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Callon Petroleum Company Reports Operating Results (10-Q)

August 10, 2009 | About:

Callon Petroleum Company (CPE) filed Quarterly Report for the period ended 2009-06-30.

Callon Petroleum Company has been engaged in the exploration development acquisition and production of oil and gas properties since 1950. Callon Petroleum Company has a market cap of $37.07 million; its shares were traded at around $1.71 with and P/S ratio of 0.26. Callon Petroleum Company had an annual average earning growth of 12.6% over the past 5 years.

Highlight of Business Operations:

Our senior secured credit facility was committed in the amount of $70 million as of December 31, 2008. Subsequent to December 31, 2008, our borrowing base redetermination was completed and reduced to $48 million due to lower commodity prices and reserves. In addition, a Monthly Commitment Reduction (MCR) was implemented commencing June 1, 2009 in the amount of $4.33 million per month. As of August 1, 2009, we received a preliminary notice that our redetermined borrowing base would be approximately $35.0 million with the MCR increasing to approximately $4.7 million. If not extended, the senior secured credit facility matures in September 25, 2012. Should current credit market tightening be prolonged for several years, future extensions of our senior secured credit facility may contain terms that are less favorable than those of our current credit facility. The amounts which may be outstanding under our senior secured credit facility are limited by a borrowing base, which is established by our lenders and based on the value of our proved reserves using prices, costs and

Abandonment of the Entrada Project. In late November 2008, we and our joint working interest owner, CIECO Entrada, decided to abandon the Entrada project. Under the terms of our agreements with CIECO Entrada, Callon Entrada is responsible for its share of the costs to plug and abandon the Entrada project, which we estimate to be $46 million, $23 million net to Callon Entrada. As of June 30, 2009 the wind down of the Entrada project was substantially complete and most of the costs had been paid. In addition, prior to abandonment of the project, CIECO Entrada failed to fund two loan requests totaling $40 million under the Callon Entrada non-recourse credit agreement with CIECO Entrada. CIECO Entrada also failed to fund its working interest share of a settlement payment in the amount of $7.3 million to terminate a drilling contract for the Entrada project. Callon has paid its share of the settlement payment.

On September 25, 2008, we completed a $250 million second amended and restated senior secured credit agreement with Union Bank as issuing lender, which matures September 25, 2012. We received preliminary notice from Union Bank that the borrowing base and MCR, which are still under review as of August 1, 2009, are approximately $35.0 million and $4.7 million, respectively. Borrowings under the credit agreement are secured by mortgages covering our major fields excluding Entrada. As of June 30, 2009, there was $5.0 outstanding under the agreement with $38.7 million, subject to MCR, available for future borrowings. See Note 4 to the Consolidated Financial Statements.

Gas production during the second quarter of 2009 totaled 1.4 billion cubic feet (Bcf) and generated $6.1 million in revenues compared to 1.7 Bcf and $19.5 million in revenues during the same period in 2008. The average gas price after hedging impact for the second quarter of 2009 was $4.22 per thousand cubic feet of natural gas (Mcf) compared to $11.67 per Mcf for the same period in 2008. Approximately 14% of the 15% decrease in 2009 production was due to a lower number of producing wells, with the remaining 1% resulting from normal and expected declines in production from our older properties. Four of our gas wells were shut-in during 2008 due to early water production and are now scheduled for plugging and abandonment. In addition, our High Island Block A-540 well was shut in during the second quarter of 2008, due to a plugged flowline, which management has determined uneconomic to repair.

Due to the early extinguishment of the $200 million senior revolving credit facility on April 8, 2008, Callon incurred expenses of $11.9 million consisting of $6.3 million in cash pre-payment penalties plus a non-cash charge of $5.6 million in the second quarter of 2008 related to the amortization expense associated with the deferred financing costs related to the credit facility. See Note 4 to the Consolidated Financial Statements.

Gas production during the first half of 2009 totaled 2.9 billion cubic feet (Bcf) and generated $14.9 million in revenues compared to 3.8 Bcf and $39.3 million in revenues during the same period in 2008. The average gas price after hedging impact for the six-month period ended June 30, 2009 was $5.18 per Mcf compared to $10.46 per Mcf for the same period in 2008. Approximately 21% of the 24% decrease in 2009 production was due to a lower number of producing wells, with the remaining 3% resulting from normal and expected declines in production from our older properties. Four of our gas wells were shut-in during 2008 due to early water production and are now scheduled for plugging and abandonment. In addition, our High Island Block A-540 well was shut in during the second quarter of 2008, due to a plugged flowline, which management has determined uneconomic to repair.

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