Callon Petroleum Company Reports Results for Fourth Quarter, Full Year 2010
NATCHEZ, Miss.-- Callon Petroleum Company (NYSE: CPE) today reported results of operations for both the three and 12-month periods ended December 31, 2010.
Highlights for 2010 include:
-- Increased proved reserves to 13.6 million barrels of oil equivalent as
of December 31, 2010, a 41% increase, and the PV-10 value, a non-GAAP
financial measure, using SEC pricing, increased by 50% to $206 million.
(See "Non-GAAP Financial Measures"for a reconciliation of PV-10 value to
the standardized measure value of $198.9 million.)
-- Grew the percentage of proved reserves associated with onshore assets to
50%, up from 0% at year-end 2008. Proved reserves at December 31, 2010
are 49% proved, developed/producing and proved/developed/non-producing,
and are 60% crude oil and 40% natural gas.
-- Drilled 20 gross oil wells in the Permian Basin of West Texas, 11 were
completed and producing at year-end and 9 were awaiting fracture
stimulation, which increased our Permian net production to 550 barrels
of oil equivalent per day at the end of 2010 - a 69% increase over the
2009 year-end production rate.
-- Drilled and completed the company's first well in the Haynesville Shale
play in northern Louisiana. This successful well now holds all of
Callon's acreage in the play by production, with six additional drilling
locations, four net wells, in inventory awaiting more favorable natural
gas prices.
"Continued execution of the business strategy we adopted in late 2009 made 2010 a transformational year for Callon Petroleum Company," Fred Callon, Chairman and Chief Executive Officer explains. "In the Permian Basin, we've instituted a two-rig continuous drilling program with a goal of drilling 43 net wells during 2011, and have recently signed a hydraulic fracturing contract which should mitigate completion delays and improve our ability to execute our plan. In less than two years, our new business strategy including property acquisitions and their development have resulted in the rapid growth of onshore oil and gas reserves and production. As a result of the investment community's recognition of our progress, the price of our common shares increased 295% during 2010 from January 1 to December 31. In February of 2011, we approached the equity market to raise additional growth capital, and were encouraged by the positive response received by our equity offering. Our 2010 achievements create a strong foundation for continued operational success in 2011."
Fourth Quarter and Full Year 2010 Net Income. The company reported fourth quarter net income of $0.7 million, or $0.02 per fully-diluted share, compared to a net income of $53.9 million or $2.27 per fully-diluted share for the 2009 fourth quarter. For the year ended December 31, 2010, Callon's net income was $8.4 million or $0.28 per fully-diluted share, as compared to $54.4 million or $2.45 per share for the year ended December 31, 2009. Net income for the full-year 2009 includes $51.5 million or $2.32 per share related to a one-time recoupment of royalties and related interest.
Fourth Quarter and Full Year 2010 Operating Results. Operating results for the three months ended December 31, 2010 include oil and gas sales of $24.4 million from average production of approximately 5,100 barrels of oil equivalent per day (Boe/d). These results compare with oil and gas sales of $30.1 million from average production of approximately 5,900 Boe/d during the comparable 2009 period. The average price received per barrel of oil (Bbl) in the fourth quarter of 2010, after the impact of hedging, increased to $82.58, compared to $77.94 during the same period in 2009. The average price received per thousand cubic feet of natural gas (Mcf) in the fourth quarter of 2010, after the impact of hedging, decreased to $4.49, compared to $5.01 during the fourth quarter of 2009. Oil and natural gas sales for full year 2010 totaled $89.9 million from average production of approximately 4,600 Boe/d. This corresponds to oil and natural gas sales of $101.3 million from average production of approximately 5,400 Boe/d during 2009, which excludes the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) royalty recoupment of $40.9 million related to 2003 through 2008 production. The average price received per Bbl during full year 2010, after the impact of hedging, increased to $75.97, compared to $73.00 during the same period in 2009. The average price received per Mcf for full year 2010, after the impact of hedging, increased to $5.04, compared to $4.78 during the full year of 2009.
Fourth Quarter and Full Year 2010 Discretionary Cash Flow. Discretionary cash flow, a non-GAAP financial measure, for the three-month period ended December 31, 2010 totaled $10.7 million compared to $63.1 million during the comparable prior year period, which included $40.9 million attributable to the royalty recoupment related to 2003 through 2008 production. Net cash flow provided by operating activities, as defined by U.S. GAAP, was $17.7 million in the fourth quarter 2010, and $8.1 million in the fourth quarter of 2009. Discretionary cash flow for full year 2010 totaled $40.6 million, compared to $93.1 million in 2009. Net cash flow provided by operating activities, as defined by U.S. GAAP, totaled $99.9 million and $19.7 million for the years ended December 31, 2010 and 2009, respectively. (See "Non-GAAP Financial Measures" that follows and the accompanying reconciliation of discretionary cash flow, a non-GAAP measure, to net cash flow provided by operating activities.)
Liquidity. At December 31, 2010 the company's cash balance was $17.4 million. On October 26, 2010, Regions Bank increased the company's borrowing base from $20 million to $30 million as a component of its $100 million Third Amended and Restated Senior Secured Credit Agreement. The $30 million borrowing base will be reviewed and re-determined on a semi-annual basis. As of March 14, 2011, there was nothing drawn on the facility, which matures on September 25, 2012. During February, 2011, the Company received $73.7 million in net proceeds through the public offering of 10.1 million shares of its common stock, which included the issuance of 1.1 million shares pursuant to the underwriters' over-allotment option. In March, 2011, the Company plans to utilize approximately $35 million of the proceeds to redeem $31 million of the face value of its Senior Notes due 2016, plus the 13% call premium. The remaining proceeds from the offering are intended to fund a portion of its 2011 capital budget and for general corporate purposes, including possible future acquisitions.
Non-GAAP Financial Measures. This news release refers to non-GAAP financial measures as "discretionary cash flow" and "PV-10 value." 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. We also use the non-GAAP financial measure PV-10 value. PV-10 value is the present value of future net pre-tax cash flows attributable to estimated net proved reserves, discounted at 10% per annum. PV-10 value is computed on the same basis as standardized measure, a GAAP financial measure, but does not include a provision for future income taxes. We believe PV-10 value to be an important measure for evaluating the relative significance of our oil and gas properties, because it excludes income taxes which may vary materially among companies. PV-10 is not, however, a substitute for standardized measure.
Reconciliation of Non-GAAP Financial Measures:
The following table reconciles the PV-10 value to the standardized measure (in thousands):
2010 2009 $ Change % Change
PV-10 Value $ 205,532 $ 137,368 $ 68,164 50 %
Future income taxes (6,616 ) (1,447 ) (5,169 ) 357 %
Standardized measure $ 198,916 $ 135,921 $ 62,995 46 %
The following table reconciles discretionary cash flow to net cash flow provided by operating activities (in thousands):
Three-Months Ended Twelve-Months Ended
December 31, December 31,
2010 2009 Change 2010 2009 Change
Discretionary $ 10,689 $ 63,071 $ (52,382 ) $ 40,561 $ 93,075 $ (52,514 )
cash flow
Net working
capital 7,009 (54,958 ) 61,967 59,381 (73,377 ) 132,758
changes and
other changes
Net cash flow
provided by $ 17,698 $ 8,113 $ 9,585 $ 99,942 $ 19,698 $ 80,244
operating
activities
Three-Months Ended December 31,
%
2010 2009 $ Change
Change
Net production:
Oil (MBbls) 213 288 (75 ) (26)%
Gas (MMcf) 1,533 1,524 9 1 %
Total production (MBoe) 468 542 (74 ) (14)%
Average daily production (Boe) 5,087 5,895 (808 ) (14)%
Average realized sales price:
Oil (Bbl) $ 82.58 $ 77.94 $ 4.64 6 %
Gas (Mcf) 4.49 5.01 (0.51 ) (10)%
Total (Boe) 52.23 55.50 (3.27 ) (6)%
Oil and gas revenues (in thousands):
Oil revenue $ 17,556 $ 22,468 $ (4,912 ) (22)%
Gas revenue 6,887 7,631 (744 ) (10)%
Total $ 24,443 $ 30,099 $ (5,656 ) (19)%
Additional per Boe data:
Sales price $ 52.23 $ 55.50 $ (3.27 ) (6)%
Lease operating expense (10.06 ) (8.83 ) (1.22 ) 14 %
Operating margin $ 42.17 $ 46.67 $ (4.49 ) (10)%
For the year ended December 31,
%
2010 2009 $ Change
Change
Net production:
Oil (MBbls) 859 1,012 (153 ) (15)%
Gas (MMcf) 4,892 5,740 (848 ) (15)%
Total production (MBoe) 1,674 1,969 (295 ) (15)%
Average daily production (Boe) 4,587 5,394 (807 ) (15)%
Average realized sales price (a):
Oil (Bbl) $ 75.97 $ 73.00 $ 2.97 4 %
Gas (Mcf) 5.04 4.78 0.26 5 %
Total (Boe) 53.69 51.44 2.25 4 %
Oil and gas revenues (in
thousands):
Oil revenue $ 65,243 $ 73,842 $ (8,599 ) (12)%
Gas revenue 24,639 27,417 (2,778 ) (10)%
Total $ 89,882 $ 101,259 $ (11,377 ) (11)%
Additional per Boe data:
Sales price $ 53.69 $ 51.44 $ 2.25 4 %
Lease operating expense (10.58 ) (9.37 ) (1.21 ) 13 %
Operating margin $ 43.11 $ 42.07 $ 1.04 2 %
(a) Below is a reconciliation of the average NYMEX price to the average
realized sales price per barrel of oil:
Average NYMEX oil price $ 79.52 $ 61.80 $ 17.72 29 %
Basis differential and quality (2.39 ) (4.64 ) 2.25 (48)%
adjustments
Transportation (1.16 ) (1.32 ) 0.16 (12)%
Hedging - 17.16 (17.16 ) (100)%
Average realized oil price $ 75.97 $ 73.00 $ 2.97 4 %
Average NYMEX gas price $ 4.40 $ 4.17 $ 0.23 5 %
Basis differential and quality 0.51 0.28 0.23 84 %
adjustments
Hedging 0.13 0.33 (0.20 ) (61)%
Average realized gas price $ 5.04 $ 4.78 $ 0.26 5 %
CALLON PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December, 31
2010 2009
ASSETS
Current assets:
Cash and cash equivalents $ 17,436 $ 3,635
Accounts receivable 10,728 20,798
Accounts receivable - BOEMRE royalty recoupment - 51,534
Fair market value of derivatives - 145
Other current assets 2,180 1,572
Total current assets 30,344 77,684
Oil and gas properties, full-cost accounting
method:
Evaluated properties 1,316,677 1,593,884
Less accumulated depreciation, depletion and (1,155,915 ) (1,488,718 )
amortization
Net oil and gas properties 160,762 105,166
Unevaluated properties excluded from 8,106 25,442
amortization
Total oil and gas properties 168,868 130,608
Other property and equipment, net 3,370 2,508
Restricted investments 4,044 4,065
Investment in Medusa Spar LLC 10,424 11,537
Other assets, net 1,276 1,589
Total assets $ 218,326 $ 227,991
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 17,702 $ 12,887
Asset retirement obligations 2,822 4,002
Fair market value of derivatives 937 -
9.75% Senior Notes, net of $0 and $232 discount, - 15,820
respectively
Subtotal 21,461 32,709
Callon Entrada non-recourse credit facility - 84,847
Total current liabilities 21,461 117,556
13% Senior Notes
Principal outstanding 137,961 137,961
Deferred credit, net of accumulated amortization 27,543 31,213
of $3,964 and $294, respectively
Total 13% Senior Notes 165,504 169,174
Senior secured revolving credit facility - 10,000
Asset retirement obligations 13,103 10,648
Other long-term liabilities 2,448 1,467
Total liabilities 202,516 308,845
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 2,500,000 - -
shares authorized;
Common Stock, $.01 par value, 60,000,000 shares
authorized; 28,984,125 and 28,742,926 shares 290 287
outstanding at December 31, 2010 and December
31, 2009, respectively
Capital in excess of par value 248,160 243,898
Other comprehensive loss (8,560 ) (7,478 )
Retained earnings (deficit) (224,080 ) (317,561 )
Total stockholders' equity (deficit) 15,810 (80,854 )
Total liabilities and stockholders' equity $ 218,326 $ 227,991
(deficit)
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
For the year ended December 31,
2010 2009 2008
Operating revenues:
Oil sales $ 65,243 $ 73,842 $ 82,963
Gas sales 24,639 27,417 58,349
BOEMRE royalty recoupment - 40,886 -
Total operating revenues 89,882 142,145 141,312
Operating expenses:
Lease operating expenses 17,712 18,447 19,208
Depreciation, depletion and amortization 31,805 33,443 64,054
General and administrative 16,507 13,355 9,565
Accretion expense 2,446 3,149 4,172
Acquisition expense 233 298 -
Derivative expense - - 498
Impairment of oil and gas properties - - 485,498
Total operating expenses 68,703 68,692 582,995
Income (loss) from operations 21,179 73,453 (441,683 )
Other (income) expenses:
Interest expense 13,312 19,089 23,986
Callon Entrada non-recourse credit - 7,072 2,719
facility interest expense
Loss on early extinguishment of debt 339 - 11,871
9.75% Senior Notes restructuring expenses - 1,024 -
Interest on BOEMRE royalty recoupment (91 ) (7,681 ) -
Other (income) expense (166 ) 190 (1,379 )
Total other expenses 13,394 19,694 37,197
Income (loss) before income taxes 7,785 53,759 (478,880 )
Income tax benefit (174 ) - (39,725 )
Income (loss) before equity in earnings 7,959 53,759 (439,155 )
of Medusa Spar LLC
Equity in earnings of Medusa Spar LLC 427 660 262
Net income (loss) available to common $ 8,386 $ 54,419 $ (438,893 )
shares
Net income (loss) per common share:
Basic $ 0.29 $ 2.47 $ (20.68 )
Diluted $ 0.28 $ 2.45 $ (20.68 )
Shares used in computing net income per
common share:
Basic 28,817 22,072 21,222
Diluted 29,476 22,200 21,222
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
Accumulated Total
Capital in Retained
Preferred Common Other Stockholders'
Excess of Earnings
Stock Stock Comprehensive Equity
Par (Deficit)
Income (Loss) (Deficit)
Balances at
December 31, $ - $ 209 $ 223,336 $ (3,383 ) $ 66,913 $ 287,075
2007
Comprehensive
income (loss):
Net loss - - - - (438,893 )
Other
comprehensive - - - 17,540 -
income
Total
comprehensive (421,353 )
loss
Shares issued
pursuant to - 1 (1,153 ) - - (1,152 )
employee
benefit plans
Tax benefits
related to
share-based - - 2,050 - - 2,050
compensation
plans
Restricted - 1 3,575 - - 3,576
stock
Warrants - 5 (5 ) - - -
Balances at
December 31, $ - $ 216 $ 227,803 $ 14,157 $ (371,980 ) $ (129,804 )
2008
Comprehensive
income:
Net income - - - - 54,419
Other
comprehensive - - - (21,635 ) -
loss
Total
comprehensive 32,784
income
Shares issued
pursuant to - 1 205 - - 206
employee
benefit plans
Restricted - 1 4,432 - - 4,433
stock
Common stock
issued for Note - 69 11,458 - - 11,527
exchange
Balances at
December 31, $ - $ 287 $ 243,898 $ (7,478 ) $ (317,561 ) $ (80,854 )
2009
Deconsolidation - - - - 85,095 85,095
of subsidiary
Comprehensive
income:
Net income - - - - 8,386
Other
comprehensive - - - (1,082 ) -
loss
Total
comprehensive 7,304
income
Shares issued
pursuant to - 1 192 - - 193
employee
benefit plans
Restricted - 2 4,070 - - 4,072
stock
Balances at
December 31, $ - $ 290 $ 248,160 $ (8,560 ) $ (224,080 ) $ 15,810
2010
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the year ended December 31,
2010 2009 2008
Cash flows from operating activities:
Net income $ 8,386 $ 54,419 $ (438,893 )
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation, depletion and amortization 32,629 34,274 64,862
Impairment of oil and gas properties - - 485,498
Accretion expense 2,446 3,149 4,172
Amortization of non-cash debt related 397 2,816 4,185
items
Amortization of deferred credit (3,670 ) (294 ) -
Equity in earnings of Medusa Spar LLC (427 ) (660 ) (262 )
Deferred income tax expense 1,769 18,816 (167,848 )
Valuation allowance (1,769 ) (18,816 ) 128,123
Non-cash interest expense for Callon - 3,693 -
Entrada non-recourse credit agreement
Non-cash charge for early debt 179 - 5,598
extinguishment
Non-cash charge related to compensation 3,107 2,335 1,550
plans
Excess tax benefits from share-based - - (2,050 )
payment arrangements
Payments to settle asset retirement (2,486 ) (6,657 ) (4,178 )
obligations
Changes in current assets and
liabilities:
Accounts receivable 59,527 (45,573 ) (22,215 )
Other current assets (209 ) (468 ) 5,489
Current liabilities 907 (27,260 ) 22,987
Change in gas balancing receivable 347 279 630
Change in gas balancing payable (300 ) (312 ) 156
Change in other long-term liabilities (115 ) (12 ) 2,708
Change in other assets, net (776 ) (31 ) (1,458 )
Cash provided by operating activities 99,942 19,698 89,054
Cash flows from investing activities:
Capital expenditures (59,908 ) (29,133 ) (172,358 )
Acquisitions (995 ) (15,756 ) -
Proceeds from sale of mineral interests - - 167,349
Investment in restricted assets related (375 ) - -
to plugging and abandonment
Distribution from Medusa Spar LLC 1,540 1,700 498
Cash used in investing activities (59,738 ) (43,189 ) (4,511 )
Cash flows from financing activities:
Increases in debt - 20,337 94,435
Borrowings from senior secured credit - - -
facility
Payments on debt (10,000 ) (10,337 ) (216,000 )
Redemption of remaining 9.75% senior (16,052 ) - -
notes
Equity issued related to employee stock - - (1,152 )
plans
Excess tax benefits from share-based - - 2,050
payment arrangements
Proceeds from exercise of employee stock (40 ) - -
options
Cash (used in) provided by financing (26,092 ) 10,000 (120,667 )
activities
Net change in cash and cash equivalents 14,112 (13,491 ) (36,124 )
Cash and cash equivalents:
Balance, beginning of period 3,635 17,126 53,250
Less: Cash held by subsidiary (311 ) - -
deconsolidated at January 1, 2010
Balance, end of period $ 17,436 $ 3,635 $ 17,126
Callon Petroleum Company is engaged in the acquisition, development, exploration and operation of oil and gas properties in Louisiana, Texas, 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 left side of the homepage.
This news release contains projections 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. Forward-looking statements include all statements regarding our reserves as well as statements including the words "believe," "expect," "plans" and words of similar meaning. 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
Released March 14, 2011