Change in Accounting Principle | Change in Accounting PrincipleIn the first quarter of 2023, the Company voluntarily changed its method of accounting for oil and natural gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In general, under successful efforts, exploration costs such as exploratory dry holes, exploratory geophysical and geological costs, delay rentals, unproved leasehold impairments and exploration overhead are expensed as incurred as opposed to being capitalized under the full cost method of accounting. The successful efforts method also provides for the assessment of potential proved oil and gas property impairments by comparing the net book value of proved oil and gas properties to associated estimated undiscounted future net cash flows. If the net book value exceeds the estimated undiscounted future net cash flows, an impairment is recorded to reduce the net book value to fair value. Under the full cost method of accounting, an impairment would be required if the net book value of oil and natural gas properties exceeds a full cost ceiling using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are recognized more frequently on the divestitures of oil and gas properties under the successful efforts method, as opposed to an adjustment to the net book value of the oil and gas properties under the full cost method. The “Assets held for sale” and “Impairment of oil and gas properties” line items presented in the tables below are in connection with the agreement to sell all of the Company’s interests of Callon (Eagle Ford) LLC to Ridgemar Energy Operating, LLC. See “Note 5 — Acquisitions and Divestitures” for additional details. The following tables present the effects of the change to the successful efforts method in the consolidated balance sheets: As of June 30, 2023 Under Changes Under Successful Efforts (In thousands) Current assets: Assets held for sale $— $606,614 $606,614 Oil and natural gas properties: Proved properties 10,949,991 (2,442,302) 8,507,689 Accumulated depreciation, depletion, amortization and impairments (6,597,479) 2,306,431 (4,291,048) Unproved properties 1,784,428 (581,260) 1,203,168 Total oil and gas properties, net 6,136,940 (717,131) 5,419,809 Deferred income taxes 157,629 40,905 198,534 Total assets $6,666,704 ($101,146) $6,565,558 Stockholders’ equity: Accumulated deficit (383,141) (101,146) (484,287) Total stockholders' equity 3,643,818 (101,146) 3,542,672 Total liabilities and stockholders' equity $6,666,704 ($101,146) $6,565,558 As of December 31, 2022 Under Changes Under Successful Efforts (In thousands) Oil and natural gas properties: Proved properties $10,367,478 ($1,099,343) $9,268,135 Accumulated depreciation, depletion, amortization and impairments (6,343,875) 1,927,269 (4,416,606) Unproved properties 1,711,306 (485,538) 1,225,768 Total oil and gas properties, net 5,734,909 342,388 6,077,297 Total assets $6,146,081 $342,388 $6,488,469 Deferred income taxes (1) 4,279 2,029 6,308 Stockholders’ equity: Accumulated deficit (937,388) 340,359 (597,029) Total stockholders' equity 3,085,422 340,359 3,425,781 Total liabilities and stockholders' equity $6,146,081 $342,388 $6,488,469 (1) Included in “Other long-term liabilities” in the consolidated balance sheets. The following tables present the effects of the change to the successful efforts method in the consolidated statements of operations: Three Months Ended June 30, 2023 Under Changes Under Successful Efforts (In thousands, except per share data) Operating Expenses: Exploration $— $1,882 $1,882 Depreciation, depletion and amortization 135,135 (7,787) 127,348 Impairment of oil and gas properties — 406,898 406,898 General and administrative 17,149 12,619 29,768 Income (Loss) From Operations 190,856 (413,612) (222,756) Other Expenses: Interest expense 19,520 27,719 47,239 Income (Loss) Before Income Taxes 177,223 (441,331) (264,108) Income tax benefit 88,653 67,559 156,212 Net Income (Loss) $265,876 ($373,772) ($107,896) Net Income (Loss) Per Common Share: Basic $4.30 ($1.74) Diluted $4.30 ($1.74) Three Months Ended June 30, 2022 Under Changes Under Successful Efforts (In thousands, except per share data) Operating Expenses: Exploration $— $2,410 $2,410 Depreciation, depletion and amortization 109,409 6,547 115,956 General and administrative 10,909 9,266 20,175 Income From Operations 496,825 (18,223) 478,602 Other Expenses: Interest expense 20,691 26,304 46,995 Income Before Income Taxes 351,018 (44,527) 306,491 Income tax expense (3,009) (231) (3,240) Net Income $348,009 ($44,758) $303,251 Net Income Per Common Share: Basic $5.64 $4.92 Diluted $5.62 $4.90 Six Months Ended June 30, 2023 Under Changes Under Successful Efforts (In thousands, except per share data) Operating Expenses: Exploration $— $4,114 $4,114 Depreciation, depletion and amortization 258,035 (4,722) 253,313 Impairment of oil and gas properties — 406,898 406,898 General and administrative 34,290 23,276 57,566 Income (Loss) From Operations 391,001 (429,567) (38,566) Other Expenses: Interest expense 38,673 54,872 93,545 Income (Loss) Before Income Taxes 390,273 (484,438) (94,165) Income tax benefit 163,973 42,934 206,907 Net Income $554,246 ($441,504) $112,742 Net Income Per Common Share: Basic $8.98 $1.83 Diluted $8.95 $1.82 Six Months Ended June 30, 2022 Under Changes Under Successful Efforts (In thousands, except per share data) Operating Expenses: Exploration $— $4,295 $4,295 Depreciation, depletion and amortization 212,388 17,211 229,599 General and administrative 28,030 19,202 47,232 Income From Operations 916,122 (40,708) 875,414 Other Expenses: Interest expense 42,249 51,842 94,091 Income Before Income Taxes 391,239 (92,550) 298,689 Income tax expense (3,493) 340 (3,153) Net Income $387,746 ($92,210) $295,536 Net Income Per Common Share: Basic $6.30 $4.80 Diluted $6.26 $4.77 The following tables present the effects of the change to the successful efforts method in the consolidated statements of cash flows: Six Months Ended June 30, 2023 Under Changes Under Successful Efforts (In thousands) Cash flows from operating activities: Net income $554,246 ($441,504) $112,742 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 258,035 (4,722) 253,313 Impairment of oil and gas properties — 406,898 406,898 Amortization of non-cash debt related items, net 2,168 3,077 5,245 Deferred income tax benefit (161,907) (42,934) (204,841) Non-cash expense related to share-based awards 2,124 3,445 5,569 Net cash provided by operating activities 603,175 (75,740) 527,435 Cash flows from investing activities: Capital expenditures (570,223) 71,626 (498,597) Acquisition of oil and gas properties (18,564) 4,114 (14,450) Net cash used in investing activities (624,312) 75,740 (548,572) Net change in cash and cash equivalents 255 — 255 Balance, beginning of period 3,395 — 3,395 Balance, end of period $3,650 $— $3,650 Six Months Ended June 30, 2022 Under Changes Under Successful Efforts (In thousands) Cash flows from operating activities: Net income $387,746 ($92,210) $295,536 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 212,388 17,211 229,599 Amortization of non-cash debt related items, net 3,201 3,920 7,121 Non-cash expense related to share-based awards 956 1,730 2,686 Changes in current assets and liabilities: Accounts payable and accrued liabilities (18,940) (340) (19,280) Net cash provided by operating activities 653,595 (69,689) 583,906 Cash flows from investing activities: Capital expenditures (413,939) 69,058 (344,881) Acquisition of oil and gas properties (15,945) 631 (15,314) Net cash used in investing activities (435,756) 69,689 (366,067) Net change in cash and cash equivalents (3,782) — (3,782) Balance, beginning of period 9,882 — 9,882 Balance, end of period $6,100 $— $6,100 The following tables present the effects of the change to the successful efforts method in the consolidated statements of stockholders’ equity: As of June 30, 2023 Under Changes Under Successful Efforts (In thousands) Accumulated deficit ($383,141) ($101,146) ($484,287) Total stockholders’ equity $3,643,818 ($101,146) $3,542,672 As of December 31, 2022 Under Changes Under Successful Efforts (In thousands) Accumulated deficit ($937,388) $340,359 ($597,029) Total stockholders’ equity $3,085,422 $340,359 $3,425,781 |