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 September 30, 1999 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 November 9, 1999, there were 11,763,581 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 September 30,
1999 and December 31, 1998 3-4
Consolidated Statements of Operations for Each of the
three and nine-months in the periods ended September 30, 1999
and September 30, 1998 5
Consolidated Statements of Cash Flows for Each of the
nine-months in the periods ended September 30, 1999 and
September 30, 1998 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
Part II. Other Information 15
<PAGE>
Callon Petroleum Company
Consolidated Balance Sheets
(In thousands, except share data)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 7,935 $ 6,300
Accounts receivable 8,415 6,024
Other current assets 2,205 1,924
--------- ---------
Total current assets 18,555 14,248
--------- ---------
Oil and gas properties, full cost
accounting method:
Evaluated properties 488,341 444,579
Less accumulated depreciation,
depletion and amortization (357,347) (345,353)
--------- ---------
130,994 99,226
Unevaluated properties excluded
from amortization 42,167 42,679
--------- ---------
Total oil and gas properties 173,161 141,905
--------- ---------
Pipeline and other facilities 5,940 6,182
Other property and equipment, net 1,525 1,753
Deferred tax asset 15,446 16,348
Long-term gas balancing receivable 216 199
Other assets, net 2,088 1,017
--------- ---------
Total assets $ 216,931 $ 181,652
========= =========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Callon Petroleum Company
Consolidated Balance Sheets
(In thousands, except per share data)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 7,295 $ 11,257
Deferred revenue on sale of production
payment interest - current portion 4,844 --
Undistributed oil and gas revenues 2,061 1,720
Accrued net profits payable 1,312 129
--------- ---------
Total current liabilities 15,512 13,106
--------- ---------
Accounts payable and accrued liabilities
to be refinanced -- 3,000
Long-term debt 107,250 78,250
Deferred revenue on sale of production
payment interest 8,453 --
Accrued retirement benefits 2,161 2,323
Long-term gas balancing payable 536 489
--------- ---------
Total liabilities 133,912 97,168
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value, 2,500,000
shares authorized; 1,045,461 shares of
Convertible Exchangeable Preferred Stock,
Series A, issued and outstanding with a
liquidation preference of $26,136,525 at
September 30, 1999 10 13
Common stock, $0.01 par value, 20,000,000
shares authorized; 8,557,906 and 8,178,406
outstanding at September 30, 1999 and at
December 31, 1998, respectively 86 82
Treasury stock (98,578 shares at cost) (1,177) (915)
Capital in excess of par value 108,415 109,429
Retained earnings (deficit) (24,315) (24,125)
--------- ---------
Total stockholders' equity 83,019 84,484
--------- ---------
Total liabilities and stockholders' equity $ 216,931 $ 181,652
========= =========
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
Callon Petroleum Company
Consolidated Statements Of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 10,240 $ 8,627 $ 26,777 $ 28,949
Interest and other 344 712 1,212 1,615
-------- -------- --------- ---------
Total revenues 10,584 9,339 27,989 30,564
-------- -------- --------- ---------
Costs and expenses:
Lease operating expenses 1,803 1,935 5,289 6,024
Depreciation, depletion and amortization 4,284 4,303 12,236 14,769
General and administrative 999 1,402 3,439 4,134
Interest 1,900 279 4,371 1,262
-------- -------- --------- ---------
Total costs and expenses 8,986 7,919 25,335 26,189
-------- -------- --------- ---------
Income from operations 1,598 1,420 2,654 4,375
Income tax expense 543 487 902 1,488
-------- -------- --------- ---------
Net income 1,055 933 1,752 2,887
Preferred stock dividends 555 699 1,942 2,097
-------- -------- --------- ---------
Net income (loss) available to
common shares $ 500 $ 234 $ (190) $ 790
======== ======== ========= =========
Net income (loss) per common share:
Basic $ 0.06 $ 0.03 $ (0.02) $ 0.10
======== ======== ========= =========
Diluted $ 0.06 $ 0.03 $ (0.02) $ 0.10
======== ======== ========= =========
Shares used in computing net income
(loss) per common share:
Basic 8,459 8,042 8,465 8,026
======== ======== ========= =========
Diluted 8,567 8,104 8,465 8,200
======== ======== ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Callon Petroleum Company
Consolidated Statements Of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
-------------------------------
September 30, September 30,
1999 1998
------------- -------------
Cash flows from operating activities:
Net income $ 1,752 $ 2,887
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation, depletion and amortization 12,612 15,147
Amortization of deferred costs 464 471
Amortization of deferred production
payment revenue (1,470) --
Deferred income tax expense 902 1,488
Noncash compensation related to
compensations plans 206 1,670
Changes in current assets and liabilities:
Accounts receivable (2,391) 4,900
Other current assets (281) 86
Current liabilities (199) (1,743)
Changes in gas balancing receivable (17) 9
Changes in gas balancing payable 47 (61)
Change in other long-term liabilities (162) --
Change in other assets, net (1,535) (82)
--------- ---------
Cash provided (used) by operating activities 9,928 24,772
--------- ---------
Cash flows from investing activities:
Capital expenditures (30,870) (45,882)
Cash proceeds from sale of mineral interests -- 10,471
Cash proceeds from sale of mineral interest
burdened by a net profits interest -- 1,825
--------- ---------
Cash provided (used) by investing activities (30,870) (33,586)
--------- ---------
Cash flows from financing activities:
Change in accounts payable and accrued
liabilities to be refinanced (3,000) --
Payment on debt (35,500) --
Increase in debt 64,500 7,000
Equity issued related to employee stock plans 121 163
Purchase of treasury shares (262) (43)
Common stock cancelled (1,615) (145)
Dividends on preferred stock (1,667) (2,097)
--------- ---------
Cash provided (used) by financing activities 22,577 4,878
--------- ---------
Net increase (decrease) in cash and
cash equivalents 1,635 (3,936)
Cash and cash equivalents:
Balance, beginning of period 6,300 15,597
---------- -----------
Balance, end of period $ 7,935 $ 11,661
========== ===========
The accompanying notes are an integral part of these financial statements
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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, 1998 included in the Company'
Annual Report on Form 10-K dated arch 29, 1999.
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.
Basic earnings or loss per common share were computed by dividing net income
or loss by the weighted average number of shares of common stock outstanding
during the quarter. Diluted earnings per common share for the three and
nine-months periods of 1998 and the three months ended September 30, 1999
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). The earnings per share computations
for the nine months ended September 30, 1999 excluded all stock options from
the computation of diluted loss per share because they were antidilutive.
The conversion of the preferred stock was not included in any calculation
due to their antidilutive effect on diluted income or loss per share.
A reconciliation of the basic and diluted earnings per share computation is
as follows (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1999 1998 1999 1998
------- ------- ------- -------
(a) Net income (loss) available
to common shares $ 500 $ 234 $ (190) $ 790
(b) Weighted average shares
outstanding 8,459 8,042 8,465 8,026
(c) Dilutive impact of stock
options 108 62 -- 174
(d) Total diluted shares 8,567 8,104 8,465 8,200
Basic earnings (loss) per
share a/b $ 0.06 $ 0.03 $ (0.02) $ 0.10
Diluted earnings (loss) per
share a/d $ 0.06 $ 0.03 $ (0.02) $ 0.10
3. Hedging Contracts
The Company periodically uses derivative financial instruments to manage oil
and gas price risks. Settlements of gains and losses on commodity price swap
contracts are generally based upon the difference between the contract price
or prices specified in the derivative instrument and a NYMEX price and are
<PAGE>
reported as a component of oil and gas revenues. Gains or losses
attributable to the termination of a swap contract are deferred and
recognized in revenue when the oil and gas is sold. Approximately $1.6
million was recognized as additional oil and gas revenue in the first three
quarters of 1998 and $862,000 was recognized as a reduction of oil and gas
revenues for the same period in 1999 related to contract settlements.
As of September 30, 1999, the Company had open collar contracts with third
parties whereby minimum floor prices and maximum ceiling prices are
contracted and applied to related contract volumes. These agreements
in effect for 1999 are for average gas volumes of 200,000 Mcf per month
through September 2000 at (on average) a ceiling price of $2.82 and floor
price of $2.53. In addition, the Company had open oil collar contracts
averaging 27,500 barrels per month at (on average) a ceiling price of
$16.15 and a floor price of $13.82 from October 1999 through December 1999.
4. Preferred Stock
During the first quarter of 1999 certain preferred stockholders through
private transactions, agreed to convert 210,350 shares of Preferred
Stock into 502,632 shares of the Company's Common Stock. Any non-cash
premium negotiated in excess of the conversion rate was recorded as additional
preferred stock dividends and excluded from the Consolidated Statements
of Cash Flows.
5. Senior Subordinated Notes
On July 14, 1999 the Company issued $40 million of 10.25% Senior Subordinated
Notes due 2004. Interest is payable quarterly beginning September 15, 1999.
The net proceeds to the Company, after costs of the transaction, were used to
repay the outstanding balance on the Credit Facility.
6. Deferred Revenue on Sale of Production Payment Interest
In June 1999, the Company acquired a working interest in the Mobile Block 864
Area in which the Company already owned an interest. Concurrent with this
acquisition, the seller received a volumetric production payment, valued at
approximately $14.8 million, from production attributable to a portion of the
Company's interest in the area over a 39 month period. The Company deferred
the revenue associated with the sale of this production payment interest
because a substantial obligation for future performance exists. Under the
terms of the sale, the Company is obligated to deliver the production volumes
free and clear of royalties, lease operating expenses, production taxes and
all capital costs. The production payment was recorded at the present value
of the volumetric production committed to the seller at market value and,
beginning in June 1999, is amortized to oil and gas sales on the units-of-
production method as associated hydrocarbons are delivered.
7. Subsequent Event
On November 3, 1999 the Company completed a public offering of 3,200,000
shares of common stock at a price to the public of $11.875 per share.
The Company granted the underwriters the right to purchase up to an
additional 480,000 shares of common stock to cover over-allotments.
Net proceeds are expected to be approximately $35.3 million from this
offering ($40.7 million if the underwriters' over-allotment option is
exercised in full) after deducting the underwriting discount and
estimated offering expenses. The Company intends to use all of the net
proceeds, together with its cash flows and borrowings under its Credit
Facility to fund its remaining 1999 and 2000 capital expenditure budgets.
Pending the use of funds to pay capital expenditures, the Company will
use a portion of the net proceeds to repay borrowings under the Credit
Facility and the remainder will be invested in short-term money market
instruments.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report includes "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. All statements other than statements of historical facts
included in this report regarding the Company's financial position, adequacy
of resources, estimated reserve quantities, business strategies, plans,
objectives and expectations for future operations and covenant compliance,
are forward-looking statements. The Company can give no assurances that the
assumptions upon which such forward-looking statements are based 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, in the section "Risk Factors" included in the Company's
Form 10-K, elsewhere in this report and from time to time in other filings
made by the Company with the Securities and Exchange Commission. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified by the
Cautionary Statements.
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 and its ability to find, develop and acquire
additional oil and gas reserves that are economically recoverable. 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. The Company uses derivative financial instruments for price
protection purposes on a limited amount of its future production and does not
use them for trading purposes.
The following discussion is intended to assist in an understanding of the
Company's historical financial position and results of operations. 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
The Company's primary sources of capital are its cash flows from operations,
borrowings from financial institutions and the sale of debt and equity
securities. Net cash and cash equivalents during the nine months ending
September 30, 1999 increased by $1.6 million and net cash flows from
operations before working capital changes totaled $14.5 million. During
the nine-month period long-term debt increased $29 million. This net
increase was the result of the issuance of $40 million in Senior
Subordinated Notes and net repayments on the Credit Facility of
$11 million. Decreases in cash flows for the nine-month period included
a $3.0 million reduction in accounts payable and accrued liabilities to
be refinanced, $1.6 million related to the surrender and cancellation of
common stock in satisfaction of payroll taxes associated with performance
<PAGE>
shares previously issued pursuant to the Company's Stock Incentive Plans,
and $1.7 million paid to the preferred stockholders as dividends. Net
capital expenditures for the period totaled $30.9 million. These funds
were expended in drilling and completion of six wells and the completion
of three additional wells.
At September 30, 1999, the Company had working capital of $ 3.0 million
and a current ratio of 1.2 to 1.
On November 3, 1999 the Company completed a public offering of 3,200,000
shares of common stock at a price to the public of $11.875 per share.
The Company intends to use all of the net proceeds, together with its cash
flows and borrowings under its Credit Facility to fund its remaining 1999
and 2000 capital expenditure budgets. See additional information contained
in Note 7 to the consolidated financial statements of the Company included
in this report.
On July 15, 1999, the Company announced its offering of $40 million Senior
Subordinated Notes due 2004 at a yield of 10.25 percent. A portion of the
net proceeds from the offering was used to repay amounts borrowed under the
Company's Credit Facility. The balance of the proceeds, together with cash
flows and additional borrowings under its credit facility, will be used to
fund the Company's remaining 1999 and a portion of its 2000 capital
expenditure budget.
For the remainder of the year, the Company will continue evaluating property
acquisitions and drilling opportunities. The Company has budgeted up to $16.9
million in capital expenditures for the fourth quarter of 1999. The major
portion of the capital expenditure budget will be used to drill development
and exploratory wells to increase total proved reserves and increase production
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.
Disclosure About Market Risks
The Company's revenues are derived from the sale of its crude oil and natural
gas production. In recent months, the prices for oil and gas have increased;
however, they remain extremely volatile and sometimes experience large
fluctuations as a result of relatively small changes in supplies, weather
conditions, economic conditions and government actions. From time to
time, the Company enters into derivative financial instruments to hedge
oil and gas price risks for the production volumes to which the hedge
relates. The hedges reduce the Company's exposure on the hedged volumes to
decreases in commodity prices and limit the benefit the Company might
otherwise have received from any increases in commodity prices on the hedged
volumes.
The Company also enters into price "collars" to reduce the risk of changes
in oil and gas prices. Under these arrangements, no payments are due by
either party so long as the market price is above the floor price set in the
collar and below a ceiling. If the price falls below the floor, the counter-
party to the collar pays the difference to the Company and if the price is
above the ceiling, the counter-party receives the difference.
The Company enters into these agreements from time to time to reduce the
effects of volatile oil and gas prices and do not enter into hedge
transactions for speculative purposes. See Note 3 to the Consolidated
Financial Statements for a description of the Company's hedged position
at September 30, 1999. Approximately $862,000 related to hedging was
recognized as a reduction of oil and gas revenue in the first nine months of
1999. There have been no significant changes in market risks faced by the
Company since the end of 1998.
<PAGE>
Year 2000 Compliance
There have not been any significant developments nor significant additional
risks identified since the end of 1998. The Company continues to focus
efforts on identifying and solving the many threats to its business posed
by the Year 2000 issue. These risks are generally divided into three areas,
(1) failure of our financial and administrative systems, (2) failure of the
embedded systems which control our automated production facilities and (3)
failure of our suppliers and purchasers to correct their Year 2000 problems.
The Company believes that its financial accounting software and the embedded
systems affecting its automated production facilities are in compliance.
The Company continues to correspond with our suppliers and purchasers to
assess compliance. Since we are unable to independently verify that they are
taking appropriate steps to remedy problems, no assurances can be made that
the Company will not encounter adverse effects caused by Year 2000 problems.
Although the Company does not separately account for its internal costs
incurred for its Year 2000 compliance efforts, consisting mainly of payroll
and related benefits for our information systems personnel, we are still
projecting the compliance costs to be less than $200,000.
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 Nine Months Ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
Production volumes:
Oil (MBbls) 81 59 257 252
Gas (MMcf) 3,996 3,496 10,839 11,172
Total (MMcfe) 4,481 3,848 12,379 12,683
Average sales price: (a)
Oil (MBbls) $ 12.27 $ 11.60 $ 12.06 $ 12.72
Gas (MMcf) 2.31 2.27 2.18 2.30
Total (MMcfe) 2.29 2.24 2.16 2.28
Average costs (per Mcfe):
Lease operating (excluding
severance taxes) $ 0.34 $ 0.47 $ 0.36 $ 0.42
Severance taxes 0.06 0.03 0.06 0.06
Depreciation, depletion and
amortization 0.96 1.12 0.99 1.16
General and administrative
(net of management fees) 0.22 0.36 0.28 0.33
______________
(a) Includes hedging gains and losses
Comparison of Results of Operations for the Three Months Ended
September 30, 1999 and the Three Months Ended September 30, 1998.
Oil and Gas Production and Revenues
Total oil and gas revenues increased 19% from $8.6 million in 1998 to $10.2
million. Oil and gas production and prices were higher when compared to the
same period in 1998.
<PAGE>
Gas production during the third quarter of 1999 totaled 4.0 billion cubic
feet and generated $9.2 million in revenues compared to 3.5 billion cubic
feet and $7.9 million in revenues during the same period in 1998. The
average sales price for the third quarter of 1999 averaged $2.31 per
thousand cubic feet compared to $2.27 per thousand cubic feet at this
time last year. When compared to the same quarter last year, the Company's
gas production increased by 14% as a result of an acquisition, new
discoveries, and the recompletion of an existing well. Production declines
for other properties were expected and considered normal.
Oil production during the third quarter of 1999 totaled 81,000 barrels and
generated $1.0 million in revenues compared to 59,000 barrels and $0.7
million in revenues for the same period in 1998. Third quarter average
daily production increased 38% from 638 barrels per day in 1998 to 879
barrels per day in 1999. Average oil prices received in the third
quarter of 1999 were $12.27 compared to $11.60 in 1998. When the third
quarter of 1999 is compared to the same period in 1998, production increases
are attributed to the Main Pass 26, Main Pass 36 and the Eugene Island 335
properties.
The following table summarizes oil and gas production from the Company's
major producing properties for the comparable periods.
Oil Production Gas Production
(Barrels) (Mcf)
Three Months Ended Three Months Ended
September 30, September 30,
------------------- ---------------------
1999 1998 1999 1998
------- ------- --------- ---------
Mobile Block 864 Area -- -- 1,465,000 1,237,000
Chandeleur Block 40 -- -- 163,000 525,000
Main Pass 26 7,000 -- 146,000 --
Main Pass 31 5,000 5,000 175,000 215,000
Main Pass 36 10,000 -- 302,000 --
Main Pass 163 Area -- -- 477,000 617,000
Eugene Island 335 6,000 -- 326,000 --
High Island A-494 -- -- 553,000 --
North Dauphin Island Field -- -- 110,000 452,000
Escambia Mineral properties 38,000 36,000 63,000 59,000
Other properties 15,000 18,000 216,000 391,000
------- ------- --------- ---------
Total 81,000 59,000 3,996,000 3,496,000
======= ======= ========= =========
Lease Operating Expenses
Lease operating expenses, including severance taxes, for the three-month period
ending September 30, 1999 were $1.8 million compared to $1.9 million for the
same period in 1998.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months ending September
30, 1999 and 1998 was $4.3 million, or $0.96 per Mcfe, and $4.3 million, or
$1.12 per Mcfe, respectively. When compared the same quarter in 1998, higher
production volumes and a lower average rate in 1999 resulted in the same
total expense.
General and Administrative
General and administrative expense for the three months ended September 30,
1999 was $1.0 million compared to $1.4 million for the three months ended
September 30, 1998. Expenses for 1998 included certain costs associated with
<PAGE>
bonuses under the incentive compensation plan and the non-cash costs
associated with the vesting of performance shares. These expenses were not
incurred in 1999. In addition, 1999 expenses reflected lower personnel costs
as a result of staffing reductions effective in June 1999.
Interest Expense
Interest expense increased from $279,000 during the three months ended
September 30, 1998 to $1.9 million during the three months ended September
30, 1999 reflecting the increase in the Company's long-term debt.
Comparison of Results of Operations for the Nine Months Ended
September 30, 1999 and the Nine Months Ended September 30, 1998.
Oil and Gas Production and Revenues
For the nine months ended September 30, 1999, total oil and gas revenues
decreased by $ 2.1 million, or 8%, to $26.8 million when compared to $28.9
million for the same period in 1998.
Natural gas production and revenue for the nine-month period ending
September 30, 1999 were 10.8 billion cubic feet and $23.7 million,
respectively, decreasing from 11.2 billion cubic feet and gas revenues
of $25.7 million in the first nine months of 1998. The average sales
price for natural gas in the first nine months in 1999 was $2.18 per
Mcf, a $0.12 per Mcf decrease over the same period in 1998. When compared
to the same nine-month period last year, the Company's gas production
increased as a result of an acquisition, new discoveries being brought
online and the recompletion of an existing well. The offsetting production
declines in the other properties were expected and considered normal.
For the nine months ending September 30, 1999, oil production and oil revenues
increased to 257,000 barrels and $3.1 million, respectively. For the
comparable period in 1998, oil production was 252,000 barrels while revenues
totaled $3.2 million. Oil prices during the first nine months of 1999
averaged $12.06, compared to $12.72 for the same period in 1998. Oil
production was slightly higher and gas production was slightly lower than
1998. Both oil and gas prices declined from the 1998 levels.
The following table summarizes oil and gas production from the Company's
major producing properties for the comparable periods.
Oil Production Gas Production
(Barrels) (Mcf)
Nine Months Ended Nine Months Ended
September 30, September 30,
------------------- ----------------------
1999 1998 1999 1998
-------- ------- ---------- ----------
Mobile Block 864 Area -- -- 4,018,000 4,141,000
Chandeleur Block 40 -- -- 672,000 1,985,000
Main Pass 26 41,000 -- 723,000 --
Main Pass 31 32,000 33,000 1,083,000 863,000
Main Pass 36 10,000 -- 302,000 --
Main Pass 163 Area -- -- 1,537,000 2,423,000
Eugene Island 335 20,000 -- 832,000 --
High Island A-494 -- -- 553,000 --
North Dauphin Island Field -- -- 373,000 855,000
Black Bay -- 57,000 -- --
Escambia Mineral properties 108,000 116,000 190,000 194,000
Other properties 46,000 46,000 556,000 711,000
-------- -------- ---------- ----------
Total 257,000 252,000 10,839,000 11,172,000
======== ======== ========== ==========
<PAGE>
Lease Operating Expenses
Lease operating expenses, excluding severance taxes, for the first three
quarters of 1999 decreased 15% to $4.5 million from $5.3 million for the
1998 comparable period. This decrease is primarily the result of expenses
associated with Black Bay, which was sold in May 1998. Severance taxes
were $0.8 million during the first nine months of 1999 and $0.7 million
for the same period in 1998.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the first nine months of 1999
was $12.2 million, or $0.99 per Mcf equivalent. For the same period in 1998,
the total was $14.8 million and $1.16 per Mcf equivalent. Since the total
production volume on a Mcfe basis remain almost constant, the reduced rate
per Mcfe is responsible for the decrease in the total expense when compared
to 1998.
General and Administrative
During the first nine months of 1999, general and administrative expenses
decreased by 17% to $3.4 million when compared to $4.1 million for the
nine-month period in 1998. While expenses associated with bonuses under
the incentive compensation plan and the vesting of performance shares were
incurred during the first nine months of 1998, there were no similar 1999
expenses incurred. In addition, 1999 expenses reflected lower costs
associated with personnel reductions which were effective in June 1999.
Interest Expense
Interest expense during the first three quarters of 1999 was $4.4 million
compared to $1.3 million for the first three quarters of 1998 as a result
of the increase in the Company's long-term debt.
<PAGE>
CALLON PETROLEUM COMPANY
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
2. Plan of acquisition, reorganization, arrangement,
liquidation or succession*
3. Articles of Incorporation and By-Laws
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference from Exhibit 3.1 of the
Company's Registration Statement on Form S-4, filed
August 4, 1994, Reg. No. 33-82408)
3.2 Certificate of Merger of Callon Consolidated Partners,
L. P. with and into the Company dated September 16, 1994
(incorporated by reference from Exhibit 3.2 of the
Company's Report on Form 10-K for the period ended
December 31, 1994)
3.3 Bylaws of the Company (incorporated by reference from
Exhibit 3.2 of the Company's Registration Statement on
Form S-4, filed August 4, 1994, Reg. No. 33-82408)
4. Instruments defining the rights of security holders,
including indentures
4.1 Specimen stock certificate (incorporated by reference
from Exhibit 4.1 of the Company's Registration Statement
on Form S-4, filed August 4, 1994, Reg. No. 33-82408)
4.2 Specimen Preferred Stock Certificate (incorporated by
reference from Exhibit 4.2 of the Company's Registration
Statement on Form S-1, Reg. No. 33-96700)
4.3 Designation for Convertible Exchangeable Preferred
Stock, Series A (incorporated by reference from Exhibit
4.3 of the Company's Registration Statement on Form
S-1/A, filed November 13, 1995, Reg. No. 33-96700)
4.4 Indenture for Convertible Debentures (incorporated by
reference from Exhibit 4.4 of the Company's Registration
Statement on Form S-1/A, filed November 13, 1995, Reg.
No. 33-96700)
4.5 Certificate of Correction on Designation of Series A
Preferred Stock (incorporated by reference from Exhibit
4.4 of the Company's Registration Statement on Form
S-1/A, filed November 22, 1996, Reg. No. 333-15501)
4.6 Form of Note Indenture for the Company's 10% Senior
Subordinated Notes due 2001 (incorporated by reference
from Exhibit 4.6 of the Company's Registration Statement
on Form S-1/A, filed November 22, 1996, Reg. No.
333-15501)
<PAGE>
4.7 Form of Note Indenture for the Company's 10.25 Senior
Subordinated Notes due 2004 (incorporated by reference
from Exhibit 4.10 of the Company's Registration
Statement on Form S-2, filed June 14, 1999, Reg.
No. 333-80579)
10. Material contracts
10.1 Purchase and Sale Agreement between Callon Petroleum
Operating Company and Murphy Exploration Company, dated
May 26, 1999 (incorporated by reference from Exhibit
10.11 on Form S-2, filed on June 14, 1999, Reg. No.
333-80579)
10.2 Registration Rights Agreement dated September 16, 1994
between the Company and NOCO Enterprises, L. P.
(incorporated by reference from Exhibit 10.2 of the
Company's Registration Statement on Form 8-B, filed
October 3, 1994)
10.3 Registration Rights Agreement dated September 16, 1994
between the Company and Callon Stockholders
(incorporated by reference from Exhibit 10.3 of the
Company's Registration Statement on Form 8-B, filed
October 3, 1994)
10.4 Callon Petroleum Company 1994 Stock Incentive Plan
(incorporated by reference from Exhibit 10.5 of the
Company's Registration Statement on Form 8-B, filed
October 3, 1994)
10.5 Credit Agreement dated October 14, 1994 by and between
the Company, Callon Petroleum Operating Company and
Internationale Nederlanden (U.S.) Capital Corporation
(incorporated by reference from Exhibit 99.1 of the
Company's Report on Form 10-Q for the quarter ended
September 30, 1994)
10.6 Third Amendment dated February 22, 1996, to Credit
Agreement by and among the Company, Callon Petroleum
Operating Company and Internationale Nederlanden (U.S.)
Capital Corporation (incorporated by reference from
Exhibit 10.9 of the Company's Report on Form 10-K for
the fiscal year ended December 31, 1995)
10.7 Consulting Agreement between the Company and John S.
Callon dated June 19, 1996 (incorporated by reference
from Exhibit 10.10 of the Company's Registration
Statement on Form S-1, filed November 5, 1996, Reg.
No. 333-15501)
10.8 Employment Agreement effective September 1, 1996
between the Company and Fred L. Callon (incorporated
by reference from Exhibit 10.4 of the Company's
Registration Statement on Form S-1/A, filed November
14, 1996, Reg. No. 333-15501)
10.9 Employment Agreement effective September 1, 1996
between the Company and Dennis W. Christian
(incorporated by reference from Exhibit 10.7 of the
Company's Registration Statement on Form S-1/A, filed
November 14, 1996, Reg. No. 333-15501)
<PAGE>
10.10 Employment Agreement effective September 1, 1996
between the Company and John S. Weatherly (incorporated
by reference from Exhibit 10.8 of the Company's
Registration Statement on Form S-1/A, filed
November 14, 1996, Reg. No. 333-15501)
10.11 Callon Petroleum Company's Amended 1996 Stock Incentive
Plan (incorporated by reference from Exhibit 4.4 of the
Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-8, filed February 5,
1999, Reg. No. 333-29537)
11. Statement re computation of per share earnings
11.1 Computation of Per Share Earnings
15. Letter re unaudited interim financial information*
18. Letter re change in accounting principles*
19. Report furnished to security holders*
22. Published report regarding matters submitted to vote of
security holders*
23. Consents of experts and counsel*
24. Power of attorney*
27. Financial Data Schedule
99. Additional exhibits*
(b.) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
____________________
*Inapplicable to this filing
<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: November 11, 1999 By: /s/ John S. Weatherly
----------------- ---------------------
John S. Weatherly, Senior Vice
President and Chief Financial Officer
(on behalf of the registrant and as
the principal financial officer)
<PAGE>
Exhibit 11.1
CALLON PETROLEUM COMPANY
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
------- ------ ------- -------
Net income $ 1,055 $ 933 $ 1,752 $ 2,887
Preferred stock dividends 555 699 1,942 2,097
------- ------ ------- -------
Net income (loss) available
to common shares $ 500 $ 234 $ (190) $ 790
======= ====== ======= =======
Net income (loss) per
common share:
Basic $ 0.06 $ 0.03 $ (0.02) $ 0.10
======= ======= ======= =======
Diluted $ 0.06 $ 0.03 $ (0.02) $ 0.10
======= ======= ======= =======
Shares used in computing
net income (loss) per
common share:
Basic 8,459 8,042 8,465 8,026
Dilutive impact of
stock options 108 62 -- 174
------- ------- ------- -------
Diluted 8,567 8,104 8,465 8,200
======= ======= ======= =======
Note: Basic earnings or loss per common share were computed by dividing net
income or loss by the weighted average number of shares of common stock
outstanding during the quarter. Diluted earnings per common share for
the three and nine-month periods of 1998 and the three months ended September
30, 1999 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). The earnings per
share computations for the nine months ended September 30, 1999 excluded
all stock options from the computation of diluted loss per share because
they were antidilutive. The conversion of the preferred stock was not
included in any calculation due to their antidilutive effect on diluted
income or loss per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF CALLON PETROLEUM COMPANY FOR THE
PERIOD ENDING SEPTEMBER 30, 1999 WHICH ARE PRESENTED IN ITS QUARTERLY REPORT ON
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,935
<SECURITIES> 0
<RECEIVABLES> 8,415
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,555
<PP&E> 537,973
<DEPRECIATION> 357,347
<TOTAL-ASSETS> 216,931
<CURRENT-LIABILITIES> 15,512
<BONDS> 0
0
10
<COMMON> 86
<OTHER-SE> 82,923
<TOTAL-LIABILITY-AND-EQUITY> 216,931
<SALES> 26,777
<TOTAL-REVENUES> 27,989
<CGS> 0
<TOTAL-COSTS> 20,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,371
<INCOME-PRETAX> 2,654
<INCOME-TAX> 902
<INCOME-CONTINUING> 1,752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,752
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
