Supplemental Oil and Natural Gas Reserve Data (unaudited)
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Dec. 31, 2012
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Oil and Gas Exploration and Production Industries Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Oil and Natural Gas Reserve Data (unaudited) |
Supplemental Crude Oil and Natural Gas Reserve Data (unaudited))
The Company's proved oil and natural gas reserves at December 31, 2012, 2011 and 2010 have been estimated by Huddleston & Co., Inc., the Company’s independent petroleum engineers. The reserves were prepared in accordance with guidelines established by the SEC. Accordingly, the following reserve estimates are based upon existing economic and operating conditions.
There are numerous uncertainties inherent in establishing quantities of proved reserves. The following reserve data represents estimates only, and should not be deemed exact. In addition, the standardized measure of discounted future net cash flows should not be construed as the current market value of the Company's oil and natural gas properties or the cost that would be incurred to obtain equivalent reserves.
Estimated Reserves
Changes in the estimated net quantities of crude oil and natural gas reserves, all of which are located onshore within the continental United States and offshore within the Gulf of Mexico, are as follows:
Total Proved Reserves: The Company ended 2012 with estimated net proved reserves of 14,072 MBoe, representing a 12% decrease over 2011 year-end estimated net proved reserves of 15,928 MBoe. The decrease is primarily due to the sale of the Company's interest in the Habanero field and the downward revision of our Haynesville Shale undeveloped reserves at year-end 2012, which were reduced due to low natural gas prices. These decreases were partially offset by the Company’s development of a portion of its Permian basin, on which it drilled a total of 27 oil wells during 2012.
Extrapolation of performance history and material balance estimates were utilized by the Company's independent petroleum and geological firm to project future recoverable reserves for the producing properties where sufficient history existed to suggest performance trends and where these methods were applicable to the subject reservoirs. The projections for the remaining producing properties were necessarily based on volumetric calculations and/or analogy to nearby producing completions. Reserves assigned to nonproducing zones and undeveloped locations were projected on the basis of volumetric calculations and analogy to nearby production.
Proved Undeveloped Reserves: The Company annually reviews its proved undeveloped reserves (“PUDs”) to ensure an appropriate plan for development exists. Generally, reserves for the Company’s onshore properties are booked as PUDs only if the Company has plans to convert the PUDs into proved developed reserves within five years of the date they are first booked as PUDs. The Company's PUDs decreased 18% to 7,337 MBoe from 8,925 MBoe at December 31, 2012 and 2011, respectively. Additions during the year added 2,344 MBoe to the Company's PUDs, offset by (1) 557 MBoe primarily comprised of transfers to PDPs as a result of our development program, (2) 1,148 MBoe related to the sale of Habanero, and (3) 2,227 MBoe related to reductions in our PUD reserves, primarily related to the Haynesville Shale, by amounts no longer deemed to be economic PUDs at year-end. Of the Company's year-end 2011 PUD reserves, 6% were converted to proved developed producing reserves by year end 2012, at a total cost of approximately $19 million, net.
Of the Company's 2012 PUDs, 1,297 MBoe are attributable to the Company’s offshore properties in the Medusa fields in the Gulf of Mexico. The Company's deepwater PUDs have been classified as PUDs for more than five years, though we expect to develop these PUDs within the next two years. Callon's decision to classify these reserves as PUDs was primarily based on (1) its ongoing development activities in the area, (2) its historical record of completing development of comparable long-term projects, (3) the amount of time which Callon have maintained the leases or booked reserves without significant development activities and (4) the extent to which Callon have followed previously adopted development plans. Callon's discussions with the field's operator have resulted in the modification of certain development plans for Medusa to drill or sidetrack PUDs within a shorter period of time than originally estimated. The Company expects to develop its Medusa PUDs by drilling a new well by the first quarter of 2014. The Company did not convert any offshore, deepwater PUDs to proved developed in 2012.
Standardized Measure
The following tables present the standardized measure of future net cash flows related to estimated proved oil and natural gas reserves together with changes therein, including a reduction for estimated plugging and abandonment costs that are also reflected as a liability on the balance sheet at December 31, 2012. You should not assume that the future net cash flows or the discounted future net cash flows, referred to in the tables below, represent the fair value of our estimated oil and natural gas reserves. Prices based on either the preceding 12-months’ average price based on closing prices on the first day of each month, or prices defined by existing contractual arrangements. The following table summarizes the average 12-month oil and natural gas prices net of differentials for the respective periods:
Future production and development costs are based on current costs with no escalations. Estimated future cash flows net of future income taxes have been discounted to their present values based on a 10% annual discount rate.
Natural gas production from our deepwater and Permian basin properties has a high BTU content of separator natural gas. The natural gas Mcf prices of $4.81 and $5.60 used in the 2012 and 2011 reserve estimates include adjustments to reflect the Btu content, transportation charges and other fees specific to the individual properties. The projected oil prices of $94.68 and $98.98 used in the 2012 and 2011 reserve estimates have been adjusted to reflect all wellhead deductions and premiums on a property-by-property basis, including transportation costs, location differentials and crude quality.
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