage fluctuations in cash flows resulting from changes in commodity prices. The Company does not use these instruments for speculative or trading purposes.

Counterparty Risk and Offsetting

The Company typically has numerous commodity derivative instruments outstanding with a counterparty that were executed at various dates, for various contract types, commodities and time periods. This often results in both commodity derivative asset and liability positions with that counterparty. The Company nets its commodity derivative instrument fair values executed with the same counterparty to a single asset or liability pursuant to International Swap Dealers Association Master Agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. In general, if a party to a derivative transaction incurs an event of default, as defined in the applicable agreement, the other party will have the right to demand the posting of collateral, demand a cash payment transfer or terminate the arrangement.

The Company strives to minimize its credit exposure to any individual counterparty and, as such, the Company has outstanding commodity derivative instruments with nine counterparties as of September 30, 2023. All of the counterparties to the Company’s commodity derivative instruments are also lenders under the Company’s Credit Facility. Therefore, each of the Company’s counterparties allow the Company to satisfy any need for margin obligations associated with commodity derivative instruments where the Company is in a net liability position with the collateral securing the Credit Facility, thus eliminating the need for independent collateral posting.

Because each of the Company’s counterparties has an investment grade credit rating, the Company believes it does not have significant credit risk and accordingly does not currently require its counterparties to post collateral to support the net asset positions of its commodity derivative instruments. Although the Company does not currently anticipate nonperformance from its counterparties, it continually monitors the credit ratings of each counterparty.

While the Company monitors counterparty creditworthiness on an ongoing basis, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, the Company may not realize the benefit of some of its derivative instruments under lower commodity prices while continuing to be obligated under higher commodity price contracts subject to any right of offset under the agreements. Counterparty credit risk is considered when determining the fair value of a derivative instrument. See “Note 10 — Fair Value Measurements” for further discussion.

Contingent Consideration Arrangements

Percussion Earn-Out Obligation. As a result of the Percussion Acquisition, the Company assumed an earn-out obligation from Percussion Operating, where the Company could be required to pay up to $62.5 million in the aggregate if the average daily settlement price of WTI crude oil exceeds $60.00 per barrel for each of the 2023, 2024, and 2025 calendar years.

Contingent Eagle Ford Consideration. As a result of the Eagle Ford Divestiture, the Company received a contingent consideration arrangement from Ridgemar. The Company could receive up to $45.0 million if the average daily settlement price of WTI crude oil for 2024 is at least $80.00 per barrel. If the average daily settlement price of WTI crude oil for 2024 is less than $80.00 per barrel but at least $75.00 per barrel, then the Company would receive $20.0 million.

The Company determined that the Percussion Earn-Out Obligation and Contingent Eagle Ford Consideration receipt were not clearly and closely related to the Percussion Acquisition and Eagle Ford Divestiture membership interest purchase agreements, and therefore bifurcated these embedded features and recorded these derivatives at their acquisition date fair value and divestiture date fair value of $34.9 million and $10.9 million, respectively, in the consolidated financial statements. As of September 30, 2023, the estimated fair values of the Percussion Earn-Out Obligation and Contingent Eagle Ford Consideration were $46.4 million and $21.7 million, respectively, and are presented in “Fair value of derivatives” in the consolidated balance sheets.

Financial Statement Presentation and Settlements

The Company records its derivative instruments at fair value in the consolidated balance sheets and records changes in fair value, as well as settlements during the period, as “(Gain) loss on derivative contracts” in the consolidated statements of operations. The Company presents the fair value of derivative contracts on a net basis in the consolidated balance sheets as they are subject to master netting arrangements. The following presents the impact of this presentation to the Company’s recognized assets and liabilities for the periods indicated:


	As of September 30, 2023
	Presented without		As Presented with
	Effects of Netting	Effects of Netting	Effects of Netting
	(In thousands)
Derivative Assets
Commodity derivative instruments	$9,792	($8,596)	$1,196
Fair value of derivatives - current	$9,792	($8,596)	$1,196
Commodity derivative instruments	$4,270	($4,208)	$62
Contingent consideration arrangements	21,680	—	21,680
Fair value of derivatives - non-current	$25,950	($4,208)	$21,742

Derivative Liabilities
Commodity derivative instruments	($57,575)	$8,596	($48,979)
Contingent consideration arrangements	(12,210)	—	(12,210)
Fair value of derivatives - current	($69,785)	$8,596	($61,189)
Commodity derivative instruments	($14,805)	$4,208	($10,597)
Contingent consideration arrangements	(34,210)	—	(34,210)
Fair value of derivatives - non-current	($49,015)	$4,208	($44,807)


	As of December 31, 2022
	Presented without		As Presented with
	Effects of Netting	Effects of Netting	Effects of Netting
	(In thousands)
Derivative Assets
Fair value of derivatives - current	$51,984	($30,652)	$21,332
Fair value of derivatives - non-current	$1,343	($889)	$454

Derivative Liabilities
Fair value of derivatives - current	($46,849)	$30,652	($16,197)
Fair value of derivatives - non-current	($14,304)	$889	($13,415)

The components of “(Gain) loss on derivative contracts” are as follows for the respective periods:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
	(In thousands)
(Gain) loss on oil derivatives	$54,446	($157,731)	$18,165	$243,527
(Gain) loss on natural gas derivatives	(2,315)	22,881	2,380	56,800
Loss on NGL derivatives	2,933	—	2,933	4,771
Loss on contingent consideration arrangements	740	—	740	—

(Gain) loss on derivative contracts	$55,804	($134,850)	$24,218	$305,098

The components of “Cash received (paid) for commodity derivative settlements, net” and “Cash received (paid) for settlements of contingent consideration arrangements, net” are as follows for the respective periods:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
	(In thousands)
Cash flows from operating activities
Cash received (paid) on oil derivatives	$1,680	($117,024)	($4,450)	($374,711)
Cash received (paid) on natural gas derivatives	(560)	(28,572)	17,816	(55,024)
Cash paid on NGL derivatives	(92)	—	(92)	(3,783)
Cash received (paid) for commodity derivative settlements, net	$1,028