<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 2000 COMMISSION FILE NUMBER 0-25192
CALLON PETROLEUM COMPANY
------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 64-0844345
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(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 August 2, 2000, there were 12,283,716 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
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CALLON PETROLEUM COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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PART I. FINANCIAL INFORMATION
<S> <C> <C>
Consolidated Balance Sheets as of June 30,
2000 and December 31, 1999 3
Consolidated Statements of Operations for Each of the Three
and Six Months in the Periods Ended June 30, 2000 and June 30,
1999 4
Consolidated Statements of Cash Flows for Each of the
Six Months in the Periods Ended June 30, 2000 and
June 30, 1999 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION 16
</TABLE>
2
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CALLON PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,330 $ 34,671
Accounts receivable 13,909 5,362
Other current assets 949 1,004
---------- ----------
Total current assets 24,188 41,037
---------- ----------
Oil and gas properties, full cost accounting method:
Evaluated properties 555,480 511,689
Less accumulated depreciation, depletion and amortization (369,914) (361,758)
---------- ----------
185,566 149,931
Unevaluated properties excluded from amortization 51,576 44,434
---------- ----------
Total oil and gas properties 237,142 194,365
---------- ----------
Pipeline and other facilities 5,699 5,860
Other property and equipment, net 1,555 1,450
Deferred tax asset 12,772 14,995
Long-term gas balancing receivable 343 243
Other assets, net 1,698 1,927
---------- ----------
Total assets $ 283,397 $ 259,877
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 17,186 $ 16,786
Undistributed oil and gas revenues 1,867 2,082
Accrued net profits payable 1,868 1,676
Current maturities of long-term debt 22,000 --
---------- ----------
Total current liabilities 42,921 20,544
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Long-term debt 100,250 100,250
Deferred revenue on sale of production payment interest 9,671 12,080
Accrued retirement benefits 1,996 2,107
Long-term gas balancing payable 574 516
---------- ----------
Total liabilities 155,412 135,497
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Stockholders' equity:
Preferred stock, $0.01 par value, 2,500,000 shares authorized; 1,040,461
shares of Convertible Exchangeable Preferred Stock, Series A, issued and
outstanding at June 30, 2000 and 1,045,461 shares outstanding at December
31, 1999 with a liquidation preference of $26,011,525 at June 30, 2000 10 11
Common stock, $0.01 par value, 20,000,000 shares authorized; 12,277,211 and
12,239,238 outstanding at June 30, 2000 and at December 31, 1999, respectively 123 122
Treasury stock (99,078 shares at cost) (1,183) (1,183)
Capital in excess of par value 149,817 149,425
Retained deficit (20,782) (23,995)
---------- ----------
Total stockholders' equity 127,985 124,380
---------- ----------
Total liabilities and stockholders' equity $ 283,397 $ 259,877
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 14,312 $ 8,568 $ 23,760 $ 16,537
Interest and other 404 463 1,074 868
---------- ---------- ---------- ----------
Total revenues 14,716 9,031 24,834 17,405
---------- ---------- ---------- ----------
Costs and expenses:
Lease operating expenses 2,334 1,878 4,154 3,486
Depreciation, depletion and amortization 4,600 3,989 8,317 7,952
General and administrative 930 1,379 1,972 2,440
Interest 2,071 1,444 3,846 2,471
---------- ---------- ---------- ----------
Total costs and expenses 9,935 8,690 18,289 16,349
---------- ---------- ---------- ----------
Income from operations 4,781 341 6,545 1,056
Income tax expense 1,626 116 2,226 359
---------- ---------- ---------- ----------
Net income 3,155 225 4,319 697
Preferred stock dividends 552 555 1,105 1,386
---------- ---------- ---------- ----------
Net income (loss) available to common shares $ 2,603 $ (330) $ 3,214 $ (689)
========== ========== ========== ==========
Net income (loss) per common share:
Basic $ 0.21 $ (0.04) $ 0.26 $ (0.08)
========== ========== ========== ==========
Diluted $ 0.21 $ (0.04) $ 0.26 $ (0.08)
========== ========== ========== ==========
Shares used in computing net income (loss)
per common share:
Basic 12,171 8,447 12,163 8,462
========== ========== ========== ==========
Diluted 12,445 8,447 12,398 8,462
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,319 $ 697
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation, depletion and amortization 8,532 8,210
Amortization of deferred costs 463 276
Amortization of deferred production payment revenue (2,409) (252)
Deferred income tax expense 2,223 359
Noncash charge related to compensation plans 260 141
Changes in current assets and liabilities:
Accounts receivable (2,333) 737
Other current assets 55 985
Current liabilities (1,773) (1,532)
Change in gas balancing receivable (100) (25)
Change in gas balancing payable 58 2
Change in other long-term liabilities (111) (108)
Change in other assets, net (234) (168)
---------- ----------
Cash provided (used) by operating activities 8,950 9,322
---------- ----------
Cash flows from investing activities:
Capital expenditures (55,684) (26,366)
Cash proceeds from sale of mineral interests 366 --
---------- ----------
Cash provided (used) by investing activities (55,318) (26,366)
---------- ----------
Cash flows from financing activities:
Increase in debt 22,000 21,000
Equity issued related to employee stock plans 132 66
Purchase of treasury shares -- (262)
Common stock cancelled -- (1,615)
Cash dividends on preferred stock (1,105) (1,111)
---------- ----------
Cash provided (used) by financing activities 21,027 18,078
---------- ----------
Net increase (decrease) in cash and cash equivalents (25,341) 1,034
Cash and cash equivalents:
Balance, beginning of period 34,671 6,300
---------- ----------
Balance, end of period $ 9,330 $ 7,334
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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, 1999 included in the Company's Annual Report on Form
10-K dated March 23, 2000.
2. PER SHARE AMOUNTS
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 or loss per common
share 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 computation for the three-month and the
six-month periods ended June 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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(a) Net income (loss) available $ 2,603 $ (330) $ 3,214 $ (689)
per common stock
(b) Weighted average shares outstanding 12,171 8,447 12,163 8,462
(c) Dilutive impact of stock options 274 -- 235 --
(d) Total diluted shares 12,445 8,447 12,398 8,462
Stock options excluded due to -- 34 -- 39
antidilutive impact
Basic earnings (loss) per share (a/b) $ 0.21 $ (0.04) $ 0.26 $ (0.08)
Diluted earnings (loss) per share (a/d) $ 0.21 $ (0.04) $ 0.26 $ (0.08)
</TABLE>
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
6
<PAGE> 7
difference between the contract price or prices specified in the
derivative instrument and a NYMEX price and are 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 $886,000 was recognized as
a reduction of oil and gas revenue, and $730,000 was recognized as
additional oil and gas revenue in the first six months of 2000 and
1999, respectively.
As of June 30, 2000, the Company had open natural gas 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 2000 are for average gas volumes of 350,000
Mcf per month through October 2000 at (on average) a ceiling price of
$2.72 and floor price of $2.50. The Company had no open crude oil
contracts at June 30, 2000.
4. STOCKHOLDERS' EQUITY
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. In addition, 5,000 shares of Preferred Stock
were converted during the first quarter of 2000 at the conversion rate.
The Company granted 533,000 stock options to employees on March 23,
2000 at $10.50 per share subject to shareholder approval of the
amendment to the 1996 Stock Incentive Plan. The amendment, which was
approved on May 9, 2000 at the Annual Meeting of Shareholders,
increased the number of shares reserved for issuance under the 1996
plan. The excess of the market price over the exercise price on the
approval date of the amendment is amortized over the three-year vesting
period of the options.
5. STOCKHOLDER RIGHTS PLAN
The Company adopted a stockholder rights plan on March 30, 2000,
designed to assure that the Company's stockholders receive fair and
equal treatment in the event of any proposed takeover of the Company
and to guard against partial tender offers, squeeze-outs, open market
accumulations, and other abusive tactics to gain control without paying
all stockholders a fair price. The rights plan was not adopted in
response to any specific takeover proposal. Under the rights plan, the
Company declared a dividend of one right ("Right") on each share of the
Company's Common Stock. Each Right will entitle the holder to purchase
one one-thousandth of a share of a Series B Preferred Stock, par value
$0.01 per share, at an exercise price of $90 per one one-thousandth of
a share. The Rights are not currently exercisable and will become
exercisable only in the event a person or group acquires, or engages in
a tender or exchange offer to acquire, beneficial ownership of 15
percent or more (one existing stockholder was granted an exception for
up to 21 percent) of the Company's Common Stock. After the Rights
become exercisable, each Right will also entitle its holder to purchase
a number of common shares of the Company having a market value of twice
the exercise price. The dividend distribution was made to stockholders
of record at the close of business on April 10, 2000. The Rights will
expire on March 30, 2010.
7
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6. LONG-TERM DEBT
The existing Credit Facility matures at the end of October 2000.
Therefore the entire amount outstanding at June 30, 2000 has been
classified as a current liability in the financial statements. The
Company is currently evaluating its options to amend the current
facility, which would extend the current maturity date or enter into a
new Credit Facility. With respect to a new Credit Facility, the Company
believes that it can secure more favorable terms, including maturity
and the size of the borrowing base than it currently has through its
existing Credit Facility.
8
<PAGE> 9
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 contains 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 six months ending June 30,
2000 decreased by $25.3 million and net cash flows from operations before
working capital changes totaled $13.4 million. Net capital expenditures from the
cash flow statement for the period totaled $55.3 million. These funds were
expended in exploration, drilling and completion of oil and gas properties.
At June 30, 2000, the Company had working capital of $3.3 million excluding
current maturities of long-term debt.
The existing Credit Facility matures at the end of October 2000. Therefore the
entire amount outstanding at June 30, 2000 has been classified as a current
liability in the financial statements. The Company is currently
9
<PAGE> 10
evaluating its options to amend the current facility, which would extend the
current maturity date or enter into a new Credit Facility. With respect to a new
Credit Facility, the Company believes that it can secure more favorable terms,
including maturity and the size of the borrowing base than it currently has
through its existing Credit Facility.
On November 3, 1999 the Company completed a public offering of 3,680,000 shares
of common stock at a price to the public of $11.875 per share. The Company is
using the net proceeds, together with its cash flows and borrowings under its
Credit Facility to fund the 2000 capital expenditure budget.
CAPITAL EXPENDITURES
Capital expenditures for exploration and development costs related to oil and
gas properties totaled approximately $51.2 million in the first six months of
2000. The Company incurred approximately $22.5 million in the Gulf of Mexico
Shelf area primarily in the development of the 1999 discoveries at South Marsh
Island 261 and East Cameron 275. Included in these expenditures as exploration
costs, were approximately $7.3 million related to three unsuccessful Gulf of
Mexico Shelf prospects evaluated during the first six months of 2000. The Gulf
of Mexico Deepwater area expenditures accounted for the remainder of the total
capital expended, with two unsuccessful exploration projects totaling $7.1
million and the balance for additional delineation drilling at the Company's
Medusa discovery and the drilling of a test well at the Entrada prospect in the
first half of 2000. Interest and general and administrative costs allocable
directly to exploration and development projects were approximately $5.0 million
for the first six months of 2000.
The Entrada prospect test well, located on Garden Banks Block 782, discussed
above reached total depth in April 2000. Several sidetrack wells were then
drilled; however, future delineation drilling and testing will be required to
quantify the impact the Entrada discovery will have on the Company. As a result
of the recent successes by the Company in the Gulf of Mexico Deepwater area, the
Company is faced with increased costs to develop these significant proved
undeveloped reserves. Substantially all of the future development costs will be
incurred in 2001 and beyond. The Company is currently evaluating various
financing alternatives to address these issues. While management believes there
are a number of financing sources available to the Company, no assurances can be
made that the Company will be able to fund these development costs.
For the remainder of the year, the Company will continue evaluating property
acquisitions and drilling opportunities. The Company has budgeted up to $26
million in capital expenditures for the remainder of 2000. 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 Company currently estimates that its budget for the remainder of 2000 can be
financed with available cash, projected cash flow from operations and the
Company's Credit Facility.
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.
10
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2000(a)(b) 1999(a) 2000(a)(b) 1999(a)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Production volumes:
Oil (MBbls) 70 86 130 176
Gas (MMcf) 3,899 3,474 7,005 6,843
Total production (MMcfe) 4,316 3,989 7,788 7,898
Average daily production (MMcfe) 47.4 43.8 42.8 43.6
Average sales price: (a)
Oil (Bbls) $ 26.74 $ 12.46 $ 26.58 $ 11.96
Gas (Mcf) 3.19 2.16 2.90 2.11
Total (Mcfe) 3.32 2.15 3.05 2.09
Average costs (per Mcfe):
Lease operating (excluding severance taxes) $ 0.49 $ 0.41 $ 0.47 $ 0.38
Severance taxes 0.05 0.06 0.06 0.06
Depreciation, depletion and amortization 1.05 1.00 1.05 1.01
General and administrative (net of management fees) 0.22 0.35 0.25 0.31
</TABLE>
(a) Includes hedging gains and losses
(b) Includes volumes of 572 MMcf for the quarter ended June 30, 2000 and
1,154 MMcf for the six months ended June 30, 2000 at an average price
of $2.08 per Mcf associated with a volumetric production payment.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND
THE THREE MONTHS ENDED JUNE 30, 1999.
Oil and Gas Production and Revenues
Total oil and gas revenues increased 67% from $8.6 million in the second quarter
of 1999 to $14.3 million in the second quarter of 2000. Oil and gas prices were
significantly higher when compared to the same period in 1999.
Gas production during the second quarter of 2000 totaled 3.9 billion cubic feet
and generated $12.5 million in revenues compared to 3.5 billion cubic feet and
$7.5 million in revenues during the same period in 1999. The average sales price
for the second quarter of 2000 averaged $3.19 per thousand cubic feet compared
to $2.16 per thousand cubic feet at this time last year. When compared to the
same quarter last year, the Company's gas production increased by 12% as a
result of new production at East Cameron 275, South Marsh Island 261, High
Island A-494 and Vermilion 130 which was offset by production declines in some
of the Company's older producing properties and the depletion of Main Pass 31.
The production declines were expected and considered normal.
Oil production during the second quarter of 2000 totaled 69,600 barrels and
generated $1.9 million in revenues compared to 86,000 barrels and $1.1 million
in revenues for the same period in 1999. Average oil prices received in the
second quarter of 2000 were $26.74 compared to $12.46 in 1999. The strong oil
prices received in the second quarter of 2000 offset the decrease in production,
which was expected and considered normal. See the table below for variances by
major producing property.
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The following table summarizes oil and gas production from the Company's major
producing properties for the comparable periods.
<TABLE>
<CAPTION>
OIL PRODUCTION GAS PRODUCTION
(BBLS) (MCF)
----------------------------- -----------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Mobile Block 864 Area 0 0 1,374,300 1,290,000
Chandeleur Block 40 0 0 90,300 207,000
Main Pass 163 Area 0 0 287,700 398,000
North Dauphin Island 0 0 73,400 121,000
Eugene Island 335 3,800 10,000 226,200 316,000
Vermilion 130 0 0 155,700 0
Main Pass 26 5,100 18,000 87,300 342,000
Main Pass 31 0 11,000 0 429,000
Main Pass 164/165 0 0 50,900 133,000
High Island Block A-494 0 0 199,800 0
Escambia Minerals 28,100 34,000 57,900 60,000
East Cameron 275 11,000 0 640,000 0
South Marsh Island 261 0 0 423,200 0
Other properties 21,600 13,000 232,000 178,000
------------ ------------ ------------ ------------
Total 69,600 86,000 3,898,700 3,474,000
============ ============ ============ ============
</TABLE>
Lease Operating Expenses
Lease operating expenses, including severance taxes, for the three-month period
ending June 30, 2000 were $2.3 million compared to $1.9 million for the same
period in 1999 and reflect the increased costs related to new production.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the three months ending June 30,
2000 increased over 1999. When compared to the same period in 1999, a higher
average rate in the second quarter of 2000 resulted in the differences.
General and Administrative
General and administrative expense decreased from $1.4 million for the three
months ended June 30, 1999 to $0.9 million for the three months ended June 30,
2000. This decrease is largely due to severance benefits related to personnel
reductions in June 1999.
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Interest Expense
Interest expense increased from $1.4 million during the three months ended June
30, 1999 to $2.1 million during the three months ended June 30, 2000 reflecting
the increase in the Company's long-term debt.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
THE SIX MONTHS ENDED JUNE 30, 1999.
Oil and Gas Production and Revenues
Total oil and gas revenues increased 44% from $16.5 million in the first half of
1999 to $23.8 million in the first six months of 2000. Oil and gas prices were
significantly higher when compared to the same period in 1999.
Gas production during the first half of 2000 totaled 7.0 billion cubic feet and
generated $20.3 million in revenues compared to 6.8 billion cubic feet and $14.4
million in revenues during the same period in 1999. The average sales price for
the first half of 2000 averaged $2.90 per thousand cubic feet compared to $2.11
per thousand cubic feet for the first six months of 1999. When compared to the
same period last year, the Company's gas production increased by 2% as a result
of new production at East Cameron 275, South Marsh Island 261, High Island A-494
and Vermilion 130 which was offset by production declines in some of the
Company's older producing properties and the depletion of Main Pass 31. The
production declines were expected and considered normal.
Oil production during the first six months of 2000 totaled 130,400 barrels and
generated $3.5 million in revenues compared to 176,000 barrels and $2.1 million
in revenues for the same period in 1999. Average oil prices received in the
first half of 2000 were $26.58 compared to $11.96 in 1999. The strong oil prices
received in the first six months of 2000 partially offset the decrease in
production, which were expected and considered normal. See the table below for
variances by major producing property.
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The following table summarizes oil and gas production from the Company's major
producing properties for the comparable periods.
<TABLE>
<CAPTION>
OIL PRODUCTION GAS PRODUCTION
(BBLS) (MCF)
----------------------------- -----------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Mobile Block 864 Area 0 0 2,815,000 2,553,000
Chandeleur Block 40 0 0 193,900 509,000
Main Pass 163 Area 0 0 605,600 727,000
North Dauphin Island 0 0 159,100 263,000
Eugene Island 335 10,700 14,000 457,200 505,000
Vermilion 130 0 0 290,200 0
Main Pass 26 9,400 35,000 189,500 578,000
Main Pass 31 0 27,000 0 907,000
Main Pass 164/165 0 0 112,200 332,000
High Island Block A-494 0 0 448,500 0
Escambia Minerals 57,400 71,000 105,500 127,000
East Cameron 275 11,000 0 640,000 0
South Marsh Island 261 0 0 423,200 0
Other properties 41,900 29,000 565,300 342,000
------------ ------------ ------------ ------------
Total 130,400 176,000 7,005,200 6,843,000
============ ============ ============ ============
</TABLE>
Lease Operating Expenses
Lease operating expenses, including severance taxes, for the six-month period
ending June 30, 2000 were $4.2 million compared to $3.5 million for the same
period in 1999 and reflect the increased costs associated with expenses related
to new production.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization for the six months ending June 30, 2000
increased over 1999. When compared to the same period in 1999, a higher average
rate in 2000 resulted in the increase.
General and Administrative
General and administrative expense decreased slightly from $2.4 million for the
six months ended June 30, 1999 to $2.0 million for the six months ended June 30,
2000. This decrease is primarily the result of severance benefits paid in 1999
related to personnel reductions that were effective June 1, 1999.
Interest Expense
Interest expense increased from $2.5 million during the six months ended June
30, 1999 to $3.8 million during the six months ended June 30, 2000 reflecting
the increase in the Company's long-term debt.
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<PAGE> 15
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 the 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 from the Company
The Company enters into these various agreements from time to time to reduce the
effects of volatile oil and gas prices and does 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 June 30, 2000.
Approximately $886,000 related to hedging was recognized as a reduction in oil
and gas revenue in the first six months of 2000. There have been no significant
changes in market risks faced by the Company since the end of 1999.
15
<PAGE> 16
CALLON PETROLEUM COMPANY
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting was held on May 9, 2000, at which two Class
III directors were elected, an amendment increasing the number of shares
authorized under the Callon Petroleum Company 1996 Stock Incentive Plan was
approved and the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the year ending December 31, 2000 was
ratified.
The nominees for director were Messrs. Fred L. Callon and Dennis W.
Christian. Mr. Callon received 9,645,545 votes for, 115,287 votes against
or withheld and no votes abstained. Mr. Christian received 9,543,312 votes
for, 217,520 votes against or withheld and no votes abstained.
The amendment to the Callon Petroleum Company 1996 Stock Incentive Plan
received 7,301,913 votes for, 483,390 votes against and 40,136 votes
abstained.
The ratification of Arthur Andersen LLP received 9,740,597 votes for, 6,674
votes against and 13,561 votes abstained.
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
16
<PAGE> 17
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, 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, 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, filed November 22, 1996, Reg. No. 333-15501)
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)
4.8 Rights Agreement between Callon Petroleum Company and
American Stock Transfer & Trust Company, Rights Agent, dated
March 30, 2000 (incorporated by reference from Exhibit 4 of
the Company's 8-K filed April 6, 2000)
10. Material contracts
10.1 Callon Petroleum Company 1996 Stock Incentive Plan as
amended on May 9, 2000 (incorporated by reference from
Appendix I of the Company's Definitive Proxy Statement on
Schedule 14A filed March 28, 2000)
11. Statement re 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*
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<PAGE> 18
27. Financial Data Schedule
99. Additional exhibits*
(b) Reports on Form 8-K
The Company filed an 8-K on April 6, 2000 on the adoption of a
stockholder rights plan.
----------
*Inapplicable to this filing
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<PAGE> 19
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: August 10, 2000 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> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27 Financial Data Schedule
</TABLE>
