Callon Petroleum Company Reports Increased Earnings For Third Quarter, First Nine Months of 2008

NATCHEZ, Miss.--

Callon Petroleum Company (NYSE: CPE) today reported results of operations for both the three and the nine-month periods ended September 30, 2008.

Third Quarter and Nine Months 2008 Net Income. For the quarter ended September 30, 2008, the company reported net income of $5.9 million, which was 156% higher than the $2.3 million reported for the same period in 2007. Net income per share was $0.27 and $0.11 for the quarters ended September 30, 2008 and 2007, respectively. For the nine months ended September 30, 2008, Callon reported net income of $18.6 million, or $0.85 per share after a one-time charge of $11.9 million, or $0.35 per share, net of tax, related to the early extinguishment of debt under the company's $200 million Senior Revolving Credit Facility which was retired in April 2008. This compares with net income of $10.7 million, or $0.50 per share during the same period of 2007. All per share amounts are on a diluted basis.

Third Quarter and Nine Months 2008 Operating Results. Operating results for the third quarter of 2008 were impacted by two back-to-back Hurricanes. On August 30, 2008 several of the company's fields were shut-in due to the approach of Hurricane Gustav and, subsequently, Hurricane Ike. Primarily as a result of damage caused by those two storms to third-party transmission lines and downstream facilities which process Callon's crude oil and natural gas, production of approximately 12.6 million cubic feet of natural gas equivalent per day (MMcfe/d) was deferred during the third quarter of 2008. Average daily production in the third quarter was 25.9 MMcfe/d. Operating results for the three months ended September 30, 2008 include oil and gas sales of $32.8 million. This corresponds to sales of $37.9 million from average production of 45.4 MMcfe/d during the comparable 2007 period. The average price received per thousand cubic feet of natural gas (Mcf) in the third quarter of 2008, after the impact of hedging, increased to $10.77 compared to $7.73 during the third quarter of 2007. The average price received per barrel of oil (Bbl) in the third quarter of 2008, after the impact of hedging, increased to $99.40, compared to $71.29 during the same period a year earlier. Oil and natural gas sales for the first nine months of 2008 totaled $125.8 million from average production of 35.0 MMcfe/d. This corresponds to sales of $126.8 million from average production of 53.2 MMcfe/d during the same period in 2007. The average price received per Mcf in the nine-month period of 2008, after the impact of hedging, increased to $10.53, compared to $7.97 during the first nine months of 2007. The average price received per Bbl in the nine months of 2008, after the impact of hedging, increased to $94.89, compared to $62.09 during the same period in 2007.

Third Quarter and Nine Months 2008 Discretionary Cash Flow. Discretionary cash flow for the three-month period ended September 30, 2008 totaled $21.9 million compared to $21.0 million during the comparable prior year period. Net cash flow provided by operating activities, as defined by GAAP, totaled $60.9 million and $19.8 million during the quarters ended September 30, 2008 and 2007, respectively. Discretionary cash flow for the first nine months of 2008 totaled $81.2 million compared to $79.4 million during the same period in 2007. Net cash flow provided by operating activities, as defined by GAAP, totaled $124.8 million and $89.9 million during the nine-month periods ended September 30, 2008 and 2007, 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.)

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 which the company may not 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  Three Months      Nine Months
 Measure:                                  Ended            Ended
------------------------------------
(In thousands)                        September 30,    September 30,
                                     ---------------- ----------------
                                      2008     2007     2008    2007
                                     ------- -------- -------- -------
 Discretionary cash flow             $21,873 $21,012   $81,161 $79,404
 Net working capital changes and
  other changes                       38,993  (1,248)   43,614  10,516
                                     ------- -------- -------- -------
 Net cash flow provided by operating
  activities                         $60,866 $19,764  $124,775 $89,920
                                     ======= ======== ======== =======
                                       Three Months     Nine Months
Production and Price Information:         Ended            Ended
------------------------------------
                                      September 30,    September 30,
                                     ---------------- ----------------
                                       2008    2007     2008    2007
                                     -------- ------- -------- -------
Production:
  Oil (MBbls)                            205     223      780     774
  Gas (MMcf)                           1,153   2,840    4,913   9,883
  Gas equivalent (MMcfe)               2,383   4,179    9,593  14,527
  Average daily (MMcfe)                 25.9    45.4     35.0    53.2

Average prices:
  Oil ($/Bbl)(a)                      $99.40  $71.29   $94.89  $62.09
  Gas ($/Mcf)                         $10.77   $7.73   $10.53   $7.97
  Gas equivalent ($/Mcfe)             $13.76   $9.06   $13.11   $8.73

Additional per Mcfe data:
  Sales price                         $13.76   $9.06   $13.11   $8.73
  Lease operating expenses              1.55    1.28     1.43    1.41
                                     -------- ------- -------- -------
  Operating margin                    $12.21   $7.78   $11.68   $7.32
                                     ======== ======= ======== =======

  Depletion                            $4.83   $3.81    $4.35   $3.90
  General and administrative (net of
   management fees)                    $0.61   $0.62    $0.73   $0.49

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

Average NYMEX oil price              $117.98  $75.37  $113.29  $66.21
    Basis differentials and quality
     adjustments                        1.32  ( 2.96)  ( 3.07) ( 4.45)
    Transportation                    ( 1.34) ( 1.12)  ( 1.30) ( 1.13)
    Hedging                           (18.56)     --   (14.03)   1.46
                                     -------- ------- -------- -------
Averaged realized oil price           $99.40  $71.29   $94.89  $62.09
                                     ======== ======= ======== =======
                       Callon Petroleum Company
                     Consolidated Balance Sheets
                  (In thousands, except share data)

                                          September 30,  December 31,
                                              2008           2007
                                          -------------  ------------
                 ASSETS                    (Unaudited)
-----------------------------------------
Current assets:
   Cash and cash equivalents                   $101,549       $53,250
   Accounts receivable                           50,148        22,073
   Restricted investments                            --           100
   Fair market value of derivatives               5,066            --
   Other current assets                           3,498         6,592
                                          -------------  ------------
      Total current assets                      160,261        82,015
                                          -------------  ------------

 Oil and gas properties, full-cost
  accounting method:
   Evaluated properties                       1,345,841     1,349,904
   Less accumulated depreciation,
    depletion and amortization                 (780,134)     (738,374)
                                          -------------  ------------
                                                565,707       611,530

   Unevaluated properties excluded from
    amortization                                 51,401        70,176
                                          -------------  ------------
      Total oil and gas properties              617,108       681,706
                                          -------------  ------------

 Other property and equipment, net                2,547         1,986
 Restricted investments                           4,733         4,525
 Investment in Medusa Spar LLC                   12,679        12,673
 Other assets, net                                4,934         9,577
                                          -------------  ------------
      Total assets                             $802,262      $792,482
                                          =============  ============
  LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------
 Current liabilities:
  Accounts payable and accrued
   liabilities                                 $112,295       $37,180
  Advances from joint interest owners            12,966           518
  Asset retirement obligations                    3,935         9,810
  Fair market value of derivatives                1,345         5,205
                                          -------------  ------------
      Total current liabilities                 130,541        52,713
                                          -------------  ------------

 Long-term debt                                 272,227       392,012
 Asset retirement obligations                    36,187        27,027
 Deferred tax liability                          43,998        32,190
 Other long-term liabilities                      2,995         1,465
                                          -------------  ------------
      Total liabilities                         485,948       505,407
                                          -------------  ------------
 Stockholders' equity:
  Preferred Stock, $.01 par value,
   2,500,000 shares authorized;                      --            --
  Common Stock, $.01 par value,
   30,000,000 shares authorized;
   21,611,847 and 20,891,145 shares
   outstanding at September 30, 2008 and
   December 31, 2007, respectively                  216           209
  Capital in excess of par value                226,639       223,336
  Other comprehensive income                      3,905        (3,383)
  Retained earnings                              85,554        66,913
                                          -------------  ------------
       Total stockholders' equity               316,314       287,075
                                          -------------  ------------
       Total liabilities and
        stockholders' equity                   $802,262      $792,482
                                          =============  ============
                       Callon Petroleum Company
                Consolidated Statements of Operations
               (In thousands, except per share amounts)
                             (Unaudited)

                                  Three Months Ended Nine Months Ended
                                    September 30,      September 30,
                                  ------------------ -----------------
                                    2008      2007     2008     2007
                                  --------- -------- -------- --------
Operating revenues:
  Oil sales                        $20,366  $15,912  $74,016  $48,058
  Gas sales                         12,417   21,957   51,756   78,769
                                  --------- -------- -------- --------
      Total operating revenues      32,783   37,869  125,772  126,827
                                  --------- -------- -------- --------

Operating expenses:
  Lease operating expenses           3,701    5,338   13,749   20,550
  Depreciation, depletion and
   amortization                     11,513   15,931   41,760   56,597
  General and administrative         1,451    2,606    7,046    7,098
  Accretion expense                  1,092      904    3,076    2,959
  Derivative expense                 1,386       --    1,386       --
                                  --------- -------- -------- --------
     Total operating expenses       19,143   24,779   67,017   87,204
                                  --------- -------- -------- --------

  Income from operations            13,640   13,090   58,755   39,623
                                  --------- -------- -------- --------

  Other (income) expenses:
  Interest expense                   5,014   10,148   19,709   23,905
  Loss on early extinguishment of
   debt                                 --       --   11,871       --
  Other (income) expense               (89)    (387)    (940)    (814)
                                  --------- -------- -------- --------
     Total other (income)
      expenses                       4,925    9,761   30,640   23,091
                                  --------- -------- -------- --------

  Income before income taxes         8,715    3,329   28,115   16,532
  Income tax expense                 2,919    1,165    9,731    6,283
                                  --------- -------- -------- --------

  Income before Medusa Spar LLC      5,796    2,164   18,384   10,249
  Income from Medusa Spar LLC,
   net of tax                           60      104      257      403
                                  --------- -------- -------- --------

  Net income                        $5,856   $2,268  $18,641  $10,652
                                  ========= ======== ======== ========

  Net income per common share:
    Basic                            $0.27    $0.11    $0.88    $0.51
                                  ========= ======== ======== ========
    Diluted                          $0.27    $0.11    $0.85    $0.50
                                  ========= ======== ======== ========

  Shares used in computing net
   income per common share:
    Basic                           21,460   20,800   21,078   20,728
                                  ========= ======== ======== ========
    Diluted                         22,028   21,230   21,893   21,220
                                  ========= ======== ======== ========
                       Callon Petroleum Company
                Consolidated Statements of Cash Flows
                            (In thousands)
                             (Unaudited)

                                                Nine Months Ended
                                           ---------------------------
                                           September 30, September 30,
                                               2008          2007
                                           ------------- -------------
Cash flows from operating activities:
Net income                                      $18,641       $10,652
Adjustments to reconcile net income to
cash provided by operating activities:
    Depreciation, depletion and
     amortization                                42,333        57,270
    Accretion expense                             3,076         2,959
    Amortization of deferred financing
     costs                                        2,308         2,153
    Non-cash loss on early extinguishment
     of debt                                      5,598            --
    Equity in earnings of Medusa Spar LLC          (257)         (403)
    Non-cash derivative expense                     690            --
    Deferred income tax expense                   9,731         6,283
    Non-cash charge related to
     compensation plans                           1,026           490
    Excess tax benefits from share-based
     payment arrangements                        (1,985)           --
    Changes in current assets and
     liabilities:
       Accounts receivable                       13,094         7,891
       Other current assets                       3,094          (413)
       Current liabilities                       26,039           896
    Change in gas balancing receivable              806          (160)
    Change in gas balancing payable                 356           564
    Change in other long-term liabilities         1,174            (7)
    Change in other assets, net                    (949)        1,745
                                           ------------  ------------
       Cash provided by operating
        activities                              124,775        89,920
                                           ------------  ------------

Cash flows from investing activities:
  Capital expenditures                         (123,626)     (106,899)
  Entrada acquisition                                --      (150,000)
  Proceeds from sale of Entrada working
   interest                                     167,493            --
  Distribution from Medusa Spar LLC                 389           559
                                           ------------  ------------
        Cash provided by (used in)
         investing activities                    44,256      (256,340)
                                           ------------  ------------

Cash flows from financing activities:
  Change in accrued liabilities to be
   refinanced                                        --        10,000
  Increases in debt                              94,435       213,000
  Payments on debt                             (216,000)      (48,000)
  Deferred financing costs                           --        (6,429)
  Equity issued related to employee stock
   plans                                         (1,152)           --
  Excess tax benefits from share-based
   payment arrangements                           1,985            --
  Capital leases                                     --          (872)
                                           ------------  ------------
        Cash (used in) provided by
         financing activities                  (120,732)      167,699
                                           ------------  ------------

Net increase in cash and cash equivalents        48,299         1,279
Cash and cash equivalents:
  Balance, beginning of period                   53,250         1,896
                                           ------------  ------------
  Balance, end of period                       $101,549        $3,175
                                           ============  ============

Callon Petroleum Company is engaged in the exploration, development, acquisition and operation of oil and gas properties in the Gulf Coast region. The majority of Callon's properties and operations are concentrated in 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 left side of 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