EX-99.1 3 exhibit991unauditedproform.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1

Callon Petroleum Company
Unaudited Pro Forma Consolidated Financial Information

On June 12, 2019, Callon Petroleum Operating Company, a wholly owned subsidiary of Callon Petroleum Company (the “Company”), completed its divestiture of certain non-core assets in the southern Midland Basin (the “Ranger Asset Divestiture”) to Sequitur Permian, LLC (the “Purchaser”) for net cash proceeds received at closing of $245 million, including customary purchase price adjustments. The transaction also provides for potential contingent consideration in payments of up to $60 million based on West Texas Intermediate average annual pricing over a three-year period. The divestiture encompasses the Ranger operating area in the southern Midland Basin which includes approximately 9,850 net Wolfcamp acres with an average 66% working interest.
The unaudited pro forma consolidated balance sheet is based on the historical financial statements of the Company, after giving effect to the Ranger Asset Divestiture as if it had occurred on March 31, 2019. The unaudited pro forma consolidated statements of operations for the three months ended March 31, 2019, and the year ended December 31, 2018, are based on the historical financial statements of the Company for such periods after giving effect to the Ranger Asset Divestiture as if it had occurred on January 1, 2018. Also included in the unaudited pro forma consolidated statement of operations for the year ended December 31, 2018, is the effect of the Delaware Asset Acquisition, completed in August of 2018, as if the transaction occurred on January 1, 2018. Please refer to the Company's Current Report on Form 8-K filed on April 5, 2019, for more information regarding the pro forma effects of the Delaware Asset Acquisition on the unaudited pro forma consolidated statement of operations for the year ended December 31, 2018.
The pro forma adjustments are based on available information and certain assumptions that the Company believes are reasonable as of the date of this Current Report on Form 8-K. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated financial statements. The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the results of operations of future periods or the results of operations that actually would have been realized had the Ranger Asset Divestiture been consummated on the dates or for the periods presented.
The unaudited pro forma consolidated financial statements should be read in conjunction with the Company's historical consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 27, 2019, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed on May 6, 2019.




Callon Petroleum Company
Unaudited Pro forma Consolidated Balance Sheet
As of March 31, 2019
($ in thousands, except share data)
 
Historical
 
Ranger Asset Divestiture
 
Pro forma
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 


   Cash and cash equivalents
$
10,482

 
$
244,935

(a)
$
255,417

   Accounts receivable
137,110

 
—

 
137,110

   Fair value of derivatives
11,372

 
3,853

(b)
15,225

   Other current assets
12,034

 
—

 
12,034

      Total current assets
170,998

 
248,788

 
419,786

Oil and natural gas properties, full cost accounting method:
 
 
 
 


   Evaluated properties
4,760,071

 
(238,409
)
(c)
4,521,662

   Less accumulated depreciation, depletion, amortization and impairment
(2,333,589
)
 
—

 
(2,333,589
)
   Evaluated oil and natural gas properties, net
2,426,482

 
(238,409
)
 
2,188,073

   Unevaluated properties
1,432,118

 
(23,539
)
(c)
1,408,579

   Total oil and natural gas properties, net
3,858,600

 
(261,948
)
 
3,596,652

Operating lease right-of-use assets
40,977

 
—

 
40,977

Other property and equipment, net
22,413

 
—

 
22,413

Restricted investments
3,450

 
—

 
3,450

Deferred financing costs
5,742

 
—

 
5,742

Fair value of derivatives
385

 
11,617

(b)
12,002

Other assets, net
6,269

 
—

 
6,269

   Total assets
$
4,108,834

 
$
(1,543
)
 
$
4,107,291

LIABILITIES AND STOCKHOLDERS’ EQUITY


 


 


Current liabilities:
 
 
 
 


   Accounts payable and accrued liabilities
$
230,990

 
$
—

 
$
230,990

   Operating lease liabilities
29,134

 
—

 
29,134

   Accrued interest
25,920

 
—

 
25,920

   Cash-settleable restricted stock unit awards
1,060

 
—

 
1,060

   Asset retirement obligations
3,771

 
(673
)
(d)
3,098

   Fair value of derivatives
24,550

 
—

 
24,550

   Other current liabilities
8,512

 
—

 
8,512

      Total current liabilities
323,937

 
(673
)
 
323,264

Senior secured revolving credit facility
330,000

 
—

 
330,000

6.125% senior unsecured notes due 2024
595,971

 
—

 
595,971

6.375% senior unsecured notes due 2026
393,896

 
—

 
393,896

Operating lease liabilities
11,751

 
—

 
11,751

Asset retirement obligations
10,189

 
(870
)
(d)
9,319

Cash-settleable restricted stock unit awards
2,252

 
—

 
2,252

Deferred tax liability
4,415

 
—

 
4,415

Fair value of derivatives
6,983

 
—

 
6,983

Other long-term liabilities
995

 
—

 
995

   Total liabilities
1,680,389

 
(1,543
)
 
1,678,846

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; 227,884,091 shares outstanding
2,279

 
—

 
2,279

   Capital in excess of par value
2,481,879

 
—

 
2,481,879

   Accumulated deficit
(55,728
)
 
—

 
(55,728
)
      Total stockholders’ equity
2,428,445

 
—

 
2,428,445

Total liabilities and stockholders’ equity
$
4,108,834

 
$
(1,543
)
 
$
4,107,291




Callon Petroleum Company
Unaudited Pro forma Consolidated Statement of Operations
For the Three Months Ended March 31, 2019
(in thousands, except per share data)
 
Historical
 
Ranger Asset Divestiture
 
Pro forma Adjustments
 
Pro forma
Operating revenues:
 
 
 
 
 
 
 
Oil sales
$
141,098

 
$
(9,293
)
(a)
$
—

 
$
131,805

Natural gas sales
11,949

 
(2,203
)
(a)
—

 
9,746

Total operating revenues
153,047

 
(11,496
)
 
—

 
141,551

Operating expenses:
 
 
 
 
 
 
 
Lease operating expenses
24,067

 
(2,085
)
(a)
—

 
21,982

Production taxes
10,813

 
(846
)
(a)
—

 
9,967

Depreciation, depletion and amortization
59,767

 
—

 
(6,007
)
(b)
53,760

General and administrative
11,753

 
—

 
—

 
11,753

Settled share-based awards
3,024

 
—

 
—

 
3,024

Accretion expense
241

 
—

 
(28
)
(c)
213

Acquisition expense
157

 
—

 
—

 
157

Total operating expenses
109,822

 
(2,931
)
 
(6,035
)
 
100,856

Income (loss) from operations
43,225

 
(8,565
)
 
6,035

 
40,695

Other (income) expenses:
 
 
 
 
 
 

Interest expense, net
738

 
—

 
—

 
738

(Gain) loss on derivative contracts
67,260

 
—

 
—

 
67,260

Other income
(81
)
 
—

 
—

 
(81
)
Total other (income) expense
67,917

 
—

 
—

 
67,917

Income (loss) before income taxes
(24,692
)
 
(8,565
)
 
6,035

 
(27,222
)
Income tax (benefit) expense
(5,149
)
 
(1,799
)
(d)
1,267

(d)
(5,681
)
Net income (loss)
(19,543
)
 
(6,766
)
 
4,768

 
(21,541
)
Preferred stock dividends
(1,824
)
 
—

 
—

 
(1,824
)
Income (loss) available to common stockholders
$
(21,367
)
 
$
(6,766
)
 
$
4,768

 
$
(23,365
)
Income per common share:
 
 
 
 
 
 
 
Basic
$
(0.09
)
 
 
 
 
 
$
(0.10
)
Diluted
$
(0.09
)
 
 
 
 
 
$
(0.10
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
227,784

 
 
 
 
 
227,784

Diluted
227,784

 
 
 
 
 
227,784






Callon Petroleum Company
Unaudited Pro forma Consolidated Statement of Operations
For the Year Ended December 31, 2018
(in thousands, except per share data)
 
Historical
 
Delaware Asset Acquisition
 
Pro forma Adjustments
 
Ranger Asset Divestiture
 
Pro Forma Adjustments
 
Pro forma
Operating revenues:
 
 
 
 
 
 
 
 
 
 
 
Oil sales
$
530,898

 
$
80,330

(a)
$
—

 
$
(58,438
)
(b)
$
—

 
$
552,790

Natural gas sales
56,726

 
1,282

(a)
—

 
(15,569
)
(b)
—

 
42,439

Total operating revenues
587,624

 
81,612

 
—

 
(74,007
)
 
—

 
595,229

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Lease operating expenses
69,180

 
21,432

(a)
—

 
(11,006
)
(b)
—

 
79,606

Production taxes
35,755

 
3,926

(a)
—

 
(4,743
)
(b)
—

 
34,938

Depreciation, depletion and amortization
181,909

 
—

 
16,686

(a)
—

 
(27,358
)
(c)
171,237

General and administrative
35,293

 
—

 
—

 
—

 
—

 
35,293

Accretion expense
874

 
—

 
8

(a)
—

 
(82
)
(d)
800

Acquisition expense
5,083

 
—

 
(1,693
)
(a)
—

 
—

 
3,390

Total operating expenses
328,094

 
25,358

 
15,001

 
(15,749
)
 
(27,440
)
 
325,264

Income (loss) from operations
259,530

 
56,254

 
(15,001
)
 
(58,258
)
 
27,440

 
269,965

Other (income) expenses:
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
2,500

 
—

 
—

 
—

 
—

 
2,500

(Gain) loss on derivative contracts
(48,544
)
 
—

 
—

 
—

 
—

 
(48,544
)
Other income
(2,896
)
 
—

 
—

 
—

 
—

 
(2,896
)
Total other (income) expense
(48,940
)
 
—

 
—

 
—

 
—

 
(48,940
)
Income (loss) before income taxes
308,470

 
56,254

 
(15,001
)
 
(58,258
)
 
27,440

 
318,905

Income tax (benefit) expense
8,110

 
11,813

(e)
(3,150
)
(e)
(12,234
)
(e)
5,762

(e)
10,301

Net income (loss)
300,360

 
44,441

 
(11,851
)
 
(46,024
)
 
21,678

 
308,604

Preferred stock dividends
(7,295
)
 
—

 
—

 
—

 
—

 
(7,295
)
Income (loss) available to common stockholders
$
293,065

 
$
44,441

 
$
(11,851
)
 
$
(46,024
)
 
$
21,678

 
$
301,309

Income per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
1.35

 
 
 
 
 
 
 
 
 
$
1.39

Diluted
$
1.35

 
 
 
 
 
 
 
 
 
$
1.38

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
216,941

 
 
 
 
 
 
 
 
 
216,941

Diluted
217,596

 
 
 
 
 
 
 
 
 
217,596







Notes to the Unaudited Pro Forma Consolidated Financial Statements

Note 1 - Basis of Presentation

On June 12, 2019, Callon Petroleum Operating Company, a wholly owned subsidiary of Callon Petroleum Company, completed its divestiture of certain non-core assets to Sequitur Permian, LLC for net cash proceeds received at closing of $245 million, including customary purchase price adjustments. The transaction also provides for potential contingent consideration in payments of up to $60 million based on West Texas Intermediate average annual pricing over a three-year period.

The historical consolidated financial statements have been adjusted in the unaudited pro forma consolidated financial statements to give effect to pro forma adjustments that are directly attributable to the Ranger Asset Divestiture. The preparation of the unaudited pro forma consolidated financial statements is in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates that affect the reported amounts of revenues and expenses. Actual results could differ from those estimates. The unaudited consolidated pro forma financial statements are presented for illustrative purposes only and do not purport to represent the Company's financial position or what the actual results of operations would have been had the transaction occurred on the respective dates assumed, nor is it necessarily indicative of the Company's future operating results. However, the proforma adjustments reflected in the unaudited pro forma consolidates financial statements reflect estimates and assumptions that the Company's management believes to be reasonable. In the opinion of management, all adjustments necessary to present fairly the unaudited consolidated pro forma financial statements have been made.

Note 2 - Adjustments to the Unaudited Pro Forma Consolidated Financial Statements

Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2019
a.
Represents net cash proceeds received at closing of the Ranger Asset Divestiture. The effective date of the Divestiture was January 1, 2019; therefore, agreed upon purchase price adjustments related to the effective period are reflected as a pro forma adjustment to net cash proceeds.
b.
Represents the March 31, 2019 fair value of the contingent consideration payments derivative instrument, as provided in the purchase and sale agreement.
c.
To adjust capitalized oil and gas properties for the effects of the Ranger Asset Divestiture. The evaluated property full cost pool is reduced by the net consideration received, adjusted for the related unevaluated property costs, which were removed at historical cost basis, and removal of asset retirement obligations.
d.
To remove the asset retirement obligations associated with the Ranger Asset Divestiture.

Unaudited Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 2019
a.
To eliminate the historical revenues and direct operating expenses associated with the Ranger Asset Divestiture.
b.
To adjust depletion expense to give effect to the reduction of the full cost pool, oil and gas reserves, and production volumes as a result of the sale of the Ranger Asset Divestiture.
c.
To eliminate accretion expense attributable to asset retirement obligations associated with the Ranger Asset Divestiture.
d.
To adjust income tax expense for the effects of the pro forma adjustments, using the Company's current period effective tax rate of 21%.

Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2018
a.
Represents pro forma adjustments related to the Delaware Asset Acquisition to record (i) the historical revenues and direct operating expenses for the period from January 1, 2018 to September 1, 2018, the date the acquisition closed, (ii) the related depreciation, depletion, and amortization of capitalized costs and accretion of the asset retirement obligations, and (iii) a $1.7 million reduction in acquisition expenses incurred during the period that were directly attributable to the Delaware Asset Acquisition. Please refer to the Company's Current Report on Form 8-K filed on April 5, 2019, for more information regarding the pro forma effects of the Delaware Asset Acquisition for the unaudited pro forma consolidated statement of operations for the year ended December 31, 2018.
b.
To eliminate the historical revenues and direct operating expenses associated with the Ranger Asset Divestiture.
c.
To adjust depletion expense to give effect to the reduction of the full cost pool, oil and gas reserves, and production volumes as a result of the sale of the Ranger Asset Divestiture.
d.
To eliminate accretion expense attributable to asset retirement obligations associated with the Ranger Asset Divestiture.
e.
As of the beginning of 2018, the Company had a valuation allowance against all of its federal deferred tax assets.  The Company’s historical operations generated sufficient pretax book earnings in 2018 to justify fully removing the valuation allowance. As such, the net increase to income before income taxes from the combined pro forma adjustments of the Delaware Asset Acquisition and Ranger Asset Divestiture is tax effected at the federal statutory rate of 21%.