Callon Petroleum Company Reports Results for Third Quarter, First Nine Months of 2010

NATCHEZ, Miss.-- Callon Petroleum Company (NYSE: CPE) today reported net income of $1.6 million, or $0.05 per diluted share, for the third quarter, and $7.7 million, or $0.26 per diluted share, for the nine-month period ended September 30, 2010. These results represent three consecutive quarters of improved earnings over the corresponding periods of 2009, during which the company reported a net loss of $1.0 million, or $0.04 per diluted share, for the third quarter of 2009 and net income of $0.5 million, or $0.02 per diluted share, for the nine-month period ended September 30, 2009.

Highlights from the first nine months of 2010 include:

    --  Drilled and placed on production nine wells in the Permian Basin,
        increasing our net production in the play by 43% to 500 barrels of oil
        equivalent per day (Boe/d) and our proved reserves by 2.1 million of
        barrels of oil equivalent (MMboe). As of September 30, 2010, we were
        drilling two wells and had two wells awaiting fracture stimulation. With
        two rigs running in the Permian Basin, the company expects to drill a
        total of 23 wells in 2010, increasing net production of oil to
        approximately 750 Boe/d by year-end.

    --  Completed and placed on production our first operated Haynesville Shale
        well, which began producing at a restricted flow rate of 10.5 million
        cubic feet of natural gas equivalent per day (MMcfe/d). This is the
        first of seven planned Haynesville wells. Through September 30, 2010, a
        total of 2.3 MMboe have been converted from probable reserves to proved
        status.
    --  Total proved reserves based on internal engineering estimates have
        increased to 13 MMboe as of September 30, 2010, a 34% increase
        year-to-date.
    --  The borrowing base on the company's credit facility was increased 50% to
        $30 million based on the growth of the company's proved reserves.

"With the third quarter, we delivered another period of positive execution of our strategic growth plan that we implemented a little more than a year ago," Fred Callon, Chairman and CEO, points out. "This time last year, we had no onshore oil production. Today we are reporting onshore oil production of 500 net barrels per day, and we have our Haynesville Shale acreage held by production. Our diversification strategy for reinvesting cash flow generated from our offshore deepwater fields into lower-risk onshore oil and shale gas plays has enabled us to increase our long-term visible growth prospects, strengthen our balance sheet and continue growing per-share value."

Third Quarter and Nine Months 2010 Operating Results. Operating results for the three months ended September 30, 2010 include oil and gas sales of $20.5 million from average production of 25.6 MMcfe/d, as compared to sales of $21.3 million from average production of 27.4 MMcfe/d during the comparable 2009 period. The average price per thousand cubic feet of natural gas (Mcf) received during the quarter ended September 30, 2010, after the impact of hedging, increased 33% to $4.84, as compared to $3.64 for the quarter ended September 30, 2009. The average price per barrel of oil (Bbl) received in the third quarter of 2010, after hedging impact, decreased 13% to $72.47, as compared to $83.38 for the same period in 2009.

Oil and gas sales for the first nine months of 2010 totaled $65.4 million from average production of 26.5 MMcfe/d. This corresponds to sales of $71.2 million from average production of 31.3 MMcfe/d during the same period in 2009. The average price received per Mcf of natural gas in the nine-month period of 2010, after the impact of hedging, increased 13% to $5.29, as compared to $4.69 during the first nine months of 2009. Likewise, the average price received per barrel of oil in the first nine months of 2010, after hedging impact, increased 4% to $73.78, as compared to $71.03 during the same period in 2009.

Third Quarter and Nine Months 2010 Discretionary Cash Flow. Discretionary cash flow for the three and nine-month periods ended September 30, 2010 totaled $8.1 million and $29.9 million, respectively, compared to $7.0 million and $30.0 million, respectively, during the comparable prior year periods. Net cash flow provided by operating activities, as defined by GAAP, totaled $16.1 million and $82.2 million during the three and nine-month periods ended September 30, 2010, significant increases over the $0.6 million and $11.6 million cash provided by operating activities during the three and nine-month periods of 2009, respectively. (See "Non-GAAP Financial Measure" that follows and the accompanying reconciliation of discretionary cash flow, a non-GAAP measure, to net cash flow provided by operating activities.)

Liquidity and Capital Resources. At September 30, 2010, cash was $19.8 million, up from $3.6 million at December 31, 2009. Successful drilling activity in the Permian Basin and the Haynesville Shale play led to the conversion of non-proved reserves into the proved category, resulting in the previously mentioned increase in borrowing base to $30 million. As of September 30, no borrowings were outstanding under the bank credit facility.

Non-GAAP Financial Measure - This news release refers to a non-GAAP financial measure as "discretionary cash flow." Callon believes that the non-GAAP measure of discretionary cash flow is useful as an indicator of an oil and gas exploration and production company's ability to internally fund exploration and development activities and to service or incur additional debt. The company also has included this information because changes in operating assets and liabilities relate to the timing of cash receipts and disbursements over which the company may have no control, and may not relate to the period in which the operating activities occurred. Discretionary cash flow should not be considered an alternative to net cash provided by operating activities or net income as defined by GAAP.



Reconciliation of Non-GAAP Financial Measure:

(in
thousands)

               Three Months Ended September 30,   Nine-Months Ended September 30,

               2010       2009         Change     2010       2009          Change

Discretionary  $ 8,108    $ 6,991      $ 1,117    $ 29,872   $ 30,004      $ (132   )
cash flow

Net working
capital          7,971      (6,435 )     14,406     52,372     (18,419 )     70,791
changes and
other changes

Net cash flow
provided by
(used in)      $ 16,079   $ 556        $ 15,523   $ 82,244   $ 11,585      $ 70,659
operating
activities




The following tables set forth certain unaudited operating information with
respect to the company's oil and gas operations for the periods indicated:

                                 Three Months Ended September 30,

                                 2010         2009         Change       % Change

Net production:

Oil (MBbls)                        209          197          12         6    %

Gas (MMcf)                         1,107        1,336        (229   )   (17  )%

Total production (MMcfe)           2,359        2,520        (161   )   (6   )%

Average daily production           25.6         27.4         (1.8   )   (7   )%
(MMcfe)

Average realized sales price
(a):

Oil (Bbl)                        $ 72.47      $ 83.38      $ (10.91 )   (13  )%

Gas (Mcf)                          4.84         3.64         1.20       33   %

Total (Mcfe)                       8.68         8.46         0.22       3    %

Oil and gas revenues (in
thousands):

Oil revenue                      $ 15,123     $ 16,451     $ (1,328 )   (8   )%

Gas revenue                        5,362        4,869        493        10   %

Total                            $ 20,485     $ 21,320     $ (835   )   (4   )%

Additional per Mcfe data:

Sales price                      $ 8.68       $ 8.46       $ 0.22       3    %

Lease operating expense            (1.83  )     (1.97  )     0.14       (7   )%

Operating margin                 $ 6.85       $ 6.49       $ 0.36       6    %

Other expenses on a per Mcfe
basis:

Depletion, depreciation and      $ 3.13       $ 2.72       $ 0.41       15   %
amortization

General and administrative       $ 1.43       $ 1.19       $ 0.24       20   %
(net of capitalized amounts)

(a) Below is a reconciliation of the average NYMEX price to the average realized
sales price per barrel of oil / Mcf of gas:

Average NYMEX oil price          $ 76.23      $ 68.27      $ 7.96       12   %

Basis differential and quality     (2.62  )     (2.60  )     (0.02  )   1    %
adjustments

Transportation                     (1.14  )     (1.32  )     0.18       (14  )%

Hedging                            -            19.03        (19.03 )   (100 )%

Average realized oil price       $ 72.47      $ 83.38      $ (10.91 )   (13  )%

Average NYMEX gas price          $ 4.24       $ 3.46       $ 0.78       23   %

Natural gas liquid content and     0.49         0.18         0.31       172  %
volume conversion adjustments

Hedging                            0.11         -            0.11       100  %

Average realized gas price       $ 4.84       $ 3.64       $ 1.20       33   %




                                 Nine Months Ended September 30,

                                 2010         2009         Change       % Change

Net production:

Oil (MBbls)                        646          723          (77    )   (11  )%

Gas (MMcf)                         3,359        4,216        (857   )   (20  )%

Total production (MMcfe)           7,237        8,556        (1,319 )   (15  )%

Average daily production           26.5         31.3         (4.8   )   (15  )%
(MMcfe)

Average realized sales price
(a):

Oil (Bbl)                        $ 73.78      $ 71.03      $ 2.75       4    %

Gas (Mcf)                          5.29         4.69         0.60       13   %

Total (Mcfe)                       9.04         8.32         0.72       9    %

Oil and gas revenues (in
thousands):

Oil revenue                      $ 47,687     $ 51,374     $ (3,687 )   (7   )%

Gas revenue                        17,752       19,786       (2,034 )   (10  )%

Total                            $ 65,439     $ 71,160     $ (5,721 )   (8   )%

Additional per Mcfe data:

Sales price                      $ 9.04       $ 8.32       $ 0.72       9    %

Lease operating expense            (1.80  )     (1.60  )     (0.20  )   13   %

Operating margin                 $ 7.24       $ 6.72       $ 0.52       8    %

Other expenses on a per Mcfe
basis:

Depletion, depreciation and      $ 2.94       $ 2.89       $ 0.05       2    %
amortization

General and administrative       $ 1.67       $ 1.19       $ 0.48       40   %
(net of capitalized amounts)

(a) Below is a reconciliation of the average NYMEX price to the average realized
sales price per barrel of oil / Mcf of gas:

Average NYMEX oil price          $ 77.65      $ 56.99      $ 20.66      36   %

Basis differential and quality     (2.70  )     (4.40  )     1.70       (39  )%
adjustments

Transportation                     (1.18  )     (1.35  )     0.17       (13  )%

Hedging                            0.01         19.79        (19.78 )   (100 )%

Average realized oil price       $ 73.78      $ 71.03      $ 2.75       4    %

Average NYMEX gas price          $ 4.54       $ 3.92       $ 0.62       16   %

Natural gas liquid content and     0.64         0.33         0.31       94   %
volume conversion adjustments

Hedging                            0.11         0.44         (0.33  )   (75  )%

Average realized gas price       $ 5.29       $ 4.69       $ 0.60       13   %




Callon Petroleum Company

Consolidated Balance Sheets

(in thousands, except share data)

                                         September 30, 2010   December 31, 2009

ASSETS                                   (Unaudited)

Current assets:

Cash and cash equivalents                $ 19,750             $ 3,635

Accounts receivable                        15,239               20,798

Accounts receivable - BOEMRE royalty       -                    51,534
recoupment

Fair market value of derivatives           646                  145

Other current assets                       3,432                1,572

Total current assets                       39,067               77,684

Oil and gas properties, full-cost
accounting method:

Evaluated properties                       1,280,714            1,593,884

Less accumulated depreciation,             (1,145,363 )         (1,488,718 )
depletion and amortization

Net oil and gas properties                 135,351              105,166

Unevaluated properties excluded from       20,038               25,442
amortization

Total oil and gas properties               155,389              130,608

Other property and equipment, net          3,353                2,508

Restricted investments                     4,005                4,065

Investment in Medusa Spar LLC              10,665               11,537

Other assets, net                          1,341                1,589

Total assets                             $ 213,820            $ 227,991

LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)

Current liabilities:

Accounts payable and accrued             $ 14,619             $ 12,887
liabilities

Asset retirement obligations               1,778                4,002

9.75% Senior Notes, net of $0 and $232     -                    15,820
discount, respectively

Subtotal                                   16,397               32,709

Callon Entrada non-recourse credit         -                    84,847
facility (See Note 1)

Total current liabilities                  16,397               117,556

13% Senior Notes (See Note 6)

Principal outstanding                      137,961              137,961

Deferred credit, net of accumulated
amortization of $3,017 and $294,           28,490               31,213
respectively

Total 13% Senior Notes                     166,451              169,174

Senior secured revolving credit            -                    10,000
facility

Asset retirement obligations               13,158               10,648

Other long-term liabilities                1,931                1,467

Total liabilities                          197,937              308,845

Stockholders' equity (deficit):

Preferred Stock, $.01 par value,           -                    -
2,500,000 shares authorized;

Common Stock, $.01 par value,
60,000,000 shares authorized;
28,965,421 and 28,742,926 shares           290                  287
outstanding at September 30, 2010 and
December 31, 2009, respectively

Capital in excess of par value             247,291              243,898

Other comprehensive loss                   (6,887     )         (7,478     )

Retained earnings (deficit)                (224,811   )         (317,561   )

Total stockholders' equity (deficit)       15,883               (80,854    )

Total liabilities and stockholders'      $ 213,820            $ 227,991
equity (deficit)




Callon Petroleum Company

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

                                   Three Months Ended      Nine Months Ended

                                   September 30,           September 30,

                                   2010       2009         2010         2009

Operating revenues:

Oil sales                          $ 15,123   $ 16,451     $ 47,687     $ 51,374

Gas sales                            5,362      4,869        17,752       19,786

Total operating revenues             20,485     21,320       65,439       71,160

Operating expenses:

Lease operating expenses             4,327      4,962        13,006       13,657

Depreciation, depletion and          7,392      6,861        21,247       24,726
amortization

General and administrative           3,371      3,000        12,086       10,210

Accretion expense                    601        698          1,803        2,531

Acquisition expense                  139        -            139          -

Total operating expenses             15,830     15,521       48,281       51,124

Income from operations               4,655      5,799        17,158       20,036

Other (income) expenses:

Interest expense                     3,133      4,919        9,925        14,555

Callon Entrada non-recourse          -          1,882        -            5,373
credit facility interest expense

Loss on early extinguishment of      -          -            339          -
debt

Other (income) expense               63         110          (409   )     76

Total other expenses                 3,196      6,911        9,855        20,004

Income (loss) before income          1,459      (1,112 )     7,303        32
taxes

Income tax expense                   -          -            -            -

Income (loss) before equity in       1,459      (1,112 )     7,303        32
earnings of Medusa Spar LLC

Equity in earnings of Medusa         143        157          352          492
Spar LLC

Net income (loss) available to     $ 1,602    $ (955   )   $ 7,655      $ 524
common shares

Net income (loss) per common
share:

Basic                              $ 0.06     $ (0.04  )   $ 0.27       $ 0.02

Diluted                            $ 0.05     $ (0.04  )   $ 0.26       $ 0.02

Shares used in computing net
income per common share:

Basic                                28,815     21,705       28,769       21,631

Diluted                              29,491     21,705       29,431       21,665




Callon Petroleum Company

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

                                                 Nine Months Ended September 30,

                                                 2010          2009

Cash flows from operating activities:

Net income                                       $ 7,655       $ 524

Adjustments to reconcile net income to cash
provided by operating activities:

Depreciation, depletion and amortization           21,860        25,359

Accretion expense                                  1,803         2,531

Amortization of non-cash debt related items        305           2,251

Callon Entrada non-recourse credit facility        -             3,296
interest expense

Amortization of deferred credit                    (2,723  )     -

Equity in earnings of Medusa Spar LLC              (352    )     (492    )

Non-cash charge for early debt extinguishment      179           -

Non-cash charge related to compensation plans      2,356         1,947

Payments to settle asset retirement                (1,211  )     (5,412  )
obligations

Changes in current assets and liabilities:

Accounts receivable                                54,593        8,355

Other current assets                               (1,462  )     (841    )

Current liabilities                                (134    )     (25,709 )

Change in gas balancing receivable                 370           454

Change in gas balancing payable                    (292    )     (201    )

Change in other long-term liabilities              (115    )     54

Change in other assets, net                        (588    )     (531    )

Cash provided by operating activities              82,244        11,585

Cash flows from investing activities:

Capital expenditures                               (39,617 )     (29,030 )

Acquisition expenditures                           (995    )     -

Investment in restricted assets related to         (337    )     -
plugging and abandonment

Distribution from Medusa Spar LLC                  1,224         1,381

Cash used in investing activities                  (39,725 )     (27,649 )

Cash flows from financing activities:

Borrowings from senior secured credit facility     -             9,337

Payments on senior secured credit facility         (10,000 )     (9,337  )

Redemption of remaining 9.75% senior notes         (16,052 )     -

Proceeds from exercise of employee stock           (41     )     -
options

Cash used in financing activities                  (26,093 )     -

Net change in cash and cash equivalents            16,426        (16,064 )

Cash and cash equivalents:

Balance, beginning of period                       3,635         17,126

Less: Cash held by subsidiary deconsolidated       (311    )     -
at January 1, 2010

Balance, end of period                           $ 19,750      $ 1,062



Callon Petroleum Company is engaged in the acquisition, development, exploration and operation of oil and gas properties in Texas, Louisiana and the offshore waters of the Gulf of Mexico.

This news release is posted on the company's website at www.callon.com and will be archived there for subsequent review. It can be accessed from the "News Releases" link on the homepage.

It should be noted that this news release contains projections and other 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. These projections and statements reflect the company's current views with respect to future events and financial performance. No assurances can be given, however, that these events will occur or that these projections will be achieved and actual results could differ materially from those projected as a result of certain factors. Some of the factors which could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements are discussed in our filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K, available on our website or the SEC's website at www.sec.gov.


    Source: Callon Petroleum Company