8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

_______________________________________

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report

May 26, 2016

(Date of earliest event reported)

Callon Petroleum Company

(Exact name of registrant as specified in its charter)

Delaware	001-14039	64-0844345
(State or other jurisdiction of	(Commission File Number)	(I.R.S. Employer
incorporation or organization)		Identification Number)

200 North Canal St.

Natchez, Mississippi  39120

(Address of principal executive offices, including zip code)

(601) 442-1601

(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

As previously disclosed in its Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on April 19, 2016and May 31, 2016, Callon Petroleum Company (the “Company”) entered into a  definitive purchase and sale agreement with BSM Energy LP, Crux Energy LP and Zaniah Energy LPto acquire 17,298 gross (14,089 net) acres primarily located in Howard County, Texas (the “Acquisition”). On May 26, 2016, the Company completed the Acquisition for total cash consideration of $220 million and 9,333,333 million shares of common stock for a total purchase price of $329.6 million, subject to customary purchase price adjustments, with an effective date of May 1, 2016. The Company acquired an 81% average working interest (61% average net revenue interest) in the Acquisition.

This Current Report on Form 8-K/Aprovides financial statements of the Acquisition and the pro forma financial statements required by Item 9.01 of Form 8-K. This Current Report on Form 8-K/A should be read in connection with the Current Reports onForm 8-K filed on April 19, 2016 and May 31, 2016, which provide a more complete description of the Acquisition.

Section 9 – Financial Statements and Exhibits

Item 9.01.  Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

Audited Statements of Revenues and Direct Operating Expenses of the Acquisition for the two years in the periods ended December 31, 2015  and 2014and Unaudited Statements of Revenues and Direct Operating Expenses of the Acquisition for the three months ended March 31, 2016 and 2015, are attached hereto as Exhibit 99.1.

(b) Pro formafinancial information.

Unaudited Pro Forma Consolidated Financial Statements of the Company as of March 31, 2016 and for the year ended December 31, 2015 and for the three months ended March 31, 2016, are attached hereto as Exhibit 99.2.

(d) Exhibits

Exhibit Number	Exhibit Description
23.1	Consent of Weaver and Tidwell, LLP
99.1	Audited and Unaudited Statements of Revenues and Direct Operating Expenses
99.2	Unaudited Pro Forma Consolidated Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Callon Petroleum Company
	(Registrant)
August 3, 2016	By:  /s/ Joseph C. Gatto, Jr.
	Joseph C. Gatto, Jr.
	Chief Financial Officer, Senior Vice President and Treasurer

Exhibit Index

Exhibit Number	Exhibit Description
23.1	Consent of Weaver and Tidwell, LLP
99.1	Audited and Unaudited Statements of Revenues and Direct Operating Expenses
99.2	Unaudited Pro Forma Consolidated Financial Statements

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3ASR (No. 333-210612), Form S-8 (No. 333-212044), Form S-8 (No.333-109744), Form S-8 (No.333-176061), Form S-8 (No.333-100646), and Form S-8 (No.333-188008) of Callon Petroleum Company of our report dated July 19, 2016 relating to the Combined Statements of Revenues and Direct Operating Expenses of the Acquired Properties, as defined in Note 1 - Summary of Significant Accounting Policies, for the years ended December 31, 2015 and 2014 appearing in this Form 8-K.

	/s/ WEAVER & TIDWELL, L.L.P.
	Weaver & Tidwell, L.L.P.
August 3, 2016

EX-99.1

Exhibit 99.1

Acquired Properties

Statements of Revenues and Direct Operating Expenses

For the Years Ended December 31, 2015 and 2014 and

For the Three Months Ended March 31, 2016 and 2015

CONTENTS

	Page
Independent Auditor’s Report	1
Financial Statements
Audited Statements of Revenues and Direct Operating Expenses	2
Notes to the Audited Statements of Revenues and Direct Operating Expenses	3
Unaudited Statements of Revenues and Direct Operating Expenses	7
Notes to the Unaudited Statements of Revenues and Direct Operating Expenses	8

Independent Auditor’s Report

To the Partners of

BSM Energy LP and Affiliates

Midland, Texas

We have audited the accompanying combined statements of revenues and direct operating expenses of the properties purchased by Callon Petroleum Operating Company from BSM Energy LP, Crux Energy LP and Zaniah Energy, LP, subject to the Purchase and Sale Agreement dated April 19, 2016 (the “Properties”) for the years ended December 31, 2015 and 2014, and the related notes (the “Financial Statements”).

Management’s Responsibility for the Statements

Management is responsible for the preparation and fair presentation of the FinancialStatements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the FinancialStatements that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the FinancialStatements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the Financial Statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Financial Statements, 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 Statements 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 controls. 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 Statements.

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 Statements referred to above present fairly, in all material respects, the revenues and direct operating expenses of the Properties for the years ended December 31, 2015 and 2014, in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

We draw attention to Note 1 to the Financial Statements, which describes that the accompanying Financial Statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the Properties’ revenues and expenses. Our opinion is not modified with respect to this matter.

Other Matter

We were not engaged to audit or review the combined schedules of revenues and direct operating expenses of the Properties for the three month periods ended March 31, 2016 and 2015, and the related notes (the “interim financial information”) also included in this filing document and, therefore, we do not express an opinion or provide any level of assurance on such interim financial information.

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WEAVER AND TIDWELL, L.L.P.

Houston, Texas

July 19, 2016

2

Acquired Properties

Audited Statements of Revenues and Direct Operating Expenses

(in thousands)

	For the Years Ended December 31,
	2015		2014
Revenues	$	19,447	$	19,755
Direct operating expenses:
Lease operating expenses		4,304		4,097
Production taxes		842		986
Total direct operating expenses		5,146		5,083
Revenues in excess of direct operating expenses	$	14,301	$	14,672

See accompanying Notes to the Audited Statements of Revenues and Direct Operating Expenses.

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Acquired Properties

Notes to the Audited Statements of Revenues and Direct Operating Expenses

(Unless otherwise indicated, dollar amounts included in the notes are presented in thousands)

NOTE  1 - Summary of Significant Accounting Policies

Basis of Presentation

On April 19, 2016, Callon Petroleum Company (the “Company”) entered into a definitive purchase and sale agreement (the “Agreement”) with BSM Energy LP, Crux Energy LP and Zaniah Energy, LP  (collectively, the “Sellers”) to acquire 17,298 gross (14,089 net) acres primarily located in Howard County, Texas, in the central portion of the Midland Basin (the “Acquired Properties”), for an aggregate purchase price of $220 million in cash and 9,333,333 shares of common stock for a total purchase price of approximately $329.6 million, subject to customary purchase price adjustments, with an effective date of May 1, 2016.  The acquisition closed on May 26, 2016.

The Acquired Properties were 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 Acquired Properties. The Statements of Revenues and Direct Operating Expenses are not intended to be a complete presentation of the results of operations of the Acquired Properties 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 natural gas, natural gas liquids (“NGLs”) and crude oil. The accompanying Statements of Revenues and Direct Operating Expenses are presented in lieu of the full financial statements required under Rule 3-05 of 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 Statements of Revenues and Direct Operating Expenses. Under this method, revenue is deferred for deliveries in excess of the Acquired Properties’ net revenue interest, while revenue is accrued for the undelivered volumes. The revenue received from the sale of NGLs is included in natural gas sales.Revenues related to the sales of hydrocarbons totaled approximately $19.3 million and $19.3 million for the years ended December 31, 2015 and 2014, respectively. The Acquired Properties had no significant imbalancesduring the periods presented.

All intercompany accounts and transactions have been eliminated in the financial statements, including revenues and expenses for saltwater disposal services. Revenues related to saltwater disposal services rendered to third parties totaled approximately $0.1 million and $0.4 million for the years ended December 31, 2015 and 2014, respectively. Revenues of the Sellers attributable to saltwater disposal services rendered to the Company have been eliminated, along with the corresponding saltwater disposal expenses recognized by the Company.

Direct Operating Expenses

Direct operating expenses are recognized when incurred and include amounts incurred to bring crude oil, natural gas, and natural gas liquids to the surface, gather, transport, field process, treat and store same, as well as costs associated with the operation of saltwater disposal wells.

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.

The Acquired Properties had revenues from six purchasers, which accounted for approximately 100% and 98% of total oil and gas revenues for the years ended December 31, 2015 and 2014, respectively. This concentration of customers may impact the Acquired Properties’ overall business risk, either positively or negatively, in that these entities may be similarly affected by changes in

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economic or other conditions. The Sellers believe this risk is mitigated by the size, reputation and nature of its purchasers. All of the Acquired Properties’ revenues are from oil and gas production in Texas. These concentrations may also impact the Acquired Properties by changes in the Texas region.

Use of Estimates

The preparation of the Statements of Revenues and Direct Operating Expenses in conformity with GAAP requires estimates and assumptions that affect the reported amounts of revenues and direct operating expenses during the respective reporting periods. Actual results may differ from estimates and assumptions used in the preparation of the Statements ofRevenues and Direct Operating Expenses.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will replace most of the existing revenue recognition requirements in GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, deferring the effective date of ASU 2014-09 by one year. As a result, the standard is effective for annual periods beginning on or after December 31, 2017, including interim periods within that reporting period. The Company is currently evaluating the method of adoption and impact this standard will have on its financial statements and related disclosures.

NOTE  2  -  Subsequent Events

No subsequent events have occurred subsequent to December 31, 2015, but beforeJuly 19, 2016, the date the Statements of Revenues and Direct Operating Expenses  were available to be issued, that require consideration as adjustments to or disclosure in the Statements of Revenues and Direct Operating Expenses.

NOTE 3 – Contingencies

The activities of the Acquired Properties’ 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 Properties’ working interests.

NOTE4  -  Supplemental Oil and Gas Information (Unaudited)

The following tables summarize the net ownership interest in the proved oil and gas reserves and the standardized measure of discounted future net cash flows related to the proved oil and gas reserves for the Acquired Properties. Natural gas volumes include natural gas liquids.

Proved reserves as of December 31, 2015 and 2014 were estimated by qualified petroleum engineers of 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 Company’s oil and natural gas properties 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, 2015 and 2014, 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 Acquired Properties. The estimates of reserves attributable to the 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

5

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 derivedwere based on an unweighted 12-month average of the first-day-of-the-month price for the period, held constant throughout the life of the Acquired Properties. 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.

The proved reserves of the Acquired Properties, all held within the United States,together with the changes therein are as follows:

	Changes in Reserve Quantities
	For the Years Ended December 31,
	2015	2014
Proved developed and undeveloped reserves:
Oil (MBbls):
Beginning of period	10,478	2,931
Revisions to previous estimates	5,792	(2,046)
Extensions and discoveries	9,810	9,828
Production	(458)	(235)
End of period	25,622	10,478
Natural Gas (MMcf):
Beginning of period	18,047	10,378
Revisions to previous estimates	7,287	(6,071)
Extensions and discoveries	15,326	14,572
Production	(854)	(832)
End of period	39,806	18,047

	Reserve Quantities
	For the Years Ended December 31,
	2015	2014
Proved developed:
Oil (MBbls)
Beginning of period	858	1,023
End of period	3,380	858
Natural gas (MMcf)
Beginning of period	4,401	3,835
End of period	8,064	4,401
MBOE:
Beginning of period	1,592	1,662
End of period	4,724	1,592
Proved undeveloped reserves:
Oil (MBbls)
Beginning of period	9,620	1,908
End of period	22,242	9,620
Natural gas (MMcf)
Beginning of period	13,646	6,543
End of period	31,742	13,646
MBOE:
Beginning of period	11,894	2,998
End of period	27,532	11,894

Future cash inflows are computed by applying a 12-month average commodity price adjusted for location and quality differentials for 2015 and 2014 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. 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 Acquired Properties.

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The discounted future cash flow estimates do not include the effects of derivative instruments. The average price used per commodity follows:

	2015		2014
Average 12-month price, net of differentials, per Mcf of natural gas	$	3.33	$	5.71
Average 12-month price, net of differentials, per barrel of oil	$	46.31	$	86.33

Standardized measure of discounted future net cash flows relating to proved reserves was as follows (in thousands):

		Standardized Measure
		For the Years Ended December 31,
		2015		2014
Future cash inflows	$	1,320,143	$	1,008,356
Future costs -
Production		(355,048)		(210,864)
Development and net abandonment		(294,638)		(229,283)
Future net inflows before income taxes		670,457		568,209
Future income taxes		(54,703)		(47,347)
Future net cash flows		615,754		520,862
10% discount factor		(466,729)		(397,447)
Standardized measure of discounted future net cash flows	$	149,025	$	123,415

The principal changes in standardized measure of discounted future net cash flows were as follows (in thousands):

		Changes in Standardized Measure
		For the Years Ended December 31,
		2015		2014
Standardized measure at the beginning of the period	$	123,415	$	22,386
Changes
Sales and transfers, net of production costs		(17,573)		(19,645)
Net change in sales and transfer prices, net of production costs		(123,284)		186,219
Extensions, discoveries, and improved recovery, net of future production and development costs incurred		116,430		77,207
Changes in future development cost		27,736		54,068
Revisions of quantity estimates		60,431		(199,173)
Accretion of discount		17,076		3,728
Net change in income taxes		(12,715)		(32,448)
Changes in production rates, timing and other		(42,491)		31,073
Aggregate change		25,610		101,029
Standardized measure at the end of period	$	149,025	$	123,415

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Acquired Properties

Unaudited Statements of Revenues and Direct Operating Expenses

(in thousands)

	For the Three Months Ended March 31,
	2016		2015
Revenues	$	5,375	$	2,622
Direct operating expenses:
Lease operating expenses		1,446		605
Production taxes		335		134
Total direct operating expenses		1,781		739
Revenues in excess of direct operating expenses	$	3,594	$	1,883

t

8

Acquired Properties

Notes to the Unaudited Statements of Revenues and Direct Operating Expenses

(Unless otherwise indicated, dollar amounts included in the notes are presented in thousands)

NOTE 1 - Summary of Significant Accounting Policies

Basis of Presentation

On April 19, 2016, Callon Petroleum Company (the “Company”) entered into a definitive purchase and sale agreement (the “Agreement”) with BSM Energy LP, Crux Energy LP, and Zaniah Energy, LP (the “Sellers”) to acquire 17,298 gross (14,089 net) acres primarily located in Howard County, Texas, in the central portion of the Midland Basin (the “Acquired Properties”), for an aggregate purchase price of $220 million in cash and 9,333,333 shares of common stock, subject to customary purchase price adjustments. The acquisition closed on May 26, 2016.

The Acquired Properties were 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 Acquired Properties. The Statements of Revenues and Direct Operating Expenses are not intended to be a complete presentation of the results of operations of the Acquired Properties 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 natural gas, natural gas liquids (“NGLs”) and crude oil. The accompanying Statements of Revenues and Direct Operating Expenses are presented in lieu of the full financial statements required under Rule 3-05 of Securities and Exchange Commission (the “SEC”) Regulation S-X.

In the opinion of management, the accompanying unaudited Statements of Revenues and Direct Operating Expenses reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Acquired Properties’ 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 Statements of Revenues and Direct Operating Expenses. Under this method, revenue is deferred for deliveries in excess of the Acquired Properties’ net revenue interest, while revenue is accrued for the undelivered volumes. The revenue received from the sale of NGLs is included in natural gas sales. The Acquired Properties had no significant imbalances during the periods presented.

Direct Operating Expenses

Direct operating expenses are recognized when incurred and include amounts incurred to bring crude oil, natural gas, and natural gas liquids to the surface, gather, transport, field process, treat and store same, as well as costs associated with the operation of saltwater disposal wells.

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.

Use of Estimates

The preparation of the Statements of Revenues and Direct Operating Expenses in conformity with GAAP requires estimates and assumptions that affect the reported amounts of revenues and direct operating expenses during the respective reporting periods. Actual results may differ from estimates and assumptions used in the preparation of the Statements of Revenues and Direct Operating Expenses.

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NOTE 2 - Subsequent Events

No subsequent events have occurred subsequent to December 31, 2015, but beforeAugust 3, 2016, the date the Unaudited Statements of Revenues and Direct Operating Expenses were available to be issued, that require consideration as adjustments to or disclosure in the Unaudited Statements of Revenues and Direct Operating Expenses.

NOTE 3 – Contingencies

The activities of the Acquired Properties’ 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 Properties’ working interests.

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EX-99.2

Exhibit 99.2

CALLON PETROLEUM COMPANY, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

On April 19, 2016, Callon Petroleum Company (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 (the “Acquired Properties”), for an aggregate purchase price of $220 million in cash and 9,333,333 shares of common stock, subject to customary purchase price adjustments. The acquisition closed on May 26, 2016. The Company acquired an 81% average working interest (61% average net revenue interest) in the Acquired Properties.  

On April 25, 2016, the Company completed an underwritten public offering of 25,300,000 shares of common stock at $8.50 per share, before underwriting discounts resulting in estimated net proceeds of $206.1 million after deducting $9.0 million of estimated underwriting commissions and issuance costs. Proceeds from the offering were used to fund a portion of the acquisition.

We derived the unaudited pro forma consolidated financial statements from the historical consolidated financial statements of the Company and the statements of revenues and direct operating expenses of the Acquired Properties for the respective periods. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2015 and three months ended March 31, 2016 give effect to the acquisition,  borrowings under our senior secured revolving credit facilityto fund the acquisition, and the issuances of common stock referred to above as if they occurred on January 1, 2015. The unaudited pro forma consolidated balance sheet as of March 31, 2016 gives effect to such transactions as if they occurred on March 31, 2016.

The pro forma adjustments are based on available information and certain assumptions that we believe are reasonable as of the date of this Current Report on Form 8-K. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated financial statements. The pro forma adjustments reflected herein are based on management’s expectations regarding the acquisition,the issuances of common stock and the debt transactions discussed above. The acquisition will be accounted for under the purchase method of accounting, which involves determining the fair values of assets acquired and liabilities assumed. The purchase price allocation included in the unaudited pro forma financial statements is preliminary and based on management’s best estimates as of the date of this Current Report on Form 8-K. The preliminary purchase price allocation is subject to change based on numerous factors, including the final adjusted purchase price and the final estimated fair value of the assets acquired and liabilities assumed. Any such adjustments to the preliminary estimates of fair value reflected in the accompanying unaudited pro forma consolidated financial statements could be material.

The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the transactions been consummated on the dates or for the periods presented. The unaudited pro forma consolidated financial statements should be read in conjunction with the audited December 31, 2015 consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed on March 3, 2016, the unaudited March 31, 2016 consolidated financial statements contained in the Company’s Quarterly Report on Form 10-Q filed on May 4, 2016, the audited statements of revenues and direct operating expenses of the Acquired Properties for the year ended December 31, 2015 filed with this Current Report on Form 8-K, and the unaudited statements of revenues and direct operating expenses of the Acquired Properties for the three months ended March 31, 2016 filed with this Current Report on Form 8-K.

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CALLON PETROLEUM COMPANY
Unaudited Pro Forma Consolidated Balance Sheet
as of March 31, 2016
($ in thousands, except share data)
	Historical		Acquired Properties Adjustments			Pro forma
ASSETS
Current assets:
Cash and cash equivalents	$	9,511	$	(9,511)	(e)	$	—
Accounts receivable		33,683		—			33,683
Fair value of derivatives		15,585		—			15,585
Other current assets		881		—			881
Total current assets		59,660		(9,511)			50,149
Oil and natural gas properties, full cost accounting method:
Evaluated properties		2,390,105		96,194	(a)		2,486,299
Less accumulated depreciation, depletion, amortization and impairment		(1,806,509)		—			(1,806,509)
Net oil and natural gas properties		583,596		96,194			679,790
Unevaluated properties		129,211		233,387	(a)		362,598
Total oil and natural gas properties		712,807		329,581			1,042,388
Other property and equipment, net		9,757		—			9,757
Restricted investments		3,315		—			3,315
Deferred financing costs		3,359		—			3,359
Other assets, net		366		—			366
Total assets	$	789,264	$	320,070		$	1,109,334
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	62,536	$	—		$	62,536
Accrued interest		5,879					5,879
Cash-settleable restricted stock unit awards		3,798		—			3,798
Asset retirement obligations		833		—			833
Fair value of derivatives		688		—			688
Total current liabilities		73,734		—			73,734
Senior secured revolving credit facility		—		4,402	(d)		4,402
Secured second lien term loan, net of unamortized deferred financing costs		289,062		—			289,062
Asset retirement obligations		4,427		8	(a)		4,435
Cash-settleable restricted stock unit awards		2,682		—			2,682
Fair value of derivatives		3,602					3,602
Other long-term liabilities		211		—			211
Total liabilities		373,718		4,410			378,128
Stockholders' equity:
Preferred stock, series A cumulative, $0.01 par value and $50.00 liquidation
preference, 2,500,000 shares authorized: 1,458,948 shares outstanding		15		—			15
Common stock, $0.01 par value, 150,000,000 shares authorized;
96,093,938 shares outstanding		961		346	(b)(c)		1,307
Capital in excess of par value		798,532		315,314	(b)(c)		1,113,846
Accumulated deficit		(383,962)		—			(383,962)
Total stockholders' equity		415,546		315,660			731,206
Total liabilities and stockholders' equity	$	789,264	$	320,070		$	1,109,334

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CALLON PETROLEUM COMPANY
Unaudited Pro forma Consolidated Statements of Operations for the Year Ended December 31, 2015
($ in thousands, except share data)
	Historical		Acquired Properties			Pro forma Adjustments			Pro forma
Operating revenues:
Oil sales	$	125,166	$	—		$	—		$	*
Natural gas sales		12,346		—			—			*
Total operating revenues		137,512		19,447	(f)		—			156,959
Operating expenses:
Lease operating expenses		27,036		4,304	(f)		—			31,340
Production taxes		9,793		842	(f)		—			10,635
Depreciation, depletion and amortization		69,249		—			15,374	(g)		84,623
General and administrative		28,347		—			—			28,347
Accretion expense		660		—			5	(g)		665
Write-down of oil and natural gas properties		208,435		—			(68,205)	(h)		140,230
Rig termination fee		3,075		—			—			3,075
Acquisition expense		27		—			—			27
Total operating expenses		346,622		5,146			(52,826)			298,942
Income (loss) from operations		(209,110)		14,301			52,826			(141,983)
Other (income) expenses:
Interest (income) expense		21,111		—			(15,644)	(i)		5,467
Gain on derivative contracts		(28,358)		—			—			(28,358)
Other income		(198)		—			—			(198)
Total other income		(7,445)		—			(15,644)			(23,089)
Income (loss) before income taxes		(201,665)		14,301			68,470			(118,894)
Income tax expense		38,474		—			—	(j)		38,474
Net income (loss)		(240,139)		14,301			68,470			(157,368)
Preferred stock dividends		(7,895)		—			—			(7,895)
Income (loss) available to common stockholders	$	(248,034)	$	14,301		$	68,470		$	(165,263)
Loss per common share:
Basic	$	(3.77)							$	(1.65)
Diluted	$	(3.77)							$	(1.65)
Shares used in computing loss per common share:
Basic		65,708					34,633	(k)		100,341
Diluted		65,708					34,633	(k)		100,341

*No pro forma for oil and natural gas sales.

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CALLON PETROLEUM COMPANY
Unaudited Pro forma Consolidated Statements of Operations for the Three Months Ended March 31, 2016
($ in thousands, except share data)
	Historical		Acquired Properties			Pro forma Adjustments			Pro forma
Operating revenues:
Oil sales	$	27,443	$	—		$	—		$	*
Natural gas sales		3,255		—			—			*
Total operating revenues		30,698		5,375	(l)		—			36,073
Operating expenses:
Lease operating expenses		6,957		1,446	(l)		—			8,403
Production taxes		2,220		335	(l)		—			2,555
Depreciation, depletion and amortization		15,722		—			4,255	(m)		19,977
General and administrative		5,562		—			—			5,562
Accretion expense		180		—			(27)	(m)		153
Write-down of oil and natural gas properties		34,776		—			91,971	(n)		126,747
Acquisition expense		48		—			—			48
Total operating expenses		65,465		1,781			96,199			163,445
Income (loss) from operations		(34,767)		3,594			(96,199)			(127,372)
Other (income) expenses:
Interest (income) expense		5,491		—			(3,817)	(o)		1,674
Loss on derivative contracts		932		—			—			932
Other income		(81)		—			—			(81)
Total other (income) expenses		6,342		—			(3,817)			2,525
Income (loss) before income taxes		(41,109)		3,594			(92,382)			(129,897)
Income tax expense		—		—			—	(p)		—
Net income (loss)		(41,109)		3,594			(92,382)			(129,897)
Preferred stock dividends		(1,824)		—			—			(1,824)
Income (loss) available to common stockholders	$	(42,933)	$	3,594		$	(92,382)		$	(131,721)
Loss per common share:
Basic	$	(0.51)							$	(1.11)
Diluted	$	(0.51)							$	(1.11)
Shares used in computing loss per common share:
Basic		83,582					34,633	(q)		118,215
Diluted		83,582					34,633	(q)		118,215

*No pro forma for oil and natural gas sales.

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1. Basis of Presentation

On April 19, 2016, the Callon Petroleum Company (the “Company”) entered into a definitive purchase and sale agreement for the acquisitionof 17,298 gross (14,089 net) acres primarily located in Howard County, Texas, in the central portion of the Midland Basin (the “Acquired Properties”), for an aggregate purchase price of $220 million in cash and 9,333,333 shares of common stock, subject to customary purchase price adjustments. The acquisition closed on May 26, 2016. The Company acquired an 81% average working interest (61% average net revenue interest) in the Acquired Properties.  

On April 25, 2016, the Company completed an underwritten public offering of 25,300,000 shares of common stock at $8.50 per share, before underwriting discounts resulting in estimated net proceeds of $206.1 million after deducting $9.0 million of estimated underwriting commissions and issuance costs. Proceeds from the offering were used to fund a portion of the acquisition.

The accompanying unaudited consolidated pro forma financial statements present the consolidated financial statements of the Company, assuming the acquisition, borrowings under our senior secured revolving credit facility (the “Credit Facility”) to fund the acquisition, and the issuances of common stock discussed above, occurred as of March 31, 2016 for purposes of the pro forma consolidated balance sheet as of March 31, 2016, and assuming such transactions occurred as of January 1, 2015 for purposes of the pro forma consolidated statements of operations for the year ended December 31, 2015 and three months ended March 31, 2016.

The unaudited consolidated pro forma financial statements are presented for illustrative purposes only and do not purport to represent what the Company’s financial position or results of operations would have been if the acquisition, borrowings under our Credit Facility to fund the acquisition, andthe issuances of common stock had occurred as presented, or to project the Company’s financial position or results of operations for any future periods. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. The pro forma adjustments are directly attributable to the acquisition, borrowings under our Credit Facility to fund the acquisition, and the issuance of common stock and are expected to have a continuing impact on the Company’s results of operations. In the opinion of management, all adjustments necessary to present fairly the unaudited consolidated pro forma financial statements have been made.

2. Preliminary Purchase Accounting

The acquisition closed on May 26, 2016, for an aggregate purchase price of $220 million in cash and 9,333,333 shares of common stock, subject to customary purchase price adjustments.  The acquisition will be accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed are presented based on their estimated acquisition date fair values. The purchase price allocation below is preliminary and based on management’s best estimates as of the date of this Current Report on Form 8-K. The preliminary purchase price allocation is subject to change based on numerous factors, including the final adjusted purchase price and the final estimated fair value of the assets acquired and liabilities assumed. Any such adjustments to the preliminary estimates of fair value could be material.

The following table summarizes the estimated acquisition date fair values of the net assets to be acquired in the Acquisition (in thousands):

Oil and natural gas properties	$	96,194
Unevaluated oil and natural gas properties		233,387
Asset retirement obligations		(8)
Net assets to be acquired	$	329,573

3. Pro Forma Adjustments

Pro forma Consolidated Balance Sheet as of March 31, 2016

(a) To record the estimated fair value of the assets acquired and the liabilities assumed in the acquisition.

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(b) To record the issuance of 25,300,000 shares of common stock at $8.50 per share, before underwriting discounts  resulting in estimated net proceeds of $206.1 million after deducting $9.0  million of estimated underwriting commissions and issuance costs. The estimated net proceeds were used to partially fund the acquisition.

(c) To record the 9,333,333 shares of common stock issued as part of the purchase price at an assumed offering price of $11.74, which is the last reported sale price of our common stock on the New York Stock Exchange on May 26, 2016. The issued stock was used to partially fund the acquisition.

(d) To record borrowings under the Credit Facility to partially fund the acquisition.

(e) To record the net cash impact of the above pro forma adjustments.

Pro forma Statement of Operations for the year ended December 31, 2015

(f) To record the historical revenues and direct operating expenses related to the Acquired Properties.

(g) To record depreciation, depletion, and amortization and accretion of the asset retirement obligations related to the Acquired Properties.

(h) To record an adjustment to the write down of oil and natural gas properties. The Company uses the full cost method of accounting for its exploration and development activities. Under full cost accounting 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 “ceiling test calculation”). The present value of estimated net cash flows related to the Acquired Properties were derived from records of the Sellers and the development plans for those properties may be different from those that the Company will ultimately implement. As a result of including the Acquired Properties in the ceiling test calculation, the Company calculated a $140.3 million pro forma write down of oil and gas properties.

(i) To record $1.4 million of interest expense related to the borrowings under Credit Facility, offset by $17.0 million of estimated interest costs capitalized to unevaluated oil and gas properties. The Company capitalizes interest on unevaluated oil and gas properties.

(j) The Company typically provides for income taxes at a statutory rate of 35%, but as a result of the write-downs of oil and natural gas properties recognized in the third and fourth quarters of 2015, the Company has incurred a cumulative three year loss resulting in no income tax expense.

(k) To record the issuance of the shares of common stock previously mentioned in note (c) and (d).

Pro forma Statement of Operations for the three months ended March 31, 2016

(l) To record the historical revenues and direct operating expenses related to the Acquired Properties.

(m) To record depreciation, depletion, and amortization and accretion of the asset retirement obligations related to the Acquired Properties.

(n) To record the write down of oil and natural gas properties. As previously discussed, the Company included the Acquired Properties in the ceiling test calculation. The present value of estimated net cash flows related to the Acquired Properties was derived from the development plan of those properties that the Company plans to implement. As a result of including the Acquired Properties in the ceiling test calculation, the Company calculated a $127.1 million pro forma write down of oil and gas properties.

(o) To record $0.4 million of interest expense related to the borrowings under Credit Facility, offset by $4.2 million of estimated interest costs capitalized to unevaluated oil and gas properties. The Company capitalizes interest on unevaluated oil and gas properties.

(p) The Company typically provides for income taxes at a statutory rate of 35%, but as a result of the write-down of oil and natural gas properties recognized in the second half of 2015 and the first quarter of 2016, the Company has incurred a cumulative three year loss resulting in no income tax expense.

(q) To record the issuance of the shares of common stock previously mentioned in note (c) and (d).

4. Supplemental Oil and Gas Disclosures

The following table sets forth unaudited pro forma information with respect to the Company’s estimated proved reserves, including changes therein, and proved developed and proved undeveloped reserves for the year ended December 31, 2015, giving effect to the

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acquisition as if it had occurred on January 1, 2015. The estimates of reserves attributable to the Acquisition may include development plans for those properties which are different from those that the Company will ultimately implement. Reserve estimates are inherently imprecise, require extensive judgments of reservoir engineering data and are generally less precise than estimates made in connection with financial disclosures.

	Changes in Reserve Quantities
	Historical	Acquired Properties (a)	Pro forma
Proved developed and undeveloped reserves:
Oil (MBbls):
Proved reserves as of December 31, 2014	25,733	10,478	36,211
Revisions to previous estimates	(1,632)	5,792	4,160
Sale of reserves in place (net of purchases)	2,909	—	2,909
Extensions and discoveries	19,127	9,810	28,937
Production	(2,789)	(458)	(3,247)
Proved reserves as of December 31, 2015	43,348	25,622	68,970
Natural Gas (MMcf):
Proved reserves as of December 31, 2014	42,548	18,047	60,595
Revisions to previous estimates	4,870	7,287	12,157
Sale of reserves in place (net of purchases)	2,810	—	2,810
Extensions and discoveries	19,621	15,326	34,947
Production	(4,312)	(854)	(5,166)
Proved reserves as of December 31, 2015	65,537	39,806	105,343

(a) Proved reserves related to NGL volumes for the Acquired Properties are included in natural gas volumes.

The following tables present the unaudited pro forma standardized measure of future net cash flows related to proved oil and gas reserves together with changes therein, as defined by ASC Topic 932, for the year ended December 31, 2015, giving effect to the acquisition as if it had occurred on January 1, 2015. Future production and development costs are based on current costs with no escalations. Estimated future cash flows have been discounted to their present values based on a 10% annual discount rate. We have assumed the federal tax rate of 35% on the Acquired Properties. The disclosures below do not purport to present the fair market value of the Company’s oil and gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money, and risks inherent in reserve estimates.

		Standardized Measure
		For the Year Ended December 31, 2015
	Historical			Acquired Properties	Pro forma
Future cash inflows	$	2,227,463	$	1,320,143	$	3,547,606
Future costs -
Production		(827,555)		(355,048)		(1,182,603)
Development and net abandonment		(239,100)		(294,638)		(533,738)
Future net inflows before income taxes		1,160,808		670,457		1,831,265
Future income taxes		—		(54,703)		(54,703)
Future net cash flows		1,160,808		615,754		1,776,562
10% discount factor		(589,918)		(466,729)		(1,056,647)
Standardized measure of discounted future net cash flows	$	570,890	$	149,025	$	719,915

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The following table presents unaudited pro forma changes in the standardized measure of discounted future net cash flows for the year

ended December 31, 2015 relating to proved oil and natural gas reserves of the Company and the Acquired Properties.

		Changes in Standardized Measure
		For the Year Ended December 31, 2015
	Historical			Acquired Properties	Pro forma
Standardized measure at the beginning of the period	$	579,542	$	123,415	$	702,957
Changes
Sales and transfers, net of production costs		(110,476)		(17,573)		(128,049)
Net change in sales and transfer prices, net of production costs		(286,660)		(123,284)		(409,944)
Net change due to purchases and sales of in place reserves		37,616		—		37,616
Extensions, discoveries, and improved recovery, net of future
production and development costs incurred		184,469		116,430		300,899
Changes in future development cost		108,216		27,736		135,952
Revisions of quantity estimates		(12,625)		60,431		47,806
Accretion of discount		62,968		17,076		80,044
Net change in income taxes		35,407		(12,715)		22,692
Changes in production rates, timing and other		(27,567)		(42,491)		(70,058)
Aggregate change		(8,652)		25,610		16,958
Standardized measure at the end of period	$	570,890	$	149,025	$	719,915

The historical twelve-month average prices of oil and natural gas used in determining standardized measure as of December 31, 2015, were:

	Historical		Acquired Properties
Average 12-month price, net of differentials, per Mcf of natural gas	$	2.73	$	3.33
Average 12-month price, net of differentials, per barrel of oil	$	47.25	$	46.31

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