Exhibit 99.2
CALLON PETROLEUM COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On December 28, 2012, Callon Petroleum Operating Company, a subsidiary of Callon Petroleum Company (NYSE: CPE) ("Callon" or the "Company"), closed the previously announced sale of its 11.25% working interest in the Habanero field (Garden Banks Block 341) (the "Transaction") to Shell Offshore Inc., a subsidiary of Royal Dutch Shell plc, for an estimated net cash consideration of USD $39.5 million after customary purchase price adjustments and the assumption of related abandonment and retirement obligations. The Transaction was effective October 1, 2012.
The following unaudited pro forma condensed consolidated financial statements and accompanying notes of Callon Petroleum Company as of and for the nine months ended September 30, 2012 and for the year ended December 31, 2011 ("Pro Forma Statements"), which have been prepared by the Company's management, are derived from the audited consolidated financial statements of Callon for the year ended December 31, 2011 included in its 2011 Annual Report on Form 10-K and the unaudited condensed consolidated financial statements of Callon as of and for the nine months ended September 30, 2012 included in its Quarterly Report on Form 10-Q for the period then ended.
The Pro Forma Statements are provided for illustrative purposes only and do not purport to represent what the Company's financial position or results of operations would have been had the Transaction been consummated on the dates indicated or the financial position or results of operations for any future date or period. The unaudited pro forma condensed consolidated balance sheet was prepared assuming the Transaction had occurred on September 30, 2012. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2011 and for the nine months ended September 30, 2012 were prepared assuming the Transaction had occurred on January 1, 2011. The Company believes the assumptions used in the preparation of the Pro Forma Statements provide a reasonable basis for presenting the significant effects directly attributable to the Transaction.
The Pro Forma Statements should be read in conjunction with the historical consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 and in the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2012.
CALLON PETROLEUM COMPANY
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2012
($ in thousands, except share data)
|
| | | | | | | | | | | | |
| | | | | Habanero | | |
| | | Historical | | Transaction | | Pro forma |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | $ | 1,485 |
| | $ | 40,609 |
| (a) (b) | $ | 42,094 |
|
| Accounts receivable | | 16,643 |
| | (1,208 | ) | (b) | 15,435 |
|
| Other current assets | | 3,372 |
| | — |
| | 3,372 |
|
| Total current assets | | 21,500 |
| | 39,401 |
| | 60,901 |
|
| | | | | | | |
| Oil and gas properties, full cost accounting method: | | 292,205 |
| | (40,377 | ) | (c) | 251,828 |
|
| Investment in Medusa Spar, LLC | | 8,809 |
| | — |
| | 8,809 |
|
| Other property and equipment, net | | 12,374 |
| | — |
| | 12,374 |
|
| Deferred tax asset | | 64,911 |
| | — |
| | 64,911 |
|
| Other assets, net | | 5,800 |
| | — |
| | 5,800 |
|
| | | | | | | |
| Total assets | | $ | 405,599 |
| | $ | (976 | ) | | $ | 404,623 |
|
| | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
| Current liabilities | | | | | | |
| Accounts payable and accrued liabilities | | $ | 31,212 |
| | $ | (99 | ) | (b) | $ | 31,113 |
|
| Asset retirement obligations | | 2,340 |
| | — |
| | 2,340 |
|
| Total current liabilities | | 33,552 |
| | (99 | ) | | 33,453 |
|
| | | | | | | |
| Long-term debt | | 111,450 |
| | — |
| | 111,450 |
|
| Credit facility | | 40,000 |
| | — |
| | 40,000 |
|
| Asset retirement obligations | | 11,664 |
| | (877 | ) | (d) | 10,787 |
|
| Other long-term liabilities | | 3,471 |
| | — |
| | 3,471 |
|
| Total liabilities | | 200,137 |
| | (976 | ) | | 199,161 |
|
| | | | | | | |
| Stockholders' equity | | 205,462 |
| | — |
| | 205,462 |
|
| | | | | | | |
| Total liabilities and stockholders' equity | | $ | 405,599 |
| | $ | (976 | ) | | $ | 404,623 |
|
|
| | |
| The unaudited pro forma condensed consolidated balance sheet includes the following adjustments: |
| | | |
| (a) | | Reflects cash proceeds received for the Transaction, net of (i) estimated cash flow from operations (revenues less lease operating expenses) attributable to the interest for the period from the October 1, 2012 effective date through the Transaction closing date and (ii) transactions costs. |
| | | |
| (b) | | Reflects the elimination of receivables and payables related to the working interest sold. |
| | | |
| (c) | | Reflects the elimination of Callon's investment in evaluated properties related to the property sold. |
| | | |
| (d) | | Reflects the elimination of long-term asset retirement obligations associated with the working interest sold in the Transaction. |
CALLON PETROLEUM COMPANY
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2011
($ in thousands, except share data)
|
| | | | | | | | | | | | |
| | | | | Habanero | | |
| | | Historical | | Transaction | | Pro Forma |
| Operating revenues: | | | | | | |
| Crude oil sales | | $ | 100,962 |
| | $ | (16,605 | ) | (e) | $ | 84,357 |
|
| Natural gas sales | | 26,682 |
| | (1,775 | ) | (e) | 24,907 |
|
| Total oil and natural gas revenues | | 127,644 |
| | (18,380 | ) | | 109,264 |
|
| | | | | | | |
| Operating expenses: | | | | | | |
| Lease operating expenses | | 20,347 |
| | (1,100 | ) | (e) | 19,247 |
|
| Depreciation, depletion and amortization | | 48,701 |
| | (6,620 | ) | (f) | 42,081 |
|
| General and administrative | | 16,636 |
| | — |
| | 16,636 |
|
| Accretion expense | | 2,338 |
| | (162 | ) | (g) | 2,176 |
|
| | | 88,022 |
| | (7,882 | ) | | 80,140 |
|
| | | | | | | |
| Income from operations | | 39,622 |
| | (10,498 | ) | | 29,124 |
|
| | | | | | | |
| Other (income) expenses: | | | | | | |
| Interest expense | | 11,717 |
| | — |
| | 11,717 |
|
| Other (income) | | (1,426 | ) | | — |
| | (1,426 | ) |
| Gain related to acquired assets | | (5,041 | ) | | — |
| | (5,041 | ) |
| Gain on early extinguishment of debt | | (1,942 | ) | | — |
| | (1,942 | ) |
| Total other (income) expenses | | 3,308 |
| | — |
| | 3,308 |
|
| | | | | | | |
| Income before income taxes | | 36,314 |
| | (10,498 | ) | | 25,816 |
|
| Income tax benefit | | (69,283 | ) | | (2,856 | ) | (h) | (72,139 | ) |
| | | | | | | |
| Income before equity in earnings of Medusa Spar LLC | | 105,597 |
| | (7,642 | ) | | 97,955 |
|
| Equity in earnings of Medusa Spar LLC, net of tax | | 799 |
| | — |
| | 799 |
|
| | | | | | | |
| Net income available to common shares | | $ | 106,396 |
| | $ | (7,642 | ) | | $ | 98,754 |
|
| | | | | | | |
| Net income per common share: | | | | | | |
| Basic | | $ | 2.81 |
| | $ | (0.20 | ) | | $ | 2.61 |
|
| Diluted | | $ | 2.76 |
| | $ | (0.20 | ) | | $ | 2.56 |
|
| | | | | | | |
| Shares used in computing net income per share amounts: | | | | | | |
| Basic | | 37,908 |
| | 37,908 |
| | 37,908 |
|
| Diluted | | 38,582 |
| | 38,582 |
| | 38,582 |
|
|
| | |
| The unaudited pro forma condensed consolidated statements of operations includes the following adjustments: |
| | | |
| (e) | | Reflects the elimination of revenues and direct operating expenses attributable to the working interest sold. |
| | | |
| (f) | | Reflects the elimination of depreciation, depletion and amortization expense attributable to the working interest sold. |
| | | |
| (g) | | Reflects the elimination of accretion expense attributable to the working interest sold. |
| | | |
| (h) | | Reflects the income tax expense attributable to the working interest sold. |
CALLON PETROLEUM COMPANY
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Nine Months Ended September 30, 2012
($ in thousands, except share data)
|
| | | | | | | | | | | | |
| | | | | Habanero | | |
| | | Historical | | Transaction | | Pro Forma |
| Operating revenues: | | | | | | |
| Crude oil sales | | $ | 71,883 |
| | $ | (8,696 | ) | (e) | $ | 63,187 |
|
| Natural gas sales | | 10,174 |
| | (498 | ) | (e) | 9,676 |
|
| Total oil and natural gas revenues | | 82,057 |
| | (9,194 | ) | | 72,863 |
|
| | | | | | | |
| Operating expenses: | | | | | | |
| Lease operating expenses | | 20,465 |
| | (638 | ) | (e) | 19,827 |
|
| Depreciation, depletion and amortization | | 35,998 |
| | (3,665 | ) | (f) | 32,333 |
|
| General and administrative | | 15,846 |
| | — |
| | 15,846 |
|
| Accretion expense | | 1,709 |
| | (108 | ) | (g) | 1,601 |
|
| | | 74,018 |
| | (4,411 | ) | | 69,607 |
|
| | | | | | | |
| Income from operations | | 8,039 |
| | (4,783 | ) | | 3,256 |
|
| | | | | | | |
| Other (income) expenses: | | | | | | |
| Interest expense | | 7,096 |
| | — |
| | 7,096 |
|
| Other (income) | | (224 | ) | | — |
| | (224 | ) |
| Gain related to acquired assets | | (1,977 | ) | | — |
| | (1,977 | ) |
| Gain on early extinguishment of debt | | (1,366 | ) | | — |
| | (1,366 | ) |
| Total other (income) expenses | | 3,529 |
| | — |
| | 3,529 |
|
| | | | | | | |
| Income (loss) before income taxes | | 4,510 |
| | (4,783 | ) | | (273 | ) |
| Income tax expense | | 1,508 |
| | (1,224 | ) | (h) | 284 |
|
| | | | | | | |
| Income (loss) before equity in earnings of Medusa Spar LLC | | 3,002 |
| | (3,559 | ) | | (557 | ) |
| Equity in earnings of Medusa Spar LLC, net of tax | | 180 |
| | — |
| | 180 |
|
| | | | | | | |
| Net income (loss) available to common shares | | $ | 3,182 |
| | $ | (3,559 | ) | | $ | (377 | ) |
| | | | | | | |
| Net income (loss) per common share: | | | | | | |
| Basic | | $ | 0.08 |
| | $ | (0.09 | ) | | $ | (0.01 | ) |
| Diluted | | 0.08 |
| | (0.09 | ) | | (0.01 | ) |
| | | | | | | |
| Shares used in computing net income per share amounts: | | | | | | |
| Basic | | 39,441 |
| | 39,441 |
| | 39,441 |
|
| Diluted | | 40,243 |
| | 40,243 |
| | 40,243 |
|
|
| | |
| The unaudited pro forma condensed consolidated statements of operations includes the following adjustments: |
| | | |
| (e) | | Reflects the elimination of revenues and direct operating expenses attributable to the working interest sold. |
| | | |
| (f) | | Reflects the elimination of depreciation, depletion and amortization expense attributable to the working interest sold. |
| | | |
| (g) | | Reflects the elimination of accretion expense attributable to the working interest sold. |
| | | |
| (h) | | Reflects the income tax expense attributable to the working interest sold. |
CALLON PETROLEUM COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
On December 28, 2012, Callon Petroleum Company ("Callon") completed the sale of its working interest in the Habanero Field, Garden Banks Block 341 (the "Transaction"), to Shell for an estimated net cash consideration of USD $39.5 million after customary purchase price adjustments and the assumption of related abandonment and retirement obligations. Habanero represents approximately 8.8% of Callon's total production for the nine months of ended September 30, 2012 and 8.6% of Callon's total estimated reserves at December 31, 2011. Independent reserve engineers' estimates of proved reserves for Habanero at December 31, 2011 totaled approximately 610,000 barrels of oil and 4.6 billion cubic feet of natural gas (1,373,000 barrels of oil equivalent). The Transaction was effective October 1, 2012.
The unaudited pro forma condensed consolidated balance sheet as of September 30, 2012 was prepared assuming that the Transaction had occurred on that date. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2011 and for the nine months ended September 30, 2012 were prepared assuming the Transaction had occurred on January 1, 2011. The Pro Forma Statements do not purport to represent what Callon's financial position or results of operations would have been had the Transaction been consummated on the dates indicated or the financial position or results of operations for any future date of period. Callon believes the assumptions used in the preparation of the Pro Forma Statements provide a reasonable basis for presenting the significant effects directly attributable to the Transaction.
Summary Pro Forma Oil and Natural Gas Reserve Data (unaudited):
|
| | | | | | | | | |
| The following table sets forth summary pro forma reserve data as of December 31, 2011 giving effect to the Transaction. |
| | | | | | | |
| Estimated Quantities of Oil and Natural Gas Reserves at December 31, 2011: |
| | | | | | | |
| | | | | Habanero | | |
| | | Historical | | Transaction | | Pro Forma |
| Proved Reserves | | | | | | |
| Oil (MBbls) | | 10,075 |
| | (610 | ) | | 9,465 |
|
| Natural Gas (Mmcf) | | 35,118 |
| | (4,574 | ) | | 30,544 |
|
| Total reserves (Mmcfe) | | 15,928 |
| | (1,372 | ) | | 14,556 |
|
| | | | | | | |
| Proved Developed Reserves | | | | | | |
| Oil (MBbls) | | 5,069 |
| | (176 | ) | | 4,893 |
|
| Natural Gas (Mmcf) | | 11,605 |
| | (290 | ) | | 11,315 |
|
| Total reserves (Mmcfe) | | 7,003 |
| | (224 | ) | | 6,779 |
|
|
| | | | | | | | | | | | |
| Standardized Measure of Discounted Future Net Cash Flows at December 31, 2011 ( in thousands): |
| | | | | | | |
| | | | | Habanero | | |
| | | Historical | | Transaction | | Pro Forma |
| | | | | | | |
| Future cash flows | | $ | 1,194,079 |
| | $ | (92,253 | ) | | $ | 1,101,826 |
|
| Future cost applicable to future cash flows: | | | | | | |
| Production costs | | (356,653 | ) | | 16,579 |
| | (340,074 | ) |
| Development and abandonment costs | | (268,628 | ) | | 13,613 |
| | (255,015 | ) |
| Future income taxes | | (78,813 | ) | | 23,983 |
| | (54,830 | ) |
| | | | | | | |
| Future net cash flows | | 489,985 |
| | (38,078 | ) | | 451,907 |
|
| Discount for estimated timing of net cash flows (10% discount rate) | | (219,628 | ) | | 5,958 |
| | (213,670 | ) |
| | | | | | | |
| Net Cash Flows | | $ | 270,357 |
| | $ | (32,120 | ) | | $ | 238,237 |
|
