|
Deconsolidation of Callon Entrada; Global Settlement with Joint Interest Partner
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dec. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deconsolidation of Callon Entrada; Global Settlement with Joint Interest Partner |
Deconsolidation of Callon Entrada; Global Settlement with Joint Interest Partner
In April 2008, Callon completed the sale of a 50% working interest in the Entrada Field to CIECO Energy (US) Limited (“CIECO”) effective January 1, 2008. At closing, CIECO paid Callon $155,000, and reimbursed the Company $12,600 for 50% of Entrada capital expenditures incurred prior to the closing date. In addition, as part of the purchase and sale agreement, CIECO agreed to loan Callon Entrada, a wholly owned subsidiary of the Company, up to $150,000 plus interest expense incurred up to $12,000, for its share of the development costs for the Entrada project. Based on the terms of the credit agreement with CIECO Energy (Entrada) LLC (“CIECO Entrada”), the debt was to be repaid solely from assets, primarily production, from the Entrada field. All assets of Callon Entrada, including its stock, were pledged to CIECO Entrada under the Callon Entrada credit agreement, and neither Callon nor its subsidiaries (other than Callon Entrada) guaranteed the Callon Entrada credit facility.
Prior to January 1, 2010 and prior to the issuance of revised accounting rules regarding the consolidating of VIEs, the Company was required to consolidate the financial statements and results of operations of Callon Entrada, and as such, Callon Entrada’s non-recourse principal and interest due under the credit facility was reflected in a separate line item in Callon’s 2009 consolidated financial statements.
Based on the Company’s re-evaluation under the revised accounting rules, which are detailed in Note 2, the Company concluded that a VIE reconsideration event had taken place resulting in the determination that Callon Entrada is a VIE, for which the Company was not the primary beneficiary and, as a result, Callon Entrada was deconsolidated from the Company’s consolidated financial statements as of January 1, 2010. Key events considered in this analysis include the following:
Default on non-recourse debt and CIECO’s acceleration rights exercised: As a result of abandoning the Entrada project in November 2008, prior to completion, Callon Entrada’s only source of payment was the proceeds from the sale of equipment purchased but not used for the Entrada project. On April 2, 2009, Callon Entrada received a notice from CIECO Entrada advising Callon Entrada that certain alleged events of default occurred under the credit agreement relating to failure to pay interest when due and the breach of various other covenants related to the decision to abandon the Entrada project. The notice of default received from CIECO Entrada invoked CIECO Entrada’s rights under the Callon Entrada credit agreement to accelerate payment of the principal and interest due, and to invoke its rights to the surplus equipment related to the Entrada project, including the proceeds from the sale of the equipment and the ability to control the decisions related to the sale of the equipment. Based on the advice of legal counsel, Callon believed that it and its other subsidiaries were not otherwise obligated to repay the principal, accrued interest or any other amounts which could become due under the Callon Entrada credit facility. The agreement accrued interest at six-month LIBOR (as in effect on the first day of each interest period) plus 375 basis points and was subject to customary representations, warranties, covenants and events of default. The interest rate increased by 400 basis points on April 2, 2009 when, as discussed above, CIECO Entrada provided notice of default to Callon Entrada,. While at January 1, 2010 Callon Entrada was deconsolidated from these financial statements such that no principal or interest were recorded as outstanding on the Consolidated Balance Sheet at December 31,2010 under this facility, at December 31, 2009, $78,435 of principal and $6,412 of interest were outstanding under this facility.
Abandonment obligations satisfied: Callon guaranteed Callon Entrada’s payment of all amounts to plug and abandon the wells and related facilities and for a breach of law, rule or regulation (including environmental laws) and for any losses of CIECO Entrada attributable to gross negligence of Callon Entrada. The well for which Callon Entrada was responsible was plugged and abandoned in the fourth of quarter of 2008, and the Bureau of Ocean Energy Management, Regulation and Enforcement (“BOEMRE,” formerly the Minerals Management Service) confirmed to Callon during September 2009 that Callon had satisfied all if its abandonment obligations related to this project.
No ability to control future actions of Callon Entrada: As of December 31, 2009, the wind down of the Entrada project was complete, all of the costs related to the Entrada project were paid, and subsequent to the lease expiration June 1, 2009, control of the property reverted to the BOEMRE. The sale of remaining equipment purchased for the Entrada project remained ongoing. The Company believed that the amount of future operating costs of Callon Entrada, for which the Company would be responsible, was insignificant and would be limited to minimal storage fees for the surplus equipment while the equipment was being liquidated. As of December 2010, Callon Entrada had collected $4,235 in sales proceeds from the sale of equipment, net to its interest, which was applied to unpaid interest expense as required under the Callon Entrada credit facility.
As a result of the events described above, the Company lost its power to direct the only remaining activities that affect Callon Entrada’s future economic performance. Below is a condensed balance sheet of Callon presented to demonstrate the effect of deconsolidation on the financial statements at January 1, 2010:
Global Settlement with Joint Interest Partner
During May 2011, the Company entered into a final project wind-down agreement (the “Agreement”) with CIECO. The Agreement, effective as of April 29, 2011, provided for the extinguishment of all existing agreements and commitments between the parties as it related to the past development of the Entrada project. The Agreement included a formal extinguishment of the non-recourse credit agreement between Callon Entrada and CIECO and the assignment to Callon Entrada of CIECO's 50% rights to the remaining assets including primarily the unsold, residual equipment and all engineering data related to the Entrada project. When combined with Callon Entrada's existing 50% ownership of these assets, this Agreement results in Callon Entrada's full ownership of all remaining assets. Also, as a result of this Agreement, which included both the assignment of the rights to the Entrada assets and the proceeds from the ultimate sale of such assets, the Company gained the power to direct the activities related to the sale of the remaining assets, and therefore became the primary beneficiary of Callon Entrada. Therefore, as Callon became its primary beneficiary, Callon Entrada was consolidated in the Company's consolidated financial statements, effective April 29, 2011.
Upon consolidating Callon Entrada, the Company estimated the fair values of the assets acquired to be $11,349 and liabilities assumed of Callon Entrada to be $2,681 as a result of this Agreement. The assets acquired consisted primarily of the Entrada surplus equipment and the liabilities assumed consisted of deferred tax liabilities associated with the basis difference of the equipment. The Company utilized a portion of its deferred tax asset and recognized an income tax benefit equal to $2,681.
During the period from the acquisition date through June 30, 2011, the Company sold certain of the acquired assets for $3,658. Also in connection with this Agreement, Callon Entrada agreed to pay to CIECO approximately $438, which represented the net balance of joint interest billings due to CIECO and which had been previously accrued. The agreement also included joint releases of each party from any further liabilities or obligations to the other party in connection with the Entrada project.
The adjusted fair market value of the net assets acquired of approximately $8,759 were recorded during 2011 as a $5,041 gain and $3,718 as an adjustment to the Company's full cost pool of oil and gas properties. The gain recognition was required as a result of the Company acquiring CIECO's former share of the assets, and the full cost pool adjustment was required to reflect the Company's share of the assets held by the Company prior to the deconsolidation of the Callon Entrada subsidiary in 2010. The gain of $5,041 increased the Company's fully diluted earnings per share by $0.13 for the year ended December 31, 2011. Also as of December 31, 2011, the remaining unsold assets had carrying values of $6,514 and are included in the Company's balance sheet as a component of Other property and equipment, net. The Company is actively marketing these assets.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||