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, 1998 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 May 1, 1998, there were 8,027,863 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
<PAGE>
CALLON PETROLEUM COMPANY
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheets as of March 31,
1998 and December 31, 1997 3
Consolidated Statements of Operations for the
three-month periods ended March 31, 1998 and
March 31, 1997 4
Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 1998 and
March 31, 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II. Other Information 12
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<TABLE>
<CAPTION>
CALLON PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,674 $ 15,597
Accounts receivable 10,222 12,168
Other current assets 1,727 723
--------- ---------
Total current assets 23,623 28,488
--------- ---------
Oil and gas properties, full cost accounting method:
Evaluated properties 399,593 398,046
Less accumulated depreciation, depletion and amortization (288,380) (282,891)
--------- ---------
111,213 115,155
Unevaluated properties excluded from amortization 46,093 35,339
--------- ---------
Total oil and gas properties 157,306 150,494
--------- ---------
Other property and equipment, net 8,368 8,442
Other assets, net 2,318 2,997
--------- ---------
Total assets $ 191,615 $ 190,421
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 12,253 $ 12,389
Other current liabilities 3,490 3,380
--------- ---------
Total current liabilities 15,743 15,769
Long-term debt 60,250 60,250
Other long-term liabilities 834 701
--------- ---------
Total liabilities 76,827 76,720
--------- ---------
Stockholders' equity:
Preferred stock 13 13
Common stock 80 79
Unearned compensation - restricted stock (4,484) (2,232)
Capital in excess of par value 109,263 106,433
Retained earnings 9,916 9,408
--------- ---------
Total stockholders' equity 114,788 113,701
--------- ---------
Total liabilities and stockholders' equity $ 191,615 $ 190,421
========= =========
The accompanying notes are an integral part of these financial statements.
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<CAPTION>
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
Revenues:
Oil and gas sales $ 11,045 $ 12,474
Interest and other 447 307
-------- --------
Total revenues 11,492 12,781
-------- --------
Costs and expenses:
Lease operating expenses 1,941 2,408
Depreciation, depletion and amortization 5,570 3,816
General and administrative 1,502 1,031
Interest 651 111
-------- --------
Total costs and expenses 9,664 7,366
-------- --------
Income from operations 1,828 5,415
Income tax expense 621 1,733
-------- --------
Net income 1,207 3,682
Preferred stock dividends 699 699
-------- --------
Net income available to common shares $ 508 $ 2,983
======== ========
Net earnings per common share:
Basic $ .06 $ .50
======== ========
Diluted $ .06 $ .39
======== ========
Shares used in computing earnings per common share:
Basic 8,015 6,010
======== ========
Diluted 8,221 9,332
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<CAPTION>
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,207 $ 3,682
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 5,697 3,909
Amortization of deferred costs 164 94
Deferred income tax expense 621 1,733
Noncash compensation related to stock plans 634 152
Changes in current assets & liabilities:
Accounts receivable 1,946 2,825
Other current assets (1,004) (294)
Current liabilities (65) 90
Change in gas balancing receivable (23) (146)
Change in gas balancing payable 52 231
Change in other long-term liabilities -- (13)
Change in other assets, net (82) (94)
-------- --------
Cash provided by operating activities 9,147 12,169
-------- --------
Cash flows from investing activities:
Capital expenditures (12,775) (8,813)
Cash proceeds from sale of mineral interests 339 45
-------- --------
Cash used in investing activities (12,436) (8,768)
-------- --------
Cash flows from financing activities:
Change in accrued liabilities for capital expenditures 39 308
Stock canceled (145) --
Sale of common stock 171 --
Dividends on preferred stock (699) (699)
-------- --------
Cash provided by (used in) financing activities (634) (391)
-------- --------
Net increase (decrease) in cash and cash equivalents (3,923) 3,010
Cash and cash equivalents:
Balance, beginning of period 15,597 7,669
-------- --------
Balance, end of period $ 11,674 $ 10,679
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
1. Basis of Presentation
The financial information presented as of any date other than December 31, has
been prepared from the books and records without audit. Financial information
as of December 31, has been derived from the audited financial statements of
the Company, but does not include all disclosures required by generally
accepted accounting principles. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the financial information for the period indicated, have been
included. For further information regarding the Company's accounting policies,
refer to the Consolidated Financial Statements and related notes for the year
ended December 31, 1997 included in the Company's Annual Report on Form 10-K
dated March 17, 1998.
2. Per Share Amounts
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FAS 128"), Earnings Per Share, which generally simplified the manner
in which earnings per share are determined. The Company adopted FAS 128
effective December 15, 1997. In accordance with FAS 128, the Company's
previously reported earnings per share for 1997 was restated.
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
quarter. Diluted earnings per common share for the three months ended
March 31, 1998 and 1997 were determined on a weighted average basis using
common shares issued and outstanding adjusted for the effect of stock options
considered common stock equivalents computed using the treasury stock method
and the effect of the convertible preferred stock (if dilutive).
A reconciliation of the basic and diluted earnings per share computation is as
follows (in thousands, except per share amounts):
Three Months Ended March 31,
1998 1997
(a) Net income available for common stock $ 508 $ 2,983
Preferred dividends assuming conversion
of preferred stock (if dilutive) $ -- (1) $ 699
(b) Income available for common stock assuming
conversion of preferred stock (if dilutive) $ 508 $ 3,682
(c) Weighted average shares outstanding 8,015 6,010
Dilutive impact of stock options 206 332
Convertible preferred stock (if dilutive) -- (1) 2,990
(d) Total diluted shares 8,221 9,332
Basic earnings per share (a/c) $ 0.06 $ 0.50
Diluted earnings per share (b/d) $ 0.06 $ 0.39
(1) The conversion of the preferred stock was not included in the diluted
calculation for the three months ended March 31, 1998, due to its anti-
diluted earnings per share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
This report includes "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934. All statements other than state-
ments of historical fact included in this report regarding the Company's
financial position, estimated quantities, business strategy, plans and
objectives for future operations and covenant compliance, are forward-looking
statements. Although the Company believes that the assumptions upon which
such forward-looking statements are based are reasonable, it can give no
assurances that such assumptions will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed below and elsewhere in
this report. The Cautionary Statements expressly qualify all subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf.
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 influenced
by oil and gas prices. Prices for oil and gas are subject to large fluctuations
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 regulations, political stability
in the Middle East and elsewhere, the foreign supply of oil and gas, the price
of foreign imports and the availability of alternate fuel sources. Any
substantial and extended decline in the price of oil or 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, exploration and development 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, 1998 and 1997. 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 following discussion.
Liquidity and Capital Resources
During the quarter ending March 31, 1998, the Company incurred a total of
$12.8 million was paid for capital expenditures and $699,000 was paid as
dividends to the preferred stockholders. Net cash provided by operating
activities for the three months totaled $9.1 million and an additional
$339,000 was generated from the sale of mineral interests. The remaining
net expenditures were funded by available cash and cash equivalents.
At March 31, 1998, the Company had working capital of $7.9 million and a
current ratio of 1.5 to 1.
For the balance of the year, the Company will continue evaluating property
acquisitions and drilling opportunities. The Company has budgeted up to $85
million in capital expenditures for 1998. The major portion of the capital
<PAGE>
expenditure budget will be used to drill development and exploratory wells in
an attempt to replace current production and increase total proved reserves
for the Company. The capital budget will be financed with available cash,
projected cash flow from operations and unused capacity under the Company's
Credit Facility.
Comparison of Results of Operations for the Three Months Ended March 31, 1998
and the Three Months Ended March 31, 1997.
Results of Operations
The following table sets forth certain unaudited operating information with
respect to the Company's oil and gas operations for the periods indicated.
Three Months Ended
March 31,
1998 1997
Production volumes:
Oil (MBbls) 112 129
Gas (MMcf) 4,036 3,391
Total (MMcfe) 4,706 4,162
Average sales price:
Oil (per Bbl) $ 13.85 $ 21.11
Gas (per Mcf) 2.35 2.88
Total (per Mcfe) 2.35 3.00
Average costs (per Mcfe):
Lease operating (excluding severance taxes) $ 0.34 $ 0.47
Severance taxes 0.07 0.11
Depreciation, depletion and amortization 1.18 0.92
General and administrative (net of management fees) 0.32 0.25
The following table summarizes oil and gas production for the comparable
periods.
Oil Production Gas Production
(Barrels) (Mcf)
Three Months Ended Three Months Ended
March 31, March 31,
1998 1997 1998 1997
Mobile Block 864 Area -- -- 1,145,000 --
Chandeleur Block 40 -- -- 779,000 1,172,000
Main Pass 163 -- -- 659,000 1,231,000
Mobile Block 952/953 -- -- 369,000 --
Main Pass 31 16,000 -- 344,000 --
Main Pass 164/165 -- -- 311,000 131,000
North Dauphin Island Field -- -- 223,000 458,000
Black Bay 40,000 47,000 -- --
Escambia Mineral properties 42,000 50,000 74,000 84,000
Other properties 14,000 32,000 132,000 315,000
------- ------- --------- ---------
Total 112,000 129,000 4,036,000 3,391,000
======= ======= ========= =========
Oil and Gas Production and Revenues
Total oil and gas revenues decreased 11% from $12.5 million in the first
quarter of 1997 to $11.0 million in 1998. This $1.5 million decrease is
largely attributed to lower average prices for both oil and gas.
<PAGE>
Oil production during the first quarter of 1998 totaled 112,000 barrels and
generated $1.5 million compared to 129,000 barrels and $2.7 million in the same
period in 1997. The first quarter average daily oil production decreased from
1,428 barrels per day in 1997 to 1,240 barrels per day in 1998. Average oil
prices received in 1997 were $21.11 compared to $13.85 in 1998. Oil production
volumes for 1998 included approximately 16,000 barrels of oil from our
discovery at Main Pass 31 and volumes for1997 included approximately 10,000
barrels attributable to properties which have been sold. Other properties
experienced a natural decline in production. The loss in revenues was largely
a result of the reduced average sales price received.
Gas production volumes during the first quarter of 1998 totaled to 4.0 billion
cubic feet and generated $9.5 million in revenues compared to 3.4 billion cubic
feet and $9.8 million in revenues during the same period in 1997. The first
quarter average daily gas production increased from 37.6 million cubic feet per
day to 44.8 million cubic feet per day in 1998. The average sales price for
the first quarter of 1998 averaged $2.35 per thousand cubic feet compared to
$2.88 per thousand cubic feet at this time last year.
Lease Operating Expenses
Lease operating expenses, including severance taxes, for the three-month period
ending March 31, 1998 were $1.9 million, a decrease from the $2.4 million as of
March 31, 1997. On a per Mcf equivalent basis these combined expenses declined
from $0.58 to $0.41 as a result of higher production volumes without
proportionate increases in field operating costs and a shift in production from
state to federal waters, thereby reducing severance taxes.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months ending March 31,
1998 and 1997 were $5.6 million and $3.8 million, respectively. This increase
increased production volumes at a higher overall rate per Mcfe. For the three
month period ending March 31, 1998, the per Mcf equivalent amount was $1.18 and
compares to $0.92 for the same period in 1997.
General and Administrative
General and administrative expenses as of March 31, 1998 were $1.5 million
compared to $1.0 million as of March 31, 1997. On a per Mcf equivalent basis,
general and administrative expenses increased from $0.25 in the first quarter
of 1997 to $0.32 in the current quarter.
Interest Expense
Interest expense for the current period increased as a result of increased
long-term debt when compared to the first quarter debt level in 1997. For
the period ending March 31, 1998, interest expense was $651,000 and compares
to $111,000 for the first quarter of 1997, net of interest capitalized as
unevaluated property costs.
Income Taxes
Income taxes were provided at the statutory rate of 34% of net income.
<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 5, 1998 By /s/ John S. Weatherly
-----------------------------------------
John S. Weatherly, Senior Vice President,
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF CALLON PETROLEUM COMPANY
FOR THE THREE MONTH PERIOD ENDING MARCH 31, 1998 WHICH ARE PRESENTED IN ITS
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,674
<SECURITIES> 0
<RECEIVABLES> 10,222
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,623
<PP&E> 454,054
<DEPRECIATION> 288,380
<TOTAL-ASSETS> 191,615
<CURRENT-LIABILITIES> 15,743
<BONDS> 0
0
13
<COMMON> 80
<OTHER-SE> 114,695
<TOTAL-LIABILITY-AND-EQUITY> 191,615
<SALES> 11,045
<TOTAL-REVENUES> 11,492
<CGS> 0
<TOTAL-COSTS> 9,013
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 651
<INCOME-PRETAX> 1,828
<INCOME-TAX> 621
<INCOME-CONTINUING> 1,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,207
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
