Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - Callon Petroleum Co | exhibit992.htm |
| EX-23.1 - EXHIBIT 23.1 - Callon Petroleum Co | exhibit231.htm |
| 8-K/A - 8-K/A - Callon Petroleum Co | a8-kaproformacimarexacquis.htm |
Exhibit 99.1
Cimarex Acquisition
Statements of Revenues and Direct Operating Expenses
For the Year Ended December 31, 2017
For the Six Months Ended June 30, 2018 and 2017
Contents | |
Page | |
Independent Auditors' Report | |
Financial Statements | |
Statement of Revenues and Direct Operating Expenses | |
Notes to the Statement of Revenues and Direct Operating Expenses | |
Unaudited Statement of Revenues and Direct Operating Expenses | |
Notes to the Unaudited Statement of Revenues and Direct Operating Expenses | |
Independent Auditors’ Report
The Board of Directors
Callon Petroleum Company:
Report on the Financial Statement
We have audited the accompanying Cimarex Acquisition Statement of Revenue and Direct Operating Expenses (the Financial Statement) for the year ended December 31, 2017 and the related notes to the Financial Statement.
Management’s Responsibility for the Financial Statement
Management is responsible for the preparation and fair presentation of this Financial Statement in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Financial Statement that is free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on this Financial Statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Financial Statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Statement. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the Financial Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the Financial Statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Financial Statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Financial Statement referred to above presents fairly in all material respects, the Cimarex Acquisition Statement of Revenue and Direct Operating Expenses for the year ended December 31, 2017, in accordance with U.S. generally accepted accounting principles.
Emphasis of Matter
We draw attention to the basis of presentation which describes that the Financial Statement was prepared for the purpose of complying with the rules and regulations under Rule 3-05 of the Securities and Exchange Commission Regulation S-X as described in Note 1 to the Financial Statement, and is not intended to be a complete presentation of the Cimarex Acquisition’s results of operations. Our opinion is not modified with respect to this matter.
/s/ KPMG LLP
Denver, Colorado
November 14, 2018
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Cimarex Acquisition
Statement of Revenues and Direct Operating Expenses
(in thousands)
For the Year Ended December 31, 2017 | |||
Revenues | $ | 103,422 | |
Direct operating expenses: | |||
Lease operating expense | 28,138 | ||
Production taxes | 7,007 | ||
Total direct operating expenses | 35,145 | ||
Revenues in excess of direct operating expenses | $ | 68,277 | |
See accompanying Notes to the Statement of Revenues and Direct Operating Expenses.
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Cimarex Acquisition
Notes to the Statement of Revenues and Direct Operating Expenses
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
On August 31, 2018, Callon Petroleum Operating Company, a wholly owned subsidiary of Callon Petroleum Company (“Callon” or the “Company”) completed the acquisition of certain oil and natural gas producing properties and undeveloped acreage within the Delaware Basin, from Cimarex Energy Company and certain of its subsidiaries (collectively, the “Seller”) for total cash consideration of $538.6 million, including customary purchase price adjustments (the “Cimarex Acquisition”). The acquired properties include approximately 28,000 net surface acres in Callon’s Spur operating area in the Delaware Basin, over 90% of which are held by production, that are primarily adjacent to its existing position.
The Cimarex Acquisition was not accounted for as a separate subsidiary or division during the periods presented. Accordingly, complete financial statements under U.S. generally accepted accounting principles (“GAAP”) are not available, or practicable to obtain for the Cimarex Acquisition. The Statement of Revenues and Direct Operating Expenses is not intended to be a complete presentation of the results of operations of the Cimarex Acquisition, and may not be representative of future operations as they do not include general and administrative expenses, effects of derivative transactions, interest income or expense, depreciation, depletion and amortization, provision for income taxes and other income and expense items not directly associated with revenues from oil and natural gas. The accompanying Statement of Revenues and Direct Operating Expenses is presented in lieu of the full financial statements required under Rule 3-05 of the Securities and Exchange Commission (the “SEC”) Regulation S-X.
Revenue Recognition and Natural Gas Balancing
Revenue is recognized under the entitlement method of accounting in the accompanying Statement of Revenues and Direct Operating Expenses. Under this method, revenue is deferred for deliveries in excess of the Cimarex Acquisition’s net revenue interest, while revenue is accrued for the undelivered volumes. The revenue received from the sale of natural gas liquids is included in natural gas sales. Revenues related to the sales of oil and natural gas totaled approximately $103.4 million for the year ended December 31, 2017. The Cimarex Acquisition had no significant imbalances during the periods presented.
Direct Operating Expenses
Direct operating expenses are recognized when incurred and include amounts incurred to bring oil and natural gas to the surface, gather, transport, field process, treat and store. Direct operating expenses also include expenses associated with support personnel, support services, equipment, and facilities related to oil and gas production activities.
Excluded Expenses
Indirect general and administrative expenses, interest expense, income taxes, and other indirect expenses have not been allocated to the Cimarex Acquisition by Cimarex Energy and as such, have been excluded from the accompanying statements. Any allocation of such indirect expenses may not be indicative of costs which would have been incurred by Callon on a stand-alone basis. Depreciation, depletion, and amortization expense has also been excluded from the accompanying statement of revenues and direct operating expenses as such amounts would not be indicative of the depletion calculated by Callon on the Cimarex Acquisition properties on a stand-alone basis.
Concentration of Credit Risk
Arrangements for oil and natural gas sales are evidenced by signed contracts with determinable market prices, and revenues are recorded when production is delivered. A significant majority of the purchasers of these products have investment grade credit rating and material credit losses have been rare.
Note 2 - Subsequent Events
The Company has evaluated subsequent events through November 14, 2018, the date the accompanying Statement of Revenues and Direct Operating Expenses was available to be issued. There were no material subsequent events that required recognition or additional disclosure in the accompanying Statement of Revenue and Direct Operating Expenses.
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Note 3 - Contingencies
The activities of the Cimarex Acquisition’s working interest may become subject to potential claims and litigation in the normal course of operations. The Sellers do not believe that any liability resulting from any pending or threatened litigation will have a material adverse effect on the operations or financial results of the Cimarex Acquisition’s working interests.
Note 4 - Supplemental Oil and Natural Gas Information (Unaudited)
The following tables summarize the net ownership interest in the proved oil and natural gas reserves and the standardized measure of discounted future net cash flows related to the proved oil and natural gas reserves for the Cimarex Acquisition. Natural gas volumes include natural gas liquids.
Proved reserves as of December 31, 2017 were estimated by qualified petroleum engineers engaged by the Company using historical data and other information from the records of the Sellers.
Numerous uncertainties are inherent in establishing quantities of proved reserves. The following reserve data represents estimates only, and should not be deemed exact. In addition, the standardized measure of discounted future net cash flows should not be construed as the current market value of the Cimarex Acquisition or the cost that would be incurred to obtain equivalent reserves.
All information set forth herein relating to the proved reserves as of December 31, 2017, including the estimated future net cash flows and present values, from those dates, is taken or derived from the records of the Sellers of the Cimarex Acquisition. The estimates of reserves attributable to the Cimarex Acquisition may include development plans for those properties which are different from those that the Company will ultimately implement. These estimates were based upon review of historical production data and other geological, economic, ownership, and engineering data provided related to the reserves. No reports on these reserves have been filed with any federal agency. In accordance with the SEC’s guidelines, estimates of proved reserves and the future net revenues from which present values are derived were based on an unweighted 12-month average of the first-day-of-the-month price for the period, and held constant throughout the life of the Cimarex Acquisition. Operating costs, development costs, and certain production-related taxes, which are based on current information and held constant, were deducted in arriving at estimated future net revenues.
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The proved reserves of the Cimarex Acquisition, all held within the United States, together with the changes therein are as follows:
For the year ended | ||
Changes in Reserve Quantities | December 31, 2017 | |
Oil (MBbls) | ||
Beginning of period | 22,755 | |
Revisions to previous estimates | — | |
Extensions and discoveries | 5,162 | |
Production | (2,340 | ) |
End of period | 25,577 | |
Natural Gas (MMcf) | ||
Beginning of period | 42,591 | |
Revisions to previous estimates | — | |
Extensions and discoveries | 8,531 | |
Production | (1,918 | ) |
End of period | 49,204 | |
MBoe | ||
Beginning of period | 29,854 | |
Revisions to previous estimates | — | |
Extensions and discoveries | 6,584 | |
Production | (2,660 | ) |
End of period | 33,778 | |
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For the year ended | ||
Reserve Quantities | December 31, 2017 | |
Oil (MBbls) | ||
Proved developed reserves: | ||
Beginning of the period | 17,433 | |
End of period | 16,752 | |
Proved undeveloped reserves: | ||
Beginning of the period | 5,322 | |
End of period | 8,825 | |
Natural Gas (MMcf) | ||
Proved developed reserves: | ||
Beginning of the period | 28,830 | |
End of period | 30,189 | |
Proved undeveloped reserves: | ||
Beginning of the period | 13,761 | |
End of period | 19,015 | |
MBoe | ||
Proved developed reserves: | ||
Beginning of the period | 22,238 | |
End of period | 21,784 | |
Proved undeveloped reserves: | ||
Beginning of the period | 7,616 | |
End of period | 11,994 | |
Future cash inflows are computed by applying a 12-month average of the first day of the month commodity price adjusted for location and quality differentials for 2017 to year-end quantities of proved reserves. Future development costs include future asset retirement costs. Future production costs do not include any general and administrative expenses. Future income taxes uses the Company's statutory tax rate for 2017 of 21%. A discount factor of 10% was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair value of the Cimarex Acquisition.
The discounted future cash flow estimates do not include the effects of derivative instruments. The average price used per commodity follows:
2017 | |||
Average 12-month price, net of differentials, per barrel of oil | $ | 48.06 | |
Average 12-month price, net of differentials, per Mcf of natural gas | $ | 2.77 | |
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Standardized measure of discounted future net cash flows relating to proved reserves was as follows (in thousands):
Standardized Measure For the Year Ended December 31, 2017 | |||
Future cash inflows | $ | 1,365,528 | |
Future costs - | |||
Production | (481,632 | ) | |
Development and net abandonment | (124,080 | ) | |
Future net inflows before income taxes | 759,816 | ||
Future income taxes | (88,684 | ) | |
Future net cash flows | 671,132 | ||
10% discount factor | (357,150 | ) | |
Standardized measure of discounted future net cash flows | $ | 313,982 | |
The principal changes in standardized measure of discounted future net cash flows were as follows (in thousands):
Changes in Standardized Measure For the Year Ended December 31, 2017 | |||
Standardized measure at the beginning of the period | $ | 201,551 | |
Changes | |||
Sales and transfers, net of production costs | (68,277 | ) | |
Net change in sales and transfer prices, net of production costs | 108,556 | ||
Extensions, discoveries, and improved recovery, net of future production and development costs incurred | 59,570 | ||
Changes in future development cost | (16,099 | ) | |
Revisions of quantity estimates | 7 | ||
Accretion of discount | 23,367 | ||
Net change in income taxes | (4,702 | ) | |
Changes in production rates, timing and other | 10,009 | ||
Aggregate change | 112,431 | ||
Standardized measure at the end of the period | $ | 313,982 | |
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Cimarex Acquisition
Unaudited Statement of Revenues and Direct Operating Expenses
(in thousands)
For the Six Months Ended | ||||||
June 30, 2018 | June 30, 2017 | |||||
Revenues | $ | 60,469 | $ | 51,934 | ||
Direct operating expenses: | ||||||
Lease operating expense | 18,899 | 14,934 | ||||
Production taxes | 2,886 | 2,508 | ||||
Total direct operating expenses | 21,785 | 17,442 | ||||
Revenues in excess of direct operating expenses | $ | 38,684 | $ | 34,492 | ||
See accompanying Notes to the Unaudited Statement of Revenues and Direct Operating Expenses.
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Cimarex Acquisition
Notes to the Unaudited Statement of Revenues and Direct Operating Expenses
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
On August 31, 2018, Callon Petroleum Operating Company, a wholly owned subsidiary of Callon Petroleum Company (“Callon” or the “Company”) completed the acquisition of certain oil and natural gas producing properties and undeveloped acreage within the Delaware Basin, from Cimarex Energy Company and certain of its subsidiaries (collectively, the “Seller”) for total cash consideration of $538.6 million, including customary purchase price adjustments (the “Cimarex Acquisition”). The acquired properties include approximately 28,000 net surface acres in Callon’s Spur operating area in the Delaware Basin, over 90% of which are held by production, that are primarily adjacent to its existing position.
The Cimarex Acquisition was not accounted for as a separate subsidiary or division during the periods presented. Accordingly, complete financial statements under U.S. generally accepted accounting principles (“GAAP”) are not available or practicable to obtain for the Cimarex Acquisition. The Statement of Revenues and Direct Operating Expenses is not intended to be a complete presentation of the results of operations of the Cimarex Acquisition and may not be representative of future operations as they do not include general and administrative expenses, effects of derivative transactions, interest income or expense, depreciation, depletion and amortization, provision for income taxes and other income and expense items not directly associated with revenues from oil and natural gas. The accompanying Statement of Revenues and Direct Operating Expenses is presented in lieu of the full financial statements required under Rule 3-05 of the Securities and Exchange Commission (the “SEC”) Regulation S-X.
In the opinion of management, the accompanying unaudited Statement of Revenues and Direct Operating Expenses reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Cimarex Acquisition’s revenues and direct operating expenses for the periods indicated.
Revenue Recognition and Natural Gas Balancing
Revenue is recognized under the entitlement method of accounting in the accompanying Statement of Revenues and Direct Operating Expenses. Under this method, revenue is deferred for deliveries in excess of the Cimarex Acquisition’s net revenue interest, while revenue is accrued for the undelivered volumes. The revenue received from the sale of natural gas liquids is included in natural gas sales. The Cimarex Acquisition had no significant imbalances during the periods presented.
Direct Operating Expenses
Direct operating expenses are recognized when incurred and include amounts incurred to bring oil and natural gas to the surface, gather, transport, field process, treat and store. Direct operating expenses also include expenses associated with support personnel, support services, equipment, and facilities related to oil and gas production activities.
Excluded Expenses
Indirect general and administrative expenses, interest expense, income taxes, and other indirect expenses have not been allocated to the Cimarex Acquisition by Cimarex Energy and as such, have been excluded from the accompanying statements. Any allocation of such indirect expenses may not be indicative of costs which would have been incurred by Callon on a stand-alone basis. Depreciation, depletion, and amortization expense has also been excluded from the accompanying statement of revenues and direct operating expenses as such amounts would not be indicative of the depletion calculated by Callon on the Cimarex Acquisition properties on a stand-alone basis.
Concentration of Credit Risk
Arrangements for oil and natural gas sales are evidenced by signed contracts with determinable market prices, and revenues are recorded when production is delivered. A significant majority of the purchasers of these products have investment grade credit rating and material credit losses have been rare.
Note 2 - Subsequent Events
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The Company has evaluated subsequent events through November 14, 2018, the date the accompanying Statement of Revenues and Direct Operating Expenses were available to be issued. There were no material subsequent events that required recognition or additional disclosure in the accompanying Statement of Revenue and Direct Operating Expenses.
Note 3 – Contingencies
The activities of the Cimarex Acquisition’s working interest may become subject to potential claims and litigation in the normal course of operations. The Sellers do not believe that any liability resulting from any pending or threatened litigation will have a material adverse effect on the operations or financial results of the Cimarex Acquisition properties’ working interests.
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