Company Quick10K Filing
Callon Petroleum
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 229 $1,456
10-Q 2019-11-05 Quarter: 2019-09-30
10-Q 2019-08-07 Quarter: 2019-06-30
10-Q 2019-05-07 Quarter: 2019-03-31
10-K 2019-02-27 Annual: 2018-12-31
10-Q 2018-11-07 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-03 Quarter: 2018-03-31
10-K 2018-02-28 Annual: 2017-12-31
10-Q 2017-11-07 Quarter: 2017-09-30
10-Q 2017-08-02 Quarter: 2017-06-30
10-Q 2017-05-03 Quarter: 2017-03-31
10-K 2017-02-28 Annual: 2016-12-31
10-Q 2016-11-03 Quarter: 2016-09-30
10-Q 2016-08-08 Quarter: 2016-06-30
10-Q 2016-05-04 Quarter: 2016-03-31
10-K 2016-03-03 Annual: 2015-12-31
10-Q 2015-11-05 Quarter: 2015-09-30
10-Q 2015-08-05 Quarter: 2015-06-30
10-Q 2015-05-07 Quarter: 2015-03-31
10-K 2015-03-05 Annual: 2014-12-31
10-Q 2014-11-06 Quarter: 2014-09-30
10-Q 2014-08-06 Quarter: 2014-06-30
10-Q 2014-05-08 Quarter: 2014-03-31
10-K 2014-03-13 Annual: 2013-12-31
10-Q 2013-11-07 Quarter: 2013-09-30
10-Q 2013-08-08 Quarter: 2013-06-30
10-K 2013-03-14 Annual: 2012-12-31
10-Q 2012-11-07 Quarter: 2012-09-30
10-Q 2012-08-08 Quarter: 2012-06-30
10-Q 2012-05-07 Quarter: 2012-03-31
10-K 2012-03-15 Annual: 2011-12-31
10-Q 2011-11-02 Quarter: 2011-09-30
10-Q 2011-08-08 Quarter: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-K 2011-03-15 Annual: 2010-12-31
10-Q 2010-11-15 Quarter: 2010-11-12
10-Q 2010-08-06 Quarter: 2010-06-30
10-Q 2010-05-07 Quarter: 2010-03-31
10-K 2010-03-12 Annual: 2009-12-31
8-K 2020-02-14 Other Events
8-K 2019-12-20 Enter Agreement, Leave Agreement, M&A, Off-BS Arrangement, Sale of Shares, Officers, Amend Bylaw, Shareholder Vote, Regulation FD, Exhibits
8-K 2019-12-13 Shareholder Vote
8-K 2019-11-14 Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2019-11-13 Enter Agreement, Regulation FD, Exhibits
8-K 2019-11-05 Other Events
8-K 2019-11-04 Earnings, Regulation FD, Exhibits
8-K 2019-10-21
8-K 2019-09-09 Regulation FD, Exhibits
8-K 2019-08-06 Earnings, Regulation FD, Exhibits
8-K 2019-07-15 Officers
8-K 2019-07-14 Enter Agreement, Earnings, Regulation FD, Exhibits
8-K 2019-06-18 Other Events, Exhibits
8-K 2019-06-12 M&A, Regulation FD, Exhibits
8-K 2019-05-09 Shareholder Vote
8-K 2019-05-06 Earnings, Regulation FD, Exhibits
8-K 2019-04-05 Other Events, Exhibits
8-K 2019-03-13 Officers
8-K 2019-03-05 Officers
8-K 2019-02-26 Earnings, Regulation FD, Exhibits
8-K 2019-02-12 Earnings, Regulation FD, Exhibits
8-K 2019-01-02 Officers
8-K 2018-11-06 Earnings, Regulation FD, Exhibits
8-K 2018-11-01 Officers, Exhibits
8-K 2018-09-27 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-31 M&A, Regulation FD, Exhibits
8-K 2018-08-06 Earnings, Regulation FD, Exhibits
8-K 2018-06-07 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-05-31 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-05-24 Enter Agreement, Regulation FD, Exhibits
8-K 2018-05-23 Enter Agreement, Regulation FD, Exhibits
8-K 2018-05-10 Shareholder Vote, Other Events, Exhibits
8-K 2018-05-02 Earnings, Regulation FD, Exhibits
8-K 2018-04-05 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-03-07 Officers, Exhibits
8-K 2018-02-27 Earnings, Regulation FD, Exhibits
8-K 2018-02-01 Regulation FD, Exhibits
CPE 2019-09-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Description of Business and Basis of Presentation
Note 2 - Revenue Recognition
Note 3 - Acquisitions and Dispositions
Note 4 - Earnings per Share
Note 5 - Borrowings
Note 6 - Derivative Instruments and Hedging Activities
Note 7 - Fair Value Measurements
Note 8 - Income Taxes
Note 9 - Equity Transactions
Note 10 - Leases
Note 11 - Asset Retirement Obligations
Note 12 - Other
Note 13 - Carrizo Acquisition
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-2.2 ex102-3q19mergeramendm.htm
EX-31.1 ex311-3q19ceocertifica.htm
EX-31.2 ex312-3q19cfocertifica.htm
EX-32.1 ex32-3q19section1350ce.htm

Callon Petroleum Earnings 2019-09-30

CPE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
AR 1,663 17,331 8,991 4,759 0 1,009 2,416 5,266 0% 2.2 6%
WLL 1,662 7,776 3,575 1,856 0 251 1,214 4,539 0% 3.7 3%
SWN 1,654 6,545 3,463 3,783 0 1,010 1,189 3,841 0% 3.2 15%
ESV 1,582 20,683 7,416 1,896 0 393 512 5,436 0% 10.6 2%
CPK 1,528 1,681 1,137 700 0 60 146 1,884 0% 12.9 4%
WRD 1,458 3,255 1,516 1,044 0 147 483 2,634 0% 5.4 5%
CPE 1,456 3,915 1,432 643 0 230 487 2,545 0% 5.2 6%
CNX 1,411 9,147 4,047 1,716 0 377 1,088 3,874 0% 3.6 4%
QEP 1,407 5,504 376 296 0 -690 -82 3,308 0% -40.4 -13%
SM 1,388 6,392 3,590 1,600 1,107 47 171 1,382 69% 8.1 1%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 2019
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 001-14039

Callon Petroleum Company
 
(Exact Name of Registrant as Specified in Its Charter)
 

Delaware
 
64-0844345
State or Other Jurisdiction of
Incorporation or Organization
 
I.R.S. Employer Identification No.
 
 
 
One Briarlake Plaza
 
 
2000 W. Sam Houston Parkway S., Suite 2000
 
 
Houston,
Texas
 
77042
Address of Principal Executive Offices
 
Zip Code
 
(281)
589-5200
 
 
Registrant’s Telephone Number, Including Area Code
 
 





 
 
 
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
 

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
 
CPE
 
New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Accelerated filer
 
 
 
 
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

The Registrant had 228,386,100 shares of common stock outstanding as of November 1, 2019.



Table of Contents

Part I. Financial Information
 
 
 
Item 1. Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


GLOSSARY OF CERTAIN TERMS

All defined terms under Rule 4-10(a) of Regulation S-X shall have their prescribed meanings when used in this report. As used in this document:
ARO:  asset retirement obligation.
ASU: accounting standards update.
Bbl or Bbls:  barrel or barrels of oil or natural gas liquids.
BOE:  barrel of oil equivalent, determined by using the ratio of one Bbl of oil or NGLs to six Mcf of gas.  The ratio of one barrel of oil or NGL to six Mcf of natural gas is commonly used in the industry and represents the approximate energy equivalence of oil or NGLs to natural gas, and does not represent the economic equivalency of oil and NGLs to natural gas. The sales price of a barrel of oil or NGLs is considerably higher than the sales price of six Mcf of natural gas.
BOE/d:  BOE per day.
Btu:  a British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.
Completion: The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.
Cushing: An oil delivery point that serves as the benchmark oil price for West Texas Intermediate.
FASB: Financial Accounting Standards Board.
GAAP: Generally Accepted Accounting Principles in the United States.
Henry Hub: A natural gas pipeline delivery point that serves as the benchmark natural gas price underlying NYMEX natural gas futures contracts.
Horizontal drilling: A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.
LIBOR:  London Interbank Offered Rate.
LOE:  lease operating expense.
MBbls:  thousand barrels of oil.
MBOE:  thousand BOE.
Mcf:  thousand cubic feet of natural gas.
MEH: Magellan East Houston, a delivery point in Houston, Texas that serves as a benchmark for crude oil.
MMBtu:  million Btu.
MMcf:  million cubic feet of natural gas.
NGL or NGLs:  natural gas liquids, such as ethane, propane, butanes and natural gasoline that are extracted from natural gas production streams.
NYMEX:  New York Mercantile Exchange.
Oil: includes crude oil and condensate.
Realized price: The cash market price less all expected quality, transportation and demand adjustments.
Royalty interest: An interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development.
RSU: restricted stock units.
SEC:  United States Securities and Exchange Commission.
Waha: A delivery point in West Texas that serves as the benchmark for natural gas.
Working interest: An operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production and requires the owner to pay a share of the costs of drilling and production operations.
WTI: West Texas Intermediate grade crude oil, used as a pricing benchmark for sales contracts and NYMEX oil futures contracts.

With respect to information relating to our working interest in wells or acreage, “net” oil and gas wells or acreage is determined by multiplying gross wells or acreage by our working interest therein. Unless otherwise specified, all references to wells and acres are gross. 


3


Part I.  Financial Information
Item 1.  Financial Statements
Callon Petroleum Company
Consolidated Balance Sheets
(in thousands, except par and share data)
 
 
September 30, 2019
 
December 31, 2018
ASSETS
 
Unaudited
 
 
Current assets:
 
 
 
 
   Cash and cash equivalents
 
$
11,309

 
$
16,051

   Accounts receivable
 
114,120

 
131,720

   Fair value of derivatives
 
25,032

 
65,114

   Other current assets
 
14,912

 
9,740

      Total current assets
 
165,373

 
222,625

Oil and natural gas properties, full cost accounting method:
 
 
 
 
   Evaluated properties
 
4,830,499

 
4,585,020

   Less accumulated depreciation, depletion, amortization and impairment
 
(2,458,026
)
 
(2,270,675
)
   Evaluated oil and natural gas properties, net
 
2,372,473

 
2,314,345

   Unevaluated properties
 
1,405,993

 
1,404,513

      Total oil and natural gas properties, net
 
3,778,466

 
3,718,858

Operating lease right-of-use assets
 
24,447

 

Other property and equipment, net
 
24,770

 
21,901

Restricted investments
 
3,490

 
3,424

Deferred financing costs
 
5,081

 
6,087

Fair value of derivatives
 
11,209

 

Other assets, net
 
4,087

 
6,278

   Total assets
 
$
4,016,923

 
$
3,979,173

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
   Accounts payable and accrued liabilities
 
$
243,481

 
$
261,184

   Operating lease liabilities
 
19,196

 

   Accrued interest
 
25,660

 
24,665

   Cash-settleable restricted stock unit awards
 
535

 
1,390

   Asset retirement obligations
 
1,250

 
3,887

   Fair value of derivatives
 
8,941

 
10,480

   Other current liabilities
 
1,948

 
13,310

      Total current liabilities
 
301,011

 
314,916

Senior secured revolving credit facility
 
200,000

 
200,000

6.125% senior unsecured notes due 2024
 
596,337

 
595,788

6.375% senior unsecured notes due 2026
 
394,317

 
393,685

Operating lease liabilities
 
4,995

 

Asset retirement obligations
 
8,294

 
10,405

Cash-settleable restricted stock unit awards
 
1,737

 
2,067

Deferred tax liability
 
39,007

 
9,564

Fair value of derivatives
 
2,573

 
7,440

Other long-term liabilities
 

 
100

   Total liabilities
 
1,548,271

 
1,533,965

Commitments and contingencies
 

 

Stockholders’ equity:
 
 
 
 
   Preferred stock, series A cumulative, $0.01 par value and $50.00 liquidation
preference, 2,500,000 shares authorized; 0 and 1,458,948 shares outstanding,
respectively
 

 
15

   Common stock, $0.01 par value, 300,000,000 shares authorized; 228,372,081 and
227,582,575 shares outstanding, respectively
 
2,284

 
2,276

   Capital in excess of par value
 
2,421,559

 
2,477,278

   Retained earnings (accumulated deficit)
 
44,809

 
(34,361
)
      Total stockholders’ equity
 
2,468,652

 
2,445,208

Total liabilities and stockholders’ equity
 
$
4,016,923

 
$
3,979,173


The accompanying notes are an integral part of these consolidated financial statements.

4


Callon Petroleum Company
Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating revenues:
 
 
 
 
 
 
 
Oil sales
$
148,210

 
$
142,601

 
$
450,036

 
$
380,500

Natural gas sales
7,168

 
18,613

 
25,441

 
45,229

Total operating revenues
155,378

 
161,214

 
475,477

 
425,729

Operating expenses:
 
 
 
 
 
 
 
Lease operating expenses
19,668

 
18,525

 
66,511

 
44,705

Production taxes
11,866

 
10,263

 
33,810

 
26,265

Depreciation, depletion and amortization
56,002

 
48,257

 
178,690

 
122,407

General and administrative
9,388

 
9,721

 
31,705

 
26,779

Merger and integration expense
5,943

 

 
5,943

 

Settled share-based awards

 

 
3,024

 

Accretion expense
128

 
202

 
585

 
626

Other operating expense
(161
)
 
1,435

 
931

 
3,750

Total operating expenses
102,834

 
88,403

 
321,199

 
224,532

Income from operations
52,544

 
72,811

 
154,278

 
201,197

Other (income) expenses:
 
 
 
 
 
 
 
Interest expense, net of capitalized amounts
739

 
711

 
2,218

 
1,765

(Gain) loss on derivative contracts
(21,809
)
 
34,339

 
31,415

 
55,374

Other income
(122
)
 
(1,657
)
 
(270
)
 
(2,571
)
Total other (income) expense
(21,192
)
 
33,393

 
33,363

 
54,568

Income before income taxes
73,736

 
39,418

 
120,915

 
146,629

Income tax expense
17,902

 
1,487

 
29,444

 
2,463

Net income
55,834

 
37,931

 
91,471

 
144,166

Preferred stock dividends
(350
)
 
(1,823
)
 
(3,997
)
 
(5,471
)
Loss on redemption of preferred stock
(8,304
)
 

 
(8,304
)
 

Income available to common stockholders
$
47,180

 
$
36,108

 
$
79,170

 
$
138,695

Income per common share:
 
 
 
 
 
 
 
Basic
$
0.21

 
$
0.16

 
$
0.35

 
$
0.65

Diluted
$
0.21

 
$
0.16

 
$
0.35

 
$
0.65

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
228,322

 
227,564

 
228,054

 
213,409

Diluted
228,469

 
228,140

 
228,557

 
214,079


The accompanying notes are an integral part of these consolidated financial statements.


5


Callon Petroleum Company
Consolidated Statements of Cash Flows
(Unaudited; in thousands)
 
Nine Months Ended September 30,
Cash flows from operating activities:
2019
 
2018
Net income
$
91,471

 
$
144,166

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
   Depreciation, depletion and amortization
182,153

 
124,430

   Accretion expense
585

 
626

   Amortization of non-cash debt related items
2,218

 
1,749

   Deferred income tax expense
29,444

 
2,463

   Loss on derivatives, net of settlements
30,979

 
29,696

   (Gain) loss on sale of other property and equipment
36

 
(80
)
   Non-cash expense related to equity share-based awards
7,868

 
4,466

   Change in the fair value of liability share-based awards
106

 
1,428

   Payments to settle asset retirement obligations
(1,425
)
 
(1,080
)
   Payments for cash-settled restricted stock unit awards
(1,425
)
 
(4,990
)
Changes in current assets and liabilities:
 
 
 
   Accounts receivable
17,600

 
(54,384
)
   Other current assets
(5,172
)
 
(1,665
)
   Current liabilities
(13,038
)
 
64,801

   Other
(2,662
)
 
4,389

Net cash provided by operating activities
338,738

 
316,015

Cash flows from investing activities:
 
 
 
Capital expenditures
(503,425
)
 
(455,352
)
Acquisitions
(40,788
)
 
(595,984
)
Proceeds from sale of assets
279,952

 
8,326

Net cash used in investing activities
(264,261
)
 
(1,043,010
)
Cash flows from financing activities:
 
 
 
Borrowings on senior secured revolving credit facility
581,000

 
270,000

Payments on senior secured revolving credit facility
(581,000
)
 
(230,000
)
Issuance of 6.375% senior unsecured notes due 2026

 
400,000

Issuance of common stock

 
288,364

Payment of preferred stock dividends
(3,997
)
 
(5,471
)
Payment of deferred financing costs
(31
)
 
(9,960
)
Tax withholdings related to restricted stock units
(2,174
)
 
(1,804
)
Redemption of preferred stock
(73,017
)
 

Net cash provided by (used in) financing activities
(79,219
)
 
711,129

Net change in cash and cash equivalents
(4,742
)
 
(15,866
)
Balance, beginning of period
16,051

 
27,995

Balance, end of period
$
11,309

 
$
12,129

 
 
 
 
Supplemental cash flow information:
 
 
 
   Interest paid, net of capitalized amounts
$

 
$

   Income taxes paid

 

   Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
      Operating cash flows from operating leases
1,667

 

      Investing cash flows from operating leases
25,455

 

Non-cash investing and financing activities:
 
 
 
   Change in accrued capital expenditures
$
(15,032
)
 
$
42,062

   Change in asset retirement costs
(393
)
 
4,847

   Right-of-use assets obtained in exchange for operating lease liabilities
2,588

 

   Contingent consideration arrangement
8,512

 


The accompanying notes are an integral part of these consolidated financial statements.

6


Callon Petroleum Company
Consolidated Statements of Stockholders’ Equity
(Unaudited; in thousands)
 
 
 
 
 
 
 
 
 
 
 
Retained
 
 
 
Preferred
 
Common
 
Capital in
 
Earnings
 
Total
 
Stock
 
Stock
 
Excess
 
(Accumulated
 
Stockholders'
 
Shares
 
$
 
Shares
 
$
 
of Par
 
Deficit)
 
Equity
Balance at 12/31/2018
1,459

 
$
15

 
227,583

 
$
2,276

 
$
2,477,278

 
$
(34,361
)
 
$
2,445,208

Net loss

 

 

 

 

 
(19,543
)
 
(19,543
)
   Shares issued pursuant to employee benefit plans

 

 
24

 

 
154

 

 
154

   Restricted stock

 

 
277

 
3

 
4,447

 

 
4,450

   Preferred stock dividend ($1.25 per share)

 

 

 

 

 
(1,824
)
 
(1,824
)
Balance at 03/31/2019
1,459

 
$
15

 
227,884

 
$
2,279

 
$
2,481,879

 
$
(55,728
)
 
$
2,428,445

Net income

 

 

 

 

 
55,180

 
55,180

   Restricted stock

 

 
380

 
4

 
2,071

 

 
2,075

   Preferred stock dividend ($1.25 per share)

 

 

 

 

 
(1,823
)
 
(1,823
)
   Preferred stock redemption costs

 

 

 

 
(5
)
 

 
(5
)
Balance at 06/30/2019
1,459

 
$
15

 
228,264

 
$
2,283

 
$
2,483,945

 
$
(2,371
)
 
$
2,483,872

Net income

 

 

 

 

 
55,834

 
55,834

   Restricted stock

 

 
108

 
1

 
2,307

 

 
2,308

   Preferred stock dividend ($0.24 per share)

 

 

 

 

 
(350
)
 
(350
)
   Preferred stock redemption
(1,459
)
 
(15
)
 

 

 
(64,693
)
 

 
(64,708
)
   Loss on redemption of preferred stock

 

 

 

 

 
(8,304
)
 
(8,304
)
Balance at 09/30/2019

 
$

 
228,372

 
$
2,284

 
$
2,421,559

 
$
44,809

 
$
2,468,652



 
Preferred
 
Common
 
Capital in
 
 
 
Total
 
Stock
 
Stock
 
Excess
 
Accumulated
 
Stockholders'
 
Shares
 
$
 
Shares
 
$
 
of Par
 
Deficit
 
Equity
Balance at 12/31/2017
1,459

 
$
15

 
201,836

 
$
2,018

 
$
2,181,359

 
$
(327,426
)
 
$
1,855,966

Net income

 

 

 

 

 
55,761

 
55,761

   Shares issued pursuant to employee benefit plans

 

 
7

 

 
88

 

 
88

   Restricted stock

 

 
105

 
1

 
1,152

 

 
1,153

   Preferred stock dividend ($1.25 per share)

 

 

 

 

 
(1,824
)
 
(1,824
)
Balance at 03/31/2018
1,459

 
$
15

 
201,948

 
$
2,019

 
$
2,182,599

 
$
(273,489
)
 
$
1,911,144

Net income

 

 

 

 

 
50,474

 
50,474

   Shares issued pursuant to employee benefit plans

 

 
11

 

 
141

 

 
141

   Restricted stock

 

 
248

 
3

 
1,312

 

 
1,315

   Common stock issued

 

 
25,300

 
253

 
288,103

 

 
288,356

   Preferred stock dividend ($1.25 per share)

 

 

 

 

 
(1,824
)
 
(1,824
)
Balance at 06/30/2018
1,459

 
$
15

 
227,507

 
$
2,275

 
$
2,472,155

 
$
(224,837
)
 
$
2,249,608

Net income

 

 

 

 

 
37,931

 
37,931

   Shares issued pursuant to employee benefit plans

 

 
12

 

 
131

 

 
131

   Restricted stock

 

 
49

 
1

 
2,454

 

 
2,455

   Common stock issued

 

 

 

 
8

 

 
8

   Preferred stock dividend ($1.25 per share)

 

 

 

 

 
(1,823
)
 
(1,823
)
Balance at 09/30/2018
1,459

 
$
15

 
227,568

 
$
2,276

 
$
2,474,748

 
$
(188,731
)
 
$
2,288,308


The accompanying notes are an integral part of these consolidated financial statements.


7

 
Notes to the Consolidated Financial Statements (Unaudited)
(All dollar amounts in thousands, except per share and per unit data)
 

Index to the Notes to the Consolidated Financial Statements
8.
9.
3.
10.
4.
11.
5.
12.
6.
13.
7.
 
 

Note 1 - Description of Business and Basis of Presentation

Description of business

Callon Petroleum Company has been engaged in the development, acquisition and production of oil and natural gas properties since 1950. As used herein, the “Company,” “Callon,” “we,” “us,” and “our” refer to Callon Petroleum Company and its predecessors and subsidiaries unless the context requires otherwise. We were incorporated in the state of Delaware in 1994.

Callon is focused on the acquisition and development of unconventional onshore oil and natural gas reserves in the Permian Basin. The Permian Basin is located in West Texas and southeastern New Mexico and is comprised of three primary sub-basins: the Midland Basin, the Delaware Basin, and the Central Basin Platform. Since our entry into the Permian Basin in late 2009, we have been focused on the Midland Basin and entered the Delaware Basin through an acquisition completed in February 2017. The Company further expanded its presence in the Delaware Basin through acquisitions in 2018.

Basis of presentation

Unless otherwise indicated, all dollar amounts included within the Footnotes to the Financial Statements are presented in thousands, except for per share and per unit data.

The interim consolidated financial statements of the Company have been prepared in accordance with (1) GAAP, (2) the SEC’s instructions to Quarterly Report on Form 10-Q and (3) Rule 10-01 of Regulation S-X, and include the accounts of Callon Petroleum Company, and its subsidiary, Callon Petroleum Operating Company (“CPOC”). CPOC also has a subsidiary, namely Mississippi Marketing, Inc. Effective February 28, 2019, Callon Offshore Production, Inc. was merged with and into CPOC.

These interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ended December 31, 2019.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, including normal recurring adjustments and all intercompany account and transaction eliminations, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. Certain prior year amounts have been reclassified to conform to current year presentation.

Accounting Standards Updates (“ASUs”)

Recently adopted ASUs - Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification (“ASU 2016-02”). In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”). In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements (“ASU 2019-01”). Together these related amendments to GAAP represent ASC Topic 842, Leases (“ASC Topic 842”).

ASU 2016-02 requires lessees to recognize lease assets and liabilities (with terms in excess of 12 months) on the balance sheet and disclose key quantitative and qualitative information about leasing arrangements. The Company engaged a third-party consultant to assist with assessing its existing contracts, as well as future potential contracts, and to determine the impact of its application on its consolidated financial statements and related disclosures. The contract evaluation process includes review of drilling rig contracts, office facility leases,

8

 
Notes to the Consolidated Financial Statements (Unaudited)
(All dollar amounts in thousands, except per share and per unit data)
 

compressors, field vehicles and equipment, general corporate leased equipment, and other existing arrangements to support its operations that may contain a lease component.

The new standard was effective for us in the first quarter of 2019, and we adopted the new standard using a modified retrospective approach, with the date of initial application on January 1, 2019. Consequently, upon transition, we recognized the cumulative effect of adoption in retained earnings as of January 1, 2019. We further utilized the package of practical expedients at transition to not reassess the following:
Whether any expired or existing contracts were or contained leases;
The lease classification for any expired or existing leases; and
Initial direct costs for any existing leases.

Additionally, we elected the practical expedient under ASU 2018-01, which did not require us to evaluate existing or expired land easements not previously accounted for as leases prior to the effective date. We also chose not to separate lease and non-lease components for the various classes of underlying assets. In addition, for all of our asset classes, we have made an accounting policy election not to apply the lease recognition requirements to our short-term leases. Accordingly, we recognize lease payments related to our short-term leases in profit or loss on a straight-line basis over the lease term.

Through our implementation process, we evaluated each of our lease arrangements and enhanced our systems to track and calculate additional information required upon adoption of this standard. The standard had an impact on our consolidated balance sheet at September 30, 2019, resulting from the recognition during the current period of right-of-use assets and lease liabilities for operating leases. We have no leases that meet the criteria for classification as a finance lease. We lease certain office space, office equipment, production facilities, compressors, drilling rigs, vehicles and other ancillary drilling equipment under cancelable and non-cancelable leases to support our operations. See Note 10 for additional information regarding the impact of adoption of the new leases standard on our current period results.

Adoption of the new leases standard did not impact our consolidated statement of operations or cash provided from or used in operating, investing or financing in our consolidated statement of cash flows.

We note that the standard does not apply to leases to explore for or use minerals, oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained.
Recently adopted ASUs - Other

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The standard is intended to simplify several aspects of the accounting for nonemployee share-based payment transactions for acquiring goods and services from nonemployees, including the timing and measurement of nonemployee awards. The Company adopted this update on January 1, 2019 and it did not have a material impact on its consolidated financial statements upon adoption of this guidance.

Note 2 - Revenue Recognition

Revenue from contracts with customers

Oil sales

Under the Company’s oil sales contracts it sells oil production at the point of delivery and collects an agreed upon index price, net of pricing differentials. The Company recognizes revenue when control transfers to the purchaser at the point of delivery at the net price received.

Natural gas sales

Under the Company’s natural gas sales processing contracts, it delivers natural gas to a midstream processing entity. The midstream processing entity gathers and processes the natural gas and remits proceeds to the Company for the resulting sale of natural gas. The Company’s share of revenue received from the sale of NGLs is included in the natural gas sales. Under these processing agreements, when control of the natural gas changes at the point of delivery, the treatment of gathering and treating fees are recorded net of revenues. Gathering and treating fees have historically been recorded as an expense in lease operating expense in the statement of operations. The Company has modified the presentation of revenues and expenses to include these fees net of operating revenues. For the three and nine months ended September 30, 2019, $2,566 and $7,779 of gathering and treating fees were recognized and recorded as a reduction to natural gas sales in the consolidated statement of operations, respectively. For the three and nine months ended September 30, 2018,

9

 
Notes to the Consolidated Financial Statements (Unaudited)
(All dollar amounts in thousands, except per share and per unit data)
 

$2,209 and $5,413 of gathering and treating fees were recognized and recorded as a reduction to natural gas sales in the consolidated statement of operations, respectively.

Accounts receivable from revenues from contracts with customers

Net accounts receivable include amounts billed and currently due from revenue contracts with customers related to our oil and natural gas production, which had a balance at September 30, 2019 and December 31, 2018 of $83,442 and $87,061, respectively, and does not currently include an allowance for doubtful accounts. Accounts receivable, net, from the sale of oil and natural gas are included in accounts receivable on the consolidated balance sheets.

Transaction price allocated to remaining performance obligations

For the Company’s product sales that have a contract term greater than one year, it has utilized the practical expedient in Accounting Standards Codification 606-10-50-14, which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

Prior period performance obligations

The Company records revenue in the month production is delivered to the purchaser. However, settlement statements for sales may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. The Company records the differences between estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. The Company has existing internal controls for its revenue estimation process and related accruals, and any identified differences between its revenue estimates and actual revenue received historically have not been significant.

Note 3 - Acquisitions and Dispositions

2019 Acquisitions and Dispositions

In the second quarter of 2019, the Company completed its divestiture of certain non-core assets in the southern Midland Basin (the “Ranger Asset Divestiture”) for net cash proceeds received at closing of $244,935, including customary purchase price adjustments. The transaction also provides for potential contingent consideration in payments of up to $60,000 based on West Texas Intermediate average annual pricing over a three-year period (see Notes 6 and 7 for additional information regarding the contingent consideration payments). The divestiture encompasses the Ranger operating area in the southern Midland Basin which includes approximately 9,850 net Wolfcamp acres with an average 66% working interest. The divestiture did not significantly alter the relationship between capitalized costs and proved reserves, and as such, net cash proceeds and contingent consideration were recorded as adjustments to our full cost pool with no gain or loss recognized.

In the first quarter of 2019, the Company completed various acquisitions and dispositions of additional working interests and acreage located in our existing core operating areas within the Permian Basin. The Company purchased mineral rights for $21,407 in the Spur operating area and received proceeds of $14,084, including customary purchase price adjustments, for certain leasehold interests in our WildHorse acreage. In the second quarter of 2019, the Company completed various acreage swaps in the Permian Basin and received proceeds of $19,108, including customary purchase price adjustments, for certain working interests in our Spur acreage.


10

 
Notes to the Consolidated Financial Statements (Unaudited)
(All dollar amounts in thousands, except per share and per unit data)
 

2018 Acquisitions

On August 31, 2018, the Company completed the acquisition of approximately 28,000 net surface acres in the Spur operating area, located in the Delaware Basin, from Cimarex Energy Company, for $539,519, including customary purchase price adjustments (the “Delaware Asset Acquisition”). The Company issued debt and equity to fund, in part, the Delaware Asset Acquisition. See Notes 5 and 9 for additional information regarding the Company’s debt obligations and equity offerings. The following table summarizes the estimated acquisition date fair values of the acquisition:
Evaluated oil and natural gas properties
$
253,089

Unevaluated oil and natural gas properties
287,000

Asset retirement obligations
(570
)
Net assets acquired
$
539,519



In addition, the Company completed various acquisitions of additional working interests and mineral rights, and associated production volumes, in the Company’s existing core operating areas within the Permian Basin. In the first quarter of 2018, the Company completed acquisitions within Monarch and WildHorse operating areas for $37,770, including customary purchase price adjustments. In the fourth quarter of 2018, the Company completed acquisitions of leasehold interests and mineral rights within its WildHorse and Spur operating areas for $87,865, including customary purchase price adjustments.

Note 4 - Earnings Per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the periods presented. The calculation of diluted earnings per share includes the potential dilutive impact of non-vested restricted shares outstanding during the periods presented, as calculated using the treasury stock method, unless their effect is anti-dilutive. The following table sets forth the computation of basic and diluted earnings per share:
(amounts in thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
55,834

 
$
37,931

 
$
91,471

 
$
144,166

Preferred stock dividends
(350
)
 
(1,823
)
 
(3,997
)
 
(5,471
)
Loss on redemption of preferred stock
(8,304