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 May 8, 2014 - 4:30 PM EDT
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Callon Petroleum Company Reports First Quarter 2014 Results and Updates 2014 Guidance

Natchez, MS (May 8, 2014) - Callon Petroleum Company (NYSE: CPE) ("Callon" or the "Company") today reported results of operations for the three-month period ended March 31, 2014.

The Company highlighted financial and operating results for the first quarter of 2014:

  • Daily production of 4,355 barrels of oil equivalent per day ("BOE/d"), a sequential quarterly increase of 46% over comparable Permian production in the fourth quarter of 2013, comprised of 85% oil volume
  • Adjusted EBITDA, a non-GAAP financial measure, of $21.9 million (See "Non-GAAP Financial Measures" discussed and reconciled below)
  • Net loss available to common shareholders of $0.00 per diluted share and adjusted income available to common shareholders ("Adjusted income"), a non-GAAP financial measure, of $0.11 per diluted share. Adjusted income excludes certain items that the Company believes affect the comparability of operating results, and are generally non-recurring items or items whose timing and/or amount cannot be reasonably estimated (See "Non-GAAP Financial Measures" discussed and reconciled below)

Callon also highlighted recent operational activity and corporate developments:

  • Nine horizontal wells drilled and seven horizontal wells completed in the first quarter of 2014 in Midland, Upton and Reagan Counties
  • Callon's two initial Midland County horizontal Wolfcamp B wells produced at average 30-day peak rates of 911 BOE/d and average 50-day peak rates of 820 BOE/d (production metrics on a two-stream basis)
  • Wolfcamp A horiztonal well in Upton County continues to produce under natural flowing pressure after 40 days and will be placed on submersible pump after casing pressure declines 
  • Full redemption of Senior Notes due 2016 completed in April 2014
  • Increased 2014 annual production guidance to 5,100 - 5,400 BOE/d

Fred Callon, Chairman and CEO commented, "As demonstrated in the first quarter, our focused Permian growth model continues to deliver repeatable results. Looking forward, we expect our recent optimization initiatives and the addition of a fourth development field in Midland County to provide an incremental increase to our established production trajectory. In addition to a projected annual increase in Permian volumes of approximately 135% in 2014, we estimate that our operations can deliver year-over-year annual production growth of over 35% in 2015, assuming no acceleration of our current two rig horizontal program."

Operating and Financial Results

Total Revenue and Permian Production.  For the quarter ended March 31, 2014, Callon reported total revenues of $33.3 million, comprised of oil revenues of $30.9 million and natural gas revenues of $2.4 million. Average daily production for the quarter was 4,355 BOE/d compared to average daily Permian production of 2,978 BOE/d in the fourth quarter of 2013. Average realized prices were $93.12 per barrel of oil and $6.54 per Mcf of natural gas in the first quarter of 2014, representing a weighted average of $84.82 per BOE produced.

Lease Operating Expenses, including workover expense ("LOE"). LOE for the three months ended March 31, 2014 was $10.78 per BOE, below the low-end of previous expense guidance.

Production Taxes, including ad valorem taxes. Production taxes were $4.88 per BOE in the first quarter of 2014. Production taxes were higher than published guidance due to higher realized commodity prices than were assumed in our guidance estimate.

Depreciation, Depletion and Amortization ("DD&A"). DD&A for the three months ended March 31, 2014 was $26.88 per BOE compared to $29.36 per BOE in the fourth quarter of 2013, with the decrease in per unit DD&A being attributable to increased estimated proved reserves relative to our depreciable asset base (the full cost pool).

General and Administrative, net of amounts capitalized ("G&A"). G&A for the three months ended March 31, 2014 was $10.8 million compared to $6.4 million in the fourth quarter of 2013. G&A excluding certain non-recurring items and non-cash valuation adjustments ("Adjusted G&A", a non-GAAP measure) was $4.5 million for both the current period and the fourth quarter of 2013. Adjusted G&A for the first quarter of 2014 excluded $6.3 million of expense related to the following items:

  • $1.2 million in non-recurring, cash expense related to a withdrawn proxy contest
  • $2.5 million in non-recurring expenses (both non-cash and cash components) primarily related to the accelerated vesting of outstanding equity awards for early retirement of employees
  • $2.7 million in non-cash expense related to the mark-to-market valuation adjustment of performance-based phantom stock incentive awards

Interest Expense. Interest expense incurred during the three months ended March 31, 2014 decreased to $1.0 million compared to $1.6 million in the fourth quarter of 2013, primarily due to lower interest expense related to our Senior Notes following a $48.5 million principal redemption during the fourth quarter of 2013. The full redemption of the Senior Notes was completed on April 11, 2014.

Discretionary Cash Flow.  Discretionary cash flow, a non-GAAP measure, for the first quarter of 2014 was $18.7 million, an increase of $2.9 million, or 19%, over the fourth quarter of 2013 of $15.8 million. For a definition of discretionary cash flow and reconciliation to net cash flow provided from operating activities, see "Non-GAAP Financial and Reconciliations" below. No adjustments have been made to discretionary cash flow for non-recurring cash items.

Income (Loss) Available to Common Shareholders.  The Company reported a net loss available to common shareholders of $0.1 million in the first quarter of 2014 and Adjusted income of $4.4 million, or $0.11 per diluted share, which excludes (net of tax effects): (a) $0.7 million gain related to the sale of equipment, (b) $2.8 million in expenses related to the non-cash, mark-to-market valuation of the Company's derivative positions and phantom stock equity awards, and (c) $2.4 million of non-recurring G&A expenses. For a definition of Adjusted income and a reconciliation of income (loss) available to common shareholders to Adjusted income, see "Non-GAAP Financial Measures and Reconciliations" below.

Capital Expenditures

The following table summarizes the Company's drilling progress in the Permian Basin for the three months ended March 31, 2014:
                         
    Drilled   Completed (a)   Awaiting Completion
    Gross   Net   Gross   Net   Gross   Net
Southern Midland Basin                        
Vertical wells   1   1.0   1   1.0   -   -
Horizontal wells   8   7.3   5   5.0   3   2.3
Total   9   8.3   6   6.0   3   2.3
                         
Central Midland Basin                        
Vertical wells   1   0.4   -   -   1   0.4
Horizontal wells   1   0.8   2   1.7   1   0.8
Total   2   1.3   2   1.7   2   1.3
                         
Northern Midland Basin                        
Vertical wells   2   1.5   1   0.8   -   -
Total   2   1.5   1   0.8   -   -
                         
Total vertical wells   4   2.9   2   1.8   1   0.4
Total horizontal wells   9   8.1   7   6.7   4   3.1
                         
Total   13   11.0   9   8.4   5   3.5

Callon's total capital expenditures for the first quarter of 2014 are detailed below (in thousands): 
       
      Three Months Ended
      March 31, 2014
Operational capital expenditures   $  53,021
Capitalized G&A and interest      4,502
   Total capital expenditures, excluding acquisitions      57,523
       
Acquisitions      8,237
   Total capital expenditures   $  65,760

2014 Guidance

Based on results from Callon's initial horizontal wells in the Central Midland Basin and the impact of optimized completion designs in the Southern Midland Basin, the Company has updated its production and expense guidance for 2014. Capital costs related to this optimized completion design are currently estimated to increase operational capital by approximately $9 million in 2014. The Company is also evaluating the timing of an initial horizontal well on its recently acquired acreage in Upton County, and will be updating its total 2014 capital budget for these items in the second quarter. Collectively, we estimate that the associated net increase in operational capital for 2014 will approximate $15 million.
             
    2014 Guidance Estimates
    2nd Quarter   Full Year
        Previous   Revised
Total production (BOE/d)   5,000 - 5,250   4,700 - 5,100   5,100 - 5,400
% Oil   82% - 84%   80%   82% - 85%
             
Expenses (per BOE)            
LOE, including workovers   $9.00 - $10.00   $9.75 - $11.25   $9.00 - $10.00
Production taxes, including ad valorem   $4.75 - $5.00   $4.20 - $4.50   $4.75 - $5.00
Adjusted G&A (a)   $9.50 - $10.50   $9.00 - $10.00   $9.00 - $10.00
  1. Excludes certain non-recurring expenses and non-cash valuation adjustments. See the reconciliation provided within the Non-GAAP financial measures and reconciliations section of this press release for a reconciliation of G&A expense on a GAAP basis to Adjusted G&A expense.
Listed below are the outstanding hedges for crude oil and natural gas per quarter for 2014 and 2015. 
                             
Oil           2Q - 2014     3Q - 2014     4Q - 2014
Swap   Volume (Mbo)           91     92     92
    Price         $  93.35   $  93.35   $  93.35
                             
Put Option (sold)   Volume (Mbo)           91     92     92
    Price         $  70.00   $  70.00   $  70.00
                             
Swap   Volume (Mbo)           27     28     28
    Price         $  94.58   $  94.58   $  94.58
                             
Swap   Volume (Mbo)           46            
    Price         $  92.80            
                             
Swap   Volume (Mbo)                 46      
    Price               $  90.40      
                             
Swap   Volume (Mbo)                 92      
    Price               $  99.87      
                             
Swap   Volume (Mbo)                       46
    Price                     $  88.35
                             
Swap   Volume (Mbo)                       64
    Price                     $  96.92
                             
Natural Gas           2Q - 2014     3Q - 2014     4Q - 2014
Swap   Volume (Bbtu)           182     184     184
    Price         $  4.25   $  4.25   $  4.25
                             
          1Q - 2015     2Q - 2015     3Q - 2015     4Q - 2015
Call Option (sold)   Volume (Bbtu)     108     109     110     110
    Price   $  5.00   $  5.00   $  5.00   $  5.00

Non-GAAP Financial Measures and Reconciliations

This news release refers to non-GAAP financial measures as "discretionary cash flow," "Adjusted income," "Adjusted G&A" and "Adjusted EBITDA." These measures, detailed below, are provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.

  • 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 believe that the non-GAAP measure of Adjusted income and Adjusted income per diluted share are useful to investors because they provide readers with a meaningful measure of our profitability before recording certain items whose timing or amount cannot be reasonably determined. These measures exclude the net of tax effects of certain non-recurring items and non-cash valuation adjustments, which are detailed in the reconciliation provided below. Prior to being tax-effected and excluded, the amounts reflected in the determination Adjusted income and Adjusted income per diluted share below were computed in accordance with GAAP.
  • Callon believes that the non-GAAP measure of Adjusted G&A is useful to investors because it provides readers with a meaningful measure of our recurring G&A expense and provides for greater comparability period-over-period. The table below details all adjustments to G&A on a GAAP basis to arrive at Adjusted G&A.
  • We calculate Adjusted Earnings before Interest, Income Taxes, Depreciation, Depletion and Amortization (" Adjusted EBITDA") as Adjusted income plus interest expense, income tax expense (benefit) and depreciation, depletion and amortization expense. Adjusted EBITDA is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss), cash flow provided by operating activities or other income or cash flow data prepared in accordance with GAAP. However, we believe that Adjusted EBITDA provides additional information with respect to our performance or ability to meet its future debt service, capital expenditures and working capital requirements. Because Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and may vary among companies, the Adjusted EBITDA we present may not be comparable to similarly titled measures of other companies. 
The following table reconciles net cash flow provided by operating activities to discretionary cash flow (in thousands): 
                   
      Three Months Ended March 31,
      2014     2013     Change
Discretionary cash flow   $ 18,728   $ 11,308   $ 7,420
Net working capital changes and other changes     1,239     1,567     (328)
Net cash flow provided by operating activities   $ 19,967   $ 12,875   $ 7,092

The following table reconciles income (loss) available to common shareholders to Adjusted income (in thousands; reconciling items are reflected net of tax): 
                   
      Three Months Ended March 31,
      2014     2013     Change
Loss available to common shares   $ (111)   $ (800)   $ 689
Net loss on derivative contracts, net of settlements     1,065     676     389
Phantom mark-to-market, net of settlements     1,726     (124)     1,850
Early retirement expense     1,601     -     1,601
Withdrawn proxy contest expenses     775     -     775
Gain on sale of equipment     (702)     -     (702)
Adjusted income (loss)   $ 4,354   $ (248)   $ 4,602
Adjusted income fully diluted earnings per common share   $  0.11   $ 0.00   $ 0.11
 
The following table reconciles net income (loss) to Adjusted EBITDA (in thousands):
                   
      Three Months Ended March 31, 2014
      2014     2013     Change
Net income (loss)   $  1,863   $  (800)   $  2,663
Net pre-tax adjustments to arrive at Adjusted income      6,869      849      6,020
Income tax expense (benefit)      1,341      (169)      1,510
Interest expense      977      1,515      (538)
Depreciation, depletion and amortization      10,598      11,393      (795)
Accretion expense      228      565      (337)
Adjusted EBITDA   $  21,876   $  13,353   $  8,523

The following table reconciles total G&A to Adjusted G&A (in thousands): 
                   
    Three Months Ended March 31,
      2014     2013     Change
Total G&A   $  10,807   $  4,475   $  6,332
   Withdrawn proxy contest      (1,193)     -      (1,193)
   Accelerated vesting of outstanding equity awards for early retirement of employees      (2,463)     -      (2,463)
   Mark-to-market valuation adjustment of performance-based phantom stock incentive awards      (2,655)      195      (2,850)
Adjusted G&A   $  4,496   $  4,670   $  (174)

The following table presents summary information for the periods indicated, and is followed by the Company's financial statements.
                       
      Three Months Ended March 31,
      2014     2013     Change   % Change
Net production:                      
   Oil (MBbls)      332      206      126   61%
   Natural gas (MMcf)      363      738      (375)   (51)%
   Total production (MBOE)      392      328      64   20%
   Average daily production (BOE/d)      4,355      3,644      711   20%
   % Oil (MBOE basis)     85%     63%     -   -
                       
Average realized sales price:                      
   Oil (Bbl)   $  93.12   $  94.85   $  (1.73)   (2)%
   Natural gas (Mcf) (includes NGLs)      6.54      4.07      2.47   61%
   Total (BOE)      84.82      68.72      16.10   23%
Oil and natural gas revenues (in thousands):                      
   Oil revenue   $  30,909   $  19,540   $  11,369   58%
   Gas revenue      2,376      3,001      (625)   (21)%
   Total   $  33,285   $  22,541   $  10,744   48%
Additional per BOE data:                      
   Sales price   $  84.82   $  68.72   $  16.10   23%
      Lease operating expense      10.78      17.00      (6.22)   (37)%
      Production taxes      4.88      2.20      2.68   122%
   Operating margin   $  69.15   $  49.52   $  19.63   40%
                       
Other expenses per BOE:                      
Depletion, depreciation and amortization   $ 26.88   $ 33.66   $ (6.78)   (20)%
Adjusted G&A (a)     11.46     14.24     (2.78)   (20)%
  1. Excludes certain non-recurring expenses and non-cash valuation adjustments. See the reconciliation provided within the Non-GAAP financial measures and reconciliations section of this press release for a reconciliation of G&A expense on a GAAP basis to Adjusted G&A expense.
 Callon Petroleum Company
Consolidated Balance Sheets
(in thousands, except par and per share values and share data) 
           
  March 31, 2014   December 31, 2013
ASSETS   Unaudited      
Current assets:          
Cash and cash equivalents $ 1,742    $ 3,012 
Accounts receivable   23,237      20,586 
Fair market value of derivatives   -     60 
Deferred tax asset, current   6,320      3,843 
Other current assets   1,356      2,063 
Total current assets   32,655      29,564 
Oil and natural gas properties, full-cost accounting method:          
Evaluated properties   1,783,598      1,701,577 
Less accumulated depreciation, depletion and amortization   (1,432,213)     (1,420,612)
Net oil and natural gas properties   351,385      280,965 
Unevaluated properties excluded from amortization   36,772      43,222 
Total oil and natural gas properties   388,157      324,187 
Other property and equipment, net   7,413      7,255 
Restricted investments   3,806      3,806 
Deferred tax asset   54,047      57,765 
Other assets, net   3,168      1,376 
Total assets $ 489,246    $ 423,953 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities $ 71,293    $ 57,637 
Asset retirement obligations   4,483      4,120 
Fair market value of derivatives   2,645      1,036 
Total current liabilities   78,421      62,793 
13% Senior Notes:          
   Principal outstanding   48,481      48,481 
   Deferred credit, net of accumulated amortization of $26,673 and $26,239, respectively   4,834      5,267 
Total 13% Senior Notes   53,315      53,748 
Senior secured revolving credit facility   68,000      22,000 
Asset retirement obligations   2,767      2,612 
Other long-term liabilities   6,163      3,706 
Total liabilities   208,666      144,859 
Stockholders' equity:          
Preferred stock, series A cumulative, $0.01 par value and $50.00 liquidation preference,
2,500,000 shares authorized: 1,578,948 and 1,578,948 shares outstanding, respectively
  16      16 
Common stock, $0.01 par value, 110,000,000 and 60,000,000 shares authorized;
40,365,710 and 40,345,456 shares outstanding, respectively
  405      404 
Capital in excess of par value   403,136      401,540 
Accumulated deficit   (122,977)     (122,866)
Total stockholders' equity   280,580      279,094 
Total liabilities and stockholders' equity $ 489,246    $ 423,953 
 
 Callon Petroleum Company
Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)  
             
    Three Months Ended March 31,
      2014     2013
Operating revenues:            
   Oil sales   $ 30,909   $ 19,540
   Natural gas sales     2,376     3,001
Total operating revenues     33,285     22,541
   Operating expenses:            
   Lease operating expenses     4,230     5,576
   Production taxes     1,917     721
   Depreciation, depletion and amortization     10,538     11,042
   General and administrative     10,807     3,739
   Accretion expense     228     565
   Gain on sale of other property and equipment     (1,080)     -
   Total operating expenses     26,640     21,643
   Income from operations     6,645     898
   Other (income) expenses:            
   Interest expense     977     1,515
   Loss on derivative contracts     2,513     418
   Other (income) expense     (49)     (45)
   Total other expenses     3,441     1,888
   Income (loss) before income taxes     3,204     (990)
      Income tax expense (benefit)     1,341     (169)
      Income (loss) before equity in earnings of Medusa Spar  LLC     1,863     (821)
   Equity in earnings of Medusa Spar LLC     -     21
      Net income (loss)     1,863     (800)
      Preferred stock dividends     (1,974)     -
  Loss available to common stockholders   $ (111)   $ (800)
  Loss per common share:            
   Basic   $ (0.00)   $ (0.02)
   Diluted   $ (0.00)   $ (0.02)
   Shares used in computing income per common share:            
   Basic     40,328     39,793
   Diluted     40,328     39,793
 
 Callon Petroleum Company
Consolidated Statements of Cash Flows
(Unaudited; in thousands)

  Three Months Ended March 31,
      2014     2013
Cash flows from operating activities:            
Net income   $ 1,863   $ (800)
Adjustments to reconcile net income to cash provided by operating activities:            
   Depreciation, depletion and amortization     10,598     11,393
   Accretion expense     228     565
   Amortization of non-cash debt related items     119     111
   Amortization of deferred credit     (433)     (799)
   Equity in earnings of Medusa Spar LLC     -     (21)
   Deferred income tax expense     1,341     (169)
   Net loss (gain) on derivatives, net of settlements     1,639     1,039
   Gain on sale of other property and equipment     (1,080)     -
   Non-cash expense related to equity share-based awards     996     580
   Change in the fair value of liability share-based awards     3,483     (195)
   Payments to settle asset retirement obligations     (26)     (396)
   Changes in current assets and liabilities:            
      Accounts receivable     (2,928)     1,333
      Other current assets     707     857
      Current liabilities     5,155     158
   Payments to settle vested liability share-based awards     (1,669)     -
   Change in other long-term liabilities     -     (206)
   Change in other assets, net     (26)     (575)
      Net cash provided by operating activities     19,967     12,875
Cash flows from investing activities:            
Capital expenditures     (65,760)     (30,089)
Proceeds from sales of mineral interest and equipment     2,226     114
Distribution from Medusa Spar LLC     -     340
     Net cash used in investing activities     (63,534)     (29,635)
Cash flows from financing activities:            
Borrowings on credit facility     46,000     17,000
Payment of deferred financing costs     (1,729)     -
Payment of preferred stock dividends     (1,974)     -
      Net cash provided by financing activities     42,297     17,000
Net change in cash and cash equivalents     (1,270)     240
   Balance, beginning of period     3,012     1,139
   Balance, end of period   $ 1,742   $ 1,379

Earnings Call Information

The Company will host a conference call on Friday, May 9, 2014 to discuss first quarter financial and operating results.

Please join Callon Petroleum Company via the Internet for a webcast of the conference call:

Date/Time:           Friday, May 9, 2014, at 9:00 a.m. Central Time (10:00 a.m. Eastern Time)

Webcast:               Live webcast will be available at www.callon.com in the "Investors" section of the website.

Alternatively, you may join by telephone:

Toll Free Call-in number:                  1-866-318-8619

International Call-in Number:           1-617-399-5138

Participant Passcode:                       10273293

An archive of the conference call webcast will also be available at www.callon.com in the "Investors" section of the website.

About Callon Petroleum

Callon is an independent energy company focused on the acquisition, development, exploration, and operation of oil and gas properties in the Permian Basin in West Texas.

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 top of the homepage.

Cautionary Statement Regarding Forward Looking Statements

This news release contains 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 wells anticipated to be drilled, future increases in production, the Company's 2014 and 2015 guidance, capital budget, the  implementation of the Company's business plans and strategy, as well as statements including the words "believe," "expect," "plans" and words of similar meaning. These 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 include the volatility of oil and gas prices, ability to drill and complete wells, operational, regulatory and environment risks, our ability to finance our activities and other risks more fully 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.

 

For further information contact:
Joe Gatto
Chief Financial Officer, Senior Vice President and Treasurer
1-800-451-1294

 





This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Callon Petroleum Company via Globenewswire

HUG#1783961

Source: Thomson Reuters ONE (May 8, 2014 - 4:30 PM EDT)

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