SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996 Commission File Number 0-25192
CALLON PETROLEUM COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 64-0844345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 North Canal Street
Natchez, Mississippi 39120
(Address of principal executive offices)(Zip code)
(601) 442-1601
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of April 26, 1996, there were 5,754,585 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
<PAGE>
CALLON PETROLEUM COMPANY
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheets as of March 31,
1996 and December 31, 1995 3
Consolidated Statements of Operations for the
three-month periods ended March 31, 1996 and
March 31, 1995 4
Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 1996 and
March 31, 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Part II. Other Information 11
<PAGE>
<TABLE>
CALLON PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,054 $ 4,265
Accounts receivable, trade 9,120 8,329
Other current assets 44 238
---------- ---------
Total current assets 17,218 12,832
---------- ---------
Oil & gas properties, full cost
accounting method:
Evaluated properties 305,846 304,737
Less accumulated depreciation, depletion
and amortization (259,476) (257,143)
---------- ---------
46,370 47,594
Unevaluated properties excluded from amortization 10,493 10,171
---------- ---------
56,863 57,765
---------- ---------
Pipeline facilities, net 5,319 5,371
Other property and equipment, net 1,571 1,633
Deferred tax asset 5,462 5,462
Long-term gas balancing receivable 591 619
Other assets, net 220 185
---------- ---------
Total assets $ 87,244 $ 83,867
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 10,814 $ 8,077
Deferred income 43 43
---------- ---------
Total current liabilities 10,857 8,120
---------- ---------
Long-term debt 100 100
Deferred income 78 86
Long-term gas balancing payable 408 432
---------- ---------
Total liabilities 11,443 8,738
---------- ---------
Stockholders' equity:
Preferred Stock, $0.01 par value, 2,500,000 shares
authorized: 1,315,500 shares of Convertible Exchange-
able Preferred Stock, Series A, issued and outstanding
with a liquidation preference of $32,887,500 13 13
Common stock, $.01 par value; 20,000,000 shares
authorized; 5,754,585 at March 31, 1996 and
5,754,529 shares outstanding at December 31, 1995 58 58
Capital in excess of par value 73,955 73,955
Retained earnings 1,775 1,103
---------- ---------
Total stockholders' equity 75,801 75,129
---------- ---------
Total liabilities and stockholders' equity $ 87,244 $ 83,867
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($ in thousands, except per share data)
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Oil and gas sales $ 6,375 $ 5,743
Interest and other 105 104
-------- --------
Total revenues 6,480 5,847
-------- --------
Costs and expenses:
Lease operating expenses 1,792 1,634
Depreciation, depletion and amortization 2,385 2,865
General and administrative 907 1,178
Interest 25 437
-------- --------
Total costs and expenses 5,109 6,114
-------- --------
Income (loss) from operations 1,371 (267)
Income tax expense (benefit) -- --
-------- --------
Net income (loss) 1,371 (267)
Preferred stock dividend 699 --
-------- --------
Net income (loss) available to common shares $ 672 $ (267)
======== ========
Net income (loss) per common share $ .12 $ ( .05)
======== ========
Weighted average common shares outstanding 5,755 5,755
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
<CAPTION>
Three Months Ended
----------------------------
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,371 $ (267)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 2,461 2,932
Amortization of deferred costs 35 --
Changes in current assets & liabilities:
Accounts receivable, trade (791) 2,708
Other current assets 194 (2)
Accounts payable, trade 2,737 (832)
Deferred income -- 250
Change in gas balancing receivable 28 85
Change in gas balancing payable (24) (90)
Change in deferred income (8) (10)
Change in other assets, net (70) (6)
-------- --------
Cash provided by operating activities 5,933 4,768
-------- --------
Cash flows from investing activities:
Capital expenditures (1,744) (1,533)
Cash proceeds from sale of mineral interests 299 --
-------- --------
Cash used in investing activities (1,445) (1,533)
-------- --------
Cash flows from financing activities:
Payments on debt -- (16)
Dividends on preferred stock (699) --
-------- --------
Cash provided by (used in) financing
activities (699) (16)
-------- --------
Net increase (decrease) in cash and
cash equivalents 3,789 3,219
Cash and cash equivalents:
Balance, beginning of period 4,265 7,285
-------- --------
Balance, end of period $ 8,054 $ 10,504
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. General Information
The Consolidated Financial Statements included herein, except December 31,
1995, have been prepared by the Company without audit and include all
adjustments (of a normal and recurring nature) which are, in the opinion
of management, necessary for the fair presentation of interim results
which are not necessarily indicative of results for the entire year. The
financial statements should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in the Company's latest
annual report.
2. Income Taxes
During the period ended March 31, 1996, the Company recorded income tax
expense of $480,000 which was offset by a reduction in the deferred tax
asset valuation allowance of an equal amount. The reduction in the
valuation allowance was based on management's current estimate of the
realizability of the deferred tax asset.
3. Subsequent Event
The Company, through a joint venture with an industry partner, was the
apparent high bidder on 13 offshore tracks at the Outer Continental Shelf
Lease Sale, held April 24, 1996 in New Orleans, Louisiana, and conducted
by the U,S. Department of the Interior through its Minerals Management
Service ("MMS").
The Company will hold a 25% working interest in the leases. The Company's
share of the total lease cost was approximately $11.7 million and each
lease bid is subject to final approval by the MMS.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
The Company's revenues, profitability and future growth and the carrying value
of its oil and gas properties are substantially dependent on prevailing prices
of oil and gas. The Company's ability to maintain or increase its borrowing
capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large fluctuation in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty and a variety of
additional factors beyond the control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of crude oil and natural gas, the price of foreign imports
and the availability of alternate fuel sources. Any substantial and extended
decline in the price of crude oil or natural gas would have an adverse effect
on the Company's carrying value of its proved reserves, borrowing capacity,
revenues, profitability and cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of producing
properties for acquisition and often cause disruption in the market for oil and
gas producing properties, as buyers and sellers have difficulty agreeing on such
value. Price volatility also makes it difficult to budget for and project the
return on acquisitions and development and exploitation projects.
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations for the three-
month periods ended March 31, 1996 and 1995. The Company's historical financial
statements and notes thereto included elsewhere in this quarterly report contain
detailed information that should be referred to in conjunction with the follow-
ing discussion.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ending March 31,
1996 totaled $5,933,000. An additional $299,000 was generated from the sale of
mineral interests. During the quarter, a total of $1,744,000 was paid for
capital expenditures and $699,000 was paid as dividends to the preferred
stockholders. The balance of the cash flow was retained for future operating
expenses and potential drilling and acquisition opportunities.
At March 31, 1996, the Company had a working capital surplus of $6,361,000 and
a current ratio of 1.6 to 1.
<PAGE>
For the balance of the year, the Company will continue evaluating producing
property acquisitions and drilling opportunities. The Company has budgeted up
to $30 million in capital expenditures for 1996 which include additional 3-D
seismic programs in a effort to more accurately identify future drilling sites
and assist in implementation of production enhancement procedures. The major
portion of the capital expenditure budget will be used to drill development and
exploratory wells in an attempt to replace existing current production and
increase total proved reserves for the Company. The capital budget will be
financed with projected cash flow from operations and unused borrowings under
the Company's Credit Facility.
Callon Petroleum Company has formed a joint venture with an industry partner for
the purpose of acquiring and developing certain offshore oil and gas leases
located in the Gulf of Mexico off the coast of Louisiana. The arrangement
provides that Callon will own a 25 percent working interest in the acquired
properties. Callon and its partner were the apparent high bidders on 13
separate tracts encompassing 65,000 acres offered for sale at the U.S.
Department of the Interior's Outer Continental Shelf (OCS) Lease Sale #157, held
in New Orleans, Louisiana on April 24, 1996, by the Minerals Management Service.
The Company's share of the total lease cost was approximately $11.7 million and
each lease bid is subject to final approval by the Minerals Management Service.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited operating information with
respect to the Company's oil and gas operations.
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
1996 1995
-----------------
<S> <C> <C>
Production:
Oil and condensate (MBbls) 143 118
Gas (MMcf) 1,468 2,048
Total production (MMcfe) 2,325 2,758
Average sales price:
Oil and condensate (per Bbl) $18.38 $16.46
Gas (per Mcf) 2.55 1.81
Total production (per Mcfe) 2.74 2.05
Average costs (per Mcfe):
Lease operating (excluding severance taxes) $ .57 $ .44
Severance taxes .20 .15
Depreciation, depletion and amortization 1.03 1.04
General and administrative (net of
management fees) .39 .43
</TABLE>
Comparison of Results of Operations for the Three Months Ended March 31, 1996
and the Three Months Ended March 31, 1995.
Oil and Gas Production and Revenues
- -----------------------------------
Total oil and gas revenues increased 12% from $5.7 million in 1995 to $6.4
million in 1996. This $0.7 million increase is the net result of a $1.4
million favorable pricing variance offset by a $0.7 million unfavorable
production variance.
<PAGE>
Oil production volumes during the first quarter of 1996 totaled 143,000 barrels
and generated $2.6 million compared to 118,000 barrels and $1.9 million in the
same period in 1995. The first quarter average daily production increased from
1,315 per day in 1995 to 1,569 per day in 1996. Average oil prices received in
1996 were $18.38 compared to $16.46 in 1995. Oil production from the Scott
Paper properties for the first quarter of 1996 totaled 41,000 barrels and
generated $0.8 million in revenues while the oil production and revenues from
the properties owned as of March 31, 1995 declined slightly.
Gas production volumes during the first quarter of 1996 totaled 1,468 million
cubic feet and generated $3.8 million in revenues compared to 2,048 million
cubic feet and $3.7 million in revenues during the same period in 1995. The
average sales price for the first quarter of 1996 averaged $2.55 per thousand
cubic feet compared to only $1.81 per thousand cubic feet at this time last
year. As noted in prior reports, the North Dauphin Island Field has a rapid
production decline curve which accounts for a major portion of the drop in total
gas production. Also, during the first quarter of 1996, the Company experienced
problems with excess water entering the gas sales gathering line which caused a
brief shut down and one of the wells in the North Dauphin Island Field began
producing extraneous water so the production was choked back to minimize the
water production. In summary, production volumes from both the Scott Paper
properties and the Chandeleur Block 40 properties, both acquired subsequent to
the first quarter of 1995, were not sufficient to overcome the production
decline at the North Dauphin Island Field. While total production was down when
compared the first quarter of 1995, this was more than offset by the increased
average price received per unit sold in 1996.
The following table summarizes oil and gas production for the comparable
periods.
<TABLE>
<CAPTION>
Oil Production Gas Production
(Barrels) (Mcf)
------------------ -------------------
Three Months Ended Three Months Ended
March 31, March 31,
------------------ -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Other properties 102,000 118,000 317,000 451,000
North Dauphin Island Field -- -- 800,000 1,597,000
Scott properties 41,000 -- 60,000 --
Chandeleur Block 40 -- -- 291,000 --
------- ------- --------- ---------
Total 143,000 118,000 1,468,000 2,048,000
======= ======= ========= =========
</TABLE>
Lease Operating Expenses
- ------------------------
Lease operating expense for the three month period ending March 31, 1996 was
$1.3 million, a slight increase from the $1.2 million as of March 31, 1995. A
large portion of the increase was attributable to removing water from the sales
pipeline, the installation of a dehydrator and other repairs at our North
Dauphin Island Field location.
<PAGE>
Depreciation, Depletion and Amortization
- ----------------------------------------
Depreciation, depletion and amortization for the three months ending March 31,
1996 and 1995 was $2.4 million and $2.9 million, respectively. For the three
month period ending March 31, 1996, the per Mcf equivalent amount was $1.03 and
compares to $1.04 for the same period in 1995. This decrease reflects the lower
total production level when compared to the first quarter of 1995.
General and Administrative
- --------------------------
General and administrative expense as of March 31, 1996 was $0.9 million
compared to $1.2 million as of March 31, 1995. This reduction is associated
with continued overall improvements in operational efficiencies and reduced
executive incentive compensation payments.
Interest Expense
- ----------------
Interest expense decreased from $437,000 as of March 31, 1995 to $25,000 as of
March 31, 1996 reflecting the reduction in the Company's debt as a result of the
preferred stock offering completed in November, 1995.
<PAGE>
CALLON PETROLEUM COMPANY
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALLON PETROLEUM COMPANY
Date May 8, 1996 By: John S. Weatherly
------------ ----------------------------------------
John S. Weatherly, Senior Vice President,
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000928022
<NAME> CALLON PETROLEUM COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,054
<SECURITIES> 0
<RECEIVABLES> 9,601
<ALLOWANCES> 481
<INVENTORY> 0
<CURRENT-ASSETS> 17,218
<PP&E> 330,488
<DEPRECIATION> 266,735
<TOTAL-ASSETS> 87,244
<CURRENT-LIABILITIES> 10,857
<BONDS> 0
0
13
<COMMON> 58
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 87,244
<SALES> 6,375
<TOTAL-REVENUES> 6,480
<CGS> 0
<TOTAL-COSTS> 5,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 1,371
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 672
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
</TABLE>
