Callon Petroleum Company Announces Second Quarter 2020 Results
HOUSTON, Aug. 4, 2020 /PRNewswire/ -- Callon Petroleum Company (NYSE: CPE) ("Callon" or the "Company") today reported results of operations for the three and six months ended June 30, 2020.
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.
Recent Highlights
-- Delivered production of approximately 108.7 Mboe/d (65% oil), above the
high end of guidance, for the second quarter of 2020
-- Posted accrued operational capital spending of $85.1 million, 15% below
the second quarter target of $100 million
-- Generated net cash from operating activities of $97.8 million and free
cash flow(1) of $18.0 million for the second quarter
-- Loss available to common stockholders of $1,564.7 million, or $3.94 per
fully diluted share, driven by an impairment of evaluated oil and gas
properties of $1,276.5 million, adjusted EBITDA(1) of $153.4 million,
and adjusted income per share(1) of $0.01 for the second quarter of 2020
-- Achieved lease operating expense ("LOE") of $50.8 million or $5.14 per
Boe for the second quarter of 2020, an improvement of 10% over the
comparable three-month period ended March 31, 2020
-- Lowered cost structure with total operating expenses, including full
cash G&A costs(1), of $9.58/Boe in the quarter, 16% below the prior
quarter
-- Reduced Delaware and Midland drilling and completion costs versus the
prior quarter by approximately $100 per 1,000 lateral feet, representing
incremental savings of 11% and 17% respectively
-- Announced a 1-for-10 reverse stock split effective as of the close of
business on August 7, 2020
Joe Gatto, President and Chief Executive Officer commented, "Our operational and financial results for the second quarter reflect Callon's commitment to thoughtful capital allocation and operational execution that we have overlaid on an exceptional, diversified asset base. As oil markets began to erode in March, our team acted quickly to reduce capital activity while maintaining a clear focus on near and long-term operating goals. As a result, our drilling and completion costs are down across the board, second quarter production was well ahead of estimates, and operating costs continue to decline beyond our targeted synergy goals."
He continued, "Our success in reducing our cost structure, combined with leading capital efficiency from strong well productivity and well cost reductions, positioned us to generate free cash flow this quarter. This is just the first step as we have developed a longer-term plan designed to consistently generate free cash flow while maintaining production levels with a reduced reinvestment rate. After moving past the working capital cash impact of expenditures incurred in the first quarter, a meaningful portion of which added to our current inventory of drilled, uncompleted wells, we will be dedicating all of our expected free cash flow to credit facility reductions and forecast our current credit facility balance to decline into year end and continue into 2021."
Mr. Gatto also shared, "Despite tremendous business, social, and personal hurdles resulting from the current pandemic and extreme turbulence in the financial markets, our team has remained focused on synergy realization and the integration of people, systems, and processes. Our operational and financial results highlight our progress as an organization and I applaud the Callon team for persevering through an incredibly difficult past few months. Importantly, we remain committed to their safety and that of our vendors, partners, and communities."
Operations Update
At June 30, 2020, Callon had 1,471 gross (1,298.0 net) horizontal wells producing from established flow units in the Permian Basin and Eagle Ford Shale. Net daily production for the three months ended June 30, 2020 grew 168% to 108.7 Mboe/d (65% oil), as compared to the same period of 2019.
For the three months ended June 30, 2020, Callon drilled 29 gross (27.0 net) horizontal wells and placed a combined 26 gross (24.9 net) horizontal wells on production. During the course of the quarter, all rigs and completion crews ceased activity upon completion of projects in progress. The Company does not have any active rigs or completion crews at this time but does intend to resume development activity during the third quarter. Near-term operational activity will be focused on completing a drilled, uncompleted inventory of approximately 70 wells in both the Permian Basin and Eagle Ford Shale with one dedicated completion crew. The Company also intends to return two to three drilling rigs to service later in the third quarter for the balance of the year.
During the second quarter in the Delaware Basin, the seven-well Dorothy Sansom project was placed on production in April, consisting of targets in the 3rd Bone Spring Shale, Wolfcamp A (2), Upper Wolfcamp B, Lower Wolfcamp B (2), and Wolfcamp C. Initial results have been positive with cumulative production (adjusted for shut-ins during the quarter) matching or exceeding production from primary zones in the Crowley-St. Clair project which was completed in 2019. Comparable wells in the Wolfcamp A and B zones on the Dorothy Sansom project were drilled and completed offsetting parent wells, unlike the unbounded Crowley-St. Claire wells. The current performance is encouraging for future development of offset wells in the area.
At the WildHorse area in the Midland Basin, the Company brought online the nine-well Dunkin/Horton/Wright project that had previously been deferred during the early portion of the quarter. The project consists of Wolfcamp A wells (4), Lower Spraberry wells (3), and a Wolfcamp B and Middle Spraberry test. Initial production from the Wolfcamp A and B has exceeded expectations and significantly outperformed 2019 vintage Wolfcamp A offsets in the immediate area through the first fifty days. Early results from the Middle Spraberry are encouraging for potential future development in the area as production currently continues to outpace initial type curve estimates.
In the Eagle Ford, the Company placed on production the Pena project with a portion of the wells reaching first production at the very end of March and the remainder falling into early April. These wells have produced over 75,000 cumulative Boe (~90% oil) on average (1.2 MMBoe in total) through the first 120 days online, matching type curve expectations.
During the second quarter, Callon saw additional gains in operational efficiency, with average development costs improving. Some of the highlights include:
-- Delaware well costs further reduced to approximately $850 per lateral
foot, an 11% improvement versus the previous quarter and a 23%
improvement versus our 2019 average of $1,100 per lateral foot; and
-- Midland Basin well costs are now approaching approximately $500 per
lateral foot, a 17% improvement over the first quarter and 37%
improvement over 2019
Marketing
The Company entered into short-term fixed price contracts in May and June for Eagle Ford Shale production to secure firm transportation and also mitigate the effect of the calendar month average ("CMA") roll calculation on realized pricing. Those fixed price contracts have since returned to our previous MEH linked pricing structure. Callon recently secured incremental firm transportation for production volumes to ensure delivery of barrels produced from the Eagle Ford assets to improve market options for the future.
In addition, the Company has entered into a multi-year agreement with a diverse global player in waterborne oil markets that will be purchasing up to 10,000 barrels per day of oil of Permian Basin production at Brent-linked prices for volumes delivered under our firm transportation agreement to the Houston Ship Channel area on the Echo Pipeline. In April, we began delivering 15,000 barrels per day into the Corpus refinery complex under our firm transportation agreement on Gray Oak pipeline. These barrels are part of multi-year term sales agreements receiving a combination of Brent and MEH based pricing.
Minimal production volumes that were voluntarily shut-in by the Company during the second quarter have been returned to production. The Company is not subject to repayment of volumes or cover cost at second quarter pricing since it met all sales obligations during the quarter.
Capital Expenditures
For the three months ended June 30, 2020, Callon incurred $85.1 million in operational capital expenditures on an accrual basis. Total capital expenditures, inclusive of capitalized expenses, are detailed below on an accrual and cash basis:
Three Months Ended June 30, 2020
Operational Capitalized Capitalized Total Capital
Capital
(a) Interest G&A Expenditures
(In thousands)
Cash basis (b) $174,594 $24,787 $6,740 $206,121
Timing
adjustments (c) (90,780) (3,863) (94,643)
Non-cash items 1,273 2,162 3,435
Accrual basis $85,087 $20,924 $8,902 $114,913
(a) Includes seismic, land, technology,
and other items.
(b) Cash basis is presented here to help
users of financial information
reconcile amounts from the cash
flow statement to the balance sheet
by accounting for timing related
changes in working capital that
align with our development pace and
rig count.
(c) Includes timing adjustments related
to cash disbursements in the
current period for capital
expenditures incurred in the prior
period.
Hedging
For the three months ended June 30, 2020, Callon recognized a hedge gain of $84.2 million consisting of settled positions and monetization of certain future oil positions. During the course of the quarter and through July, the Company has continued to add hedge coverage for oil, natural gas, and ethane in 2021, and restructured certain oil swaps for the remaining six months of 2020 into two-way collars providing additional upside for oil prices to as high as $45 per barrel. Average floor prices for the second half of 2020 for WTI NYMEX oil contracts are approximately $40 per barrel covering just over nine million barrels of production, or roughly 80% of projected oil production for the remainder of 2020.
The Company took advantage of an improved natural gas outlook and entered into a combination of NYMEX Henry Hub swaps and collars for 2021 providing coverage for over 22,000 BBtu or just over 60,000 MMBtu per day at an average floor price $2.61 per MMBtu. Natural gas production is now approximately 70% hedged for the remainder of 2020 and just over 60% hedged for 2021. Details regarding the Company's full hedge positions can be found in the hedge summary within the earnings release or within the appendix of the second quarter 2020 earnings slide deck on the website.
Operating and Financial Results
The following table presents summary information for the periods indicated:
Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
Net production
Oil (MBbls) 6,396 5,847 2,848
Natural gas (MMcf) 11,009 9,793 5,031
NGLs (MBbls) 1,657 1,707
Total barrels of oil
equivalent (MBoe) 9,888 9,186 3,687
Total daily
production (Boe/d) 108,664 100,955 40,516
Oil as % of total 65 64 77
daily production % % %
Average realized
sales price
(excluding impact of
settled
derivatives)
Oil (per Bbl) $20.41 $45.45 $56.44
Natural gas (per
Mcf) 1.11 0.62 1.26
NGLs (per Bbl) 8.74 10.62
Total (per BOE) 15.90 31.56 45.31
Average realized
sales price
(including impact of
settled
derivatives)
Oil (per Bbl) $33.82 $48.90 $54.87
Natural gas (per
Mcf) 0.97 1.13 1.91
NGLs (per Bbl) 8.74 10.62
Total (per Boe) 24.42 34.30 44.99
Revenues
(in thousands)
Oil $130,513 $265,767 $160,728
Natural gas 12,242 6,029 6,324
NGLs 14,479 18,123
Total revenues 157,234 289,919 167,052
Additional per Boe
data
Sales price (a) $15.90 $31.56 $45.31
Lease operating
expense 5.14 5.70 6.18
Production taxes 1.05 2.14 3.02
Gathering,
transportation and
processing 2.03 1.57
Operating margin $7.68 $22.15 $36.11
Depletion,
depreciation and
amortization $14.05 $14.31 $17.12
General and
administrative
(G&A) $1.01 $0.91 $2.87
Adjusted G&A (b)
Cash component (c) $0.69 $1.20 $2.42
Non-cash component 0.15 0.41 0.68
(a) Excludes the impact of settled
derivatives.
(b) Excludes certain non-recurring
expenses and non-cash valuation
adjustments. Adjusted G&A is a
non-GAAP financial measure; see
the reconciliation provided
within this press release for a
reconciliation of G&A expense on
a GAAP basis to Adjusted G&A
expense.
(c) Excludes the amortization of
equity-settled, share-based
incentive awards.
Total Revenue. For the quarter ended June 30, 2020, Callon reported total revenue of $157.2 million and total revenue including the gain or loss from the settlement of derivative contracts ("Adjusted Total Revenue"((1))) of $241.4 million, reflecting the impact of an $84.2 million gain from the settlement of derivative contracts. Average daily production for the quarter was 108.7 Mboe/d, compared to average daily production of 101.0 Mboe/d in the first quarter of 2020. Average realized prices, including and excluding the effects of hedging, are detailed above.
Hedging impacts. For the quarter ended June 30, 2020, the net (gain) loss on commodity derivative contracts includes the following (in thousands):
Three
Months
Ended
June 30,
2020
(Gain) loss on oil
derivatives $122,369
(Gain) loss on natural gas
derivatives 4,695
(Gain) loss on NGL
derivatives (4)
(Gain) loss on commodity
derivative contracts $127,060
For the quarter ended June 30, 2020, the cash (paid) received for commodity derivative settlements includes the following (in thousands):
Three Months Ended
June 30, 2020
Cash (paid) received on oil
derivatives $100,470
Cash (paid) received on
natural gas derivatives (1,782)
Cash received for commodity
derivative settlements $98,688
Lease Operating Expenses, including workover ("LOE"). LOE per Boe for the three months ended June 30, 2020 was $5.14 per Boe, compared to LOE of $5.70 per Boe in the first quarter of 2020. The decrease in LOE per Boe was driven by improved field practices and a reduction in workovers during the second quarter of 2020 as compared to the first quarter of 2020.
Production Taxes, including ad valorem taxes. Production taxes were $1.05 per Boe for the three months ended June 30, 2020, representing approximately 6.6% of total revenue before the impact of derivative settlements.
Gathering, Transportation and Processing Expenses. Gathering, transportation and processing costs for the three months ended June 30, 2020 were $20.0 million as compared to $14.4 million in the first quarter of 2020 due to firm transportation contracts that began in the second quarter of 2020. In 2020, the Company began reporting gathering, transportation and processing costs separately due to the assumption of processing agreements in the Carrizo acquisition and certain contract modifications effective January 1, 2020. As such, the Company now records contractual fees associated with gathering, processing, treating and compression, as well as any transportation fees incurred to deliver the product to the purchaser, as gathering, transportation and processing expense. These fees were historically recorded as a reduction of revenue depending on when control transferred to the purchaser.
Depreciation, Depletion and Amortization ("DD&A"). DD&A for the three months ended June 30, 2020 was consistent at $14.05 per Boe compared to $14.31 per Boe in the first quarter of 2020.
Impairment of Evaluated Oil and Gas Properties. Callon recognized an impairment of evaluated oil and gas properties of $1.3 billion for the three months ended June 30, 2020 due primarily to declines in the average realized prices for sales of oil and gas. The decrease in the trailing 12-month average realized price as of June 30, 2020 resulted in a reduction our proved oil and gas reserve volumes of less than 2% of our December 31, 2019 proved oil and gas reserves volumes. The Company did not recognize an impairment of evaluated oil and gas properties during the first quarter of 2020.
G&A. G&A for the three months ended June 30, 2020 was $10.0 million, or $1.01 per Boe, and G&A, excluding certain non-cash incentive share-based compensation valuation adjustments, ("Adjusted G&A" (1)) was $8.3 million, or $0.84 per Boe, for the three months ended June 30, 2020 compared to $14.8 million, or $1.62 per Boe, for the first quarter of 2020. The cash component of Adjusted G&A was $6.8 million, or $0.69 per Boe, for the three months ended June 30, 2020 compared to $11.1 million, or $1.20 per Boe, for the first quarter of 2020. The reductions in G&A were driven by the realization of post-merger synergies and further reductions to payroll and non-payroll expenses following the pandemic, including compensation reductions for executives and the board of directors.
For the three months ended June 30, 2020 and March 31, 2020, G&A and Adjusted G&A, which excludes the amortization of equity-settled and share-based incentive awards, are calculated as follows (in thousands):
Three Months Ended
June 30, 2020 March 31, 2020
Total
G&A
expense $10,024 $8,325
Change
in the
fair
value
of
liability
share-
based
awards
(non-
cash) (1,720) 6,516
Adjusted
G&A -
total 8,304 14,841
Restricted
stock expenses
share-
based
compensation
(non-
cash)
and
other
non-
recurring (1,509) (3,776)
Adjusted
G&A -
cash
component $6,795 $11,065
Capitalized
cash
G&A $6,740 $7,570
Full
Cash
G&A
Costs $13,535 $18,635
Income Tax Expense. Callon provides for income taxes at the statutory rate of 21% adjusted for permanent differences expected to be realized. Callon recorded income tax expense of $51.3 million for the three months ended June 30, 2020, compared to income tax expense of $64.0 million for the three months ended March 31, 2020. Primarily as a result of the impairment of evaluated oil and gas properties recognized during the second quarter of 2020, Callon recorded a valuation allowance against its net deferred tax assets reducing the net deferred tax assets to zero.
Loss Available to Common Stockholders. We recorded a loss available to common stockholders for the three months ended June 30, 2020 of $1.6 billion, or $3.94 per diluted share, as compared to income available to common stockholders of $216.6 million, or $0.55 per diluted share, for the first quarter of 2020. The loss was primarily due to the impairment of evaluated oil and gas properties of $1.3 billion as well as a loss on derivative contracts of approximately $127.0 million recorded during the second quarter of 2020.
Adjusted EBITDA(1). Adjusted EBITDA for the second quarter of 2020 was $153.4 million as compared to $217.5 million for the first quarter of 2020. The decrease in Adjusted EBITDA from the first quarter of 2020 was primarily due to an approximate 30% decrease in the average realized price of oil. This was partially offset by increased sequential production as well as a decrease in operating expenses as described above.
Guidance
Callon is reinstating guidance for the full year and updating previous ranges to reflect adjustments to its operational plan and associated expectations.
Full Year
2020 Guidance
Total production (Mboe/
d)
99.0 - 101.0
Oil production 64%
Gas production 18%
NGL production 18%
Income statement expenses
($MM)
LOE, including workovers
$205 - $215
Gathering, processing,
and transportation
$60 - $65
Production taxes,
including ad valorem (%
unhedged revenue) 7%
Adjusted G&A: cash
component (a)
$30 - $35
Adjusted G&A: non-cash
component (b)
$5 - $7
Cash interest expense
$90 - $95
Effective income tax rate
(%) 22%
Capital expenditures
($MM, accrual basis)
Total operational capital
(c)
$500 - $525
Capitalized interest
$80 - $85
Capitalized G&A
$25 - $30
Gross operated wells
drilled /completed
87-89 / 80-82
(a) Excludes the amortization of
equity-settled, share-based
incentive awards. Adjusted G&A
is a non-GAAP financial
measure; see the reconciliation
provided within this press
release for a reconciliation of
G&A expense on a GAAP basis to
Adjusted G&A expense.
(b) Excludes certain non-recurring
expenses and non-cash valuation
adjustments. Adjusted G&A is a
non-GAAP financial measure; see
the reconciliation provided
within this press release for a
reconciliation of G&A expense on
a GAAP basis to Adjusted G&A
expense.
(c) Includes facilities, equipment,
seismic, land and other items.
Excludes capitalized expenses.
In addition to the updated 2020 guidance provided in the previous table, the Company's initial outlook for 2021 for a "maintenance capital" plan will include average daily production of 90 to 95 MBoe per day from an operational capital spending level of approximately $400 million. Management believes that this program at current prices will yield meaningful additional free cash flow.
Reverse Stock Split
Today the Company also announced that its Board of Directors has approved a reverse stock split of the Company's outstanding shares of common stock at a ratio of 1-for-10, which was approved by the Company's shareholders at the Company's annual meeting of shareholders on June 8, 2020. The reverse stock split will become effective as of the close of business on August 7, 2020 and the Company's common stock will begin trading on a split-adjusted basis on the NYSE at market open on August 10, 2020. The par value of the common stock will not be adjusted in connection with the reverse stock split.
The reverse stock split is intended to, among other things, improve the opportunity for institutional ownership. Upon completion of the reverse stock split, each 10 pre-split shares of common stock outstanding will be automatically combined into one issued and outstanding share of common stock. Any fractional shares that result from the reverse stock split will be canceled, and shareholders who would otherwise hold fractional shares as a result of the reverse stock split will be entitled to receive cash (without interest and subject to applicable withholding taxes) in lieu of such fractional shares. The number of outstanding shares of common stock will be reduced from approximately 397,476,674 as of July 31, 2020 to approximately 39,747,667 shares (without giving effect to the liquidation of fractional shares). The Board has also approved a proportionate reduction of the total number of authorized shares of the Company's common stock pursuant to an amendment to the Company's Certificate of Incorporation. The total number of shares of common stock that the Company is authorized to issue will be reduced from 525,000,000 to 52,500,000 shares.
Second Quarter 2020 Earnings Conference Call
The Company's conference call to discuss second quarter results is scheduled for Wednesday, August 5, 2020, at 8:00 am CDT. The presentation slides and associated webcast can both be found at www.callon.com located on the "News/Events" page within the Investors section on the site or by clicking on the link below.
www.callon.com/investors/news-events/ir-calendar
Hedge Portfolio Summary
The following tables summarize Callon's open derivative contracts for the remaining two quarters of 2020 and the full year 2021, updated for changes through July 31, 2020:
For the Remainder For the Full Year
Oil contracts
(WTI) of 2020 of 2021
---
Swap contracts
Total volume
(Bbls) 6,291,880 1,377,000
Weighted average
price per Bbl $42.08 $42.00
Collar contracts
Total volume
(Bbls) 2,863,040 3,741,250
Weighted average
price per Bbl
Ceiling (short
call) $45.00 $45.02
Floor (long put) $35.00 $40.00
Short put
contracts
Total volume
(Bbls) 1,104,000
Weighted average
price per Bbl $42.50
$-
Long call
contracts
Total volume
(Bbls) 920,000
Weighted average
price per Bbl $67.50
$-
Short call
contracts
Total volume
(Bbls) 920,000 (a) 4,825,300 (a)
Weighted average
price per Bbl $55.00 $63.62
Short call
swaption
contracts
Total volume
(Bbls) 730,000 (b)
Weighted average
price per Bbl
$- $47.00
Oil contracts
(WTI Calendar
Month Average
Roll)
---
Swap contracts
Total volume
(Bbls) 3,864,000
Weighted average
price per Bbl ($2.75)
$-
Oil contracts
(Brent ICE)
---
Swap contracts
Total volume
(Bbls) 184,000 1,272,450
Weighted average
price per Bbl $46.15 $38.24
Oil contracts
(Midland basis
differential)
---
Swap contracts
Total volume
(Bbls) 3,094,700 4,015,100
Weighted average
price per Bbl ($1.75) $0.40
Oil contracts
(Argus Houston
MEH basis
differential)
---
Swap contracts
Total volume
(Bbls) 3,256,004
Weighted average
price per Bbl $0.06
$-
Oil contracts
(Argus Houston
MEH swaps)
---
Swap contracts
Total volume
(Bbls) 368,000 2,969,050
Weighted average
price per Bbl $57.71 $39.48
(a) Premiums from the sale of call
options were used to increase the
fixed price of certain
simultaneously executed price
swaps.
(b) The short call swaption contract has
an exercise expiration date of
October 30, 2020.
For the Remainder For the Full Year
Natural
gas
contracts
(Henry
Hub) of 2020 of 2021
---
Swap
contracts
Total
volume
(MMBtu) 8,566,000 12,923,000
Weighted
average
price
per
MMBtu $2.07 $2.66
Collar
contracts
(three-
way
collars)
Total
volume
(MMBtu) 2,755,000 1,350,000
Weighted
average
price
per
MMBtu
Ceiling
(short
call) $2.73 $2.70
Floor
(long
put) $2.47 $2.42
Floor
(short
put) $2.00 $2.00
Collar
contracts
(two-
way
collars)
Total
volume
(MMBtu) 1,525,000 7,750,000
Weighted
average
price
per
MMBtu
Ceiling
(short
call) $3.25 $2.93
Floor
(long
put) $2.67 $2.55
Long
call
contracts
Total
volume
(MMBtu) 3,036,000
Weighted
average
price
per
MMBtu $3.50
$-
Short
call
contracts
Total
volume
(MMBtu) 6,072,000 7,300,000
Weighted
average
price
per
MMBtu $3.50 $3.09
Natural
gas
contracts
(Waha
basis
differential)
---
Swap
contracts
Total
volume
(MMBtu) 12,885,000 6,387,500
Weighted
average
price
per
MMBtu ($0.92) ($0.58)
For the Remainder For the Full Year
NGL
contracts
(OPIS
Mont
Belvieu
Purity
Ethane) of 2020 of 2021
---
Swap
contracts
Total
volume
(Bbls) 1,825,000
Weighted
average
price
per
Bbl
$- $7.62
Adjusted Income and Adjusted EBITDA. The Company reported loss available to common stockholders of $1,564.7 million, or $3.94 per fully diluted share, for the three months ended June 30, 2020, and adjusted income available to common stockholders of $2.1 million, or $0.01 per fully diluted share. The following tables reconcile the Company's income (loss) available to common stockholders to adjusted income, and the Company's net income (loss) to adjusted EBITDA:
Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
(In thousands, except per share data)
Income (loss)
available to common
stockholders ($1,564,731) $216,565 $53,357
(Gain) loss on
derivative
contracts 126,965 (251,969) (14,036)
Gain (loss) on
commodity
derivative
settlements, net 84,208 25,126 (1,157)
Non-cash stock-
based compensation
expense (benefit) 2,761 (2,972) 904
Impairment of
evaluated oil and
gas properties 1,276,518
Merger and
integration expense 8,067 15,830
Other (income)
expense 6,759 (1,029) 770
Tax effect on
adjustments
above(a) (316,108) 45,153 2,839
Change in valuation
allowance 377,645
Adjusted Income $2,084 $46,704 $42,677
Adjusted Income per
fully diluted
common share $0.01 $0.12 $0.19
Basic WASO 397,084 396,682 228,051
Diluted WASO (GAAP) 397,084 396,836 228,411
Effective of
potentially
dilutive
instruments 114
Adjusted Diluted
WASO 397,198 396,836 228,411
(a) Calculated using the
federal statutory rate of
21%.
Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
(In thousands)
Net income (loss) ($1,564,731) $216,565 $55,180
(Gain) loss on
derivative
contracts 126,965 (251,969) (14,036)
Gain (loss) on
commodity
derivative
settlements, net 84,208 25,126 (1,157)
Non-cash stock-
based compensation
expense (benefit) 2,761 (2,972) 904
Impairment of
evaluated oil and
gas properties 1,276,518
Merger and
integration expense 8,067 15,830
Other (income)
expense 6,759 (1,029) 935
Income tax expense 51,251 64,048 16,691
Interest expense 22,682 20,478 741
Depreciation,
depletion and
amortization 138,930 131,463 64,590
Adjusted EBITDA $153,410 $217,540 $123,848
Free Cash Flow. Free cash flow was $18.0 million for the three months ended June 30, 2020. Free cash flow is reconciled to operating cash flow in the following table:
Three Months Ended
June 30, 2020
(In thousands)
Net cash provided by operating
activities $97,801
Changes in working capital and other 40,078
Change in accrued hedge settlement (14,480)
Cash interest expense 21,944
Merger and integration expense 8,067
Adjusted EBITDA 153,410
Less: Operational capital (accrual) 85,087
Less: Capitalized interest 20,924
Less: Interest expense 22,682
Less: Capitalized cash G&A (excludes
stock-based compensation) 6,740
Free cash flow $17,977
Adjusted Discretionary Cash Flow. Operating cash flow was $97.8 million and adjusted discretionary cash flow was $142.7 million for the three months ended June 30, 2020. Adjusted discretionary cash flow is reconciled to operating cash flow in the following table:
Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
(In thousands)
Cash flows from
operating activities:
Net income (loss) ($1,564,731) $216,565 $55,180
Adjustments to
reconcile net income
to cash provided by
operating activities:
Depreciation,
depletion and
amortization 138,930 131,463 64,590
Impairment of
evaluated oil and gas
properties 1,276,518
Amortization of non-
cash debt related
items 738 407 741
Deferred income tax
expense 51,251 64,048 16,691
(Gain) loss on
derivative contracts 126,965 (251,969) (14,036)
Cash (paid) received
for commodity
derivative
settlements, net 98,688 2,613 (1,157)
(Gain) loss on sale of
other property and
equipment 21
Non-cash stock-based
compensation expense
(benefit) 2,761 (2,972) 904
Non-cash loss on
early extinguishment
of debt
Merger and integration
expense 8,067 15,830
Other, net 3,521 890
Adjusted discretionary
cash flow $142,708 $176,875 $122,934
Changes in working
capital (36,839) 31,404 27,789
Payments to settle
asset retirement
obligations (107)
Merger and integration
expense (8,067) (15,830)
Payments to settle
vested liability
share-based awards (1) (754) (129)
Net cash provided by
operating activities $97,801 $191,695 $150,487
Adjusted Total Revenue. Adjusted total revenue for the three months ended June 30, 2020 was $241.4 million and is reconciled to total operating revenues in the following table:
Three Months Ended
June 30, 2020 March 31, 2020 June 30, 2019
(In thousands)
Operating
Revenues
Oil $130,513 $265,767 $160,728
Natural gas 12,242 6,029 6,324
Natural gas
liquids 14,479 18,123
Total operating
revenues $157,234 $289,919 $167,052
Gain (loss) on
commodity
derivative
settlements,
net 84,208 25,126 (1,157)
Adjusted total
revenue $241,442 $315,045 $165,895
Callon Petroleum Company
Consolidated Balance Sheets
(In thousands, except par and per share data)
(Unaudited)
June 30, 2020 December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents $7,500 $13,341
Accounts receivable, net 95,839 209,463
Fair value of derivatives 31,563 26,056
Other current assets 28,828 19,814
Total current assets 163,730 268,674
Oil and natural gas properties, full
cost accounting method:
Evaluated properties 3,777,956 4,682,994
Unevaluated properties 1,762,860 1,986,124
Total oil and natural gas properties,
net 5,540,816 6,669,118
Operating lease right-of-use assets 35,926 63,908
Other property and equipment, net 32,444 35,253
Deferred tax asset 115,720
Deferred financing costs 25,993 22,233
Other assets, net 11,224 19,932
Total assets $5,810,133 $7,194,838
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $405,596 $511,622
Operating lease liabilities 24,355 42,858
Fair value of derivatives 32,683 71,197
Other current liabilities 15,053 26,570
Total current liabilities 477,687 652,247
Long-term debt 3,350,730 3,186,109
Operating lease liabilities 30,729 37,088
Asset retirement obligations 48,765 48,860
Fair value of derivatives 8,678 32,695
Other long-term liabilities 12,160 14,531
Total liabilities 3,928,749 3,971,530
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value,
525,000,000 shares authorized;
397,396,922 and 396,600,022 shares
outstanding, respectively 3,974 3,966
Capital in excess of par value 3,204,310 3,198,076
Retained earnings (Accumulated deficit) (1,326,900) 21,266
Total stockholders' equity 1,881,384 3,223,308
Total liabilities and stockholders'
equity $5,810,133 $7,194,838
Callon Petroleum Company
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30,
June 30,
2020 2019 2020 2019
Operating revenues:
Oil $130,513 $160,728 $396,280 $301,826
Natural gas 12,242 6,324 18,271 18,273
Natural gas liquids 14,479 32,602
Total operating revenues 157,234 167,052 447,153 320,099
Operating Expenses:
Lease operating 50,838 22,776 103,221 46,843
Production and ad valorem
taxes 10,361 11,131 30,041 21,944
Gathering, transportation
and processing 20,037 34,415
Depreciation, depletion
and amortization 138,930 63,137 270,393 123,145
General and
administrative 10,024 10,564 18,349 25,341
Impairment of evaluated
oil and gas properties 1,276,518 1,276,518
Merger and integration
expenses 8,067 23,897
Other operating 4,135 935 4,135 1,092
Total operating expenses 1,518,910 108,543 1,760,969 218,365
Income (Loss) From
Operations (1,361,676) 58,509 (1,313,816) 101,734
Other (Income) Expenses:
Interest expense, net of
capitalized amounts 22,682 741 43,160 1,479
(Gain) loss on derivative
contracts 126,965 (14,036) (125,004) 53,224
Other (income) expense 2,157 (67) 895 (148)
Total other (income)
expense 151,804 (13,362) (80,949) 54,555
Income (Loss) Before
Income Taxes (1,513,480) 71,871 (1,232,867) 47,179
Income tax expense (51,251) (16,691) (115,299) (11,542)
Net Income (Loss) (1,564,731) 55,180 (1,348,166) 35,637
Preferred stock dividends (1,823) (3,647)
Income (Loss) Available
to Common Stockholders ($1,564,731) $53,357 ($1,348,166) $31,990
Income (Loss) Available to Common
Stockholders Per Common Share:
Basic ($3.94) $0.23 ($3.40) $0.14
Diluted ($3.94) $0.23 ($3.40) $0.14
Weighted Average Common Shares
Outstanding:
Basic 397,084 228,051 396,884 227,917
Diluted 397,084 228,411 396,884 228,599
Callon Petroleum Company
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended June Six Months Ended June
30, 30,
2020 2019 2020 2019
Cash flows from operating activities:
Net income (loss) ($1,564,731) $55,180 ($1,348,166) $35,637
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation, depletion
and amortization 138,930 64,590 270,393 125,503
Impairment of evaluated
oil and gas properties 1,276,518 1,276,518
Amortization of non-
cash debt related items 738 741 1,145 1,479
Deferred income tax
expense 51,251 16,691 115,299 11,542
(Gain) loss on
derivative contracts 126,965 (14,036) (125,004) 53,224
Cash (paid) received for
commodity derivative
settlements 98,688 (1,157) 101,301 (1,447)
Loss on sale of other
property and equipment 21 49
Non-cash expense
related to equity
share-based awards 1,041 1,754 4,817 6,299
Change in the fair value
of liability share-
based awards 1,720 (850) (5,028) 1,031
Payments to settle asset
retirement obligations (107) (771)
Payments for cash-
settled restricted
stock unit awards (1) (129) (755) (1,425)
Other, net 3,521 4,411
Changes in current assets and
liabilities:
Accounts receivable (2,833) 44,071 113,040 38,681
Other current assets (3,567) (3,807) (4,348) (6,101)
Current liabilities (30,439) (10,251) (114,127) (36,254)
Other (2,224) (2,401)
Net cash provided by
operating activities 97,801 150,487 289,496 225,046
Cash flows from investing activities:
Capital expenditures (206,121) (166,219) (430,569) (359,430)
Acquisitions (11,423) (39,370)
Proceeds from sale of
assets (161) 260,417 10,079 274,296
Cash paid for
settlements of
contingent
consideration
arrangements, net (40,000)
Other, net 6,992 6,834
Net cash provided by
(used in) investing
activities (199,290) 82,775 (453,656) (124,504)
Cash flows from financing activities:
Borrowings on senior
secured revolving
credit facility 484,500 140,000 4,775,500 360,000
Payments on senior
secured revolving
credit facility (384,500) (365,000) (4,610,500) (455,000)
Payment of preferred
stock dividends (1,823) (3,647)
Payment of deferred
financing costs (5,736) (31) (6,011) (31)
Tax withholdings related
to restricted stock
units (75) (833) (388) (1,858)
Other, net (5) (282) (5)
Net cash provided by
(used in) financing
activities 94,189 (227,692) 158,319 (100,541)
Net change in cash and
cash equivalents (7,300) 5,570 (5,841) 1
Balance, beginning of
period 14,800 10,482 13,341 16,051
Balance, end of period $7,500 $16,052 $7,500 $16,052
Non-GAAP Financial Measures
This news release refers to non-GAAP financial measures such as "Free Cash Flow," "Adjusted Discretionary Cash Flow," "Adjusted G&A," "Full Cash G&A Costs," "Adjusted Income," "Adjusted EBITDA" and "Adjusted Total Revenue." 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.
-- Free Cash Flow is a supplemental non-GAAP measure that is defined by the
Company as Adjusted EBITDA less operational capital, capitalized
interest, net interest expense and capitalized G&A excluding capitalized
expense related to share-based awards. We believe free cash flow is a
comparable metric against other companies in the industry and is a
widely accepted financial indicator of an oil and natural gas company's
ability to generate cash for the use of internally funding their capital
development program and to service or incur debt. Free cash flow is not
a measure of a company's financial performance under GAAP and should not
be considered as an alternative to net cash provided by operating
activities, or as a measure of liquidity, or as an alternative to net
income (loss).
-- Adjusted Discretionary Cash Flow is a supplemental non-GAAP measure that
Callon believes is a comparable metric against other companies in the
industry and is a widely accepted financial indicator of an oil and
natural gas company's ability to generate cash for the use of internally
funding their capital development program and to service or incur debt.
Adjusted Discretionary Cash Flow is defined by Callon as net cash
provided by operating activities before changes in working capital,
merger and integration expenses, and payments to settle asset retirement
obligations and vested liability share-based awards. Callon 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 the cash flow effect may not be reflected
the period in which the operating activities occurred. Adjusted
Discretionary Cash Flow is not a measure of a company's financial
performance under GAAP and should not be considered as an alternative to
net cash provided by operating activities (as defined under GAAP), or as
a measure of liquidity, or as an alternative to net income.
-- Adjusted general and administrative expense ("Adjusted G&A") is a
supplemental non-GAAP financial measure that excludes non-cash valuation
adjustments related to incentive compensation plans. 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 contained within this release details all adjustments to G&A on a
GAAP basis to arrive at Adjusted G&A.
-- Full Cash G&A Costs is a supplemental non-GAAP financial measure that
Callon defines as Adjusted G&A - cash component plus capitalized G&A
excluding capitalized expense related to share-based awards. Callon
believes that the non-GAAP measure of Full Cash G&A Costs is useful
because it provides users with a meaningful measure of our total
recurring cash G&A costs, whether expensed or capitalized, and provides
for greater comparability on a period-over-period basis. See the
reconciliation provided above for further details.
-- Adjusted Income available to common stockholders ("Adjusted Income") and
Adjusted Income per fully diluted common share are supplemental non-GAAP
measures that Callon believes 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.
-- Adjusted diluted weighted average common shares outstanding ("Adjusted
Diluted WASO") is a non-GAAP financial measure which includes the effect
of potentially dilutive instruments that, under certain circumstances
described below, are excluded from diluted weighted average common
shares outstanding ("Diluted WASO"), the most directly comparable GAAP
financial measure. When a loss available to common stockholders exists,
all potentially dilutive instruments are anti-dilutive to the loss
available to common stockholders per common share and therefore excluded
from the computation of Diluted WASO. The effect of potentially dilutive
instruments are included in the computation of Adjusted Diluted WASO for
purposes of computing Adjusted Income per fully diluted common share.
-- Callon calculates adjusted earnings before interest, income taxes,
depreciation, depletion and amortization ("Adjusted EBITDA") as net
income (loss) before interest expense, income tax expense (benefit),
depreciation, depletion and amortization, (gains) losses on derivative
instruments excluding net settled derivative instruments, non-cash
stock-based compensation expense, merger and integration expense, loss
on extinguishment of debt, and other operating expenses. 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, the Company believes that Adjusted EBITDA provides additional
information with respect to our performance or ability to meet our
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 presented may not be comparable to similarly titled measures of
other companies.
-- Callon believes that the non-GAAP measure of Adjusted Total Revenue is
useful to investors because it provides readers with a revenue value
more comparable to other companies who engage in price risk management
activities through the use of commodity derivative instruments and
reflects the results of derivative settlements with expected cash flow
impacts within total revenues.
About Callon Petroleum Company
Callon Petroleum is an independent oil and natural gas company focused on the acquisition, exploration and development of high-quality assets in the leading oil plays of South and 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 Information
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 the Company's wells anticipated to be drilled and placed on production; future levels of drilling activity and associated production and cash flow expectations; the Company's production guidance and capital expenditure forecast; estimated reserve quantities and the present value thereof; anticipated returns and financial position; and the implementation of the Company's business plans and strategy, as well as statements including the words "believe," "expect," "may," "will," "forecast," "outlook," "plans" and words of similar meaning. These statements reflect the Company's current views with respect to future events and financial performance based on management's experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. No assurances can be given, however, as of this date, 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. Any forward-looking statement speaks only as of the date of which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. 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, natural gas and natural gas liquids ("NGLs") prices or a prolonged period of low oil, natural gas or NGLs prices and the effects of actions by, or disputes among or between significant oil and natural gas producing countries, general economic conditions, including the availability of credit and access to existing lines of credit; the effects of excess supply of oil and natural gas resulting from reduced demand caused by the COVID-19 pandemic and the actions of certain oil and natural gas producing countries; our ability to drill and complete wells; operational, regulatory and environment risks; cost and availability of equipment and labor; our ability to finance our activities; the ultimate timing, outcome and results of integrating the operations of Carrizo Oil & Gas, Inc. and Callon; and the ability of the combined company to realize anticipated synergies and other benefits in the timeframe expected or at all; and other risks more fully discussed in our filings with the Securities and Exchange Commission (the "SEC"), including our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q and subsequent Quarterly Reports on Form 10-Q, available on our website or the SEC's website at www.sec.gov.
Contact Information
Mark Brewer
Director of Investor Relations
Callon Petroleum Company
ir@callon.com
(281) 589-5200
1) See "Non-GAAP Financial Measures and Reconciliations" included within this release for related disclosures and calculations.
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SOURCE Callon Petroleum Company
