Callon Petroleum Company (NYSE: CPE) today reported results of operations for both the three and 12-month periods ended December 31, 2008 and proved reserves as of December 31, 2008.
“We faced many challenges in 2008,” explains Fred Callon, chairman and CEO. “The most significant of those challenges included the suspension of the development at our deepwater Entrada Field, production interruptions from two hurricanes in the Gulf of Mexico, and a dramatic decline in commodity prices, which resulted in a significant non-cash ceiling test impairment. Despite these challenges, we remain confident in our ability to build shareholder value by growing production and reserves in the coming years. We recognize the importance of liquidity in this challenging environment. Beginning in mid-2007 and throughout 2008, we very carefully managed our liquidity position. As a result, despite our challenges and the turmoil in the financial markets, we find ourselves with a strong liquidity position and the financial resources to be opportunistic during this economic downturn. We do not have any significant required capital expenditures for 2009, so we have the flexibility to use our cash flow and credit facility to fund producing property acquisitions to help grow the company’s reserves and production over the next several years.”
Fourth Quarter and Full Year 2008 Net Loss. For the year ended December 31, 2008, the company reported a net loss of $438.9 million, or $20.68 per share, primarily due to a non-cash charge of $482.4 million resulting from the impairment of the company’s oil and gas properties under full-cost accounting rules. The book value of the company’s oil and gas properties exceeded the full-cost ceiling due primarily to lower oil and natural gas prices at year-end 2008 and the announced suspension of operations at Entrada during the fourth quarter of 2008. It should be noted that excluding the non-cash charge related to the impairment of oil and gas properties, the company would have generated before-tax income from operations for 2008 of $40.7 million. Additionally, during the fourth quarter of 2008, Callon recorded a charge of $128.1 million resulting from the establishment of a valuation allowance against its deferred tax asset as required by SFAS 109 “Accounting for Income Taxes.” The 2008 results compare to net income of $15.2 million, or $0.71 per share for 2007. For the quarter ended December 31, 2008, the company reported a net loss of $457.5 million, or $21.19 per diluted share, compared to a net income of $4.5 million, or $0.21 per diluted share reported for the same three-month period of 2007.
Fourth Quarter and Full Year 2008 Operating Results. Operating results for the three months ended December 31, 2008 were negatively impacted by both lower commodity prices and Hurricanes Gustav and Ike, which resulted in several of our Gulf of Mexico properties being shut-in during late August 2008. Primarily as a result of damage caused by the two storms to third-party transmission lines and downstream facilities which process Callon’s crude oil and natural gas, production of approximately 18.0 million cubic feet of natural gas equivalent per day (MMcfe/d) was deferred during the fourth quarter of 2008. Although facilities were returned to production by mid-December and all of Callon’s fields were back on production, the deferral had a significant impact on operating results for the fourth quarter. Operating results for the three months ended December 31, 2008 include oil and gas sales of $15.5 million from average production of 20.7 MMcfe/d. This corresponds to sales of $43.9 million from average production of 45.6 MMcfe/d during the comparable 2007 period.
The average price received per thousand cubic feet of natural gas (Mcf) in the fourth quarter of 2008, after the impact of hedging, decreased to $7.12 compared to $8.18 during the fourth quarter of 2007. The average price received per barrel of oil (Bbl) in the fourth quarter of 2008, after the impact of hedging, decreased to $55.23, compared to $82.47 during the same period in 2007. Oil and natural gas sales for full year 2008 totaled $141.3 million from average production of 31.4 MMcfe/d. This corresponds to oil and natural gas sales of $170.8 million from average production of 51.3 MMcfe/d during 2007. The average price received per Mcf for full year 2008, after the impact of hedging, increased to $9.99, compared to $8.01 during the full year of 2007. The average price received per Bbl during full year 2008, after the impact of hedging, increased to $88.07, compared to $67.63 during the same period in 2007.
Fourth Quarter and Full Year 2008 Discretionary Cash Flow. Discretionary cash flow for the three-month period ended December 31, 2008 totaled $3.8 million compared to $25.1 million during the comparable prior year period. Net cash flow used in operating activities, as defined by GAAP, was $31.5 million in the fourth quarter 2008, while net cash flow provided by operating activities was $19.4 million in the fourth quarter of 2007. Discretionary cash flow for full year 2008 totaled $84.9 million compared to $104.6 million in 2007. Net cash flow provided by operating activities, as defined by GAAP, totaled $93.2 million and $109.3 million for the years ended December 31, 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.)
2008 Year-End Reserves. As of December 31, 2008, the company’s year-end estimated net proved reserves were 54.8 billion cubic feet of natural gas equivalent (Bcfe). This is a decrease of 208.8 Bcfe from year-end 2007 and is attributable to the sale of a working interest in the Entrada Field (45%), the previously announced suspension of operations at the Entrada Field in November 2008 (47%) and 2008 production and other changes (8%).
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.
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Reconciliation of Non-GAAP Financial Measure: |
Three Months Ended | 12 Months Ended | |||||||||||||||||
| (In thousands) |
December 31, |
December 31, |
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2008 |
2007 |
2008 |
2007 |
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| Discretionary cash flow | $ | 3,774 | $ | 25,146 | $ | 84,935 | $ | 104,550 | |||||||||||
| Net working capital changes and other changes | (35,317 | ) | (5,783 | ) | 8,297 | 4,733 | |||||||||||||
| Net cash flow (used in) provided by operating activities | $ | (31,543 | ) | $ | 19,363 | $ | 93,232 | $ | 109,283 | ||||||||||
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Production and Price Information: |
Three Months
Ended |
12 Months
Ended |
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December 31, |
December 31, |
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2008 |
2007 |
2008 |
2007 |
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| Production: | |||||||||||||||||||||
| Oil (MBbls) | 162 | 289 | 942 | 1,063 | |||||||||||||||||
| Gas (MMcf) | 926 | 2,457 | 5,839 | 12,340 | |||||||||||||||||
| Gas equivalent (MMcfe) | 1,901 | 4,191 | 11,494 | 18,718 | |||||||||||||||||
| Average daily (MMcfe) | 20.7 | 45.6 | 31.4 | 51.3 | |||||||||||||||||
| Average prices: | |||||||||||||||||||||
|
Oil ($/Bbl)(a) |
$ | 55.23 | $ | 82.47 | $ | 88.07 | $ | 67.63 | |||||||||||||
| Gas ($/Mcf) | $ | 7.12 | $ | 8.18 | $ | 9.99 | $ | 8.01 | |||||||||||||
| Gas equivalent ($/Mcfe) | $ | 8.17 | $ | 10.48 | $ | 12.29 | $ | 9.12 | |||||||||||||
| Additional per Mcfe data: | |||||||||||||||||||||
| Sales price | $ | 8.17 | $ | 10.48 | $ | 12.29 | $ | 9.12 | |||||||||||||
| Lease operating expenses | 2.87 | 1.73 | 1.67 | 1.48 | |||||||||||||||||
| Operating margin | $ | 5.30 | $ | 8.75 | $ | 10.62 | $ | 7.64 | |||||||||||||
| Depletion | $ | 11.73 | $ | 3.86 | $ | 5.57 | $ | 3.89 | |||||||||||||
| General and administrative (net of management fees) | $ | 1.33 | $ | 0.66 | $ | 0.83 | $ | 0.53 | |||||||||||||
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(a) Below is a reconciliation of the average NYMEX price to the average realized sales price per barrel of oil: |
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| Average NYMEX oil price | $ | 58.76 | $ | 90.68 | $ | 99.67 | $ | 72.33 | |||||||||||||
| Basis differentials and quality adjustments | ( 15.66 | ) | ( 5.06 | ) | ( 1.15 | ) | ( 4.08 | ) | |||||||||||||
| Transportation | ( 1.32 | ) | ( 1.20 | ) | ( 1.15 | ) | ( 1.15 | ) | |||||||||||||
| Hedging | 13.45 | ( 1.95 | ) | ( 9.30 | ) | 0.53 | |||||||||||||||
| Averaged realized oil price | $ | 55.23 | $ | 82.47 | $ | 88.07 | $ | 67.63 | |||||||||||||
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Callon Petroleum Company Consolidated Balance Sheets (In thousands, except share data) |
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| December 31, | ||||||||||
| 2008 | 2007 | |||||||||
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ASSETS |
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| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 17,126 | $ | 53,250 | ||||||
| Accounts receivable | 44,290 | 22,073 | ||||||||
| Restricted investments | -- | 100 | ||||||||
| Fair market value of derivatives | 21,780 | -- | ||||||||
| Other current assets | 1,103 | 6,592 | ||||||||
| Total current assets | 84,299 | 82,015 | ||||||||
| Oil and gas properties, full-cost accounting method: | ||||||||||
| Evaluated properties | 1,578,554 | 1,349,904 | ||||||||
| Less accumulated depreciation, depletion and amortization | (1,452,131 | ) | (738,374 | ) | ||||||
| 126,423 | 611,530 | |||||||||
| Unevaluated properties excluded from amortization | 32,829 | 70,176 | ||||||||
| Total oil and gas properties | 159,252 | 681,706 | ||||||||
| Other property and equipment, net | 2,536 | 1,986 | ||||||||
| Restricted investments | 4,759 | 4,525 | ||||||||
| Investment in Medusa Spar LLC | 12,577 | 12,673 | ||||||||
| Other assets, net | 2,667 | 9,577 | ||||||||
| Total assets | $ | 266,090 | $ | 792,482 | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: | ||||||||||
| Accounts payable and accrued liabilities | $ | 76,516 | $ | 37,698 | ||||||
| Asset retirement obligations | 9,151 | 9,810 | ||||||||
| Fair market value of derivatives | -- | 5,205 | ||||||||
| Total current liabilities | 85,667 | 52,713 | ||||||||
| 9.75% Senior Notes | 194,420 | 192,012 | ||||||||
| Callon Entrada Credit Facility (non recourse) | 78,435 | -- | ||||||||
| Senior Revolving Credit Facility | -- | 200,000 | ||||||||
| Asset retirement obligations | 33,043 | 27,027 | ||||||||
| Deferred tax liability | -- | 32,190 | ||||||||
| Other long-term liabilities | 4,329 | 1,465 | ||||||||
| Total liabilities | 395,894 | 505,407 | ||||||||
| Stockholders' equity: | ||||||||||
| Preferred Stock, $.01 par value; 2,500,000 shares authorized; | -- | -- | ||||||||
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Common Stock, $.01 par value; 30,000,000 shares authorized; 21,621,142 shares and 20,891,145 shares issued outstanding at December 31, 2008 and 2007, respectively |
216 | 209 | ||||||||
| Capital in excess of par value | 227,803 | 223,336 | ||||||||
| Other comprehensive income (loss) | 14,157 | (3,383 | ) | |||||||
| Retained (deficit) earnings | (371,980 | ) | 66,913 | |||||||
| Total stockholders' equity | (129,804 | ) | 287,075 | |||||||
| Total liabilities and stockholders' equity | $ | 266,090 | $ | 792,482 | ||||||
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Callon Petroleum Company Consolidated Statements of Operations (In thousands, except per share amounts) |
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Quarter Ended December 31, |
Full Year |
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2008 |
2007 |
2008 |
2007 |
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| Operating revenues: | |||||||||||||||||||||
| Oil sales | $ | 8,947 | $ | 23,833 | $ | 82,963 | $ | 71,891 | |||||||||||||
| Gas sales | 6,593 | 20,108 | 58,349 | 98,877 | |||||||||||||||||
| Total operating revenues | 15,540 | 43,941 | 141,312 | 170,768 | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||
| Lease operating expenses | 5,459 | 7,245 | 19,208 | 27,795 | |||||||||||||||||
| Depreciation, depletion and amortization | 22,294 | 16,165 | 64,054 | 72,762 | |||||||||||||||||
| General and administrative | 2,519 | 2,778 | 9,565 | 9,876 | |||||||||||||||||
| Accretion expense | 4,240 | 1,026 | 7,316 | 3,985 | |||||||||||||||||
| Derivative expense | (888 | ) | -- | 498 | -- | ||||||||||||||||
| Impairment of oil and gas properties | 482,354 | -- | 482,354 | -- | |||||||||||||||||
| Total operating expenses | 515,978 | 27,214 | 582,995 | 114,418 | |||||||||||||||||
| Income (loss) from operations | (500,438 | ) | 16,727 | (441,683 | ) | 56,350 | |||||||||||||||
| Other (income) expenses: | |||||||||||||||||||||
| Interest expense | 6,996 | 10,424 | 26,705 | 34,329 | |||||||||||||||||
| Loss on early extinguishment of debt | -- | -- | 11,871 | -- | |||||||||||||||||
| Other income |
(439 |
) |
(358 |
) | (1,379 | ) | (1,172 | ) | |||||||||||||
| Total other (income) expenses | 6,557 | 10,066 | 37,197 | 33,157 | |||||||||||||||||
| Income (loss) before income taxes | (506,995 | ) | 6,661 | (478,880 | ) | 23,193 | |||||||||||||||
| Income tax (benefit) expense |
(49,456 |
) | 2,223 | (39,725 | ) | 8,506 | |||||||||||||||
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Income (loss) before equity in earnings of Medusa Spar LLC |
(457,539 |
) |
4,438 |
|
(439,155 |
) |
14,687 |
|
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| Equity in earnings of Medusa Spar LLC, net of tax | 5 | 104 | 262 | 507 | |||||||||||||||||
| Net income (loss) | $ | (457,534 | ) | $ | 4,542 | $ | (438,893 | ) | $ | 15,194 | |||||||||||
| Net income (loss) per common share: | |||||||||||||||||||||
| Basic | $ | (21.19 | ) | $ | 0.22 | $ | (20.68 | ) | $ | 0.73 | |||||||||||
| Diluted | $ | (21.19 | ) | $ | 0.21 | $ | (20.68 | ) | $ | 0.71 | |||||||||||
| Shares used in computing net income (loss) per share: | |||||||||||||||||||||
| Basic | 21,589 | 20,858 | 21,222 | 20,776 | |||||||||||||||||
| Diluted | 21,589 | 21,435 | 21,222 | 21,290 | |||||||||||||||||
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Callon Petroleum Company Consolidated Statements of Cash Flows (In thousands) |
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| Years Ended December 31, | |||||||||||||||
| 2008 | 2007 | 2006 | |||||||||||||
| Cash flows from operating activities: | |||||||||||||||
| Net income (loss) | $ | (438,893 | ) | $ | 15,194 | $ | 40,560 | ||||||||
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Adjustments to reconcile net income (loss) to cash provided by operating activities: |
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| Depreciation, depletion and amortization | 64,862 | 73,677 | 65,929 | ||||||||||||
| Impairment of oil and gas properties | 482,354 | -- | -- | ||||||||||||
| Accretion expense | 7,316 | 3,985 | 4,960 | ||||||||||||
| Amortization of deferred financing costs | 4,185 | 3,009 | 2,221 | ||||||||||||
| Non-cash loss on early extinguishment of debt | 5,598 | -- | -- | ||||||||||||
| Equity in earnings of Medusa Spar, LLC | (262 | ) | (507 | ) | (1,475 | ) | |||||||||
| Non-cash derivative expense | -- | -- | 150 | ||||||||||||
| Deferred income tax (benefit) expense | (39,725 | ) | 8,506 | 20,707 | |||||||||||
| Non-cash charge related to compensation plans | 1,550 | 849 | 1,420 | ||||||||||||
| Excess tax benefits from share-based payment arrangements | (2,050 | ) | (163 | ) | (1,449 | ) | |||||||||
| Changes in current assets and liabilities: | |||||||||||||||
| Accounts receivable | (22,215 | ) | 6,658 | (2,107 | ) | ||||||||||
| Other current assets | 5,489 | (619 | ) | (3,975 | ) | ||||||||||
| Current liabilities | 22,987 | (2,057 | ) | 11,311 | |||||||||||
| Change in gas balancing receivable | 630 | (938 | ) | (311 | ) | ||||||||||
| Change in gas balancing payable | 156 | 889 | 133 | ||||||||||||
| Change in other long-term liabilities | 2,708 | (10 | ) | (2 | ) | ||||||||||
| Change in other assets, net | (1,458 | ) | 810 | (2,588 | ) | ||||||||||
| Cash provided by operating activities | 93,232 | 109,283 | 135,484 | ||||||||||||
| Cash flows from investing activities: | |||||||||||||||
| Capital expenditures | (176,680 | ) | (127,409 | ) | (167,979 | ) | |||||||||
| Entrada acquisition | -- | (150,000 | ) | -- | |||||||||||
| Proceeds from sale of mineral interests | 167,493 | 60,931 | -- | ||||||||||||
| Distribution from Medusa Spar, LLC | 498 | 687 | 1,078 | ||||||||||||
| Cash used by investing activities | (8,689 | ) | (215,791 | ) | (166,901 | ) | |||||||||
| Cash flows from financing activities: | |||||||||||||||
| Change in accrued liabilities to be refinanced | -- | -- | (5,000 | ) | |||||||||||
| Increases in debt | 94,435 | 229,000 | 88,000 | ||||||||||||
| Payments on debt | (216,000 | ) | (64,000 | ) | (53,000 | ) | |||||||||
| Deferred financing costs | -- | (6,429 | ) | -- | |||||||||||
| Equity issued related to employee stock plans | (1,152 | ) | -- | (438 | ) | ||||||||||
| Excess tax benefits from share-based payment arrangements | 2,050 | 163 | 1,449 | ||||||||||||
| Capital leases | -- | (872 | ) | (263 | ) | ||||||||||
| Cash (used) provided by financing activities | (120,667 | ) | 157,862 | 30,748 | |||||||||||
| Net (decrease) increase in cash and cash equivalents | (36,124 | ) | 51,354 | (669 | ) | ||||||||||
| Cash and cash equivalents: | |||||||||||||||
| Balance, beginning of period | 53,250 | 1,896 | 2,565 | ||||||||||||
| Balance, end of period | $ | 17,126 | $ | 53,250 | $ | 1,896 | |||||||||
Callon Petroleum Company is engaged in the acquisition, development, exploration 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.
Callon Petroleum Company
Rodger W. Smith, 1-800-451-1294
