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

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For The Quarterly Period Ended September 30, 2018
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
(State or Other Jurisdiction of
Incorporation or Organization)
 
64-0844345
(IRS Employer
Identification No.)
 
 
 
200 North Canal Street
Natchez, Mississippi
(Address of Principal Executive Offices)
 
39120
(Zip Code)
601-442-1601
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Indicate by check mark whether 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 (check one):
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 227,581,223 shares of common stock outstanding as of November 2, 2018.




Table of Contents

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

2

Table of Contents

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.
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 natural gas delivery point in West Texas that serves as the benchmark for gas delivered and sold into Pecos County.
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

Table of Contents

Part I.  Financial Information
Item I.  Financial Statements
Callon Petroleum Company
Consolidated Balance Sheets
(in thousands, except par and per share data)
 
 
September 30, 2018
 
December 31, 2017
ASSETS
 
Unaudited
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
12,129

 
$
27,995

Accounts receivable
 
168,753

 
114,320

Fair value of derivatives
 
4,289

 
406

Other current assets
 
3,804

 
2,139

Total current assets
 
188,975

 
144,860

Oil and natural gas properties, full cost accounting method:
 
 
 
 
Evaluated properties
 
4,305,189

 
3,429,570

Less accumulated depreciation, depletion, amortization and impairment
 
(2,208,066
)
 
(2,084,095
)
Net evaluated oil and natural gas properties
 
2,097,123

 
1,345,475

Unevaluated properties
 
1,385,529

 
1,168,016

Total oil and natural gas properties
 
3,482,652

 
2,513,491

Other property and equipment, net
 
21,738

 
20,361

Restricted investments
 
3,413

 
3,372

Deferred tax asset
 

 
52

Deferred financing costs
 
6,406

 
4,863

Acquisition deposit
 

 
900

Other assets, net
 
5,552

 
5,397

Total assets
 
$
3,708,736

 
$
2,693,296

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
251,754

 
$
162,878

Accrued interest
 
27,325

 
9,235

Cash-settleable restricted stock unit awards
 
2,422

 
4,621

Asset retirement obligations
 
4,464

 
1,295

Fair value of derivatives
 
47,167

 
27,744

Total current liabilities
 
333,132

 
205,773

Senior secured revolving credit facility
 
65,000

 
25,000

6.125% senior unsecured notes due 2024, net of unamortized deferred financing costs
 
595,729

 
595,196

6.375% senior unsecured notes due 2026, net of unamortized deferred financing costs
 
392,799

 

Asset retirement obligations
 
5,428

 
4,725

Cash-settleable restricted stock unit awards
 
2,818

 
3,490

Deferred tax liability
 
3,917

 
1,457

Fair value of derivatives
 
15,440

 
1,284

Other long-term liabilities
 
6,165

 
405

Total liabilities
 
1,420,428

 
837,330

Commitments and contingencies
 

 

Stockholders’ equity:
 
 
 
 
Preferred stock, series A cumulative, $0.01 par value and $50.00 liquidation preference, 2,500,000 shares authorized; 1,458,948 shares outstanding
 
15

 
15

Common stock, $0.01 par value, 300,000,000 shares authorized; 227,567,936 and 201,836,172 shares outstanding, respectively
 
2,276

 
2,018

Capital in excess of par value
 
2,474,748

 
2,181,359

Accumulated deficit
 
(188,731
)
 
(327,426
)
Total stockholders’ equity
 
2,288,308

 
1,855,966

Total liabilities and stockholders’ equity
 
$
3,708,736

 
$
2,693,296


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

4

Table of Contents

Callon Petroleum Company
Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Operating revenues:
 
 
 
 
 
 
 
Oil sales
$
142,601

 
$
73,349

 
$
380,500

 
$
218,242

Natural gas sales
18,613

 
11,265

 
45,229

 
30,019

Total operating revenues
161,214

 
84,614

 
425,729

 
248,261

Operating expenses:
 
 
 
 
 
 
 
Lease operating expenses
18,525

 
11,624

 
44,705

 
36,708

Production taxes
10,263

 
5,444

 
26,265

 
16,168

Depreciation, depletion and amortization
48,257

 
28,525

 
122,407

 
79,172

General and administrative
9,721

 
7,259

 
26,779

 
18,894

Settled share-based awards

 

 

 
6,351

Accretion expense
202

 
131

 
626

 
523

Acquisition expense
1,435

 
205

 
3,750

 
3,027

Total operating expenses
88,403

 
53,188

 
224,532

 
160,843

Income from operations
72,811

 
31,426

 
201,197

 
87,418

Other (income) expenses:
 
 
 
 
 
 
 
Interest expense, net of capitalized amounts
711

 
444

 
1,765

 
1,698

(Gain) loss on derivative contracts
34,339

 
14,162

 
55,374

 
(11,636
)
Other income
(1,657
)
 
(498
)
 
(2,571
)
 
(1,270
)
Total other (income) expense
33,393

 
14,108

 
54,568

 
(11,208
)
Income before income taxes
39,418

 
17,318

 
146,629

 
98,626

Income tax expense
1,487

 
237

 
2,463

 
1,026

Net income
37,931

 
17,081

 
144,166

 
97,600

Preferred stock dividends
(1,823
)
 
(1,824
)
 
(5,471
)
 
(5,471
)
Income available to common stockholders
$
36,108

 
$
15,257

 
$
138,695

 
$
92,129

Income per common share:
 
 
 
 
 
 
 
Basic
$
0.16

 
$
0.08

 
$
0.65

 
$
0.46

Diluted
$
0.16

 
$
0.08

 
$
0.65

 
$
0.46

Shares used in computing income per common share:
 
 
 
 
 
 
 
Basic
227,564

 
201,827

 
213,409

 
201,422

Diluted
228,140

 
202,337

 
214,079

 
201,995


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


5

Table of Contents

Callon Petroleum Company
Consolidated Statements of Cash Flows
(Unaudited; in thousands)
 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
144,166

 
$
97,600

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
124,430

 
80,829

Accretion expense
626

 
523

Amortization of non-cash debt related items
1,749

 
1,695

Deferred income tax expense
2,463

 
1,026

Net (gain) loss on derivatives, net of settlements
29,696

 
(15,608
)
(Gain) loss on sale of other property and equipment
(80
)
 
62

Non-cash expense related to equity share-based awards
4,466

 
7,014

Change in the fair value of liability share-based awards
1,428

 
2,423

Payments to settle asset retirement obligations
(1,080
)
 
(1,831
)
Changes in current assets and liabilities:
 
 
 
Accounts receivable
(54,384
)
 
(12,148
)
Other current assets
(1,665
)
 
(336
)
Current liabilities
64,801

 
7,534

Other long-term liabilities
5,787

 
121

Long-term prepaid

 
(4,650
)
Other assets, net
(1,398
)
 
(1,376
)
Payments to settle vested liability share-based awards
(4,990
)
 
(13,173
)
Net cash provided by operating activities
316,015

 
149,705

Cash flows from investing activities:
 
 
 
Capital expenditures
(455,352
)
 
(267,218
)
Acquisitions
(595,984
)
 
(714,504
)
Acquisition deposit

 
46,138

Proceeds from sale of assets
8,326

 

Net cash used in investing activities
(1,043,010
)
 
(935,584
)
Cash flows from financing activities:
 
 
 
Borrowings on senior secured revolving credit facility
270,000

 

Payments on senior secured revolving credit facility
(230,000
)
 

Issuance of 6.125% senior unsecured notes due 2024

 
200,000

Premium on the issuance of 6.125% senior unsecured notes due 2024

 
8,250

Issuance of 6.375% senior unsecured notes due 2026
400,000

 

Issuance of common stock
288,364

 

Payment of preferred stock dividends
(5,471
)
 
(5,471
)
Payment of deferred financing costs
(9,960
)
 
(7,166
)
Tax withholdings related to restricted stock units
(1,804
)
 
(1,118
)
Net cash provided by financing activities
711,129

 
194,495

Net change in cash and cash equivalents
(15,866
)
 
(591,384
)
Balance, beginning of period
27,995

 
652,993

Balance, end of period
$
12,129

 
$
61,609


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

6

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

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

Note 1 - Description of Business and Basis of Presentation

Description of business

Callon Petroleum Company is an independent oil and natural gas company established in 1950. The Company was incorporated under the laws of the state of Delaware in 1994 and succeeded to the business of a publicly traded limited partnership, a joint venture with a consortium of European investors and an independent energy company. 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.

Callon is focused on the acquisition, development, exploration and exploitation of unconventional onshore, oil and natural gas reserves in the Permian Basin. The Company’s operations to date have been predominantly focused on the horizontal development of several prospective intervals, including multiple levels of the Wolfcamp formation and the Lower Spraberry shales. Callon has assembled a multi-year inventory of potential horizontal well locations and intends to add to this inventory through delineation drilling of emerging zones on its existing acreage and acquisition of additional locations through working interest acquisitions, leasing programs, acreage purchases, joint ventures and asset swaps. 

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 subsidiaries, namely Callon Offshore Production, Inc. and Mississippi Marketing, Inc.

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, 2017. The balance sheet at December 31, 2017 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, 2018.

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, the results of its operations and its cash flows for the periods indicated. Certain prior year amounts may have been reclassified to conform to current year presentation.

Accounting Standards Updates (“ASUs”)

Recently Adopted ASUs - Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 replaced most of the existing revenue recognition requirements in GAAP.

Throughout 2015 and 2016, the FASB issued several updates to the revenue recognition guidance in Accounting Standards Codification Topic 606 (“ASC 606”). In August 2015, the FASB issued ASU No. 2015-14, deferring the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net). Under this update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods

7

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

or services. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing. This update clarifies two principles of ASC 606: identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients. This update applies only to the following areas from ASC 606: assessing the collectability criterion and accounting for contracts that do not meet the criteria for step 1, presentation of sales taxes and other similar taxes collected from customers, non-cash consideration, contract modification at transition, completed contracts at transition and technical correction.

Prior to the adoption of ASC 606, gathering and treating fees associated with our gas processing agreements have historically been presented within lease operating expenses in the statement of operations. The current period presentation reports these fees as a reduction to natural gas revenues. See Note 2 for additional information on revenue recognition.

The Company adopted the new standard on January 1, 2018 using the modified retrospective method at the date of adoption and the impact of adoption on the current period statement of operations is as follows:
 
Three Months Ended September 30, 2018
 
As reported
 
Adjustments
 
Presentation without adoption of ASC Topic 606
Operating revenues:
 
 
 
 
 
Natural gas sales
$
18,613

 
$
2,209

 
$
20,822

Total operating revenues
161,214

 
2,209

 
163,423

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Lease operating expenses
$
18,525

 
$
2,209

 
$
20,734

Total operating expenses
88,403

 
2,209

 
90,612


 
Nine Months Ended September 30, 2018
 
As reported
 
Adjustments
 
Presentation without adoption of ASC Topic 606
Operating revenues:
 
 
 
 
 
Natural gas sales
$
45,229

 
$
5,413

 
$
50,642

Total operating revenues
425,729

 
5,413

 
431,142

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Lease operating expenses
$
44,705

 
$
5,413

 
$
50,118

Total operating expenses
224,532

 
5,413

 
229,945


Recently adopted ASUs - Other

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The objective of the standard is to reduce the existing diversity in practice of several cash flow issues, including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payment made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The guidance in ASU 2016-15 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods therein. The Company adopted this update on January 1, 2018 and it did not have a material impact on its consolidated financial statements.


8

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

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations-Clarifying the Definition of a Business (“ASU 2017-01”). The guidance in ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance provides a screen to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The guidance in ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. The Company adopted this update effective January 1, 2018. The adoption of this update did not have a material impact on its consolidated financial statements.

Recently issued 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”). Together these related amendments to GAAP represent ASC Topic 842, Leases (“ASC Topic 842”).

ASC Topic 842 requires lessees to recognize lease assets and liabilities (with terms in excess of 12 months) on the balance sheet, disclose key quantitative and qualitative information about leasing arrangements, and permits an entity not to evaluate existing or expired land easements that were not previously assessed under Topic 840. The Company has engaged a third party consultant to assist with its current process of assessing existing contracts, as well as future potential contracts, and to determine the impact of applying Topic 842 on its consolidated financial statements and related disclosures. The contract evaluation process includes review of drilling rig contracts, field vehicles and equipment, office facility leases, compressors, general corporate leased equipment, and other existing arrangements that may contain a lease component. The Company will adopt this guidance as of January 1, 2019, the transition date, using a modified retrospective method with use of the transition option, in which a cumulative-effect adjustment will be recognized in the opening balance of retained earnings in the period of adoption.  The Company expects the adoption of ASC Topic 842 to primarily impact the asset and liability balances on the balance sheet and will result in changes to the timing and presentation of certain operating expenses on its consolidated statement of operations.

Recently issued 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 guidance in ASU 2018-06 is effective for public entities for annual reporting periods beginning after December 15, 2018, including interim periods therein. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company does not expect 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 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 revenues. For the three and nine months ended September 30, 2018, $2,209 and $5,413 of gathering and treating fees were recognized and recorded as a reduction to natural gas revenues in the consolidated statement of operations, respectively. For the three and nine months ended September 30, 2017, $909 and $2,393 of gathering and treating fees were recognized and recorded as part of lease operating expense in the consolidated statement of operations, respectively.


9

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

Production imbalances

Previously, the Company elected to utilize the entitlements method to account for natural gas production imbalances, which is no longer applicable. In conjunction with the Company’s adoption of the new revenue recognition accounting standards, there was no material impact to the financial statements due to this change in accounting for its production imbalances.

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 

Acquisitions were accounted for under the acquisition method of accounting, which involves determining the fair value of the assets acquired and liabilities assumed under the income approach.

2018 Acquisitions

During the first quarter of 2018, the Company completed acquisitions of additional working interests and acreage in the Company’s existing core operating areas of Monarch and Wildhorse, located in the Permian Basin, for an aggregate total purchase price of approximately $35,900 excluding customary purchase price adjustments.

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 “Cimarex Asset Acquisition”). The Company issued debt and equity to fund, in part, the Cimarex Asset Acquisition. See Notes 5 and 10 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


The preliminary purchase price allocations are subject to change based on numerous factors, including the final adjusted purchase price and the final estimated fair value of the assets acquired and liabilities assumed. Any such adjustments to the preliminary estimates of fair value could be material.

2017 Acquisitions

On February 13, 2017, the Company completed the acquisition of 29,175 gross (16,688 net) acres in the Delaware Basin, primarily located in Ward and Pecos Counties, Texas from American Resource Development, LLC, for $646,559 excluding customary purchase price adjustments (the “Ameredev Transaction”). The Company funded the cash purchase price with the net proceeds of an equity offering (see Note 10 for additional information regarding the equity offering). The Company obtained an 82% average working interest (75% average net revenue interest) in the properties acquired in the Ameredev Transaction.

10

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

The following table summarizes the estimated acquisition date fair values of the acquisition:
Evaluated oil and natural gas properties
$
137,368

Unevaluated oil and natural gas properties
509,359

Asset retirement obligations
(168
)
Net assets acquired
$
646,559


On June 5, 2017, the Company completed the acquisition of 7,031 gross (2,488 net) acres in the Delaware Basin, located near the acreage acquired in the Ameredev Transaction discussed above, for $52,500 excluding customary purchase price adjustments. The Company funded the cash purchase price with its available cash and proceeds from the issuance of an additional $200,000 of its 6.125% senior notes due 2024 (see Note 5 for additional information regarding the Company’s debt obligations).

Unaudited pro forma financial statements

The following unaudited summary pro forma financial information for the periods presented is for illustrative purposes only and does not purport to represent what the Company’s results of operations would have been if the Cimarex Asset Acquisition and Ameredev Transaction had occurred as presented, or to project the Company’s results of operations for any future periods:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
(a) 
 
2017
(a) 
 
2018
(a) 
 
2017
(a) 
Revenues
 
$
181,880

 
 
$
107,966

 
 
$
506,864

 
 
$
326,357

 
Income from operations
 
82,057

 
 
42,556

 
 
238,776

 
 
124,005

 
Income available to common stockholders
 
44,703

 
 
26,387

 
 
175,623

 
 
128,716

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.20

 
 
$
0.13

 
 
$
0.82

 
 
$
0.64

 
Diluted
 
$
0.20

 
 
$
0.13

 
 
$
0.82

 
 
$
0.64

 

(a)
The pro forma financial information was prepared assuming the Cimarex Asset Acquisition and the Ameredev Transaction occurred as of January 1, 2017.

The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable, including revenue, lease operating expenses, production taxes, depreciation, depletion and amortization expense, accretion expense, interest expense and capitalized interest.

The properties associated with the Cimarex Asset Acquisition and Ameredev Transaction have been commingled with the Company’s existing properties and it is impractical to provide the stand-alone operational results related to these properties.

Note 4 - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:
(share amounts in thousands)
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
37,931

 
$
17,081

 
$
144,166

 
$
97,600

Preferred stock dividends
(1,823
)
 
(1,824
)
 
(5,471
)
 
(5,471
)
Income available to common stockholders
$
36,108

 
$
15,257

 
$
138,695

 
$
92,129

 
 
 
 
 
 
 
 
Weighted average shares outstanding
227,564

 
201,827

 
213,409

 
201,422

Dilutive impact of restricted stock
576

 
510

 
670

 
573

Weighted average shares outstanding for diluted income per share
228,140

 
202,337

 
214,079

 
201,995

 
 
 
 
 
 
 
 
Basic income per share
$
0.16

 
$
0.08

 
$
0.65

 
$
0.46

Diluted income per share
$
0.16

 
$
0.08

 
$
0.65

 
$
0.46

 
 
 
 
 
 
 
 
Restricted stock (a)
154

 
51

 
154

 
51


(a)
Shares excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.

11

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

Note 5 - Borrowings

The Company’s borrowings consisted of the following at:
 
 
September 30, 2018
 
December 31, 2017
Principal components:
 
 
 
 
Senior secured revolving credit facility
 
$
65,000

 
$
25,000

6.125% senior unsecured notes due 2024
 
600,000

 
600,000

6.375% senior unsecured notes due 2026
 
400,000

 

Total principal outstanding
 
1,065,000

 
625,000

Premium on 6.125% senior unsecured notes due 2024, net of accumulated amortization
 
6,750

 
7,594

Unamortized deferred financing costs
 
(18,222
)
 
(12,398
)
Total carrying value of borrowings
 
$
1,053,528

 
$
620,196


Senior secured revolving credit facility (the “Credit Facility”)

On May 25, 2017, the Company entered into the Sixth Amended and Restated Credit Agreement to the Credit Facility with a maturity date of May 25, 2022. JPMorgan Chase Bank, N.A. is Administrative Agent, and participants include 17 institutional lenders. The total notional amount available under the Credit Facility is $2,000,000. Amounts borrowed under the Credit Facility may not exceed the borrowing base, which is generally reviewed on a semi-annual basis. The Credit Facility is secured by first preferred mortgages covering the Company’s major producing properties.

Effective April 5, 2018, the Company entered into the first amendment to the Sixth Amended and Restated Credit Agreement to the Credit Facility, which (1) increased the borrowing base to $825,000, (2) increased the elected commitment amount to $650,000, (3) decreased the applicable margins for interest rates, based on utilization, to a range of 1.25% to 2.25%, and (4) extended the maturity date to May 25, 2023.

Effective September 27, 2018, the Company entered into the second amendment to the Sixth Amended and Restated Credit Agreement to the Credit Facility, which (1) increased the borrowing base to $1,100,000, (2) increase the elected commitment amount to $850,000, and (3) amended various covenants and terms to reflect current market trends. As of September 30, 2018, the Credit Facility’s borrowing base remained at $1,100,000 with an elected commitment amount of $850,000.

As of September 30, 2018, there was $65,000 principal and $17,675 in letters of credit outstanding under the Credit Facility. For the quarter ended September 30, 2018, the Credit Facility had a weighted-average interest rate of 3.29%, calculated as the LIBOR plus a tiered rate ranging from 1.25% to 2.25%, which is determined based on utilization of the facility. In addition, the Credit Facility carried a commitment fee of 0.375% per annum, payable quarterly, on the unused portion of the borrowing base.

6.375% senior unsecured notes due 2026 (“6.375% Senior Notes”)

On June 7, 2018, the Company issued $400,000 aggregate principal amount of 6.375% Senior Notes with a maturity date of July 1, 2026 and interest payable semi-annually beginning on January 1, 2019. The net proceeds of the offering, after deducting initial purchasers’ discounts and estimated offering expenses, were approximately $394,000. The 6.375% Senior Notes are guaranteed on a senior unsecured basis by the Company’s wholly-owned subsidiary, Callon Petroleum Operating Company, and may be guaranteed by certain future subsidiaries. The subsidiary guarantor is 100% owned, all of the guarantees are full and unconditional and joint and several, the parent company has no independent assets or operations and any subsidiaries of the parent company other than the subsidiary guarantor are minor.

The Company may redeem the 6.375% Senior Notes in accordance with the following terms: (1) prior to July 1, 2021, a redemption of up to 35% of the principal in an amount not greater than the net proceeds from certain equity offerings, and within 180 days of the closing date of such equity offerings, at a redemption price of 106.375% of principal, plus accrued and unpaid interest, if any, to the date of the redemption, if at least 65% of the principal will remain outstanding after such redemption; (2) prior to July 1, 2021, a redemption of all or part of the principal at a price of 100% of principal of the amount redeemed, plus an applicable make-whole premium and accrued and unpaid interest, if any, to the date of the redemption; and (3) a redemption, in whole or in part, at a redemption price, plus accrued and unpaid interest, if any, to the date of the redemption, (i) of 103.188% of principal if the redemption occurs on or after July 1, 2021, but before July 1, 2022, and (ii) of 102.125% of principal if the redemption occurs on or after July 1, 2022, but before July 1, 2023, and (iii) of 101.063% of principal if the redemption occurs on or after July 1, 2023, but before July 1, 2024, and (iv) of 100% of principal if the redemption occurs on or after July 1, 2024.

12

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


Following a change of control, each holder of the 6.375% Senior Notes may require the Company to repurchase all or a portion of the 6.375% Senior Notes at a price of 101% of principal of the amount repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

6.125% senior unsecured notes due 2024 (“6.125% Senior Notes”)

On October 3, 2016, the Company issued $400,000 aggregate principal amount of 6.125% Senior Notes with a maturity date of October 1, 2024 and interest payable semi-annually beginning on April 1, 2017. The net proceeds of the offering, after deducting initial purchasers’ discounts and estimated offering expenses, were approximately $391,270. The 6.125% Senior Notes are guaranteed on a senior unsecured basis by the Company’s wholly-owned subsidiary, Callon Petroleum Operating Company, and may be guaranteed by certain future subsidiaries. The subsidiary guarantor is 100% owned, all of the guarantees are full and unconditional and joint and several, the parent company has no independent assets or operations and any subsidiaries of the parent company other than the subsidiary guarantor are minor.

On May 19, 2017, the Company issued an additional $200,000 aggregate principal amount of its 6.125% Senior Notes which with the existing $400,000 aggregate principal amount of 6.125% Senior Notes are treated as a single class of notes under the indenture. The net proceeds of the offering, including a premium issue price of 104.125% and after deducting initial purchasers’ discounts and estimated offering expenses, were approximately $206,139. The Company used the proceeds, in part, to fund an acquisition completed on June 5, 2017 (discussed further in Note 3) and for general corporate purposes.

The Company may redeem the 6.125% Senior Notes in accordance with the following terms: (1) prior to October 1, 2019, a redemption of up to 35% of the principal in an amount not greater than the net proceeds from certain equity offerings, and within 180 days of the closing date of such equity offerings, at a redemption price of 106.125% of principal, plus accrued and unpaid interest, if any, to the date of the redemption, if at least 65% of the principal will remain outstanding after such redemption; (2) prior to October 1, 2019, a redemption of all or part of the principal at a price of 100% of principal of the amount redeemed, plus an applicable make-whole premium and accrued and unpaid interest, if any, to the date of the redemption; and (3) a redemption, in whole or in part, at a redemption price, plus accrued and unpaid interest, if any, to the date of the redemption, (i) of 104.594% of principal if the redemption occurs on or after October 1, 2019, but before October 1, 2020, and (ii) of 103.063% of principal if the redemption occurs on or after October 1, 2020, but before October 1, 2021, and (iii) of 101.531% of principal if the redemption occurs on or after October 1, 2021, but before October 1, 2022, and (iv) of 100% of principal if the redemption occurs on or after October 1, 2022.

Following a change of control, each holder of the 6.125% Senior Notes may require the Company to repurchase all or a portion of the 6.125% Senior Notes at a price of 101% of principal of the amount repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.

Restrictive covenants

The Company’s Credit Facility and the indentures governing its 6.125% and 6.375% Senior Notes contain various covenants including restrictions on additional indebtedness, payment of cash dividends and maintenance of certain financial ratios. The Company was in compliance with these covenants at September 30, 2018.

Note 6 - Derivative Instruments and Hedging Activities

Objectives and strategies for using derivative instruments

The Company is exposed to fluctuations in oil and natural gas prices received for its production. Consequently, the Company believes it is prudent to manage the variability in cash flows on a portion of its oil and natural gas production. The Company utilizes a mix of collars, swaps, put and call options and similar derivative financial instruments to manage fluctuations in cash flows resulting from changes in commodity prices. The Company does not use these instruments for speculative or trading purposes.

Counterparty risk and offsetting

The use of derivative instruments exposes the Company to the risk that a counterparty will be unable to meet its commitments. While the Company monitors counterparty creditworthiness on an ongoing basis, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, the Company may not realize the benefit of some of its derivative instruments under lower commodity prices while continuing to be obligated under higher commodity price contracts subject to any right

13

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

of offset under the agreements. Counterparty credit risk is considered when determining the fair value of a derivative instrument; see Note 7 for additional information regarding fair value.

The Company executes commodity derivative contracts under master agreements with netting provisions that provide for offsetting assets against liabilities. In general, if a party to a derivative transaction incurs an event of default, as defined in the applicable agreement, the other party will have the right to demand the posting of collateral, demand a cash payment transfer or terminate the arrangement.
 
Financial statement presentation and settlements

Settlements of the Company’s derivative instruments are based on the difference between the contract price or prices specified in the derivative instrument and a benchmark price, such as the NYMEX price. To determine the fair value of the Company’s derivative instruments, the Company utilizes present value methods that include assumptions about commodity prices based on those observed in underlying markets. See Note 7 for additional information regarding fair value.

Derivatives not designated as hedging instruments

The Company records its derivative contracts at fair value in the consolidated balance sheets and records changes in fair value as a gain or loss on derivative contracts in the consolidated statements of operations. Settlements are also recorded as a gain or loss on derivative contracts in the consolidated statements of operations.

The following table reflects the fair value of the Company’s derivative instruments for the periods presented: 
 
 
Balance Sheet Presentation
 
Asset Fair Value
 
Liability Fair Value
 
Net Derivative Fair Value
Commodity
 
Classification
 
Line Description
 
9/30/2018
 
12/31/2017
 
9/30/2018
 
12/31/2017
 
9/30/2018
 
12/31/2017
Natural gas
 
Current
 
Fair value of derivatives
 
$
750

 
$
406

 
$
(21
)
 
$

 
$
729

 
$
406

Natural gas
 
Non-current
 
Fair value of derivatives
 

 

 
(1,299
)
 

 
(1,299
)
 

Oil
 
Current
 
Fair value of derivatives
 
3,539

 

 
(47,146
)
 
(27,744
)
 
(43,607
)
 
(27,744
)
Oil
 
Non-current
 
Fair value of derivatives
 

 

 
(14,141
)
 
(1,284
)
 
(14,141
)
 
(1,284
)
   Totals
 
 
 
 
 
$
4,289

 
$
406

 
$
(62,607
)
 
$
(29,028
)
 
$
(58,318
)
 
$
(28,622
)

As previously discussed, the Company’s derivative contracts are subject to master netting arrangements. The Company’s policy is to present the fair value of derivative contracts on a net basis in the consolidated balance sheet. The following presents the impact of this presentation to the Company’s recognized assets and liabilities for the periods indicated:
 
September 30, 2018
 
Presented without
 
 
 
As Presented with
 
Effects of Netting
 
Effects of Netting
 
Effects of Netting
Current assets: Fair value of derivatives
$
16,157

 
$
(11,868
)
 
$
4,289

Long-term assets: Fair value of derivatives
2,786

 
(2,786
)
 

 
 
 
 
 
 
Current liabilities: Fair value of derivatives
$
(59,035
)
 
$
11,868

 
$
(47,167
)
Long-term liabilities: Fair value of derivatives
(18,226
)
 
2,786

 
(15,440
)

 
December 31, 2017
 
Presented without
 
 
 
As Presented with
 
Effects of Netting
 
Effects of Netting
 
Effects of Netting
Current assets: Fair value of derivatives
$
406

 
$

 
$
406

 
 
 
 
 
 
Current liabilities: Fair value of derivatives
$
(27,744
)
 
$

 
$
(27,744
)
Long-term liabilities: Fair value of derivatives
(1,284
)
 

 
(1,284
)


14

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

For the periods indicated, the Company recorded the following related to its derivatives in the consolidated statement of operations as gain or loss on derivative contracts:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Oil derivatives
 
 
 
 
 
 
 
 
Net loss on settlements
 
$
(9,306
)
 
$
(1,373
)
 
$
(26,353
)
 
$
(4,213
)
Net gain (loss) on fair value adjustments
 
(24,476
)
 
(12,811
)
 
(28,720
)
 
14,584

Total gain (loss) on oil derivatives
 
$
(33,782
)
 
$
(14,184
)
 
$
(55,073
)
 
$
10,371

Natural gas derivatives
 
 
 
 
 
 
 
 
Net gain on settlements
 
$
67

 
$
159

 
$
675

 
$
241

Net gain (loss) on fair value adjustments
 
(624
)
 
(137
)
 
(976
)
 
1,024

Total gain (loss) on natural gas derivatives
 
$
(557
)
 
$
22

 
$
(301
)
 
$
1,265

 
 
 
 
 
 
 
 
 
Total gain (loss) on oil & natural gas derivatives
 
$
(34,339
)
 
$
(14,162
)
 
$
(55,374
)
 
$
11,636



15

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

Derivative positions

Listed in the tables below are the outstanding oil and natural gas derivative contracts as of September 30, 2018:  
 
For the Remainder
 
For the Full Year
 
For the Full Year
Oil contracts (WTI)
of 2018
 
of 2019
 
of 2020
Swap contracts
 
 
 
 
 
Total volume (Bbls)
552,000

 

 

Weighted average price per Bbl
$
52.07

 
$

 
$

Collar contracts (two-way collars)
 
 
 
 
 
Total volume (Bbls)
92,000

 
1,095,000

 

Weighted average price per Bbl
 
 
 
 
 
Ceiling (short call)
$
60.50

 
$
80.00

 
$

Floor (long put)
$
50.00

 
$
65.00

 
$

Collar contracts combined with short puts (three-way collars)
 
 
 
 
 
Total volume (Bbls)
874,000

 
3,469,000

 

Weighted average price per Bbl
 
 
 
 
 
Ceiling (short call option)
$
60.86

 
$
63.71

 
$

Floor (long put option)
$
48.95

 
$
53.95

 
$

Short put option
$
39.21

 
$
43.95

 
$

Puts
 
 
 
 
 
   Total volume (Bbls)
276,000

 
1,825,000

 

   Weighted average price per Bbl
$
65.00

 
$
65.00

 
$

 
 
 
 
 
 
Oil contracts (Midland basis differential)
 
 
 
 
 
Swap contracts
 
 
 
 
 
Total volume (Bbls)
1,518,000

 
4,746,500

 
4,024,000

Weighted average price per Bbl
$
(5.30
)
 
$
(4.72
)
 
$
(1.51
)
 
 
 
 
 
 
Natural gas contracts (Henry Hub)
 
 
 
 
 
Swap contracts
 
 
 
 
 
   Total volume (MMBtu)
1,380,000

 

 

   Weighted average price per MMBtu
$
2.91

 
$

 
$

Collar contracts (two-way collars)
 
 
 
 
 
   Total volume (MMBtu)
552,000

 
2,372,500

 

   Weighted average price per MMBtu
 
 
 
 
 
      Ceiling (short call)
$
3.19

 
$
2.95

 
$

      Floor (long put)
$
2.75

 
$
2.65

 
$

 
 
 
 
 
 
Natural gas contracts (Waha basis differential)
 
 
 
 
 
Swap contracts
 
 
 
 
 
   Total volume (MMBtu)
552,000

 
5,840,000

 
2,196,000

   Weighted average price per MMBtu
$
(1.14
)
 
$
(1.21
)
 
$
(1.14
)


16

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

Subsequent Event

The following derivative contracts were executed subsequent to September 30, 2018:


For the Remainder
 
For the Full Year
 
For the Full Year
 
of 2018
 
of 2019
 
of 2020
Natural gas contracts (Henry Hub)
 
 
 
 
 
Collar contracts (two-way collars)
 
 
 
 
 
   Total volume (MMBtu)

 
1,355,000

 

Weighted average price per MMBtu
 
 
 
 
 
      Ceiling (short call)

 
$
3.45

 

      Floor (long put)

 
$
2.83

 

 
 
 
 
 
 
Natural gas contracts (Waha basis differential)
 
 
 
 
 
Swap contracts
 
 
 
 
 
   Total volume (MMBtu)

 
3,650,000

 

   Weighted average price per MMBtu

 
$
(1.30
)
 


Note 7 - Fair Value Measurements

The fair value hierarchy included in GAAP gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable, and these valuations have the lowest priority.

Fair value of financial instruments

Cash, cash equivalents, and restricted investments. The carrying amounts for these instruments approximated fair value due to the short-term nature or maturity of the instruments.

Debt. The carrying amount of the Company’s floating-rate debt approximated fair value because the interest rates were variable and reflective of market rates.
 
 
September 30, 2018
 
December 31, 2017
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Credit Facility (a)
 
$
65,000

 
$

 
$
25,000

 
$

6.125% Senior Notes (b)
 
595,729

 
610,500

 
595,196

 
618,000

6.375% Senior Notes (b)
 
392,799

 
409,000

 

 

Total
 
$
1,053,528

 
$
1,019,500

 
$
620,196

 
$
618,000


(a)
Floating-rate debt.
(b)
The fair value was based upon Level 2 inputs. See Note 5 for additional information about the Company’s 6.125% and 6.375% Senior Notes.

Assets and liabilities measured at fair value on a recurring basis

Certain assets and liabilities are reported at fair value on a recurring basis in the consolidated balance sheet. The following methods and assumptions were used to estimate fair value:

Commodity derivative instruments. The fair value of commodity derivative instruments is derived using an income approach valuation model that utilizes market-corroborated inputs that are observable over the term of the derivative contract. The Company’s fair value calculations also incorporate an estimate of the counterparties’ default risk for derivative assets and an estimate of the Company’s default risk for derivative liabilities. The Company believes that the majority of the inputs used to calculate the commodity derivative instruments fall within Level 2 of the fair value hierarchy based on the wide availability of quoted market prices for similar commodity derivative contracts. See Note 6 for additional information regarding the Company’s derivative instruments.
 

17

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

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis:
September 30, 2018
 
Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
 
Fair value of derivatives
 
$

 
$
4,289

 
$

 
$
4,289

Liabilities
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
 
Fair value of derivatives
 

 
(62,607
)
 

 
(62,607
)
Total net liabilities
 
 
 
$

 
$
(58,318
)
 
$

 
$
(58,318
)
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
 
Fair value of derivatives
 
$

 
$
406

 
$

 
$
406

Liabilities
 
 
 
 
 
 
 
 
 
 
Derivative financial instruments
 
Fair value of derivatives
 

 
(29,028
)
 

 
(29,028
)
Total net liabilities
 
 
 
$

 
$
(28,622
)
 
$

 
$
(28,622
)

Assets and liabilities measured at fair value on a nonrecurring basis

Acquisitions. The Company determines the fair value of the assets acquired and liabilities assumed using the income approach based on expected discounted future cash flows from estimated reserve quantities, costs to produce and develop reserves, and oil and natural gas forward prices. The future net revenues are discounted using a weighted average cost of capital. The discounted future net revenues of proved undeveloped and probable reserves are reduced by an additional reserve adjustment factor to compensate for the inherent risk of estimating the value of unevaluated properties. The fair value measurements are based on Level 2 and Level 3 inputs.

Note 8 - Income Taxes

The Company provides for income taxes at the statutory rate of 21%. The statutory rate is adjusted for permanent differences expected to be realized, which primarily relate to non-deductible executive compensation expenses, restricted stock windfalls and shortfalls, and state income taxes.

As a result of the write-down of oil and natural gas properties in the latter part of 2015 and the first half of 2016, the Company incurred a cumulative three year loss. Because of the impact the cumulative loss has on the determination of the recoverability of deferred tax assets through future earnings, the Company assessed the ability to realize its deferred tax assets based on the future reversals of existing deferred tax liabilities. Accordingly, the Company established a full valuation allowance for the net U.S. federal deferred tax asset in 2015. In subsequent periods where the Company has recorded pre-tax income, it has reversed a portion of the U.S. federal valuation allowance, net of discrete items, to the extent necessary to offset U.S. federal income tax expense on pre-tax income recorded for the period. Income tax expense recorded in this period primarily relates to deferred State of Texas gross margin tax. The valuation allowance was $30,281 as of September 30, 2018

Note 9 - Asset Retirement Obligations

The table below summarizes the activity for the Company’s ARO:
 
Nine Months Ended
 
September 30, 2018
Asset retirement obligations at January 1, 2018
$
6,020

Accretion expense
626

Liabilities incurred
729

Liabilities settled
(989
)
Sales
(612
)
Revisions to estimate (a)
4,118

Asset retirement obligations at end of period
9,892

Less: Current asset retirement obligations
(4,464
)
Long-term asset retirement obligations at September 30, 2018
$
5,428


(a)
Revisions to estimated ARO obligations can result from changes in retirement cost estimates, revisions to estimated inflation rates and changes in the estimated timing of abandonment.


18

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

Certain of the Company’s operating agreements require that assets be restricted for abandonment obligations. Amounts recorded in the consolidated balance sheet at September 30, 2018 as long-term restricted investments were $3,413. These assets, which primarily include short-term U.S. Government securities, are held in abandonment trusts dedicated to pay future abandonment costs for several of the Company’s oil and natural gas properties.

Note 10 - Equity Transactions

10% Series A Cumulative Preferred Stock (“Preferred Stock”)

Holders of the Company’s Preferred Stock are entitled to receive, when, as and if declared by the Company’s Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends at a rate of 10.0% per annum of the $50.00 liquidation preference per share (equivalent to $5.00 per annum per share). Dividends are payable quarterly in arrears on the last day of each March, June, September and December when, as and if declared by the Company’s Board of Directors. Preferred Stock dividends were $1,823 and $1,824 for the three months ended September 30, 2018 and 2017, respectively. Preferred Stock dividends of $5,471 for the nine months ended September 30, 2018 remained consistent compared to the same period of 2017.

The Preferred Stock has no stated maturity and is not subject to any sinking fund or other mandatory redemption. The Company may, at its option, redeem the Preferred Stock, in whole or in part, at any time on or after May 30, 2018, by paying $50.00 per share, plus any accrued and unpaid dividends to the redemption date.

Following a change of control in which the Company or the acquirer no longer have a class of common securities listed on a national exchange, the Company will have the option to redeem the Preferred Stock, in whole but not in part, for $50.00 per share in cash plus accrued and unpaid dividends (whether or not declared) to the redemption date. If the Company does not exercise its option to redeem the Preferred Stock upon such change of control, the holders of the Preferred Stock have the option to convert the Preferred Stock into a number of shares of the Company’s common stock based on the value of the common stock on the date of the change of control as determined under the certificate of designations for the Preferred Stock. If the change of control occurred on September 30, 2018, and the Company did not exercise its right to redeem the Preferred Stock, using the closing price of $11.99 as the value of a share of common stock, each share of Preferred Stock would be convertible into approximately 4.2 shares of common stock. If the Company exercises its redemption rights relating to shares of Preferred Stock, the holders of Preferred Stock will not have the conversion right described above.

Common stock  

On May 30, 2018, the Company completed an underwritten public offering of 25,300,000 shares of its common stock for total estimated net proceeds (after the underwriter’s discounts and estimated offering costs) of approximately $288,364. The Company used proceeds from the offering to partially fund the Cimarex Asset Acquisition completed in the third quarter, described in Note 3.

On December 19, 2016, the Company completed an underwritten public offering of 40,000,000 shares of its common stock for total estimated net proceeds (after the underwriter’s discounts and estimated offering expenses) of approximately $634,934. Proceeds from the offering were used to substantially fund the Ameredev Transaction, described in Note 3.

Note 11 - Other

Operating leases

As of September 30, 2018 the Company had contracts for five horizontal drilling rigs. The contract terms, as amended effective as of July 9, 2018, will end on various dates between July 2019 and February 2021. All of the drilling rig contracts provide for early termination, with penalties calculated at a reduced daily rate. In the event that Callon terminated all five drilling contracts as of November 6, 2018, the Company would owe a maximum of $26,696 over the remaining terms of the respective contracts, offset by any revenues earned for replacement work subsequently secured by the contractor. Management does not currently anticipate the early termination of any drilling rig contracts.

Other commitments

In March 2018, the Company entered into a contract for dedicated fracturing and pump down perforating crews, which was effective on April 16, 2018 for a two-year period. The agreement was amended effective October 16, 2018 to reflect updated market conditions and to extend the contract expiration date to December 31, 2021.

In August 2018, the Company executed a firm transportation agreement for dedicated capacity on a new pipeline system that will connect with a regional gathering system which currently transports oil volumes under long-term agreements from our properties in Howard,

19

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

Ward, Reagan and Upton counties to multiple marketing points in the Permian Basin. Subject to completion of the new pipeline system, which will have delivery points in several locations along the Gulf Coast, we will have a long-term commitment that will apply applicable tariff rates to our 15,000 Bbls per day commitment for the term of the agreement. Barrels may be transported to multiple delivery points along the Gulf Coast and may include volumes produced by us and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf.


20

Callon Petroleum Company
 

Special Note Regarding Forward Looking Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements in this Form 10-Q by words such as “anticipate,” “project,” “intend,” “estimate,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “plan,” “forecast,” “target” or similar expressions.

All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements, including such things as:
our oil and gas reserve quantities, and the discounted present value of these reserves;
the amount and nature of our capital expenditures;
our future drilling and development plans and our potential drilling locations;
the timing and amount of future production and operating costs;
commodity price risk management activities and the impact on our average realized prices;
business strategies and plans of management;
our ability to consummate and efficiently integrate recent acquisitions;
prospect development and property acquisitions; and
the expected impact of the Tax Cuts and Jobs Act of 2017.

Some of the risks, which could affect our future results and could cause results to differ materially from those expressed in our forward-looking statements, include:
general economic conditions including the availability of credit and access to existing lines of credit;
the volatility of oil and natural gas prices;
the uncertainty of estimates of oil and natural gas reserves;
risks associated with acquisitions, including liabilities associated with acquired properties or businesses and the ability to realize expected benefits;
impairments;
the impact of competition;
the availability and cost of seismic, drilling and other equipment, water, and personnel;
operating hazards inherent in the exploration for and production of oil and natural gas;
difficulties encountered during the exploration for and production of oil and natural gas;
difficulties encountered in delivering oil and natural gas to commercial markets, including the potential for capacity constraints in pipeline systems;
changes in customer demand and producers’ supply;
the uncertainty of our ability to attract capital and obtain financing on favorable terms;
compliance with, or the effect of changes in, the extensive governmental regulations regarding the oil and natural gas business including those related to climate change and greenhouse gases;
the impact of government regulation, including regulation of hydraulic fracturing and water disposal wells;
any increase in severance or similar taxes;
the financial impact of accounting regulations and critical accounting policies;
the comparative cost of alternative fuels;
credit risk relating to the risk of loss as a result of non-performance by our counterparties;
cyberattacks on the Company or on systems and infrastructure used by the oil and gas industry;
weather conditions; and
any other factors listed in the reports we have filed and may file with the SEC.

We caution you that the forward-looking statements contained in this Form 10-Q are subject to all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and sale of oil and natural gas. These risks include, but are not limited to, the risks described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report on Form 10-K”), and all quarterly reports on Form 10-Q filed subsequently thereto.

Should one or more of the risks or uncertainties described herein or in our 2017 Annual Report on Form 10-K occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages.

All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

21

Callon Petroleum Company
Management’s Discussion and Analysis of Financial Condition and Results


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following management’s discussion and analysis describes the principal factors affecting the Company’s results of operations, liquidity, capital resources and contractual cash obligations. This discussion should be read in conjunction with the accompanying unaudited consolidated financial statements and our 2017 Annual Report on Form 10-K, which include additional information about our business practices, significant accounting policies, risk factors, and the transactions that underlie our financial results. Our website address is www.callon.com. All of our filings with the SEC are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC. Information on our website does not form part of this report on Form 10-Q.

We are an independent oil and natural gas company established in 1950, focused on the acquisition, development, exploration and exploitation 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. We have historically been focused on the Midland Basin and more recently entered the Delaware Basin through an acquisition completed in February 2017. Our operating culture is centered on responsible development of hydrocarbon resources, with a particular focus on safety and the environment, which we believe strengthens our operational performance. Our operational performance is enhanced by the empowerment of our employees. Our drilling activity is predominantly focused on the horizontal development of several prospective intervals, including multiple levels of the Wolfcamp formation and the Lower Spraberry shales. We have assembled a multi-year inventory of potential horizontal well locations and intend to add to this inventory through delineation drilling of emerging zones on our existing acreage and acquisition of additional locations through working interest acquisitions, leasing programs, acreage purchases, joint ventures and asset swaps. Our production was approximately 77% oil and 23% natural gas for the nine months ended September 30, 2018. On September 30, 2018, our net acreage position in the Permian Basin was approximately 87,000 net acres.

Acquisition Highlights

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 $539.5 million, including customary purchase price adjustments (the “Cimarex Asset Acquisition”). The Company issued debt and equity to fund, in part, the Cimarex Asset Acquisition. See Notes 3, 5, and 10 in the Footnotes to the Financial Statements for additional information regarding the Company’s acquisitions, debt obligations, and equity offerings.

Operational Highlights

All of our producing properties are located in the Permian Basin. As a result of our acquisitions and horizontal development efforts, our production grew 55% and 39% for the three and nine months ended September 30, 2018, compared to the same periods of 2017, respectively. Production increased to 3,212 MBOE for the three months ended September 30, 2018 from 2,074 MBOE for the three months ended September 30, 2017 and increased to 8,238 MBOE for the nine months ended September 30, 2018 from 5,934 MBOE for the nine months ended September 30, 2017.

For the three months ended September 30, 2018, we drilled 19 gross (15.2 net) horizontal wells and completed 19 gross (14.6 net) horizontal wells. For the nine months ended September 30, 2018, we drilled 53 gross (42.2 net) horizontal wells and completed 46 gross (36.3 net) horizontal wells. As of September 30, 2018, we had 12 gross (10.0 net) horizontal wells awaiting completion.

As of September 30, 2018, we had 846 gross (641.6 net) working interest oil wells, three gross (0.1 net) royalty interest oil wells and no natural gas wells. A well is categorized as an oil well or a natural gas well based upon the ratio of oil to natural gas reserves on a BOE basis. However, most of our wells produce both oil and natural gas.

Liquidity and Capital Resources

Historically, our primary sources of capital have been cash flows from operations, borrowings from financial institutions, the sale of debt and equity securities, and non-core asset dispositions. Our primary uses of capital have been for the acquisition, development, exploration and exploitation of oil and natural gas properties, in addition to refinancing of debt instruments. We continue to evaluate other sources of capital to complement our cash flow from operations and as we pursue our long-term growth plans.

As of September 30, 2018, we had $65 million principal outstanding on our Credit Facility, which had a borrowing base of $1.1 billion with an elected commitment of $850 million. At period ended September 30, 2018, we held cash and cash equivalents of $12.1 million as compared to $28.0 million at year ended December 31, 2017.


22

Callon Petroleum Company
Management’s Discussion and Analysis of Financial Condition and Results


Liquidity and cash flow
 
 
Nine Months Ended September 30,
(in thousands)
 
2018
 
2017
Net cash provided by operating activities
 
$
316,015

 
$
149,705

Net cash used in investing activities
 
(1,043,010
)
 
(935,584
)
Net cash provided by financing activities
 
711,129

 
194,495

   Net change in cash and cash equivalents
 
$
(15,866
)
 
$
(591,384
)

Operating activities. For the nine months ended September 30, 2018, net cash provided by operating activities was $316.0 million compared to net cash provided by operating activities of $149.7 million for the same period in 2017. The change was predominantly attributable to the following:

An increase in revenue;
A decrease on settlements of derivative contracts;
An increase in certain operating expenses related to acquired properties;  
An decrease in payments in cash-settled restricted stock unit (“RSU”) awards; and
A change related to the timing of working capital payments and receipts.

Production, realized prices, and operating expenses are discussed below in Results of Operations. See Notes 6 and 7 in the Footnotes to the Financial Statements for a reconciliation of the components of the Company’s derivative contracts and disclosures related to derivative instruments including their composition and valuation. 

Investing activities. For the nine months ended September 30, 2018, net cash used in investing activities was $1.0 billion compared to $935.6 million for the same period in 2017. The change was predominantly attributable to the following:

A $178.9 million increase in operational expenditures due to the transition from a three-rig program in the second quarter 2017 to a five-rig program commencing February 2018; and
An $80.7 million decrease in acquisition activity, net of proceeds from sale of assets. See Note 3 in the Footnotes to the Financial Statements for additional information on the Company’s acquisitions.

Our investing activities, on a cash basis, include the following for the periods indicated (in thousands):
 
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
$ Change
Operational expenditures
 
$
411,109

 
$
232,169

 
$
178,940

Seismic, leasehold and other
 
7,137

 
11,379

 
(4,242
)
Capitalized general and administrative costs
 
16,544

 
11,913

 
4,631

Capitalized interest
 
20,562

 
11,757

 
8,805

   Total capital expenditures(a)
 
455,352

 
267,218

 
188,134

 
 
 
 
 
 
 
Acquisitions
 
595,984

 
714,504

 
(118,520
)
Acquisition deposits
 

 
(46,138
)
 
46,138

Proceeds from sale of assets
 
(8,326
)
 

 
(8,326
)
   Total investing activities
 
$
1,043,010

 
$
935,584

 
$
107,426


(a)
On an accrual (GAAP) basis, which is the methodology used for establishing our annual capital budget, operational expenditures for the nine months ended September 30, 2018 were $435.1 million. Inclusive of seismic, leasehold and other, capitalized general and administrative, and capitalized interest costs, total capital expenditures for the nine months ended September 30, 2018 were $500.7 million.

General and administrative expenses and capitalized interest are discussed below in Results of Operations. See Note 3 in the Footnotes to the Financial Statements for additional information on acquisitions.

Financing activities. We finance a portion of our working capital requirements, capital expenditures and acquisitions with borrowings under our Credit Facility, term debt and equity offerings. For the nine months ended September 30, 2018, net cash provided by financing activities was $711.1 million compared to net cash provided by financing activities of $194.5 million for the same period of 2017. The change was predominantly attributable to the following:

An increase in proceeds from a common stock offering in 2018 that raised $288.4 million as compared to no offerings in 2017;

23

Callon Petroleum Company
Management’s Discussion and Analysis of Financial Condition and Results


A $200.0 million increase in net borrowings on fixed-rate debt, resulting from the issuances of $400 million of 6.375% Senior Notes in 2018 as compared to $200 million of 6.125% Senior Notes in 2017; and
A $40.0 million increase in net borrowings on our Credit Facility in 2018.

Net cash provided by financing activities includes the following for the periods indicated (in thousands):

Nine Months Ended September 30, 2018

2018
 
2017
 
$ Change
Net borrowings on senior secured revolving credit facility
$
40,000

 
$

 
$
40,000

Issuance of 6.125% senior unsecured notes due 2024

 
200,000

 
(200,000
)
Premium on the issuance of 6.125% senior unsecured notes due 2024

 
8,250

 
(8,250
)
Issuance of 6.375% senior unsecured notes due 2026
400,000

 

 
400,000

Issuance of common stock
288,364

 

 
288,364

Payment of preferred stock dividends
(5,471
)
 
(5,471
)
 

Payment of deferred financing costs
(9,960
)
 
(7,166
)
 
(2,794
)
Tax withholdings related to restricted stock units
(1,804
)
 
(1,118
)
 
(686
)
Net cash provided by financing activities
$
711,129

 
$
194,495

 
$
516,634


See Notes 5 and 10 in the Footnotes to the Financial Statements for additional information on our debt and equity transactions.

Capital Plan and Year to Date 2018 Summary

Operational capital expenditures, including other items, on an accrual basis were $442.2 million for the nine months ended September 30, 2018. In addition to the operational capital expenditures, $19.9 million of capitalized general and administrative and $38.7 million of capitalized interest expenses were accrued in the nine months ended September 30, 2018. As of September 30, 2018, we have placed 48 gross (36.5 net) horizontal wells on production. Our operational capital budget for 2018 was revised to approximately $560 million.

Our revenues, earnings, liquidity and ability to grow are substantially dependent on the prices we receive for, and our ability to develop our reserves of oil and natural gas. We believe the long-term outlook for our business is favorable due to our resource base, low cost structure, financial strength, risk management, including commodity hedging strategy, and disciplined investment of capital. We monitor current and expected market conditions, including the commodity price environment, and our liquidity needs and may adjust our capital investment plan accordingly.


24

Callon Petroleum Company
Management’s Discussion and Analysis of Financial Condition and Results


Results of Operations

The following table sets forth certain operating information with respect to the Company’s oil and natural gas operations for the periods indicated: 
 
 
Three Months Ended September 30,
 
 
2018
 
2017
 
Change
 
% Change
Net production
 
 
 
 
 
 
 
 
Oil (MBbls)
 
2,521

 
1,591

 
930

 
58
 %
Natural gas (MMcf)
 
4,144

 
2,900

 
1,244

 
43
 %
   Total (MBOE)
 
3,212

 
2,074

 
1,138

 
55
 %
Average daily production (BOE/d)
 
34,913

 
22,543

 
12,370

 
55
 %
   % oil (BOE basis)
 
78
%
 
77
%
 
  
 
  
Average realized sales price
(excluding impact of settled derivatives):
 
 
 
  
 
  
 
  
   Oil (Bbl)
 
$
56.57

 
$
46.10

 
$
10.47

 
23
 %
   Natural gas (Mcf)
 
4.49

 
3.88

 
0.61

 
16
 %
   Total (BOE)
 
50.19

 
40.80

 
9.39

 
23
 %
Average realized sales price
(including impact of settled derivatives):
 
 
 
 
 
 
 
 
   Oil (Bbl)
 
$
52.87

 
$
45.24

 
$
7.63

 
17
 %
   Natural gas (Mcf)
 
4.51

 
3.94

 
0.57

 
14
 %
   Total (BOE)
 
47.31

 
40.21

 
7.10

 
18
 %
Oil and natural gas revenues
(in thousands)
 
  

 
  

 
  

 
  

   Oil revenue
 
$
142,601

 
$
73,349

 
$
69,252

 
94
 %
   Natural gas revenue
 
18,613

 
11,265

 
7,348

 
65
 %
      Total
 
$
161,214

 
$
84,614

 
$
76,600

 
91
 %
Additional per BOE data
 
  

 
 
 
  

 
  

   Sales price (a)
 
$
50.19

 
$
40.80

 
$
9.39

 
23
 %
      Lease operating expense (b)
 
5.77

 
5.08

 
0.69

 
14
 %
      Gathering and treating expense (c)
 

 
0.52

 
(0.52
)
 
(100
)%
      Production taxes
 
3.20

 
2.62

 
0.58

 
22
 %
   Operating margin
 
$
41.22

 
$
32.58

 
$
8.64

 
27
 %

(a)
Excludes the impact of settled derivatives.
(b)
Excludes gathering and treating expense.
(c)
On January 1, 2018, the Company adopted the revenue recognition accounting standard. Consequently, natural gas gathering and treating expenses for the three months ended September 30, 2018 were accounted for as a reduction to revenue. See Notes 1 and 2 in the Footnotes to the Financial Statements for additional information regarding revenue recognition and the treatment of gathering and treating expense.


25

Callon Petroleum Company
Management’s Discussion and Analysis of Financial Condition and Results


 
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
Change
 
% Change
Net production
 
 
 
 
 
 
 
 
Oil (MBbls)
 
6,368

 
4,621

 
1,747

 
38
 %
Natural gas (MMcf)
 
11,222

 
7,878

 
3,344

 
42
 %
   Total (MBOE)
 
8,238

 
5,934

 
2,304

 
39
 %
Average daily production (BOE/d)
 
30,176

 
21,736

 
8,440

 
39
 %
   % oil (BOE basis)
 
77
%
 
78
%
 
  
 
  
Average realized sales price
(excluding impact of settled derivatives)
 
 
 
  
 
  
 
  
   Oil (Bbl)
 
$
59.75

 
$
47.23

 
$
12.52

 
27
 %
   Natural gas (Mcf)
 
4.03

 
3.81

 
0.22

 
6
 %
   Total (BOE)
 
51.68

 
41.84

 
9.84

 
24
 %
Average realized sales price
(including impact of settled derivatives)
 
 
 
 
 
 
 
 
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