Callon Petroleum Company Announces First Quarter 2017 Results

NATCHEZ, Miss., May 2, 2017 /PRNewswire/ -- Callon Petroleum Company (NYSE: CPE) ("Callon" or the "Company") today reported results of operations for the three months ended March 31, 2017.

Presentation slides accompanying this earnings release are available on the Company's website at www.callon.com located on the "Presentations" page within the Investors section of the site.

Financial and operational highlights for the first quarter of 2017, and other recent data points include:

• Daily production of 20.4 MBOE/d (78% oil), a sequential quarterly increase of 11% in total daily production and 14% increase in daily oil production
• Lease operating expense, including workovers, of $6.61 per BOE, a sequential quarterly decrease of 17%
• Two Wolfcamp A wells in Howard County (WildHorse area) reached average 30-day peak production rates of 237 BOE/d per 1,000 feet of completed lateral (91% oil) with a third continuing to build to peak production rates
• Increase in northern Howard County Wolfcamp A type curve (7,500' drilled lateral) to 1.3 MMBOE (85% oil)
• Closed the Ameredev transaction in mid-February and subsequently signed purchase and sale agreements for the acquisition of an additional 2,626 net acres in Ward County (Spur area) for $54.3 million, establishing a position of over 19,300 net surface acres in the Delaware Basin

"We are off to a strong start in 2017 with the increasing impact of our WildHorse area that is now in program development mode," commented Fred Callon, Chairman and Chief Executive Officer. "Our activity in this core area has initially focused on northern Howard County where we have demonstrated the repeatability of exceptional Wolfcamp A results from larger completion designs. Our efforts in WildHorse will now move toward the central part of Howard County, focusing on three development zones, and we will be active with two rigs across our entire Howard County position throughout 2017. In parallel, we have been executing our plans to initiate program development in our recently acquired Delaware Basin acreage position which will begin with the arrival of our fourth horizontal drilling rig in July. As we approach this date, we have been refining our completion designs and landing zone concepts based on analysis of core data from our Lower Wolfcamp A well that was placed on production in January 2017 and upgrading the existing infrastructure to support a two rig development program in the future. We have also been successful in expanding our footprint in this core area, increasing our Delaware Basin position by approximately 15% since we closed our initial acquisition in February and, importantly, enhancing our opportunity set with the extension of existing laterals and the addition of additional locations at attractive valuations."

Operations Update

At March 31, 2017, we had 191 gross (142.4 net) horizontal wells producing from six established flow units in the Permian Basin. Net daily production for the three months ended March 31, 2017 grew approximately 64% to 20.4 MBOE/d ("MBOE/d") (approximately 78% oil) as compared to the same period of 2016. Sequentially, we grew production by approximately 11% compared to the fourth quarter of 2016 with a corresponding 14% sequential increase in our oil volumes.

For the three months ended March 31, 2017, we operated three horizontal drilling rigs, drilling nine gross (7.8 net) horizontal wells in both the Monarch and WildHorse areas. We placed a combined nine gross (6.6 net) horizontal wells on production in the quarter in these two areas.

WildHorse
During the first quarter, we completed six wells including three Wolfcamp A wells and three Lower Spraberry wells. Based on production data from our Wolfcamp A wells in the Sidewinder field that were completed with larger proppant loadings (including extended time performance from the Silver City 01AH) and offsetting well results in the area, we are increasing our Wolfcamp A type curve (7,500' drilled lateral) in northern Howard County to 1.3 MMBOE (85% oil), an increase of 85% over the 700 MBOE type curve originally assumed at the time of the Big Star acquisition in April 2016. In addition, following the recent completion of our Garrett-Reed 37-48 #8AH well in the Maverick field and upcoming Wolfcamp A completions in the Fairway field, we will be re-evaluating our current type curve assumptions in central Howard County in the coming months.

The following table highlights the three Wolfcamp A wells in Howard County that achieved peak rates since the beginning of the year, expressed in absolute barrels of oil equivalent per day ("BOE/d") and production rates per 1,000 feet of completed lateral:

These wells were completed in individual two-well pads that also included Lower Spraberry wells. The Lower Spraberry wells employed larger completion designs than legacy wells in the area and are in the process of dewatering as they build to peak production rates.  

Monarch
During the first quarter, three Lower Spraberry wells were placed on production in two flow units within the zone. In addition, we are in the process of completing a three well pad including two Lower Spraberry wells and one Wolfcamp A well that will be our third test of increased density development in the Lower Spraberry.

Spur
In our newest core operating area, we are in the final stages of preparation for program development. As part of our execution plan, we have been upgrading facilities as well as incorporating the analysis of core data from the Corbets 34-149 02A into the refinement of our completion designs and target landing zones from those utilized by the prior operator in two recent wells that we acquired with our recent transaction. The first of these wells, the Corbets 34-149 02A, targeted the Lower Wolfcamp A and has been flowing under natural pressure since being placed on production in late January. The well has produced in excess of 100 MBOE (90% oil) in the first 90 days since first production and continues to flow under a pressure management program. The second well, the Saratoga 34-161 01WB, was landed in the Wolfcamp B zone and recently placed on production.

Ward County Acquisitions

Since the closing of our Spur acquisition on February 13, 2017, we have signed agreements to acquire 2,626 net acres for $54.3 million, equating to an average purchase price of approximately $20,700 per net surface acre. In total, these acquisitions will: (i) increase our working interest in a meaningful portion of our existing gross operated inventory; (ii) extend the lateral length of 93 gross existing Wolfcamp A and B locations from a prior blended average of 5,000' to a new blended average of approximately 9,200'; and (iii) add an estimated 41 net new Wolfcamp A and B locations (over 90% operated) with an average lateral length of roughly 7,500'. The combined acquisition impact of these three factors is the addition of an estimated equivalent 67 net Wolfcamp locations with an average lateral length of over 8,000' at a purchase price of approximately $800 thousand per location. These acquisitions are expected to be funded with existing cash balances and credit facility borrowings. 

Capital Expenditures

For the three months ended March 31, 2017, we incurred $55.5 million in cash operational capital expenditures compared to $53.4 million in the fourth quarter of 2016. Total capital expenditures, inclusive of capitalized expenses, are detailed below on an accrual and cash basis (in thousands):

Operating and Financial Results

The following table presents summary information for the periods indicated:

Total Revenue. For the quarter ended March 31, 2017, Callon reported total revenues of $81.4 million and total revenues including cash-settled derivatives ("Adjusted Total Revenue," a non-GAAP financial measure⁽ⁱ⁾) of $78.9 million, including the negative $2.5 million impact of settled derivative contracts. The table above reconciles Adjusted Total Revenue to the related GAAP measure of the Company's revenue. Average daily production for the quarter was 20,422 BOE/d compared to average daily production of 18,359 BOE/d in the fourth quarter of 2016. Average realized prices, including and excluding the effects of hedging, are detailed below.

Hedging impacts. For the quarter ended March 31, 2017, Callon recognized the following hedging-related items (in thousands, except per unit data):

Average realized prices, including and excluding the impact of cash settled derivatives during the first quarter, were as follows:

Lease Operating Expenses, including workover and gathering expense ("LOE"). LOE per BOE for the three months ended March 31, 2017 was $7.04 per BOE, compared to LOE of $8.36 per BOE in the fourth quarter of 2016. The decrease in this metric was primarily related to a decrease in the number of workover activities in the quarter and an increase in production volumes.

Production Taxes, including ad valorem taxes. Production taxes were $3.21 per BOE in the first quarter of 2017, representing approximately 7.3% of total revenue before the impact of derivative settlements.

Depreciation, Depletion and Amortization ("DD&A"). DD&A for the three months ended March 31, 2017 was $13.29 per BOE compared to $13.06 per BOE in the fourth quarter of 2016, attributable to increases in our depreciable asset base and assumed future development costs related to undeveloped proved reserves relative to the increase in proved reserves as a result of additions made through our horizontal drilling efforts and acquisitions made during the quarter.

General and Administrative ("G&A"). G&A, excluding certain non-cash incentive share-based compensation valuation adjustments, ("Adjusted G&A", a non-GAAP measure⁽ⁱ⁾) was $5.5 million, or $3.00 per BOE, for the first quarter of 2017 compared to $5.7 million, or $3.38 per BOE, for the fourth quarter of 2016. The cash component of Adjusted G&A was $4.5 million, or $2.43 per BOE, for the first quarter of 2017 compared to $4.8 million, or $2.84 per BOE, for the fourth quarter of 2016.

For the first quarter of 2017, G&A and Adjusted G&A, which excludes the amortization of equity-settled, share-based incentive awards and corporate depreciation and amortization, are calculated as follows (in thousands):

Income tax expense. Callon typically provides for income taxes at a statutory rate of 35% adjusted for permanent differences expected to be realized, which primarily relate to non-deductible executive compensation expenses and state income taxes. We recorded an income tax expense of $0.5 million for the three months ended March 31, 2017. At March 31, 2017 we had a valuation allowance of $127.1 million. Adjusted Income per fully diluted common share, a non-GAAP financial measure⁽ⁱ⁾, adjusts our income (loss) available to common stockholders to reflect our theoretical tax provision for the quarter as if the valuation allowance did not exist.

2017 Guidance Update

Hedge Portfolio Summary

The following table summarizes our open derivative positions for the periods indicated:

Income (Loss) Available to Common Shareholders. The Company reported net income available to common shareholders of $45.3 million in the first quarter of 2017 and Adjusted Income available to common shareholders of $20.4 million, or $0.10 per diluted share. Adjusted Income per fully diluted common share, a non-GAAP financial measure⁽ⁱ⁾, adjusts our income (loss) available to common stockholders to reflect our theoretical tax provision for the quarter as if the valuation allowance did not exist. The following tables reconcile to the related GAAP measure the Company's income (loss) available to common stockholders to Adjusted Income and the Company's net income (loss) to Adjusted EBITDA (in thousands):

Discretionary Cash Flow. Discretionary cash flow, a non-GAAP measure⁽ⁱ⁾, for the first quarter of 2017 was $56.2 million and is reconciled to operating cash flow in the following table (in thousands):

Non-GAAP Financial Measures and Reconciliations

This news release refers to non-GAAP financial measures such as "Discretionary Cash Flow," "Adjusted G&A," "Adjusted Income (Loss)," "Adjusted EBITDA," and "Adjusted Total Revenues." These measures, detailed below, are provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP (including the notes), included in our SEC filings and posted on our website.

• Callon believes that the non-GAAP measure of discretionary cash flow is useful as an indicator of an oil and natural gas exploration and production company's ability to internally fund exploration and development activities and to service or incur additional debt. The Company also has included this information because changes in operating assets and liabilities relate to the timing of cash receipts and disbursements which the company may not control and may not relate to the period in which the operating activities occurred. Discretionary cash flow and discretionary cash flow per diluted share are calculated using net income (loss) adjusted for certain items including depreciation, depletion and amortization, the impact of financial derivatives (including the mark-to-market effects, net of cash settlements and premiums paid or received related to our financial derivatives), remaining asset retirement obligations related to our divested offshore properties, restructuring and other non-recurring costs, deferred income taxes and other non-cash income items.
• Callon believes that the non-GAAP measure of Adjusted G&A is useful to investors because it provides readers with a meaningful measure of our recurring G&A expense and provides for greater comparability period-over-period. The table above details all adjustments to G&A on a GAAP basis to arrive at Adjusted G&A.
• We believe that the non-GAAP measure of Adjusted Income available to common shareholders ("Adjusted Income") and Adjusted Income per diluted share are useful to investors because they provide readers with a meaningful measure of our profitability before recording certain items whose timing or amount cannot be reasonably determined. These measures exclude the net of tax effects of certain non-recurring items and non-cash valuation adjustments, which are detailed in the reconciliation provided below. Prior to being tax-effected and excluded, the amounts reflected in the determination of Adjusted Income and Adjusted Income per diluted share above were computed in accordance with GAAP.
• We calculate Adjusted Earnings before Interest, Income Taxes, Depreciation, Depletion and Amortization ("Adjusted EBITDA") as Adjusted Income plus interest expense, income tax expense (benefit) and depreciation, depletion and amortization expense. Adjusted EBITDA is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss), cash flow provided by operating activities or other income or cash flow data prepared in accordance with GAAP. However, we believe that Adjusted EBITDA provides additional information with respect to our performance or ability to meet its future debt service, capital expenditures and working capital requirements. Because Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and may vary among companies, the Adjusted EBITDA we present may not be comparable to similarly titled measures of other companies.
• We believe that the non-GAAP measure of Adjusted Total Revenues is useful to investors because it provides readers with a revenue value more comparable to other companies who account for derivative contracts and hedges and include their effects in revenue. We believe Adjusted Total Revenue is also useful to investors as a measure of the actual cash inflows generated during the period.

Earnings Call Information

The Company will host a conference call on Wednesday, May 3, 2017, to discuss first quarter 2017 financial and operating results.

Please join Callon Petroleum Company via the Internet for a webcast of the conference call:

Alternatively, you may join by telephone using the following numbers:

An archive of the conference call webcast will also be available at www.callon.com in the "Investors" section of the website.

About Callon Petroleum

Callon Petroleum Company is an independent energy company focused on the acquisition, development, exploration, and operation of oil and natural gas properties in the Permian Basin in West Texas.

This news release is posted on the Company's website at www.callon.com and will be archived there for subsequent review under the "News" link on the top of the homepage.

Cautionary Statement Regarding Forward Looking Statements

This news release contains 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. Forward-looking statements include all statements regarding wells anticipated to be drilled and placed on production; future levels of drilling activity and associated production and cash flow expectations; the Company's 2017 guidance and capital expenditure forecast; estimated reserve quantities and the present value thereof; and the implementation of the Company's business plans and strategy, as well as statements including the words "believe," "expect," "plans" and words of similar meaning. These statements reflect the Company's current views with respect to future events and financial performance. No assurances can be given, however, that these events will occur or that these projections will be achieved, and actual results could differ materially from those projected as a result of certain factors. Some of the factors which could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements include the volatility of oil and natural gas prices, ability to drill and complete wells, operational, regulatory and environment risks, our ability to finance our activities and other risks more fully discussed in our filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, available on our website or the SEC's website at www.sec.gov.

For further information contact:
Eric Williams
Manager, Investor Relations
1-800-451-1294

SOURCE Callon Petroleum Company

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