Callon Petroleum Co - FORM 8-K - EX-99.2 - UNAUDITED PRO FORMA FINANCIAL INFORMATION - January 3, 2013

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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




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