SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q |
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☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For The Quarterly Period Ended March 31, 2016
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
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Callon Petroleum Company
(Exact Name of Registrant as Specified in Its Charter)
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Delaware (State or Other Jurisdiction of Incorporation or Organization) |
64-0844345 (IRS Employer Identification No.) |
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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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer |
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Accelerated filer |
☒ |
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Non-accelerated filer |
☐ |
(Do not check if smaller reporting company) |
Smaller reporting company |
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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 121,402,778 shares of common stock outstanding as of April 29, 2016.
Part I. Financial Information |
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Item 1. Financial Statements (Unaudited) |
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5 |
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6 |
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7 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
27 |
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28 |
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Part II. Other Information |
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29 |
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29 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
30 |
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30 |
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30 |
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30 |
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31 |
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2
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:
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ARO: asset retirement obligation. |
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Bbl or Bbls: barrel or barrels of oil or natural gas liquids. |
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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. |
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BBtu: billion Btu. |
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BOE/d: BOE per day. |
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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. |
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LIBOR: London Interbank Offered Rate. |
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LOE: lease operating expense. |
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MBbls: thousand barrels of oil. |
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MBOE: thousand BOE. |
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Mcf: thousand cubic feet of natural gas. |
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MMBtu: million Btu. |
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MMcf: million cubic feet of natural gas. |
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NGL or NGLs: natural gas liquids, such as ethane, propane, butanes and natural gasoline that are extracted from natural gas production streams. |
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NYMEX: New York Mercantile Exchange. |
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Oil: includes crude oil and condensate. |
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SEC: United States Securities and Exchange Commission. |
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GAAP: Generally Accepted Accounting Principles in the United States. |
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
Item I. Financial Statements
Callon Petroleum Company
Consolidated Balance Sheets
(in thousands, except par and per share values and share data)
March 31, 2016 |
December 31, 2015 |
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ASSETS |
Unaudited |
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Current assets: |
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Cash and cash equivalents |
$ |
9,511 |
$ |
1,224 | |
Accounts receivable |
33,683 | 39,624 | |||
Fair value of derivatives |
15,585 | 19,943 | |||
Other current assets |
881 | 1,461 | |||
Total current assets |
59,660 | 62,252 | |||
Oil and natural gas properties, full cost accounting method: |
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Evaluated properties |
2,390,105 | 2,335,223 | |||
Less accumulated depreciation, depletion, amortization and impairment |
(1,806,509) | (1,756,018) | |||
Net oil and natural gas properties |
583,596 | 579,205 | |||
Unevaluated properties |
129,211 | 132,181 | |||
Total oil and natural gas properties |
712,807 | 711,386 | |||
Other property and equipment, net |
9,757 | 7,700 | |||
Restricted investments |
3,315 | 3,309 | |||
Deferred financing costs |
3,359 | 3,642 | |||
Other assets, net |
366 | 305 | |||
Total assets |
$ |
789,264 |
$ |
788,594 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
$ |
62,536 |
$ |
70,970 | |
Accrued interest |
5,879 | 5,989 | |||
Cash-settleable restricted stock unit awards |
3,798 | 10,128 | |||
Asset retirement obligations |
833 | 790 | |||
Fair value of derivatives |
688 |
— |
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Total current liabilities |
73,734 | 87,877 | |||
Senior secured revolving credit facility |
— |
40,000 | |||
Secured second lien term loan, net of unamortized deferred financing costs |
289,062 | 288,565 | |||
Asset retirement obligations |
4,427 | 4,317 | |||
Cash-settleable restricted stock unit awards |
2,682 | 4,877 | |||
Fair value of derivatives |
3,602 |
— |
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Other long-term liabilities |
211 | 200 | |||
Total liabilities |
373,718 | 425,836 | |||
Stockholders’ equity: |
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Preferred stock, series A cumulative, $0.01 par value and $50.00 liquidation preference, 2,500,000 shares authorized: 1,458,948 and 1,578,948 shares outstanding, respectively |
15 | 16 | |||
Common stock, $0.01 par value, 150,000,000 shares authorized; 96,093,938 and 80,087,148 shares outstanding, respectively |
961 | 801 | |||
Capital in excess of par value |
798,532 | 702,970 | |||
Accumulated deficit |
(383,962) | (341,029) | |||
Total stockholders’ equity |
415,546 | 362,758 | |||
Total liabilities and stockholders’ equity |
$ |
789,264 |
$ |
788,594 |
The accompanying notes are an integral part of these consolidated financial statements.
4
Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)
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Three Months Ended March 31, |
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2016 |
2015 |
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Operating revenues: |
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Oil sales |
$ |
27,443 |
$ |
27,909 | ||
Natural gas sales |
3,255 | 2,482 | ||||
Total operating revenues |
30,698 | 30,391 | ||||
Operating expenses: |
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Lease operating expenses |
6,957 | 6,959 | ||||
Production taxes |
2,220 | 2,265 | ||||
Depreciation, depletion and amortization |
15,722 | 18,104 | ||||
General and administrative |
5,562 | 12,102 | ||||
Accretion expense |
180 | 209 | ||||
Write-down of oil and natural gas properties |
34,776 |
— |
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Rig termination fee |
— |
3,641 | ||||
Acquisition expense |
48 |
— |
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Total operating expenses |
65,465 | 43,280 | ||||
Loss from operations |
(34,767) | (12,889) | ||||
Other income (expense): |
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Interest expense |
5,491 | 4,858 | ||||
Loss (gain) on derivative contracts |
932 | (2,429) | ||||
Other income, net |
(81) | (44) | ||||
Total other expense |
6,342 | 2,385 | ||||
Loss before income taxes |
(41,109) | (15,274) | ||||
Income tax benefit |
— |
(5,077) | ||||
Net loss |
(41,109) | (10,197) | ||||
Preferred stock dividends |
(1,824) | (1,974) | ||||
Loss available to common stockholders |
$ |
(42,933) |
$ |
(12,171) | ||
Loss per common share: |
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Basic |
$ |
(0.51) |
$ |
(0.21) | ||
Diluted |
$ |
(0.51) |
$ |
(0.21) | ||
Shares used in computing loss per common share: |
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Basic |
83,582 | 57,479 | ||||
Diluted |
83,582 | 57,479 |
The accompanying notes are an integral part of these consolidated financial statements.
5
Consolidated Statements of Cash Flows
(Unaudited; in thousands)
Three Months Ended March 31, |
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2016 |
2015 |
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Cash flows from operating activities: |
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Net loss |
$ |
(41,109) |
$ |
(10,197) | ||
Adjustments to reconcile net loss to cash provided by operating activities: |
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Depreciation, depletion and amortization |
16,129 | 18,546 | ||||
Write-down of oil and natural gas properties |
34,776 |
— |
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Accretion expense |
180 | 209 | ||||
Amortization of non-cash debt related items |
781 | 781 | ||||
Deferred income tax benefit |
— |
(5,077) | ||||
Net loss on derivatives, net of settlements |
8,648 | 7,914 | ||||
Non-cash expense related to equity share-based awards |
392 | 86 | ||||
Change in the fair value of liability share-based awards |
709 | 3,088 | ||||
Payments to settle asset retirement obligations |
(161) | 258 | ||||
Changes in operating assets and liabilities: |
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Accounts receivable |
5,941 | (2,125) | ||||
Other current assets |
580 | 452 | ||||
Current liabilities |
(717) | (355) | ||||
Change in other long-term liabilities |
11 |
— |
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Change in other assets, net |
(233) | (319) | ||||
Payments to settle vested liability share-based awards related to early retirements |
— |
(3,538) | ||||
Payments to settle vested liability share-based awards |
(9,807) | (3,599) | ||||
Net cash provided by operating activities |
16,120 | 6,124 | ||||
Cash flows from investing activities: |
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Capital expenditures |
(50,775) | (70,780) | ||||
Acquisitions |
(10,183) |
— |
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Proceeds from sales of mineral interests and equipment |
— |
272 | ||||
Net cash used in investing activities |
(60,958) | (70,508) | ||||
Cash flows from financing activities: |
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Borrowings on senior secured revolving credit facility |
45,000 | 60,000 | ||||
Payments on senior secured revolving credit facility |
(85,000) | (58,000) | ||||
Payment of deferred financing costs |
— |
(12) | ||||
Issuance of common stock, net |
94,949 | 65,546 | ||||
Payment of preferred stock dividends |
(1,824) | (1,974) | ||||
Net cash provided by financing activities |
53,125 | 65,560 | ||||
Net change in cash and cash equivalents |
8,287 | 1,176 | ||||
Balance, beginning of period |
1,224 | 968 | ||||
Balance, end of period |
$ |
9,511 |
$ |
2,144 |
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 CONSOLIDATED FINANCIAL STATEMENTS
1. |
Description of Business and Basis of Presentation |
Derivative Instruments and Hedging Activities |
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2. |
Oil and Natural Gas Properties |
Fair Value Measurements |
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3. |
Acquisitions |
Income Taxes |
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4. |
Subsequent Events |
Asset Retirement Obligations |
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5. |
Earnings Per Share |
Equity Transactions |
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6. |
Borrowings |
Other |
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 partially owned by a member of current management. 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 in West Texas. The Company’s operations to date have been predominantly focused on horizontal drilling of several prospective intervals, including multiple levels of the Wolfcamp formation and, more recently, the Lower Spraberry shale in the Midland Basin. 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 our existing acreage and acquisition of additional locations through working interest acquisitions, 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, 2015. The balance sheet at December 31, 2015 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, 2016.
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.
7
Callon Petroleum Company |
Notes to the Consolidated Financial Statements (All dollar amounts in thousands, except per share and per unit data) |
Recently issued accounting policies
In March 2016, the Financial Accounting Standards Board issued accounting standards update No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The standard is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows, and will allow companies to estimate the number of stock awards expected to vest. The guidance in ASU 2016-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early adoption is permitted and is to be applied on retrospective basis. The Company is currently evaluating the method of adoption and impact this standard may have on its financial statements and related disclosures.
Recently adopted accounting policies
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent amounts on the balance sheet. Instead, entities will be required to classify all deferred tax assets and liabilities as noncurrent on the balance sheet. The guidance in ASU 2015-17 is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. As of March 31, 2016, the Company adopted this ASU, which does not have a material impact on its financial statements.
Note 2 – Oil and Natural Gas Properties
The Company uses the full cost method of accounting for its exploration and development activities. Under this method of accounting, the cost of both successful and unsuccessful exploration and development activities are capitalized as oil and gas properties. Such amounts include the cost of drilling and equipping productive wells, dry hole costs, lease acquisition costs, delay rentals, interest capitalized on unevaluated leases, other costs related to exploration and development activities, and site restoration, dismantlement and abandonment costs capitalized in accordance with asset retirement obligation accounting guidance. Costs capitalized also include any internal costs that are directly related to exploration and development activities, including salaries and benefits, but do not include any costs related to production, general corporate overhead or similar activities.
Under full cost accounting rules, the Company reviews the carrying value of its proved oil and natural gas properties each quarter. Under these rules, capitalized costs of oil and natural gas properties, net of accumulated depreciation, depletion and amortization and deferred income taxes, may not exceed the present value of estimated future net cash flows from proved oil and natural gas reserves, discounted at 10%, plus the lower of cost or fair value of unevaluated properties, net of related tax effects (the full cost ceiling). These rules require pricing based on the preceding 12-months’ average oil and natural gas prices based on closing prices on the first day of each month and require a write-down if the net capitalized costs of proved oil and natural gas properties exceeds the full cost ceiling. At March 31, 2016, the prices used in determining the estimated future net cash flows from proved reserves were $43.56 per barrel of oil and $2.59 per Mcf of natural gas. For the period ended March 31, 2016, the Company recognized a write-down of oil and natural gas properties of $34,776 as a result of the ceiling test limitation.
8
Callon Petroleum Company |
Notes to the Consolidated Financial Statements (All dollar amounts in thousands, except per share and per unit data) |
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.
2016 acquisitions
On January 18, 2016, the Company completed the acquisition of an additional 4.9% working interest (3.7% net revenue interest) in the Casselman-Bohannon fields for total cash consideration of $9,300, excluding customary purchase price adjustments. Following the completion of this acquisition the Company owned 71.3% working interest (53.5% net revenue interest) in the Casselman-Bohannon fields. The following table summarized the acquisition date fair values of the net assets acquired, including customary purchase price adjustments:
Oil and natural gas properties |
$ |
5,527 | |
Unevaluated oil and natural gas properties |
4,656 | ||
Net assets acquired |
$ |
10,183 |
On April 19, 2016, the Company entered into a definitive purchase and sale agreement for the acquisition of 17,298 gross (14,089 net) acres primarily located in Howard County, Texas, in the central portion of the Midland Basin, for an aggregate purchase price of $220,000 in cash and 9,333,333 shares of common stock, subject to customary purchase price adjustments. The Company will be acquiring an 81% average working interest (61% average net revenue interest) in the acquisition.
Separately, on April 15, 2016, the Company entered into definitive purchase and sale and joint development agreements for the following transactions (collectively, the “AMI Transaction”) comprising total net cash consideration of $33,000, subject to customary purchase price adjustments. Key elements of the AMI Transaction include:
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Formation of an area of mutual interest with TRP Energy, LLC (“TRP”) in western Reagan County, Texas, through the joint acquisition from a private party of 4,745 net acres (with a 55% share to Callon) north of the Garrison Draw field; and |
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Callon’s simultaneous sale of a 27.5% interest in the Garrison Draw field to TRP. |
On April 25, 2016, 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 commissions and estimated offering expenses) of approximately $206,198. Proceeds from the offering are expected to be used to fund the pending transactions described above. If the pending transactions are not consummated, the Company intends to use the net proceeds of the offering to fund a portion of its exploration and development activities and for general corporate purposes, which may include leasehold interest and property acquisitions, repayment of indebtedness and working capital.
The Company plans to file separate financial statements and pro forma financial information, as required by SEC rules, in a Current Report on Form 8-K within the prescribed 75 day period following consummation of the pending transactions.
9
Callon Petroleum Company |
Notes to the Consolidated Financial Statements (All dollar amounts in thousands, except per share and per unit data) |
Note 5 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
(share amounts in thousands) |
Three Months Ended March 31, |
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2016 |
2015 |
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Net loss |
$ |
(41,109) |
$ |
(10,197) | ||
Preferred stock dividends |
(1,824) | (1,974) | ||||
Loss available to common stockholders |
$ |
(42,933) |
$ |
(12,171) | ||
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Weighted average shares outstanding |
83,582 | 57,479 | ||||
Dilutive impact of restricted stock |
— |
— |
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Weighted average shares outstanding for diluted loss per share |
83,582 | 57,479 | ||||
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Basic loss per share |
$ |
(0.51) |
$ |
(0.21) | ||
Diluted loss per share |
$ |
(0.51) |
$ |
(0.21) | ||
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Stock options (a) |
15 | 30 | ||||
Restricted stock (a) |
25 | 61 |
(a) |
Shares excluded from the diluted earnings per share calculation because their effect would be anti-dilutive. |
The Company’s borrowings consisted of the following at:
March 31, 2016 |
December 31, 2015 |
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Principal components |
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Senior secured revolving credit facility |
$ |
— |
$ |
40,000 | ||
Secured second lien term loan |
300,000 | 300,000 | ||||
Total principal outstanding |
300,000 | 340,000 | ||||
Secured second lien term loan, unamortized deferred financing costs |
(10,938) | (11,435) | ||||
Total carrying value of borrowings |
$ |
289,062 |
$ |
328,565 |
Senior secured revolving credit facility (the “Credit Facility”)
On March 11, 2014, the Company entered into the Fifth Amended and Restated Credit Agreement to the Credit Facility with a maturity date of March 11, 2019. JPMorgan Chase Bank, N.A. is Administrative Agent, and participants include several institutional lenders. The total notional amount available under the Credit Facility is $500,000. Amounts borrowed under the Credit Facility may not exceed the borrowing base, which is generally reviewed on a semi-annual basis. As of March 31, 2016, the Credit Facility’s borrowing base was $300,000. The Credit Facility is secured by first preferred mortgages covering the Company’s major producing properties. On April 7, 2016, the borrowing base was reaffirmed at $300,000.
As of March 31, 2016, there was no balance outstanding on the Credit Facility. For the three months ended March 31, 2016, the Credit Facility had a weighted-average interest rate of 2.36%, calculated as the LIBOR plus a tiered rate ranging from 1.75% to 2.75%, which is determined based on utilization of the facility. In addition, the Credit Facility carries a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the borrowing base.
Secured second lien term loan (the “Term Loan”)
On October 8, 2014, the Company entered into the Term Loan with an aggregate amount of up to $300,000 and a maturity date of October 8, 2021. The Royal Bank of Canada is Administrative Agent, and participants include several institutional lenders. The Term Loan may be prepaid at the Company’s option, subject to a prepayment premium. The prepayment amount (i) is 102% if the prepayment event occurs prior to October 8, 2016, (ii) 101% if the prepayment event occurs on or after October 8, 2016 but before October 8, 2017, and (iii) is 100% for prepayments made on or after October 8, 2017. The Term Loan is secured by junior liens on properties mortgaged under the Credit Facility, subject to an intercreditor agreement.
10
Callon Petroleum Company |
Notes to the Consolidated Financial Statements (All dollar amounts in thousands, except per share and per unit data) |
As of March 31, 2016, the balance outstanding on the Term Loan was $300,000 with an interest rate of 8.5%, calculated at a rate of LIBOR (subject to a floor rate of 1.0%) plus 7.5% per annum. The Company can elect a LIBOR rate based on various tenors, and is currently incurring interest based on an underlying three-month LIBOR rate, which was last elected in January 2016.
Restrictive covenants
The Company’s Credit Facility and Term Loan 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 March 31, 2016.
Note 7 - 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, puts, calls 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 of offset under the agreements. Counterparty credit risk is considered when determining the fair value of a derivative instrument; see Note 8 for additional information regarding fair value.
The Company executes commodity derivative contracts under master agreements that have 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 8 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 sheet and records changes in fair value as a gain or loss on derivative contracts in the consolidated statement of operations. Cash settlements are also recorded as gain or loss on derivative contracts in the consolidated statement of operations.
11
Callon Petroleum Company |
Notes to the Consolidated Financial Statements (All dollar amounts in thousands, except per share and per unit data) |
The following table reflects the fair value of the Company’s derivative instruments for the periods presented:
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Balance Sheet Presentation |
Asset Fair Value |
Liability Fair Value |
Net Derivative Fair Value |
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Commodity |
Classification |
Line Description |
03/31/2016 |
12/31/2015 |
03/31/2016 |
12/31/2015 |
03/31/2016 |
12/31/2015 |
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Natural gas |
Current |
Fair value of derivatives |
$ |
489 |
$ |
— |
$ |
— |
$ |
— |
$ |
489 |
$ |
— |
||||||||
Oil |
Current |
Fair value of derivatives |
15,096 | 19,943 | (688) |
— |
14,408 | 19,943 | ||||||||||||||
Oil |
Non-current |
Fair value of derivatives |
— |
— |
(3,602) |
— |
(3,602) |
— |
||||||||||||||
Totals |
$ |
15,585 |
$ |
19,943 |
$ |
(4,290) |
$ |
— |
$ |
11,295 |
$ |
19,943 |
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:
|
March 31, 2016 |
||||||||
|
Presented without |
As Presented with |
|||||||
|
Effects of Netting |
Effects of Netting |
Effects of Netting |
||||||
Current assets: Fair value of derivatives |
$ |
15,749 |
$ |
(164) |
$ |
15,585 | |||
Current liabilities: Fair value of derivatives |
(852) | 164 | (688) | ||||||
|
|||||||||
Long-term liabilities: Fair value of derivatives |
$ |
(3,602) |
$ |
— |
$ |
(3,602) |
|
December 31, 2015 |
||||||||
|
Presented without |
As Presented with |
|||||||
|
Effects of Netting |
Effects of Netting |
Effects of Netting |
||||||
Current assets: Fair value of derivatives |
$ |
19,943 |
$ |
— |
$ |
19,943 |
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 March 31, |
|||||
|
2016 |
2015 |
||||
Oil derivatives |
||||||
Net gain on settlements |
$ |
7,507 |
$ |
9,952 | ||
Net loss on fair value adjustments |
(9,137) | (7,789) | ||||
Total gain (loss) |
$ |
(1,630) |
$ |
2,163 | ||
|
||||||
Natural gas derivatives |
||||||
Net gain on settlements |
$ |
209 |
$ |
391 | ||
Net gain (loss) on fair value adjustments |
489 | (125) | ||||
Total gain |
$ |
698 |
$ |
266 | ||
|
||||||
Total gain (loss) on derivative contracts |
$ |
(932) |
$ |
2,429 |
12
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 March 31, 2016:
|
For the Remainder of |
For the Full Year of |
||||
Oil contracts |
2016 |
2017 |
||||
Swap contracts (NYMEX) |
||||||
Total volume (MBbls) |
550 | 730 | ||||
Weighted average price per Bbl |
$ |
58.23 |
$ |
44.50 | ||
Swap contracts (Midland basis differentials) |
||||||
Volume (MBbls) |
1,100 |
— |
||||
Weighted average price per Bbl |
$ |
0.17 |
$ |
— |
||
Collar contracts combined with short puts (WTI, three-way collar) |
||||||
Volume (MBbls) |
550 |
— |
||||
Weighted average price per Bbl |
||||||
Ceiling (short call) |
$ |
65.00 |
$ |
— |
||
Floor (long put) |
$ |
55.00 |
$ |
— |
||
Short put |
$ |
40.33 |
$ |
— |
||
Collar contracts |
||||||
Total volume (MBbls) |
550 |
— |
||||
Weighted average price per Bbl |
||||||
Ceiling (short call) |
$ |
46.50 |
$ |
— |
||
Floor (long put) |
$ |
37.50 |
$ |
— |
||
Put option contracts (short position) |
||||||
Volume (MBbls) |
— |
730 | ||||
Put strike price |
$ |
— |
$ |
30.00 | ||
Call option contracts (short position) |
||||||
Total volume (MBbls) |
— |
670 | ||||
Weighted average price per Bbl |
||||||
Call strike price |
$ |
— |
$ |
50.00 | ||
|
||||||
Natural gas contracts |
||||||
Swap contracts |
||||||
Total volume (BBtu) |
1,650 |
— |
||||
Weighted average price per MMBtu |
$ |
2.52 |
$ |
— |
Subsequent event
Subsequent to March 31, 2016, the Company monetized a portion (covering the period of May 2016 through September 2016) of its 2016 WTI, three-way collar contract, in the amount of 153 MBbls. The proceeds from this transaction were used to finance the uplift in the oil swap contract listed in the table below.
The following derivative contract was executed subsequent to March 31, 2016:
|
For the Period of May |
||
Oil contracts |
through September 2016 |
||
Swap contracts |
|||
Total volume (MBbls) |
153 | ||
Weighted average price per Bbl |
$ |
57.61 |
13
Callon Petroleum Company |
Notes to the Consolidated Financial Statements (All dollar amounts in thousands, except per share and per unit data) |
Note 8 - 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 approximate 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.
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 7 for additional information regarding the Company’s derivative instruments.
The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis:
March 31, 2016 |
Classification |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||
Assets |
||||||||||||||
Derivative financial instruments |
Fair value of derivatives |
$ |
— |
$ |
15,585 |
$ |
— |
$ |
15,585 | |||||
Liabilities |
||||||||||||||
Derivative financial instruments |
Fair value of derivatives |
— |
(4,290) |
— |
(4,290) | |||||||||
Total net assets |
$ |
— |
$ |
11,295 |
$ |
— |
$ |
11,295 | ||||||
|
||||||||||||||
December 31, 2015 |
Classification |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||
Assets |
||||||||||||||
Derivative financial instruments |
Fair value of derivatives |
$ |
— |
$ |
19,943 |
$ |
— |
$ |
19,943 | |||||
Liabilities |
||||||||||||||
Derivative financial instruments |
Fair value of derivatives |
— |
— |
— |
— |
|||||||||
Total net assets |
$ |
— |
$ |
19,943 |
$ |
— |
$ |
19,943 |
Assets and liabilities measured at fair value on a nonrecurring basis
Acquisition. As discussed in Note 3 , the Company completed an acquisition during the three months ended March 31, 2016. The Company determined the fair value of the assets acquired using the income approach based on expected future cash flows from estimated reserve quantities, costs to produce and develop reserves, and oil and gas forward prices. The fair value measurements were based on level 2 and level 3 inputs.
The Company typically provides for income taxes at a statutory rate of 35% adjusted for permanent differences expected to be realized, which primarily relate to non-deductible executive compensation expenses and state income taxes. As a result of the write-down of oil and natural gas properties in the latter part of 2015, the Company has incurred a cumulative three year loss. Because of the
14
Callon Petroleum Company |
Notes to the Consolidated Financial Statements (All dollar amounts in thousands, except per share and per unit data) |
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 valuation allowance for a portion of the deferred tax asset. The valuation allowance was $123,131 as of March 31, 2016.
Note 10 - Asset Retirement Obligations
The table below summarizes the Company’s asset retirement obligations activity for the three months ended March 31, 2016:
Asset retirement obligations at January 1, 2016 |
$ |
5,107 | |
Accretion expense |
180 | ||
Liabilities incurred |
4 | ||
Revisions to estimate |
(31) | ||
Asset retirement obligations at end of period |
5,260 | ||
Less: Current asset retirement obligations |
(833) | ||
Long-term asset retirement obligations at March 31, 2016 |
$ |
4,427 |
Certain of the Company’s operating agreements require that assets be restricted for abandonment obligations. Amounts recorded in the consolidated balance sheet at March 31, 2016 as long-term restricted investments were $3,315. 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.
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 our 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 our Board of Directors. Preferred Stock dividends were $1,824 and $1,974 for the three months ended March 31, 2016 and 2015, respectively.
The Preferred Stock has no stated maturity and is not subject to any sinking fund or other mandatory redemption. On or after May 30, 2018, the Company may, at its option, redeem the Preferred Stock, in whole or in part, by paying $50.00 per share in cash, 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 March 31, 2016, and the Company did not exercise its right to redeem the Preferred Stock, using the closing price of $8.85 as the value of a share of common stock, each share of Preferred Stock would be convertible into approximately 5.6 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.
On February 4, 2016, the Company exchanged a total of 120,000 shares of Preferred Stock for 719,000 shares of common stock. As of March 31, 2016, the Company had 1,458,948 shares of its Preferred Stock issued and outstanding.
15
Callon Petroleum Company |
Notes to the Consolidated Financial Statements (All dollar amounts in thousands, except per share and per unit data) |
Common stock
On March 9, 2016, the Company completed an underwritten public offering of 15,250,000 shares of its common stock at $6.50 per share, before underwriting discounts. The Company received net proceeds of approximately $94,949 after the underwriting discounts and estimated offering costs.
Operating leases
As of March 31, 2016, the Company had contracts for two horizontal drilling rigs (the “Cactus 1 Rig” and “Cactus 2 Rig”). The contract terms of the Cactus 1 Rig and Cactus 2 Rig will end in July 2018 and August 2018, respectively. The rig lease agreements include early termination provisions that obligate the Company to pay reduced minimum rentals pursuant to a “standby” day rate for the term of the agreement. These payments would be reduced assuming the lessor is able to re-charter the rig and staffing personnel to another lessee. In January 2016, the Company decided to place its Cactus 1 Rig on standby and is required to pay a “standby” day rate of $15,000 per day, pursuant to the terms of the agreement, allowing the Company to retain the option to return the rig to service under the contract terms.
16
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 close the pending transactions described herein, the anticipated timing and terms of the pending transactions, our ability to realize the anticipated benefits of the pending transactions, and our ability to manage the risks of the pending transactions; and |
· |
prospect development and property acquisitions. |
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; |
· |
the impact of competition; |
· |
the availability and cost of seismic, drilling and other equipment; |
· |
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; |
· |
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 endangered species, any increase in severance or similar taxes; |
· |
litigation relating to hydraulic fracturing, the climate and over-the-counter derivatives; |
· |
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; |
· |
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 herein and in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Annual Report on Form 10-K”), and all quarterly reports on Form 10-Q filed subsequently thereto.
17
Callon Petroleum Company |
|
Should one or more of the risks or uncertainties described herein or in our 2015 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.
18
Callon Petroleum Company |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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 2015 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 Web site address is www.callon.com. All of our filings with the SEC are available free of charge through our Web site as soon as reasonably practicable after we file them with, or furnish them to, the SEC. Information on our Web site does not form part of this report on Form 10-Q.
We are an independent oil and natural gas company established in 1950. We are focused on the acquisition, development, exploration and exploitation of unconventional, onshore, oil and natural gas reserves in the Permian Basin in West Texas, and more specifically, the Midland Basin. Our operating culture is centered on responsible development of hydrocarbon resources, safety and the environment, which we believe strengthens our operational performance. Our drilling activity is predominantly focused on the horizontal development of several prospective intervals, including multiple levels of the Wolfcamp formation and, more recently, the Lower Spraberry shale. 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, acreage purchases, joint ventures and asset swaps. Our production was approximately 79% oil and 21% natural gas for the three months ended March 31, 2016. On March 31, 2016, our net acreage position in the Permian Basin was approximately 17,675 net acres.
Commodity Prices
The prices for oil and natural gas remain extremely volatile and sometimes experience large fluctuations as a result of relatively small changes in supply, weather conditions, economic conditions and actions by the Organization of Petroleum Exporting Countries and other countries and government actions. Prices of oil and natural gas will affect the following aspects of our business:
· |
our revenues, cash flows and earnings; |
· |
the amount of oil and natural gas that we are economically able to produce; |
· |
our ability to attract capital to finance our operations and cost of the capital; |
· |
the amount we are allowed to borrow under our senior secured revolving credit facility; and |
· |
the value of our oil and natural gas properties. |
Beginning in the second half of 2014, the NYMEX price for a barrel of oil declined from $105.37 on June 30, 2014 to $45.92 on April 29, 2016. For the three months ended March 31, 2016, the average NYMEX price for a barrel of oil was $33.58 per Bbl compared to $48.58 per Bbl for the same period of 2015. The NYMEX price for a barrel of oil ranged from a low of $26.21 per Bbl to a high of $41.45 per Bbl for the three months ended March 31, 2016.
For the three months ended March 31, 2016, the average NYMEX price for natural gas was $2.09 per MMBtu compared to $2.98 per MMBtu for the same period in 2015. The NYMEX price for natural gas ranged from a low of $1.64 per MMBtu to a high of $2.47 per MMBtu for the three months ended March 31, 2016.
The Company uses the full cost method of accounting for its exploration and development activities. Under full cost accounting rules, the Company reviews the carrying value of its proved oil and natural gas properties each quarter. Under these rules, capitalized costs of oil and natural gas properties, net of accumulated depreciation, depletion and amortization and deferred income taxes, may not exceed the present value of estimated future net cash flows from proved oil and natural gas reserves, discounted at 10%, plus the lower of cost or fair value of unevaluated properties, net of related tax effects (the full cost ceiling). These rules generally require pricing based on the preceding 12-months’ average oil and natural gas prices based on closing prices on the first day of each month and require a write-down if the net capitalized costs of proved oil and natural gas properties exceeds the full cost ceiling. At March 31, 2016, the prices used in determining the estimated future net cash flows from proved reserves were $43.56 per barrel of oil and $2.59 per Mcf of natural gas. For the period ended March 31, 2016, the Company recognized a write-down of oil and natural gas properties
19
Callon Petroleum Company |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
of $34.8 million as a result of the ceiling test limitation. Based on prevailing commodity prices in the current environment, we expect to incur additional ceiling test write-downs in the future. However, we do not expect such prevailing commodity prices to have significant adverse effects on our proved oil and gas reserves. See Note 2 in the Footnotes to the Financial Statements for more information.
The table below presents results of the full cost ceiling test as of March 31, 2016, along with various pricing scenarios to demonstrate the sensitivity of our full cost ceiling to changes in 12-month average oil and natural gas prices. This sensitivity analysis is as of March 31, 2016 and, accordingly, does not consider drilling results, production, changes in oil and natural gas prices, and changes in future development and operating costs subsequent to March 31, 2016 that may require revisions to our proved reserve estimates and resulting estimated future net cash flows used in the full cost ceiling test.
|
12-Month Average Prices |
Excess (Deficit) of |
(Increase) Decrease in excess of full cost ceiling over net capitalized costs |
|||||||||
Pricing Scenarios |
Oil ($/Bbl) |
Natural gas ($/Mcf) |
(in thousands) |
|||||||||
March 31, 2016 Actual |
$ |
43.56 |
$ |
2.59 |
$ |
(34,776) | ||||||
|
||||||||||||
Combined price sensitivity |
||||||||||||
Oil and natural gas +10% |
$ |
47.91 |
$ |
2.85 |
$ |
63,278 |
$ |
98,054 | ||||
Oil and natural gas -10% |
39.20 | 2.33 | (132,815) | (98,039) | ||||||||
Oil price sensitivity |
||||||||||||
Oil +10% |
$ |
47.91 |
$ |
2.59 |
$ |
54,419 |
$ |
89,195 | ||||
Oil -10% |
39.20 | 2.59 | (123,964) | (89,188) | ||||||||
Natural gas sensitivity |
||||||||||||
Natural gas +10% |
$ |
43.56 |
$ |
2.85 |
$ |
(25,917) |
$ |
8,859 | ||||
Natural gas -10% |
43.56 | 2.33 | (43,628) | (8,852) |
Operational Highlights
Our production grew 47% for the three months ended March 31, 2016, compared to the same period of 2015, increasing to 1,132 MBOE from 771 MBOE for the comparative three months period.
|
Net Production (MBOE) |
|||||||
|
Three Months Ended March 31, |
|||||||
|
2016 |
2015 |
Change |
% Change |
||||
Southern Midland Basin |
500 | 445 | 55 | 12% | ||||
Central Midland Basin |
632 | 325 | 307 | 94% | ||||
Other |
— |
1 | (1) |
(100)% |
||||
Total |
1,132 | 771 | 361 | 47% |
The following table sets forth productive wells as of March 31, 2016:
|
Oil Wells |
Natural Gas Wells |
||||||
|
Gross |
Net |
Gross |
Net |
||||
Working interest |
329 | 258.6 |
— |
— |
||||
Royalty interest |
3 | 0.1 |
— |
— |
||||
Total |
332 | 258.7 |
— |
— |
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.
20
Callon Petroleum Company |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following table summarizes the Company’s drilling activity in the Permian Basin for the three months ended March 31, 2016:
|
For the Three Months Ended March 31, 2016 |
|||||||||||
|
Drilled |
Completed (a) |
Awaiting Completion |
|||||||||
|
Gross |
Net |
Gross |
Net |
Gross |
Net |
||||||
Central Midland Basin horizontal wells |
5 | 4.3 | 9 | 7.1 | 2 | 1.8 |
(a) |
Completions include wells drilled prior to 2016. |
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 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.
During 2016 we completed two common stock offerings to raise additional capital, and we continue to evaluate other sources of capital to complement our cash flows from operations as we pursue our long-term growth plan in the Permian Basin. As of March 31, 2016, there was no balance outstanding on the Credit Facility, and the borrowing base was reaffirmed at $300 million on April 7, 2016.
For the three months ended March 31, 2016, cash and cash equivalents increased $8.3 million to $9.5 million compared to $1.2 million at March 31, 2015.
Liquidity and cash flow
|
For the Three Months Ended March 31, |
|||||
(dollars in millions) |
2016 |
2015 |
||||
Net cash provided by operating activities |
$ |
16.1 |
$ |
6.1 | ||
Net cash used in investing activities |
(60.9) | (70.5) | ||||
Net cash provided by financing activities |
53.1 | 65.6 | ||||
Net change in cash |
$ |
8.3 |
$ |
1.2 |
Operating activities. For the three months ended March 31, 2016, net cash provided by operating activities was $16.1 million compared to net cash provided by operating activities of $6.1 million for the same period in 2015. The change was predominantly attributable to the following:
· |
A reduction in gains on the settlement of derivative contracts; |
· |
An increase in payments on cash-settled restricted stock unit (“RSU”) awards; |
· |
A decrease in payments related to nonrecurring early retirement expenses that were incurred in 2015; 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 7 and 8 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 three months ended March 31, 2016, net cash used in investing activities was $60.9 million compared to $70.5 million for the same period in 2015. The $9.6 million decrease in cash used in investing activities was primarily attributable to the following:
· |
A $21.1 million decrease in operational expenditures due to the release of a vertical rig in April 2015 and working with our service partners to achieve reductions in drilling and completion costs during 2015; and |
· |
The $10.2 million increase driven by the acquisition of an additional 4.9% working interest (3.7% net revenue interest) in our Casselman-Bohannon fields during the three months ended March 31, 2016. |
21
Callon Petroleum Company |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Our investing activities, on a cash basis, include the following for the periods indicated (in millions):
|
For the Three Months Ended March 31, |
||||||||
|
2016 |
2015 |
$ Change |
||||||
Southern Midland Basin |
|