(Exact Name of Registrant as Specified in Its Charter) |
State or Other Jurisdiction of Incorporation or Organization | I.R.S. Employer Identification No. | ||
Address of Principal Executive Offices | Zip Code |
Registrant’s Telephone Number, Including Area Code | |||||||
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | |||
Emerging growth company |
Part I. Financial Information | |
Item 1. Financial Statements (Unaudited) | |
Part II. Other Information | |
• | ARO: asset retirement obligation. |
• | ASU: accounting standards update. |
• | Bbl or Bbls: barrel or barrels of oil or natural gas liquids. |
• | BOE: barrel of oil equivalent, determined by using the ratio of one Bbl of oil or NGLs to six Mcf of gas. The ratio of one barrel of oil or NGL to six Mcf of natural gas is commonly used in the industry and represents the approximate energy equivalence of oil or NGLs to natural gas, and does not represent the economic equivalency of oil and NGLs to natural gas. The sales price of a barrel of oil or NGLs is considerably higher than the sales price of six Mcf of natural gas. |
• | BOE/d: BOE per day. |
• | Btu: a British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit. |
• | Completion: The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas or, in the case of a dry hole, the reporting of abandonment to the appropriate agency. |
• | Cushing: An oil delivery point that serves as the benchmark oil price for West Texas Intermediate. |
• | FASB: Financial Accounting Standards Board. |
• | GAAP: Generally Accepted Accounting Principles in the United States. |
• | Henry Hub: A natural gas pipeline delivery point that serves as the benchmark natural gas price underlying NYMEX natural gas futures contracts. |
• | Horizontal drilling: A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval. |
• | LIBOR: London Interbank Offered Rate. |
• | LOE: lease operating expense. |
• | MBbls: thousand barrels of oil. |
• | MBOE: thousand BOE. |
• | Mcf: thousand cubic feet of natural gas. |
• | MEH: Magellan East Houston, a delivery point in Houston, Texas that serves as a benchmark for crude oil. |
• | MMBtu: million Btu. |
• | MMcf: million cubic feet of natural gas. |
• | NGL or NGLs: natural gas liquids, such as ethane, propane, butanes and natural gasoline that are extracted from natural gas production streams. |
• | NYMEX: New York Mercantile Exchange. |
• | Oil: includes crude oil and condensate. |
• | PUDs: proved undeveloped reserves. |
• | Realized price: The cash market price less all expected quality, transportation and demand adjustments. |
• | Royalty interest: An interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development. |
• | RSU: restricted stock units. |
• | SEC: United States Securities and Exchange Commission. |
• | Waha: A delivery point in West Texas that serves as the benchmark for natural gas. |
• | Working interest: An operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production and requires the owner to pay a share of the costs of drilling and production operations. |
• | WTI: West Texas Intermediate grade crude oil, used as a pricing benchmark for sales contracts and NYMEX oil futures contracts. |
June 30, 2019 | December 31, 2018 | |||||||
ASSETS | Unaudited | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable | ||||||||
Fair value of derivatives | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
Oil and natural gas properties, full cost accounting method: | ||||||||
Evaluated properties | ||||||||
Less accumulated depreciation, depletion, amortization and impairment | ( | ) | ( | ) | ||||
Evaluated oil and natural gas properties, net | ||||||||
Unevaluated properties | ||||||||
Total oil and natural gas properties, net | ||||||||
Operating lease right-of-use assets | — | |||||||
Other property and equipment, net | ||||||||
Restricted investments | ||||||||
Deferred financing costs | ||||||||
Fair value of derivatives | ||||||||
Other assets, net | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | $ | ||||||
Operating lease liabilities | — | |||||||
Accrued interest | ||||||||
Cash-settleable restricted stock unit awards | ||||||||
Asset retirement obligations | ||||||||
Fair value of derivatives | ||||||||
Other current liabilities | ||||||||
Total current liabilities | ||||||||
Senior secured revolving credit facility | ||||||||
6.125% senior unsecured notes due 2024 | ||||||||
6.375% senior unsecured notes due 2026 | ||||||||
Operating lease liabilities | — | |||||||
Asset retirement obligations | ||||||||
Cash-settleable restricted stock unit awards | ||||||||
Deferred tax liability | ||||||||
Fair value of derivatives | ||||||||
Other long-term liabilities | ||||||||
Total liabilities | ||||||||
Commitments and contingencies | ||||||||
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 | ||||||||
Common stock, $0.01 par value, 300,000,000 shares authorized; 228,263,955 and 227,582,575 shares outstanding, respectively | ||||||||
Capital in excess of par value | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ equity | ||||||||
Total liabilities and stockholders’ equity | $ | $ |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating revenues: | |||||||||||||||
Oil sales | $ | $ | $ | $ | |||||||||||
Natural gas sales | |||||||||||||||
Total operating revenues | |||||||||||||||
Operating expenses: | |||||||||||||||
Lease operating expenses | |||||||||||||||
Production taxes | |||||||||||||||
Depreciation, depletion and amortization | |||||||||||||||
General and administrative | |||||||||||||||
Settled share-based awards | |||||||||||||||
Accretion expense | |||||||||||||||
Other operating expense | |||||||||||||||
Total operating expenses | |||||||||||||||
Income from operations | |||||||||||||||
Other (income) expenses: | |||||||||||||||
Interest expense, net of capitalized amounts | |||||||||||||||
(Gain) loss on derivative contracts | ( | ) | |||||||||||||
Other income | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total other (income) expense | ( | ) | |||||||||||||
Income (loss) before income taxes | |||||||||||||||
Income tax (benefit) expense | |||||||||||||||
Net income (loss) | |||||||||||||||
Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income (loss) available to common stockholders | $ | $ | $ | $ | |||||||||||
Income (loss) per common share: | |||||||||||||||
Basic | $ | $ | $ | $ | |||||||||||
Diluted | $ | $ | $ | $ | |||||||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | |||||||||||||||
Diluted |
Six Months Ended June 30, | |||||||
Cash flows from operating activities: | 2019 | 2018 | |||||
Net income (loss) | $ | $ | |||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation, depletion and amortization | |||||||
Accretion expense | |||||||
Amortization of non-cash debt related items | |||||||
Deferred income tax (benefit) expense | |||||||
(Gain) loss on derivatives, net of settlements | |||||||
Loss on sale of other property and equipment | |||||||
Non-cash expense related to equity share-based awards | |||||||
Change in the fair value of liability share-based awards | |||||||
Payments to settle asset retirement obligations | ( | ) | ( | ) | |||
Payments for cash-settled restricted stock unit awards | ( | ) | ( | ) | |||
Changes in current assets and liabilities: | |||||||
Accounts receivable | |||||||
Other current assets | ( | ) | ( | ) | |||
Current liabilities | ( | ) | |||||
Other | ( | ) | ( | ) | |||
Net cash provided by operating activities | |||||||
Cash flows from investing activities: | |||||||
Capital expenditures | ( | ) | ( | ) | |||
Acquisitions | ( | ) | ( | ) | |||
Acquisition deposit | ( | ) | |||||
Proceeds from sale of assets | |||||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Cash flows from financing activities: | |||||||
Borrowings on senior secured revolving credit facility | |||||||
Payments on senior secured revolving credit facility | ( | ) | ( | ) | |||
Issuance of 6.375% senior unsecured notes due 2026 | |||||||
Issuance of common stock | |||||||
Payment of preferred stock dividends | ( | ) | ( | ) | |||
Payment of deferred financing costs | ( | ) | ( | ) | |||
Tax withholdings related to restricted stock units | ( | ) | ( | ) | |||
Other financing activities | ( | ) | |||||
Net cash provided by (used in) financing activities | ( | ) | |||||
Net change in cash and cash equivalents | |||||||
Balance, beginning of period | |||||||
Balance, end of period | $ | $ | |||||
Supplemental cash flow information: | |||||||
Interest paid, net of capitalized amounts | $ | $ | |||||
Income taxes paid | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from operating leases | — | ||||||
Investing cash flows from operating leases | — | ||||||
Non-cash investing and financing activities: | |||||||
Change in accrued capital expenditures | $ | ( | ) | $ | |||
Change in asset retirement costs | |||||||
Right-of-use assets obtained in exchange for operating lease liabilities | |||||||
Contingent consideration arrangement |
Preferred | Common | Capital in | Total | ||||||||||||||||||||||
Stock | Stock | Excess | Accumulated | Stockholders' | |||||||||||||||||||||
Shares | $ | Shares | $ | of Par | Deficit | Equity | |||||||||||||||||||
Balance at 12/31/2018 | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Net income (loss) | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Shares issued pursuant to employee benefit plans | — | — | — | — | |||||||||||||||||||||
Restricted stock | — | — | — | ||||||||||||||||||||||
Preferred stock dividend ($1.25 per share) | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance at 03/31/2019 | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Net income (loss) | — | — | — | — | — | ||||||||||||||||||||
Restricted stock | — | — | — | ||||||||||||||||||||||
Preferred stock dividend ($1.25 per share) | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Preferred stock redemption costs | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||
Balance at 06/30/2019 | $ | $ | $ | $ | ( | ) | $ |
Preferred | Common | Capital in | Total | ||||||||||||||||||||||
Stock | Stock | Excess | Accumulated | Stockholders' | |||||||||||||||||||||
Shares | $ | Shares | $ | of Par | Deficit | Equity | |||||||||||||||||||
Balance at 12/31/2017 | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Net income (loss) | — | — | — | — | — | ||||||||||||||||||||
Shares issued pursuant to employee benefit plans | — | — | — | — | |||||||||||||||||||||
Restricted stock | — | — | — | ||||||||||||||||||||||
Preferred stock dividend ($1.25 per share) | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance at 03/31/2018 | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Net income (loss) | — | — | — | — | — | ||||||||||||||||||||
Shares issued pursuant to employee benefit plans | — | — | — | — | |||||||||||||||||||||
Restricted stock | — | — | — | ||||||||||||||||||||||
Common stock issued | — | — | — | ||||||||||||||||||||||
Preferred stock dividend ($1.25 per share) | — | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||
Balance at 06/30/2018 | $ | $ | $ | $ | ( | ) | $ |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
8. | |||
9. | |||
3. | 10. | ||
4. | 11. | ||
5. | 12. | ||
6. | 13. | ||
7. |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
• | Whether any expired or existing contracts were or contained leases; |
• | The lease classification for any expired or existing leases; and |
• | Initial direct costs for any existing leases. |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
Evaluated oil and natural gas properties | $ | ||
Unevaluated oil and natural gas properties | |||
Asset retirement obligations | ( | ) | |
Net assets acquired | $ |
(amounts in thousands) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income (loss) | $ | $ | $ | $ | |||||||||||
Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income (loss) available to common stockholders | $ | $ | $ | $ | |||||||||||
Weighted average common shares outstanding | |||||||||||||||
Dilutive impact of restricted stock | |||||||||||||||
Weighted average common shares outstanding for diluted income (loss) per share | |||||||||||||||
Basic income (loss) per share | $ | $ | $ | $ | |||||||||||
Diluted income (loss) per share | $ | $ | $ | $ | |||||||||||
Restricted stock (a) |
(a) |
As of | ||||||||
Principal components: | June 30, 2019 | December 31, 2018 | ||||||
Senior secured revolving credit facility | $ | $ | ||||||
6.125% senior unsecured notes due 2024 | ||||||||
6.375% senior unsecured notes due 2026 | ||||||||
Total principal outstanding | ||||||||
Premium on 6.125% senior unsecured notes due 2024, net of accumulated amortization | ||||||||
Unamortized deferred financing costs | ( | ) | ( | ) | ||||
Total carrying value of borrowings (a) | $ | $ |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
(a) | Excludes unamortized deferred financing costs related to the Company’s senior secured revolving credit facility of $ |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
Year of Potential Settlement | Threshold (a) | Contingent Payment Amount | Threshold (a) | Contingent Payment Amount | Fair Value as of June 30, 2019 (b) | Aggregate Settlements Limit(c) | ||||||||
$ | ||||||||||||||
2019 | Greater than $60/bbl, less than $65/bbl | $ | Equal to or greater than $65/bbl | $ | $ | |||||||||
2020 | Greater than $60/bbl, less than $65/bbl | $ | Equal to or greater than $65/bbl | $ | $ | |||||||||
2021 | Greater than $60/bbl, less than $65/bbl | $ | Equal to or greater than $65/bbl | $ | (c) | $ |
(a) | The price used to determine whether the specified thresholds have been met is the average of the final monthly settlements for each month during each annual period end for NYMEX Light Sweet Crude Oil Futures, as reported by the CME Group Inc. |
(b) | Contingent consideration to be received will be classified as cash flows from financing activities up to the initial recognition fair value of $ |
(c) | In the event that the 2019 and 2020 prices exceed the $ |
As of June 30, 2019 | ||||||||||||||
Derivative Instrument | Balance Sheet Presentation | Asset | Liability | Net Asset (Liability) | ||||||||||
Commodity - Oil | Fair value of derivatives - Current | $ | $ | ( | ) | $ | ( | ) | ||||||
Commodity - Natural gas | Fair value of derivatives - Current | |||||||||||||
Contingent consideration arrangement | Fair value of derivatives - Current | |||||||||||||
Commodity - Oil | Fair value of derivatives - Non-current | ( | ) | ( | ) | |||||||||
Commodity - Natural gas | Fair value of derivatives - Non-current | ( | ) | ( | ) | |||||||||
Contingent consideration arrangement | Fair value of derivatives - Non-current | |||||||||||||
Totals | $ | $ | ( | ) | $ | |||||||||
As of December 31, 2018 | ||||||||||||||
Derivative Instrument | Balance Sheet Presentation | Asset | Liability | Net Asset (Liability) | ||||||||||
Commodity - Oil | Fair value of derivatives - Current | $ | $ | ( | ) | $ | ||||||||
Commodity - Natural gas | Fair value of derivatives - Current | |||||||||||||
Commodity - Oil | Fair value of derivatives - Non-current | ( | ) | ( | ) | |||||||||
Commodity - Natural gas | Fair value of derivatives - Non-current | ( | ) | ( | ) | |||||||||
Totals | $ | $ | ( | ) | $ |
As of June 30, 2019 | |||||||||||
Presented without | As Presented with | ||||||||||
Effects of Netting | Effects of Netting | Effects of Netting | |||||||||
Current assets: Fair value of commodity derivatives | $ | $ | ( | ) | $ | ||||||
Long-term assets: Fair value of commodity derivatives | ( | ) | |||||||||
Current liabilities: Fair value of commodity derivatives | $ | ( | ) | $ | $ | ( | ) | ||||
Long-term liabilities: Fair value of commodity derivatives | ( | ) | ( | ) |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
As of December 31, 2018 | |||||||||||
Presented without | As Presented with | ||||||||||
Effects of Netting | Effects of Netting | Effects of Netting | |||||||||
Current assets: Fair value of commodity derivatives | $ | $ | ( | ) | $ | ||||||
Current liabilities: Fair value of commodity derivatives | $ | ( | ) | $ | $ | ( | ) | ||||
Long-term liabilities: Fair value of commodity derivatives | ( | ) | ( | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Oil derivatives | |||||||||||||||
Net gain (loss) on settlements | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Net gain (loss) on fair value adjustments | ( | ) | ( | ) | ( | ) | |||||||||
Total gain (loss) on oil derivatives | ( | ) | ( | ) | ( | ) | |||||||||
Natural gas derivatives | |||||||||||||||
Net gain (loss) on settlements | |||||||||||||||
Net gain (loss) on fair value adjustments | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total gain (loss) on natural gas derivatives | ( | ) | |||||||||||||
Contingent consideration arrangement | |||||||||||||||
Net gain (loss) on fair value adjustments | |||||||||||||||
Total gain (loss) on derivatives | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
For the Remainder | For the Full Year | For the Full Year | |||||||||
Oil contracts (WTI) | of 2019 | of 2020 | of 2021 | ||||||||
Puts | |||||||||||
Total volume (Bbls) | |||||||||||
Weighted average price per Bbl | $ | $ | $ | ||||||||
Put spreads | |||||||||||
Total volume (Bbls) | |||||||||||
Weighted average price per Bbl | |||||||||||
Floor (long put) | $ | $ | $ | ||||||||
Floor (short put) | $ | $ | $ | ||||||||
Collar contracts with short puts (three-way collars) | |||||||||||
Total volume (Bbls) | |||||||||||
Weighted average price per Bbl | |||||||||||
Ceiling (short call) | $ | $ | $ | ||||||||
Floor (long put) | $ | $ | $ | ||||||||
Floor (short put) | $ | $ | $ | ||||||||
Oil contracts (Midland basis differential) | |||||||||||
Swap contracts | |||||||||||
Total volume (Bbls) | |||||||||||
Weighted average price per Bbl | $ | ( | ) | $ | ( | ) | $ | ||||
Oil contracts (Argus Houston MEH basis differential) | |||||||||||
Swap contracts | |||||||||||
Total volume (Bbls) | |||||||||||
Weighted average price per Bbl | $ | $ | $ | ||||||||
Natural gas contracts (Henry Hub) | |||||||||||
Collar contracts (two-way collars) | |||||||||||
Total volume (MMBtu) | |||||||||||
Weighted average price per MMBtu | |||||||||||
Ceiling (short call) | $ | $ | $ | ||||||||
Floor (long put) | $ | $ | $ | ||||||||
Swap contracts | |||||||||||
Total volume (MMBtu) | |||||||||||
Weighted average price per MMBtu | $ | $ | $ | ||||||||
Natural gas contracts (Waha basis differential) | |||||||||||
Swap contracts | |||||||||||
Total volume (MMBtu) | |||||||||||
Weighted average price per MMBtu | $ | ( | ) | $ | ( | ) | $ |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
June 30, 2019 | December 31, 2018 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Credit Facility (a) | $ | $ | $ | $ | ||||||||||||
6.125% Senior Notes (b) | ||||||||||||||||
6.375% Senior Notes (b) | ||||||||||||||||
Total | $ | $ | $ | $ |
(a) | Floating-rate debt. |
(b) | The fair value was based upon Level 2 inputs. See Note 5 for additional information about the Company’s |
June 30, 2019 | Classification | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||||
Derivative financial instruments | Fair value of derivatives | $ | $ | $ | $ | |||||||||||||
Liabilities | ||||||||||||||||||
Derivative financial instruments | Fair value of derivatives | ( | ) | ( | ) | |||||||||||||
Total net assets (liabilities) | $ | $ | $ | $ | ||||||||||||||
December 31, 2018 | Classification | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||||
Derivative financial instruments | Fair value of derivatives | $ | $ | $ | $ | |||||||||||||
Liabilities | ||||||||||||||||||
Derivative financial instruments | Fair value of derivatives | ( | ) | ( | ) | |||||||||||||
Total net assets | $ | $ | $ | $ |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
Components of income tax rate reconciliation | 2019 | 2018 | 2019 | 2018 | |||||||
Income tax expense computed at the statutory federal income tax rate | % | % | % | % | |||||||
State taxes net of federal expense | % | % | % | % | |||||||
Section 162(m) | % | % | % | % | |||||||
Valuation allowance | % | ( | )% | % | ( | )% | |||||
Effective income tax rate, before discrete items | % | % | % | % | |||||||
Discrete items (a) | % | ( | )% | % | % | ||||||
Effective income tax rate, after discrete items | % | % | % | % |
(a) | Accounts for the potential impact of periodic volatility of stock-based compensation tax deductions on future effective tax rates. |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
Three Months Ended | Six Months Ended | ||||||
June 30, 2019 | June 30, 2019 | ||||||
Operating lease cost | $ | $ | |||||
Short-term lease cost (a) |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
As of June 30, 2019 | |||
Remainder of 2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
Thereafter | |||
Total lease payments | |||
Less imputed interest | |||
Total | $ |
Six Months Ended | |||
June 30, 2019 | |||
Asset retirement obligations at January 1, 2019 | $ | ||
Accretion expense | |||
Liabilities incurred | |||
Liabilities settled | ( | ) | |
Dispositions | ( | ) | |
Revisions to estimate | ( | ) | |
Asset retirement obligations at end of period | |||
Less: Current asset retirement obligations | ( | ) | |
Long-term asset retirement obligations at June 30, 2019 | $ |
• | Liabilities incurred include additions from acquisitions, asset swaps, and new wells drilled during the year. |
• | Liabilities settled include the retirement of |
• | Dispositions are primarily attributable to the Ranger Asset Divestiture in the second quarter of 2019. See Note 3 for details about the Ranger Asset Divestiture. |
• | Revisions to estimates were due to changes in plugging cost estimates, timing of abandonment activities, and changes in working interest of producing wells. |
Notes to the Consolidated Financial Statements (Unaudited) (All dollar amounts in thousands, except per share and per unit data) |
• | matters relating to the Carrizo Acquisition; |
• | our oil and natural gas reserve quantities, and the discounted present value of these reserves; |
• | the amount and nature of our capital expenditures; |
• | our future drilling and development plans and our potential drilling locations; |
• | the timing and amount of future capital and operating costs; |
• | production decline rates from our wells being greater than expected; |
• | commodity price risk management activities and the impact on our average realized prices; |
• | business strategies and plans of management; |
• | our ability to consummate and efficiently integrate recent acquisitions; and |
• | prospect development and property acquisitions. |
• | general economic conditions including the availability of credit and access to existing lines of credit; |
• | the volatility of oil and natural gas prices; |
• | the uncertainty of estimates of oil and natural gas reserves; |
• | impairments; |
• | the impact of competition; |
• | the availability and cost of seismic, drilling and other equipment, waste and water disposal infrastructure, and personnel; |
• | operating hazards inherent in the exploration for and production of oil and natural gas; |
• | difficulties encountered during the exploration for and production of oil and natural gas; |
• | the potential impact of future drilling on production from existing wells; |
• | difficulties encountered in delivering oil and natural gas to commercial markets; |
• | changes in customer demand and producers’ supply; |
• | the uncertainty of our ability to attract capital and obtain financing on favorable terms; |
• | compliance with, or the effect of changes in, the extensive governmental regulations regarding the oil and natural gas business including those related to climate change and greenhouse gases; |
• | the impact of government regulation, including regulation of hydraulic fracturing and water disposal wells; |
• | any increase in severance or similar taxes; |
• | the financial impact of accounting regulations and critical accounting policies; |
• | the comparative cost of alternative fuels; |
• | credit risk relating to the risk of loss as a result of non-performance by our counterparties; |
• | cyberattacks on the Company or on systems and infrastructure used by the oil and gas industry; |
• | weather conditions; |
• | risks associated with acquisitions, including the Carrizo Acquisition; |
• | failure to consummate the Carrizo Acquisition in a timely manner, or at all, and failure to realize the expected benefits thereof; and |
• | any other factors listed in the reports we have filed and may file with the SEC. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three Months Ended June 30, | |||||||||||||||
2019 | 2018 | Change | % Change | ||||||||||||
Net production | |||||||||||||||
Oil (MBbls) | 2,848 | 1,995 | 853 | 43 | % | ||||||||||
Natural gas (MMcf) | 5,031 | 3,839 | 1,192 | 31 | % | ||||||||||
Total (MBOE) | 3,687 | 2,635 | 1,052 | 40 | % | ||||||||||
Average daily production (BOE/d) | 40,516 | 28,954 | 11,562 | 40 | % | ||||||||||
% oil (BOE basis) | 77 | % | 76 | % | |||||||||||
Average realized sales price (excluding impact of settled derivatives) | |||||||||||||||
Oil (per Bbl) | $ | 56.44 | $ | 61.46 | $ | (5.02 | ) | (8 | )% | ||||||
Natural gas (per Mcf) | 1.26 | 3.77 | (2.51 | ) | (67 | )% | |||||||||
Total (per BOE) | 45.31 | 52.02 | (6.71 | ) | (13 | )% | |||||||||
Average realized sales price (including impact of settled derivatives) | |||||||||||||||
Oil (per Bbl) | $ | 54.87 | $ | 57.38 | $ | (2.51 | ) | (4 | )% | ||||||
Natural gas (per Mcf) | 1.91 | 3.81 | (1.90 | ) | (50 | )% | |||||||||
Total (per BOE) | 44.99 | 48.99 | (4.00 | ) | (8 | )% | |||||||||
Oil and natural gas revenues (in thousands) | |||||||||||||||
Oil revenue | $ | 160,728 | $ | 122,613 | $ | 38,115 | 31 | % | |||||||
Natural gas revenue | 6,324 | 14,462 | (8,138 | ) | (56 | )% | |||||||||
Total | $ | 167,052 | $ | 137,075 | $ | 29,977 | 22 | % | |||||||
Additional per BOE data | |||||||||||||||
Sales price (a) | $ | 45.31 | $ | 52.02 | $ | (6.71 | ) | (13 | )% | ||||||
Lease operating expense (b) | 6.18 | 4.99 | 1.19 | 24 | % | ||||||||||
Production taxes | 3.02 | 2.86 | 0.16 | 6 | % | ||||||||||
Operating margin | $ | 36.11 | $ | 44.17 | $ | (8.06 | ) | (18 | )% | ||||||
Benchmark prices | |||||||||||||||
WTI (per Bbl) | $ | 59.88 | $ | 68.07 | $ | (8.19 | ) | (12 | )% | ||||||
Henry Hub (per Mmbtu) | 2.57 | 2.85 | (0.28 | ) | (10 | )% |
(a) | Excludes the impact of settled derivatives. |
(b) | Excludes gathering and treating expense. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | Change | % Change | ||||||||||||
Net production | |||||||||||||||
Oil (MBbls) | 5,706 | 3,846 | 1,860 | 48 | % | ||||||||||
Natural gas (MMcf) | 9,650 | 7,078 | 2,572 | 36 | % | ||||||||||
Total (MBOE) | 7,314 | 5,026 | 2,288 | 46 | % | ||||||||||
Average daily production (BOE/d) | 40,409 | 27,766 | 12,643 | 46 | % | ||||||||||
% oil (BOE basis) | 78 | % | 77 | % | |||||||||||
Average realized sales price (excluding impact of settled derivatives) | |||||||||||||||
Oil (per Bbl) | $ | 52.90 | $ | 61.86 | $ | (8.96 | ) | (14 | )% | ||||||
Natural gas (per Mcf) | 1.89 | 3.76 | (1.87 | ) | (50 | )% | |||||||||
Total (per BOE) | 43.77 | 52.63 | (8.86 | ) | (17 | )% | |||||||||
Average realized sales price (including impact of settled derivatives) | |||||||||||||||
Oil (per Bbl) | $ | 51.84 | $ | 57.42 | $ | (5.58 | ) | (10 | )% | ||||||
Natural gas (per Mcf) | 2.37 | 3.85 | (1.48 | ) | (38 | )% | |||||||||
Total (per BOE) | 43.57 | 49.36 | (5.79 | ) | (12 | )% | |||||||||
Oil and natural gas revenues (in thousands) | |||||||||||||||
Oil revenue | $ | 301,826 | $ | 237,898 | $ | 63,928 | 27 | % | |||||||
Natural gas revenue | 18,273 | 26,617 | (8,344 | ) | (31 | )% | |||||||||
Total | $ | 320,099 | $ | 264,515 | $ | 55,584 | 21 | % | |||||||
Additional per BOE data | |||||||||||||||
Sales price (a) | $ | 43.77 | $ | 52.63 | $ | (8.86 | ) | (17 | )% | ||||||
Lease operating expense (b) | 6.40 | 5.21 | 1.19 | 23 | % | ||||||||||
Production taxes | 3.00 | 3.18 | (0.18 | ) | (6 | )% | |||||||||
Operating margin | $ | 34.37 | $ | 44.24 | $ | (9.87 | ) | (22 | )% | ||||||
Benchmark prices | |||||||||||||||
WTI (per Bbl) | $ | 57.39 | $ | 65.55 | $ | (8.16 | ) | (12 | )% | ||||||
Henry Hub (per Mmbtu) | 2.74 | 2.96 | (0.22 | ) | (7 | )% |
(a) | Excludes the impact of settled derivatives. |
(b) | Excludes gathering and treating expense. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
(in thousands) | Oil | Natural Gas | Total | |||||||||
Revenues for the three months ended June 30, 2018 | $ | 122,613 | $ | 14,462 | $ | 137,075 | ||||||
Volume increase (decrease) | 52,425 | 4,494 | 56,919 | |||||||||
Price increase (decrease) | (14,310 | ) | (12,632 | ) | (26,942 | ) | ||||||
Net increase (decrease) | 38,115 | (8,138 | ) | 29,977 | ||||||||
Revenues for the three months ended June 30, 2019 | $ | 160,728 | $ | 6,324 | $ | 167,052 |
(in thousands) | Oil | Natural Gas | Total | |||||||||
Revenues for the six months ended June 30, 2018 | $ | 237,898 | $ | 26,617 | $ | 264,515 | ||||||
Volume increase (decrease) | 115,060 | 9,671 | 124,731 | |||||||||
Price increase (decrease) | (51,132 | ) | (18,015 | ) | (69,147 | ) | ||||||
Net increase (decrease) | 63,928 | (8,344 | ) | 55,584 | ||||||||
Revenues for the six months ended June 30, 2019 | $ | 301,826 | $ | 18,273 | $ | 320,099 |
• | our revenues, cash flows and earnings; |
• | the amount of oil and natural gas that we are economically able to produce; |
• | our ability to attract capital to finance our operations and cost of the capital; |
• | the amount we are allowed to borrow under our Credit Facility; and |
• | the value of our oil and natural gas properties. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three Months Ended June 30, | ||||||||||||||||||||||||||||||
Per | Per | Total Change | BOE Change | |||||||||||||||||||||||||||
(in thousands, except per unit amounts) | 2019 | BOE | 2018 | BOE | $ | % | $ | % | ||||||||||||||||||||||
Lease operating expenses | $ | 22,776 | $ | 6.18 | $ | 13,141 | $ | 4.99 | $ | 9,635 | 73 | % | $ | 1.19 | 24 | % | ||||||||||||||
Production taxes | 11,131 | 3.02 | 7,539 | 2.86 | 3,592 | 48 | % | 0.16 | 6 | % | ||||||||||||||||||||
Depreciation, depletion and amortization | 62,921 | 17.07 | 38,733 | 14.70 | 24,188 | 62 | % | 2.37 | 16 | % | ||||||||||||||||||||
General and administrative | 10,564 | 2.87 | 8,289 | 3.15 | 2,275 | 27 | % | (0.28 | ) | (9 | )% | |||||||||||||||||||
Accretion expense | 216 | 0.06 | 206 | 0.08 | 10 | 5 | % | (0.02 | ) | (25 | )% | |||||||||||||||||||
Other operating expense | 935 | 0.25 | 1,767 | 0.67 | (832 | ) | (47 | )% | (0.42 | ) | (63 | )% |
Six Months Ended June 30, | ||||||||||||||||||||||||||||||
Per | Per | Total Change | BOE Change | |||||||||||||||||||||||||||
(in thousands, except per unit amounts) | 2019 | BOE | 2018 | BOE | $ | % | $ | % | ||||||||||||||||||||||
Lease operating expenses | $ | 46,843 | $ | 6.40 | $ | 26,179 | $ | 5.21 | $ | 20,664 | 79 | % | $ | 1.19 | 23 | % | ||||||||||||||
Production taxes | 21,944 | 3.00 | 16,002 | 3.18 | 5,942 | 37 | % | (0.18 | ) | (6 | )% | |||||||||||||||||||
Depreciation, depletion and amortization | 122,688 | 16.77 | 74,151 | 14.75 | 48,537 | 65 | % | 2.02 | 14 | % | ||||||||||||||||||||
General and administrative | 22,317 | 3.05 | 17,057 | 3.39 | 5,260 | 31 | % | (0.34 | ) | (10 | )% | |||||||||||||||||||
Settled share-based awards | 3,024 | 0.41 | — | — | 3,024 | 100 | % | 0.41 | 100 | % | ||||||||||||||||||||
Accretion expense | 457 | 0.06 | 424 | 0.08 | 33 | 8 | % | (0.02 | ) | (25 | )% | |||||||||||||||||||
Other operating expense | 1,092 | 0.15 | 2,315 | 0.46 | (1,223 | ) | (53 | )% | (0.31 | ) | (67 | )% |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three Months Ended June 30, | |||||||||||||||
2019 | 2018 | $ Change | % Change | ||||||||||||
G&A | $ | 9,736 | $ | 7,186 | $ | 2,550 | 35 | % | |||||||
Share-based compensation | 1,687 | 1,587 | 100 | 6 | % | ||||||||||
Fair value adjustments of cash-settled RSU awards | (859 | ) | (484 | ) | (375 | ) | 77 | % | |||||||
Total G&A expenses | $ | 10,564 | $ | 8,289 | $ | 2,275 | 27 | % |
Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | $ Change | % Change | ||||||||||||
G&A | $ | 18,100 | $ | 13,858 | $ | 4,242 | 31 | % | |||||||
Share-based compensation | 3,187 | 2,692 | 495 | 18 | % | ||||||||||
Fair value adjustments of cash-settled RSU awards | 1,030 | 507 | 523 | 103 | % | ||||||||||
Total G&A expenses | $ | 22,317 | $ | 17,057 | $ | 5,260 | 31 | % |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three Months Ended June 30, | |||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||
Interest expense | $ | 19,478 | $ | 12,644 | $ | 6,834 | 54 | % | |||||||
Capitalized interest | (18,737 | ) | (12,050 | ) | (6,687 | ) | 55 | % | |||||||
Interest expense, net of capitalized amounts | 741 | 594 | 147 | 25 | % | ||||||||||
(Gain) loss on derivative contracts | (14,036 | ) | 16,554 | (30,590 | ) | (185 | )% | ||||||||
Other income | (67 | ) | (703 | ) | 636 | (90 | )% | ||||||||
Total other (income) expense | $ | (13,362 | ) | $ | 16,445 | $ | (29,807 | ) | (181 | )% | |||||
Income tax (benefit) expense | $ | 16,691 | $ | 481 | $ | 16,210 | 3,370 | % | |||||||
Preferred stock dividends | (1,823 | ) | (1,824 | ) | 1 | — | % |
Six Months Ended June 30, | |||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||
Interest expense | $ | 40,059 | $ | 23,171 | $ | 16,888 | 73 | % | |||||||
Capitalized interest | (38,580 | ) | (22,118 | ) | (16,462 | ) | 74 | % | |||||||
Interest expense, net of capitalized amounts | 1,479 | 1,053 | 426 | 40 | % | ||||||||||
(Gain) loss on derivative contracts | 53,224 | 21,036 | 32,188 | 153 | % | ||||||||||
Other income | (148 | ) | (914 | ) | 766 | (84 | )% | ||||||||
Total other (income) expense | $ | 54,555 | $ | 21,175 | $ | 33,380 | 158 | % | |||||||
Income tax (benefit) expense | $ | 11,542 | $ | 976 | $ | 10,566 | 1,083 | % | |||||||
Preferred stock dividends | (3,647 | ) | (3,647 | ) | — | — | % |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Oil derivatives | |||||||||||||||
Net gain (loss) on settlements | $ | (4,461 | ) | $ | (8,131 | ) | $ | (6,003 | ) | $ | (17,049 | ) | |||
Net gain (loss) on fair value adjustments | 13,310 | (8,311 | ) | (53,517 | ) | (4,243 | ) | ||||||||
Total gain (loss) on oil derivatives | 8,849 | (16,442 | ) | (59,520 | ) | (21,292 | ) | ||||||||
Natural gas derivatives | |||||||||||||||
Net gain (loss) on settlements | 3,304 | 151 | 4,556 | 607 | |||||||||||
Net gain (loss) on fair value adjustments | (1,430 | ) | (263 | ) | (1,573 | ) | (351 | ) | |||||||
Total gain (loss) on natural gas derivatives | 1,874 | (112 | ) | 2,983 | 256 | ||||||||||
Contingent consideration arrangement | |||||||||||||||
Net gain (loss) on fair value adjustments | 3,313 | — | 3,313 | — | |||||||||||
Total gain (loss) on derivatives | $ | 14,036 | $ | (16,554 | ) | $ | (53,224 | ) | $ | (21,036 | ) |
Six Months Ended June 30, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Net cash provided by operating activities | $ | 225,046 | $ | 199,979 | ||||
Net cash used in investing activities | (124,504 | ) | (368,285 | ) | ||||
Net cash provided by (used in) financing activities | (100,541 | ) | 649,457 | |||||
Net change in cash and cash equivalents | $ | 1 | $ | 481,151 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | An increase in revenues from an increase in production volumes, offset by a decrease in realized pricing, and |
• | Changes related to the timing of working capital payments and receipts. |
• | A $33.5 million net increase in operational capital expenditures including seismic, leasehold, and other, due to increased activity and additional net wells drilled. |
• | Acquisitions and divestiture activity, resulting in an increase to net cash provided of $304.8 million, primarily provided by our Ranger Asset Divestiture completed in June 2019. |
Six Months Ended June 30, | ||||||||||||
2019 | 2018 | $ Change | ||||||||||
Operational expenditures | $ | 298,348 | $ | 257,331 | $ | 41,017 | ||||||
Seismic, leasehold and other | 3,947 | 11,461 | (7,514 | ) | ||||||||
Capitalized general and administrative costs | 16,584 | 9,576 | 7,008 | |||||||||
Capitalized interest | 40,551 | 20,002 | 20,549 | |||||||||
Total capital expenditures(a) | 359,430 | 298,370 | 61,060 | |||||||||
Acquisitions | 39,370 | 45,392 | (6,022 | ) | ||||||||
Acquisition deposits | — | 27,600 | (27,600 | ) | ||||||||
Proceeds from sale of assets | (274,296 | ) | (3,077 | ) | (271,219 | ) | ||||||
Total investing activities | $ | 124,504 | $ | 368,285 | $ | (243,781 | ) |
(a) | On an accrual basis, which is the methodology used for establishing our annual capital budget, operational expenditures for the six months ended June 30, 2019 were $284.7 million. Inclusive of seismic, leasehold and other, capitalized general and administrative, and capitalized interest costs, total capital expenditures for the six months ended June 30, 2019 were $346.4 million. |
| Six Months Ended June 30, | ||||||||||
| 2019 | 2018 | $ Change | ||||||||
Net repayments on Credit Facility | $ | (95,000 | ) | $ | (25,000 | ) | $ | (70,000 | ) | ||
Issuance of 6.375% senior unsecured notes due 2026 | — | 400,000 | (400,000 | ) | |||||||
Issuance of common stock | — | 288,357 | (288,357 | ) | |||||||
Payment of preferred stock dividends | (3,647 | ) | (3,647 | ) | — | ||||||
Payment of deferred financing costs | (31 | ) | (8,664 | ) | 8,633 | ||||||
Tax withholdings related to restricted stock units | (1,858 | ) | (1,589 | ) | (269 | ) | |||||
Other financing activities | (5 | ) | — | (5 | ) | ||||||
Net cash provided by financing activities | $ | (100,541 | ) | $ | 649,457 | $ | (749,998 | ) |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Hypothetical Price Increase of 10% | Hypothetical Price Decrease of 10% | ||||||
Oil derivatives | $ | (22,486 | ) | $ | 22,162 | ||
Natural gas derivatives | 406 | (398 | ) | ||||
Total | $ | (22,080 | ) | $ | 21,764 |
Hypothetical Price Increase of 10% | Hypothetical Price Decrease of 10% | ||||||
Contingent consideration arrangement | $ | 8,196 | $ | (6,234 | ) |
• | the inability to successfully integrate Carrizo into our company in a manner that permits us to achieve the full revenue and cost savings anticipated from the Carrizo Acquisition; |
• | complexities associated with managing a larger, more complex, integrated business; |
• | not realizing anticipated operating synergies; |
• | integrating personnel from the two companies and the loss of key employees; |
• | potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Carrizo Acquisition and following completion of the Carrizo Acquisition; |
• | integrating relationships with customers, vendors and business partners; |
• | performance shortfalls as a result of the diversion of management’s attention caused by completing the Carrizo Acquisition and integrating Carrizo’s operations into our company; and |
• | the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies. |
Incorporated by reference (File No. 001-14039, unless otherwise indicated) | |||||||||
Exhibit Number | Description | Form | Exhibit | Filing Date | |||||
3.1 | 10-Q | 3.1 | 11/03/2016 | ||||||
3.2 | 10-K | 3.2 | 02/27/2019 | ||||||
10.1 | 8-K | 2.1 | 06/13/2019 | ||||||
31.1 | (a) | ||||||||
31.2 | (a) | ||||||||
32.1 | (b) | ||||||||
101.INS | (a) | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
101.SCH | (a) | Inline XBRL Taxonomy Extension Schema Document | |||||||
101.CAL | (a) | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
101.DEF | (a) | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
101.LAB | (a) | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
101.PRE | (a) | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
(a) | Filed herewith. |
(b) | Furnished herewith. Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this report and not “filed” as part of such report for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18 of the Exchange Act, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, except to the extent that the registrant specifically incorporates it by reference. |
† | Indicates management compensatory plan, contract, or arrangement. |
Signature | Title | Date |
/s/ Joseph C. Gatto, Jr. | President and | August 6, 2019 |
Joseph C. Gatto, Jr. | Chief Executive Officer |
/s/ James P. Ulm, II | Senior Vice President and | August 6, 2019 |
James P. Ulm, II | Chief Financial Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Callon Petroleum Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | August 6, 2019 | /s/ Joseph C. Gatto, Jr. | |
Joseph C. Gatto, Jr. | |||
President and Chief Executive Officer | |||
(Principal executive officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Callon Petroleum Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | August 6, 2019 | /s/ James P. Ulm, II | |
James P. Ulm, II | |||
Senior Vice President and Chief Financial Officer | |||
(Principal financial officer) |
Date: | August 6, 2019 | /s/ Joseph C. Gatto, Jr. | |
Joseph C. Gatto, Jr. | |||
(Principal executive officer) | |||
Date: | August 6, 2019 | /s/ James P. Ulm, II | |
James P. Ulm, II | |||
(Principal financial officer) |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Stockholders’ equity: | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 300,000,000 | 300,000,000 |
Common stock, shares outstanding (in shares) | 228,263,955 | 227,582,575 |
6.125% senior unsecured notes due 2024 | ||
Debt instrument, interest rate, stated (as a percent) | 6.125% | |
6.375% senior unsecured notes due 2026 | ||
Debt instrument, interest rate, stated (as a percent) | 6.375% | |
Series A Preferred Stock | ||
Stockholders’ equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, liquidation preference (in dollars per share) | $ 50.00 | $ 50.00 |
Preferred stock, shares authorized (in shares) | 2,500,000 | 2,500,000 |
Preferred stock, shares outstanding (in shares) | 1,458,948 | 1,458,948 |
Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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Operating revenues: | ||||
Total operating revenues | $ 167,052 | $ 137,075 | $ 320,099 | $ 264,515 |
Operating expenses: | ||||
Lease operating expenses | 22,776 | 13,141 | 46,843 | 26,179 |
Production taxes | 11,131 | 7,539 | 21,944 | 16,002 |
Depreciation, depletion and amortization | 62,921 | 38,733 | 122,688 | 74,151 |
General and administrative | 10,564 | 8,289 | 22,317 | 17,057 |
Settled share-based awards | 0 | 0 | 3,024 | 0 |
Accretion expense | 216 | 206 | 457 | 424 |
Other operating expense | 935 | 1,767 | 1,092 | 2,315 |
Total operating expenses | 108,543 | 69,675 | 218,365 | 136,128 |
Income from operations | 58,509 | 67,400 | 101,734 | 128,387 |
Other (income) expenses: | ||||
Interest expense, net of capitalized amounts | 741 | 594 | 1,479 | 1,053 |
(Gain) loss on derivative contracts | (14,036) | 16,554 | 53,224 | 21,036 |
Other income | (67) | (703) | (148) | (914) |
Total other (income) expense | (13,362) | 16,445 | 54,555 | 21,175 |
Income (loss) before income taxes | 71,871 | 50,955 | 47,179 | 107,212 |
Income tax (benefit) expense | 16,691 | 481 | 11,542 | 976 |
Net income (loss) | 55,180 | 50,474 | 35,637 | 106,236 |
Preferred stock dividends | (1,823) | (1,824) | (3,647) | (3,647) |
Income (loss) available to common stockholders | $ 53,357 | $ 48,650 | $ 31,990 | $ 102,589 |
Income (loss) per common share: | ||||
Basic (in dollars per share) | $ 0.23 | $ 0.23 | $ 0.14 | $ 0.50 |
Diluted (in dollars per share) | $ 0.23 | $ 0.23 | $ 0.14 | $ 0.50 |
Weighted average common shares outstanding: | ||||
Basic (in shares) | 228,051 | 210,698 | 227,917 | 206,309 |
Diluted (in shares) | 228,411 | 211,465 | 228,599 | 207,027 |
Oil sales | ||||
Operating revenues: | ||||
Total operating revenues | $ 160,728 | $ 122,613 | $ 301,826 | $ 237,898 |
Natural gas sales | ||||
Operating revenues: | ||||
Total operating revenues | $ 6,324 | $ 14,462 | $ 18,273 | $ 26,617 |
Consolidated Statements of Cash Flows (Parenthetical) (Unaudited) |
Jun. 30, 2019 |
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6.375% senior unsecured notes due 2026 | |
Debt instrument, interest rate, stated (as a percent) | 6.375% |
Consolidated Statements of Stockholders' Equity (Unaudited) (Parenthetical) - $ / shares |
3 Months Ended | |||
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Jun. 30, 2019 |
Mar. 31, 2019 |
Jun. 30, 2018 |
Mar. 31, 2018 |
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Statement of Stockholders' Equity [Abstract] | ||||
Preferred stock dividends (in dollars per share) | $ 1.25 | $ 1.25 | $ 1.25 | $ 1.25 |
Description of Business and Basis of Presentation |
6 Months Ended | ||||||||||||
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Jun. 30, 2019 | |||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||
Description of Business and Basis of Presentation | Description of Business and Basis of Presentation Description of business Callon Petroleum Company has been engaged in the development, acquisition and production of oil and natural gas properties since 1950. As used herein, the “Company,” “Callon,” “we,” “us,” and “our” refer to Callon Petroleum Company and its predecessors and subsidiaries unless the context requires otherwise. We were incorporated in the state of Delaware in 1994. Callon is focused on the acquisition and development of unconventional onshore oil and natural gas reserves in the Permian Basin. The Permian Basin is located in West Texas and southeastern New Mexico and is comprised of three primary sub-basins: the Midland Basin, the Delaware Basin, and the Central Basin Platform. Since our entry into the Permian Basin in late 2009, we have been focused on the Midland Basin and entered the Delaware Basin through an acquisition completed in February 2017. The Company further expanded its presence in the Delaware Basin through acquisitions in 2018. Basis of presentation Unless otherwise indicated, all dollar amounts included within the Footnotes to the Financial Statements are presented in thousands, except for per share and per unit data. The interim consolidated financial statements of the Company have been prepared in accordance with (1) GAAP, (2) the SEC’s instructions to Quarterly Report on Form 10-Q and (3) Rule 10-01 of Regulation S-X, and include the accounts of Callon Petroleum Company, and its subsidiary, Callon Petroleum Operating Company (“CPOC”). CPOC also has a subsidiary, namely Mississippi Marketing, Inc. Effective February 28, 2019, Callon Offshore Production, Inc. was merged with and into Callon Petroleum Operating Company. These interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, including normal recurring adjustments and all intercompany account and transaction eliminations, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. Certain prior year amounts have been reclassified to conform to current year presentation. Accounting Standards Updates (“ASUs”) Recently adopted ASUs - Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification (“ASU 2016-02”). In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”). In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements (“ASU 2019-01”). Together these related amendments to GAAP represent ASC Topic 842, Leases (“ASC Topic 842”). ASU 2016-02 requires lessees to recognize lease assets and liabilities (with terms in excess of 12 months) on the balance sheet and disclose key quantitative and qualitative information about leasing arrangements. The Company engaged a third-party consultant to assist with assessing its existing contracts, as well as future potential contracts, and to determine the impact of its application on its consolidated financial statements and related disclosures. The contract evaluation process includes review of drilling rig contracts, office facility leases, compressors, field vehicles and equipment, general corporate leased equipment, and other existing arrangements to support its operations that may contain a lease component. The new standard was effective for us in the first quarter of 2019, and we adopted the new standard using a modified retrospective approach, with the date of initial application on January 1, 2019. Consequently, upon transition, we recognized the cumulative effect of adoption in retained earnings as of January 1, 2019. We further utilized the package of practical expedients at transition to not reassess the following:
Additionally, we elected the practical expedient under ASU 2018-01, which did not require us to evaluate existing or expired land easements not previously accounted for as leases prior to the effective date. We also chose not to separate lease and non-lease components for the various classes of underlying assets. In addition, for all of our asset classes, we have made an accounting policy election not to apply the lease recognition requirements to our short-term leases. Accordingly, we recognize lease payments related to our short-term leases in profit or loss on a straight-line basis over the lease term. Through our implementation process, we evaluated each of our lease arrangements and enhanced our systems to track and calculate additional information required upon adoption of this standard. The standard had an impact on our consolidated balance sheets at March 31, 2019 and June 30, 2019, resulting from the recognition of right-of-use assets and lease liabilities for operating leases. We have no leases that meet the criteria for classification as a finance lease. We lease certain office space, office equipment, production facilities, compressors, drilling rigs, vehicles and other ancillary drilling equipment under cancelable and non-cancelable leases to support our operations. See Note 10 for additional information regarding the impact of adoption of the new leases standard on our current period results. Adoption of the new leases standard did not impact our consolidated statement of operations or cash provided from or used in operating, investing or financing in our consolidated statement of cash flows. We note that the standard does not apply to leases to explore for or use minerals, oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained. Recently adopted ASUs - Other In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The standard is intended to simplify several aspects of the accounting for nonemployee share-based payment transactions for acquiring goods and services from nonemployees, including the timing and measurement of nonemployee awards. The Company adopted this update on January 1, 2019 and it did not have a material impact on its consolidated financial statements upon adoption of this guidance.
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Revenue Recognition |
6 Months Ended |
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Jun. 30, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Revenue Recognition | Revenue Recognition Revenue from contracts with customers Oil sales Under the Company’s oil sales contracts it sells oil production at the point of delivery and collects an agreed upon index price, net of pricing differentials. The Company recognizes revenue when control transfers to the purchaser at the point of delivery at the net price received. Natural gas sales Under the Company’s natural gas sales processing contracts, it delivers natural gas to a midstream processing entity. The midstream processing entity gathers and processes the natural gas and remits proceeds to the Company for the resulting sale of natural gas. The Company’s share of revenue received from the sale of NGLs is included in the natural gas sales. Under these processing agreements, when control of the natural gas changes at the point of delivery, the treatment of gathering and treating fees are recorded net of revenues. Gathering and treating fees have historically been recorded as an expense in lease operating expense in the statement of operations. The Company has modified the presentation of revenues and expenses to include these fees net of operating revenues. For the three and six months ended June 30, 2019, $2,805 and $5,213 of gathering and treating fees were recognized and recorded as a reduction to natural gas sales in the consolidated statement of operations, respectively. For the three and six months ended June 30, 2018, $1,952 and $3,204 of gathering and treating fees were recognized and recorded as a reduction to natural gas sales in the consolidated statement of operations, respectively. Accounts receivable from revenues from contracts with customers Net accounts receivable include amounts billed and currently due from revenues from contracts with customers of our oil and natural gas production, which had a balance at June 30, 2019 and December 31, 2018 of $67,891 and $87,061, respectively, and does not currently include an allowance for doubtful accounts. Accounts receivable, net, from the sale of oil and natural gas are included in accounts receivable on the consolidated balance sheets. Transaction price allocated to remaining performance obligations For the Company’s product sales that have a contract term greater than one year, it has utilized the practical expedient in Accounting Standards Codification 606-10-50-14, which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. Prior period performance obligations The Company records revenue in the month production is delivered to the purchaser. However, settlement statements for sales may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. The Company records the differences between estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. The Company has existing internal controls for its revenue estimation process and related accruals, and any identified differences between its revenue estimates and actual revenue received historically have not been significant. |
Acquisitions and Dispositions |
6 Months Ended | ||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||
Acquisitions and Dispositions | Acquisitions and Dispositions 2019 Acquisitions and Dispositions On June 12, 2019, the Company completed its divestiture of certain non-core assets in the southern Midland Basin (the “Ranger Asset Divestiture”) for net cash proceeds received at closing of $244,935, including customary purchase price adjustments. The transaction also provides for potential contingent consideration in payments of up to $60,000 based on West Texas Intermediate average annual pricing over a three-year period (see Notes 6 and 7 for additional information regarding the contingent consideration payments). The divestiture encompasses the Ranger operating area in the southern Midland Basin which includes approximately 9,850 net Wolfcamp acres with an average 66% working interest. The divestiture did not significantly alter the relationship between capitalized costs and proved reserves, and as such, net cash proceeds and contingent consideration were recorded as adjustments to our full cost pool with no gain or loss recognized. In the first quarter of 2019, the Company completed various acquisitions and dispositions of additional working interests and acreage located in our existing core operating areas within the Permian Basin. The Company purchased mineral rights for $21,407 in the Spur operating area and received proceeds of $14,084, including customary purchase price adjustments, for certain leasehold interests in our WildHorse acreage. In the second quarter of 2019, the Company completed various acreage swaps in the Permian Basin and received proceeds of $19,108, including customary purchase price adjustments, for certain working interests in our Spur acreage. 2018 Acquisitions On August 31, 2018, the Company completed the acquisition of approximately 28,000 net surface acres in the Spur operating area, located in the Delaware Basin, from Cimarex Energy Company, for $539,519, including customary purchase price adjustments (the “Delaware Asset Acquisition”). The Company issued debt and equity to fund, in part, the Delaware Asset Acquisition. See Notes 5 and 9 for additional information regarding the Company’s debt obligations and equity offerings. The following table summarizes the estimated acquisition date fair values of the acquisition:
In addition, the Company completed various acquisitions of additional working interests and mineral rights, and associated production volumes, in the Company’s existing core operating areas within the Permian Basin. In the first quarter of 2018, the Company completed acquisitions within Monarch and WildHorse operating areas for $37,770, including customary purchase price adjustments. In the fourth quarter of 2018, the Company completed acquisitions of leasehold interests and mineral rights within its WildHorse and Spur operating areas for $87,865, including customary purchase price adjustments.
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Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of shares outstanding for the periods presented. The calculation of diluted earnings (loss) per share includes the potential dilutive impact of non-vested restricted shares outstanding during the periods presented, as calculated using the treasury stock method, unless their effect is anti-dilutive. The following table sets forth the computation of basic and diluted earnings per share:
(a) Shares excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.
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Borrowings |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings | Borrowings The Company’s borrowings consisted of the following:
Senior secured revolving credit facility (the “Credit Facility”) On May 25, 2017, the Company entered into the Sixth Amended and Restated Credit Agreement to the Credit Facility. JPMorgan Chase Bank, N.A. is Administrative Agent, and participants include 17 institutional lenders. The total notional amount available under the Credit Facility is $2,000,000. Amounts borrowed under the Credit Facility may not exceed the borrowing base, which is generally reviewed on a semi-annual basis. The Credit Facility is secured by first preferred mortgages covering the Company’s major producing properties. The maturity date of the Credit Facility is May 25, 2023. Effective May 1, 2019, the Company entered into the third amendment (the “Third Amendment”) to the Sixth Amended and Restated Credit Agreement to the Credit Facility to, among other things: (i) reaffirm the borrowing base at $1,100,000, excluding the Ranger assets sold; and (ii) amend various covenants and terms to reflect current market trends. As of June 30, 2019, the Credit Facility’s borrowing base remained at $1,100,000 with an elected commitment amount of $850,000. As of June 30, 2019, there was $105,000 principal and $17,675 in letters of credit outstanding under the Credit Facility. For the period ended June 30, 2019, the Credit Facility had a weighted-average interest rate of 3.65%, calculated as the LIBOR plus a tiered rate ranging from 1.25% to 2.25%, which is determined based on utilization of the facility. In addition, the Credit Facility carries a current commitment fee of 0.375% per annum, payable quarterly, on the unused portion of the borrowing base. Restrictive covenants The Company’s Credit Facility and the indentures governing its senior notes contain various covenants including restrictions on additional indebtedness, payment of cash dividends and maintenance of certain financial ratios. The Company was in compliance with these covenants at June 30, 2019.
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Derivative Instruments and Hedging Activities |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities Objectives and strategies for using commodity derivative instruments The Company is exposed to fluctuations in oil and natural gas prices received for its production. Consequently, the Company believes it is prudent to manage the variability in cash flows on a portion of its oil and natural gas production. The Company utilizes a mix of collars, swaps and put and call options to manage fluctuations in cash flows resulting from changes in commodity prices. The Company does not use these instruments for speculative or trading purposes. Counterparty risk and offsetting The use of derivative instruments exposes the Company to the risk that a counterparty will be unable to meet its commitments. While the Company monitors counterparty creditworthiness on an ongoing basis, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, the Company may not realize the benefit of some of its derivative instruments under lower commodity prices while continuing to be obligated under higher commodity price contracts subject to any right of offset under the agreements. Counterparty credit risk is considered when determining the fair value of a derivative instrument; see Note 7 for additional information regarding fair value. The Company executes commodity derivative contracts under master agreements with netting provisions that provide for offsetting assets against liabilities. In general, if a party to a derivative transaction incurs an event of default, as defined in the applicable agreement, the other party will have the right to demand the posting of collateral, demand a cash payment transfer or terminate the arrangement. Financial statement presentation and settlements Settlements of the Company’s commodity derivative instruments are based on the difference between the contract price or prices specified in the derivative instrument and a benchmark price, such as the NYMEX price. To determine the fair value of the Company’s derivative instruments, the Company utilizes present value methods that include assumptions about commodity prices based on those observed in underlying markets. See Note 7 for additional information regarding fair value. Contingent consideration arrangement Our Ranger Asset Divestiture in June of 2019 provides for potential contingent consideration to be received by the Company if commodity prices exceed specific thresholds in each of the next several years. On the disposition date, we recognized a derivative asset of $8,512 based on the initial fair value measurement. See Note 7 for additional information regarding fair value measurement. These contingent payments are summarized in the tables below (in thousands):
Derivatives not designated as hedging instruments The Company records its derivative contracts at fair value in the consolidated balance sheets and records changes in fair value as a gain or loss on derivative contracts in the consolidated statements of operations. Settlements are also recorded as a gain or loss on derivative contracts in the consolidated statements of operations. The following table reflects the fair value of the Company’s derivative instruments for the periods presented:
As previously discussed, the Company’s commodity derivative contracts are subject to master netting arrangements. The Company’s policy is to present the fair value of commodity derivative contracts on a net basis in the consolidated balance sheet. The following presents the impact of this presentation to the Company’s recognized assets and liabilities for the periods indicated:
For the periods indicated, the Company recorded the following in the consolidated statements of operations as a gain or loss on derivative contracts:
Derivative positions Listed in the tables below are the outstanding oil and natural gas derivative contracts as of June 30, 2019:
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Fair Value Measurements |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements The fair value hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable, and these valuations have the lowest priority. Fair value of financial instruments Cash, cash equivalents, and restricted investments. The carrying amounts for these instruments approximated fair value due to the short-term nature or maturity of the instruments. Debt. The carrying amount of the Company’s floating-rate debt approximated fair value, because the interest rates were variable and reflective of market rates.
Assets and liabilities measured at fair value on a recurring basis Certain assets and liabilities are reported at fair value on a recurring basis in the consolidated balance sheet. The following methods and assumptions were used to estimate fair value: Commodity derivative instruments. The fair value of commodity derivative instruments is derived using an income approach valuation model that utilizes market-corroborated inputs that are observable over the term of the derivative contract. The Company’s fair value calculations also incorporate an estimate of the counterparties’ default risk for derivative assets and an estimate of the Company’s default risk for derivative liabilities. The Company believes that the majority of the inputs used to calculate the commodity derivative instruments fall within Level 2 of the fair value hierarchy based on the wide availability of quoted market prices for similar commodity derivative contracts. See Note 6 for additional information regarding the Company’s derivative instruments. Contingent consideration arrangement - embedded derivative financial instrument. The embedded option within the contingent consideration arrangement is considered a financial instrument under ASC 815. The Company engages a third-party valuation specialist using an option pricing model approach to measure the fair value of the embedded option on a recurring basis. The valuation includes significant inputs such as forward oil price curves, time to expiration, and implied volatility. The model provides for the probability that the specified pricing thresholds would be met for each settlement period, estimates an undiscounted payout, and risk adjusts for the discount rates inclusive of adjustments for the counterparty’s credit quality. As these inputs are substantially observable for the full term of the contingent consideration arrangement, the inputs are considered Level 2 inputs within the fair value hierarchy. See Note 6 for additional information regarding the Company’s contingent consideration arrangement. The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis:
Assets and liabilities measured at fair value on a nonrecurring basis Acquisitions. The Company determines the fair value of the assets acquired and liabilities assumed using the income approach based on expected discounted future cash flows from estimated reserve quantities, costs to produce and develop reserves, and oil and natural gas forward prices. The future net revenues are discounted using a weighted average cost of capital. The discounted future net revenues of proved undeveloped and probable reserves are reduced by an additional reserve adjustment factor to compensate for the inherent risk of estimating the value of unevaluated properties. The fair value measurements were based on Level 1, Level 2 and Level 3 inputs.
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Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes The Company provides for income taxes at the statutory rate of 21% adjusted for permanent differences expected to be realized, which primarily relate to non-deductible executive compensation expenses, restricted stock windfalls, and state income taxes. The following table presents a reconciliation of the reported amount of income tax expense to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations:
(a) Accounts for the potential impact of periodic volatility of stock-based compensation tax deductions on future effective tax rates.
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Equity Transactions |
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Jun. 30, 2019 | |
Equity [Abstract] | |
Equity Transactions | Equity Transactions 10% Series A Cumulative Preferred Stock (“Preferred Stock”) Holders of the Company’s 10.00% Series A Cumulative Preferred Stock were entitled to receive, when, as and if declared by the Company’s Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends at a rate of 10.0% per annum of the $50.00 liquidation preference per share (equivalent to $5.00 per annum per share). Dividends were payable quarterly in arrears on the last day of each March, June, September and December when, as and if declared by the Company’s Board of Directors. Preferred Stock dividends of $1,823 and $3,647 for the three and six months ended June 30, 2019 remained consistent compared to the same periods of 2018, respectively. On June 18, 2019, the Company announced it had given notice for the redemption (the “Redemption”) of all outstanding shares of the Preferred Stock. The redemption date of the Preferred Stock was July 18, 2019 (the “Redemption Date”). The Preferred Stock were redeemed at the redemption price equal to $50.00 per share, plus an amount equal to all accrued and unpaid dividends in an amount equal to $0.24 per share, for a total redemption price of $50.24 per share (the “Redemption Price”). After the Redemption Date, the Preferred Stock were no longer deemed outstanding, dividends on the Preferred Stock ceased to accrue, and all rights of the holders with respect to such Preferred Stock were terminated, except the right of the holders to receive the Redemption Price, without interest. Regular dividends on the Preferred Stock for the second quarter of 2019 were paid prior to the end of the period. Common stock On May 30, 2018, the Company completed an underwritten public offering of 25.3 million shares of its common stock for total estimated net proceeds (after the underwriter’s discounts and estimated offering costs) of approximately $287,988. The Company used proceeds from the offering to partially fund the Delaware Asset Acquisition completed in the third quarter of 2018, described in Note 3.
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Leases |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | Leases Leases We determine if an arrangement is a lease at inception of the arrangement. To the extent that we determine an arrangement represents a lease, we classify that lease as an operating lease or a finance lease. Based on our evaluation of leases for the three months ended March 31, 2019, we have no leases that meet the criteria for classification as a finance lease. We capitalize operating leases on our consolidated balance sheets through a right-of-use (“ROU”) asset and a corresponding lease liability. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating leases are included in operating lease ROU assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made to the lessor prior to lease commencement, less any lease incentives, and initial direct costs incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Nature of leases In support of our operations, we lease certain drilling rigs, office space, office equipment, production facilities, compressors, vehicles and other ancillary drilling equipment under cancelable and non-cancelable contracts. A more detailed description of our material lease types is included below. Drilling rigs The Company enters into daywork and long-term contracts for drilling rigs with third party service contractors to support the development of undeveloped reserves. Our daywork drilling rig arrangements are typically structured with a term that is in effect until drilling operations are completed on a contractually specified well or well pad. Upon mutual agreement with the contractor, we typically have the option to extend the contract term for additional wells, well pads or contractually stated extension terms by providing 30 days’ notice prior to the end of the original contract term. The Company’s long-term drilling contracts are generally structured with an initial non-cancelable term of one to two years. We have concluded that our long-term drilling rig arrangements represent operating leases with a lease term greater than twelve months. Additionally, we have concluded that our daywork drilling rig arrangements represent short-term operating leases with a lease term that equals the period of time required to complete drilling operations on the contractually specified well or well pad (that is, generally one to a few months from commencement of drilling). We do not include the option to extend the drilling rig contract in the lease term due to the continuously evolving nature of our drilling schedules, which requires significant flexibility in the structure of the term of these arrangements, and the potential volatility in commodity prices in an annual period. We have further elected to apply the practical expedient for short-term leases to our daywork drilling rig leases. Accordingly, we do not apply the lease recognition requirements to our daywork drilling rig contracts, and we recognize lease payments related to these arrangements in profit or loss on a straight-line basis over the lease term. Corporate and field offices We enter into long-term contracts to lease corporate and field office space in support of company operations. These contracts are generally structured with an initial non-cancelable term of two to five years. To the extent that our corporate and field office contracts include renewal options, we evaluate whether we are reasonably certain to exercise those options on a contract by contract basis based on expected future office space needs, market rental rates, drilling plans and other factors. We have further determined that our current corporate and field office leases represent operating leases. Transportation, gathering and processing arrangements We engage in various types of transactions in which midstream entities transport, gather and/or process our product leveraging integrated systems and facilities wholly-owned and operated by the midstream counterparty. Under most of these arrangements, we do not utilize substantially all of the underlying pipeline, gathering system or processing facilities, and thus, we have concluded that those underlying assets do not meet the definition of an identified asset. The following tables reflect the current period impact of our adoption of the new leases standard. As we have no leases that meet the criteria for classification as a finance lease, all information contained herein represents our operating leases. The components of our total lease cost were as follows:
(a) Short-term lease cost excludes expenses related to leases with a contract term of one month or less. As of June 30, 2019, our weighted average remaining lease term and our weighted average discount rate for our operating leases were 1.45 years and 4.02%, respectively. Our operating lease liabilities with enforceable contract terms that are greater than one year mature as follows:
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Asset Retirement Obligations |
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Asset Retirement Obligation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset Retirement Obligations | Asset Retirement Obligations The table below summarizes the activity for the Company’s ARO:
Certain of the Company’s operating agreements require that assets be restricted for abandonment obligations. Amounts recorded in the consolidated balance sheet at June 30, 2019 as long-term restricted investments were $3,468. These assets, which primarily include short-term U.S. Government securities, are held in abandonment trusts dedicated to pay future abandonment costs for several of the Company’s oil and natural gas properties.
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Other |
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Jun. 30, 2019 | |
Other [Abstract] | |
Other | Other Other commitments In August 2018, the Company executed a firm transportation agreement for dedicated capacity on a new pipeline system that will connect with a regional gathering system which currently transports oil volumes under long-term agreements from our properties in Howard and Ward counties to multiple marketing points in the Permian Basin. Subject to completion of the new pipeline system, which will have delivery points in several locations along the Gulf Coast, we will have a long-term commitment that will apply applicable tariff rates to our 15,000 Bbls per day commitment for the term of the agreement. Barrels may be transported to multiple delivery points along the Gulf Coast and may include volumes produced by us and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf. In January 2019, the Company executed a crude oil sales contract that provides further dedicated capacity on several pipeline systems that will connect with a regional gathering system which currently transports oil volumes under long-term agreements from our properties in Howard and Ward counties and will have delivery points in several locations along the Gulf Coast, providing the Company with the potential benefit of access to an international weighted average sales price. We will have a long-term 10,000 Bbls per day commitment for the term of the agreement, and may include volumes produced by us and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf. In June 2019, the Company executed a firm transportation agreement for dedicated capacity on a new pipeline system that originates in Midland, Texas and terminates in Houston, Texas. Subject to completion of the new pipeline system, which will have delivery points in several locations along the Gulf Coast, we will have a long-term commitment that will apply applicable tariff rates to our quantities committed that average 10,000 Bbls per day for the term of the agreement. Barrels may be transported to multiple delivery points along the Gulf Coast and may include volumes produced by us and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf. In July 2019, the Company executed a crude oil sales contact that provides dedicated capacity on a new pipeline system that originates in Midland County and will have delivery points in several locations along the Gulf Coast. We will have a long-term 5,000 Bbls per day commitment for the term of the agreement and will apply applicable tariff rates to those quantities. Barrels may include volumes produced by us and other third-party working, royalty, and overriding royalty interest owners whose volumes we market on their behalf.
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Carrizo Acquisition |
6 Months Ended |
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Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
Carrizo Acquisition | Carrizo Acquisition On July 14, 2019, Callon and Carrizo Oil & Gas, Inc. (“Carrizo”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, upon the terms and subject to the conditions set forth therein, Carrizo will merge with and into Callon, with Callon as the surviving corporation (the “Merger” or the “Carrizo Acquisition”). The combination will result in a portfolio of core oil-weighted assets in both the Permian Basin and Eagle Ford Shale. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of Carrizo Common Stock, will be converted into the right to receive 2.05 shares of Callon Common Stock. Following the closing of the Merger, Callon’s existing shareholders and Carrizo’s existing shareholders will own approximately 54% and 46%, respectively, of the outstanding shares of the combined company. The Merger Agreement provides that, upon consummation of the Merger, the board of directors of Callon will consist of the eight members of the board of directors of Callon immediately prior to the Effective Time and three members of the board of directors of Carrizo, two of such directors to be chosen by Carrizo and one such director to be chosen by Callon. Additionally, the Merger Agreement provides that, upon consummation of the Merger, the officers of Callon immediately prior to the Effective Time shall be the officers of the combined company. Callon will continue to be headquartered in Houston, Texas, where both companies are currently based. Callon expects that the acquisition will close during the fourth quarter of 2019, subject to the approval of both shareholder bases, the satisfaction of certain regulatory approvals and other closing conditions.
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Description of Business and Basis of Presentation (Policies) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||
Basis of presentation | Unless otherwise indicated, all dollar amounts included within the Footnotes to the Financial Statements are presented in thousands, except for per share and per unit data. The interim consolidated financial statements of the Company have been prepared in accordance with (1) GAAP, (2) the SEC’s instructions to Quarterly Report on Form 10-Q and (3) Rule 10-01 of Regulation S-X, and include the accounts of Callon Petroleum Company, and its subsidiary, Callon Petroleum Operating Company (“CPOC”). CPOC also has a subsidiary, namely Mississippi Marketing, Inc. Effective February 28, 2019, Callon Offshore Production, Inc. was merged with and into Callon Petroleum Operating Company. These interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, including normal recurring adjustments and all intercompany account and transaction eliminations, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods indicated. Certain prior year amounts have been reclassified to conform to current year presentation. |
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Accounting Standards Updates (“ASUs”) | Recently adopted ASUs - Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification (“ASU 2016-02”). In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (“ASU 2018-01”). In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements (“ASU 2019-01”). Together these related amendments to GAAP represent ASC Topic 842, Leases (“ASC Topic 842”). ASU 2016-02 requires lessees to recognize lease assets and liabilities (with terms in excess of 12 months) on the balance sheet and disclose key quantitative and qualitative information about leasing arrangements. The Company engaged a third-party consultant to assist with assessing its existing contracts, as well as future potential contracts, and to determine the impact of its application on its consolidated financial statements and related disclosures. The contract evaluation process includes review of drilling rig contracts, office facility leases, compressors, field vehicles and equipment, general corporate leased equipment, and other existing arrangements to support its operations that may contain a lease component. The new standard was effective for us in the first quarter of 2019, and we adopted the new standard using a modified retrospective approach, with the date of initial application on January 1, 2019. Consequently, upon transition, we recognized the cumulative effect of adoption in retained earnings as of January 1, 2019. We further utilized the package of practical expedients at transition to not reassess the following:
Additionally, we elected the practical expedient under ASU 2018-01, which did not require us to evaluate existing or expired land easements not previously accounted for as leases prior to the effective date. We also chose not to separate lease and non-lease components for the various classes of underlying assets. In addition, for all of our asset classes, we have made an accounting policy election not to apply the lease recognition requirements to our short-term leases. Accordingly, we recognize lease payments related to our short-term leases in profit or loss on a straight-line basis over the lease term. Through our implementation process, we evaluated each of our lease arrangements and enhanced our systems to track and calculate additional information required upon adoption of this standard. The standard had an impact on our consolidated balance sheets at March 31, 2019 and June 30, 2019, resulting from the recognition of right-of-use assets and lease liabilities for operating leases. We have no leases that meet the criteria for classification as a finance lease. We lease certain office space, office equipment, production facilities, compressors, drilling rigs, vehicles and other ancillary drilling equipment under cancelable and non-cancelable leases to support our operations. See Note 10 for additional information regarding the impact of adoption of the new leases standard on our current period results. Adoption of the new leases standard did not impact our consolidated statement of operations or cash provided from or used in operating, investing or financing in our consolidated statement of cash flows. We note that the standard does not apply to leases to explore for or use minerals, oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained. Recently adopted ASUs - Other In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The standard is intended to simplify several aspects of the accounting for nonemployee share-based payment transactions for acquiring goods and services from nonemployees, including the timing and measurement of nonemployee awards. The Company adopted this update on January 1, 2019 and it did not have a material impact on its consolidated financial statements upon adoption of this guidance.
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Acquisitions and Dispositions (Tables) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||
Fair Value of Net Assets Acquired | The following table summarizes the estimated acquisition date fair values of the acquisition:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of Basic and Diluted Earnings Per Share | The following table sets forth the computation of basic and diluted earnings per share:
(a) Shares excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.
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Borrowings (Tables) |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Borrowings | The Company’s borrowings consisted of the following:
(a) Excludes unamortized deferred financing costs related to the Company’s senior secured revolving credit facility of $5,427 and $6,087 as of June 30, 2019 and December 31, 2018, respectively.
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Derivative Instruments and Hedging Activities (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Price Risk Derivatives | Our Ranger Asset Divestiture in June of 2019 provides for potential contingent consideration to be received by the Company if commodity prices exceed specific thresholds in each of the next several years. On the disposition date, we recognized a derivative asset of $8,512 based on the initial fair value measurement. See Note 7 for additional information regarding fair value measurement. These contingent payments are summarized in the tables below (in thousands):
(c) In the event that the 2019 and 2020 prices exceed the $65/bbl threshold, the aggregate amount of contingent consideration is limited to $60,000, resulting in the potential reduction in settlement for 2021 to $18,334.
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Fair Value of Derivative Instruments | The following table reflects the fair value of the Company’s derivative instruments for the periods presented:
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Schedule of Offsetting Assets | The following presents the impact of this presentation to the Company’s recognized assets and liabilities for the periods indicated:
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Schedule of Offsetting Liabilities | The following presents the impact of this presentation to the Company’s recognized assets and liabilities for the periods indicated:
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Schedule of Gain or Loss on Derivative Contracts | For the periods indicated, the Company recorded the following in the consolidated statements of operations as a gain or loss on derivative contracts:
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Schedule of Outstanding Oil and Natural Gas Derivative Contracts | Listed in the tables below are the outstanding oil and natural gas derivative contracts as of June 30, 2019:
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Financial Instruments at Carrying and Fair Value | The carrying amount of the Company’s floating-rate debt approximated fair value, because the interest rates were variable and reflective of market rates.
(b) The fair value was based upon Level 2 inputs. See Note 5 for additional information about the Company’s 6.125% and 6.375% Senior Notes.
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Fair Value of Assets and Liabilities Measured on Recurring Basis | The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis:
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Income Taxes (Tables) |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Effective Income Tax Rate Reconciliation | The following table presents a reconciliation of the reported amount of income tax expense to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations:
(a) Accounts for the potential impact of periodic volatility of stock-based compensation tax deductions on future effective tax rates.
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Leases (Tables) |
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Lease, Cost | The components of our total lease cost were as follows:
(a) Short-term lease cost excludes expenses related to leases with a contract term of one month or less.
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Lessee, Operating Lease, Liability, Maturity | Our operating lease liabilities with enforceable contract terms that are greater than one year mature as follows:
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Asset Retirement Obligations (Tables) |
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Asset Retirement Obligation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Activity of Asset Retirement Obligations | The table below summarizes the activity for the Company’s ARO:
• Revisions to estimates were due to changes in plugging cost estimates, timing of abandonment activities, and changes in working interest of producing wells.
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Revenue Recognition (Gathering and Treating Fees) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
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Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Dec. 31, 2018 |
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Accounts Receivable | |||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||||
Contract with customer, asset, gross, current | $ 67,891 | $ 67,891 | $ 87,061 | ||
Natural Gas, Gathering and Treating Fees | Natural Gas Revenue | |||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||||
Cost of goods and services sold | $ 2,805 | $ 1,952 | $ 5,213 | $ 3,204 |
Revenue Recognition (Performance Obligation) (Details) |
6 Months Ended |
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Jun. 30, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Performance obligation, description of timing | The Company records revenue in the month production is delivered to the purchaser. However, settlement statements for sales may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. |
Acquisitions and Dispositions (Narrative - Dispositions) (Details) - Certain Non-core Assets in the Midland Basin $ in Thousands |
Jun. 12, 2019
USD ($)
a
|
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Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |
Consideration | $ 244,935 |
Potential contingency payments | $ 60,000 |
Potential contingency payments, period | 3 years |
Disposal Group, Including Discontinued Operation, Area of Land | a | 9,850 |
Working interest | 66.00% |
Acquisitions and Dispositions (Narrative - Acquisitions) (Details) a in Thousands, $ in Thousands |
3 Months Ended | ||||
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Aug. 31, 2018
USD ($)
a
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Jun. 30, 2019
USD ($)
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Mar. 31, 2019
USD ($)
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Dec. 31, 2018
USD ($)
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Mar. 31, 2018
USD ($)
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Business Acquisition [Line Items] | |||||
Proceeds from acreage swaps | $ 19,108 | ||||
WildHorse acreage | |||||
Business Acquisition [Line Items] | |||||
Proceeds from leasehold interest | $ 14,084 | ||||
Spur operating areas | |||||
Business Acquisition [Line Items] | |||||
Consideration transferred | $ 21,407 | ||||
Cimarex Energy Company | |||||
Business Acquisition [Line Items] | |||||
Consideration transferred | $ 539,519 | ||||
Gas and oil area, developed and undeveloped, net (in acres) | a | 28 | ||||
Monarch and Wildhorse | |||||
Business Acquisition [Line Items] | |||||
Consideration transferred | $ 37,770 | ||||
Wildhorse and Spur | |||||
Business Acquisition [Line Items] | |||||
Consideration transferred | $ 87,865 |
Acquisitions and Dispositions (Fair Value of Net Assets Acquired ) (Details) - Cimarex Energy Company $ in Thousands |
Aug. 31, 2018
USD ($)
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Business Acquisition [Line Items] | |
Asset retirement obligations | $ (570) |
Net assets acquired | 539,519 |
Evaluated oil and natural gas properties | |
Business Acquisition [Line Items] | |
Oil and natural gas properties | 253,089 |
Unevaluated oil and natural gas properties | |
Business Acquisition [Line Items] | |
Oil and natural gas properties | $ 287,000 |
Borrowings (Schedule of Borrowings) (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Principal components: | ||
Total principal outstanding | $ 1,105,000 | $ 1,200,000 |
Premium on senior unsecured notes, net of accumulated amortization | 5,906 | 6,469 |
Unamortized deferred financing costs | (15,646) | (16,996) |
Total carrying value of borrowings (a) | 1,095,260 | 1,189,473 |
Deferred financing costs | 5,427 | 6,087 |
Senior secured revolving credit facility | ||
Principal components: | ||
Total principal outstanding | 105,000 | 200,000 |
6.125% senior unsecured notes due 2024 | ||
Principal components: | ||
Total principal outstanding | $ 600,000 | 600,000 |
Debt instrument, interest rate, stated (as a percent) | 6.125% | |
6.375% senior unsecured notes due 2026 | ||
Principal components: | ||
Total principal outstanding | $ 400,000 | $ 400,000 |
Debt instrument, interest rate, stated (as a percent) | 6.375% |
Fair Value Measurements (Fair Value of Assets and Liabilities Measured on Recurring Basis) (Details) - Recurring Basis - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Assets | ||
Derivative financial instruments | $ 24,843 | $ 65,114 |
Liabilities | ||
Derivative financial instruments | (20,914) | (17,920) |
Net Derivative Fair Value | 3,929 | 47,194 |
Level 1 | ||
Assets | ||
Derivative financial instruments | 0 | 0 |
Liabilities | ||
Derivative financial instruments | 0 | 0 |
Net Derivative Fair Value | 0 | 0 |
Level 2 | ||
Assets | ||
Derivative financial instruments | 24,843 | 65,114 |
Liabilities | ||
Derivative financial instruments | (20,914) | (17,920) |
Net Derivative Fair Value | 3,929 | 47,194 |
Level 3 | ||
Assets | ||
Derivative financial instruments | 0 | 0 |
Liabilities | ||
Derivative financial instruments | 0 | 0 |
Net Derivative Fair Value | $ 0 | $ 0 |
Income Taxes (Details) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
Components of income tax rate reconciliation | ||||
Income tax expense computed at the statutory federal income tax rate | 21.00% | 21.00% | 21.00% | 21.00% |
State taxes net of federal expense | 1.00% | 1.00% | 1.00% | 1.00% |
Section 162(m) | 0.00% | 1.00% | 0.00% | 0.00% |
Valuation allowance | 0.00% | (21.00%) | 0.00% | (21.00%) |
Effective income tax rate, before discrete items | 22.00% | 2.00% | 22.00% | 1.00% |
Discrete items (a) | 1.00% | (1.00%) | 2.00% | 0.00% |
Effective income tax rate, before discrete items | 23.00% | 1.00% | 24.00% | 1.00% |
Equity Transactions (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Jun. 18, 2019 |
May 30, 2018 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Dec. 31, 2018 |
|
Class of Stock [Line Items] | |||||||||
Preferred stock dividend | $ 1,823 | $ 1,824 | $ 3,647 | $ 3,647 | |||||
Accrued and unpaid dividends (in dollars per share) | $ 1.25 | $ 1.25 | $ 1.25 | $ 1.25 | |||||
Issuance of common stock | $ 0 | $ 288,357 | |||||||
Series A Preferred Stock | |||||||||
Class of Stock [Line Items] | |||||||||
Preferred stock cumulative cash dividends rate | 10.00% | ||||||||
Preferred stock, liquidation preference (in dollars per share) | $ 50.00 | $ 50.00 | $ 50.00 | $ 50.00 | |||||
Preferred stock, dividend rate (in dollars per share) | $ 5.00 | ||||||||
Accrued and unpaid dividends (in dollars per share) | 0.24 | ||||||||
Redemption price (in dollars per share) | $ 50.24 | ||||||||
Common Stock | |||||||||
Class of Stock [Line Items] | |||||||||
Shares of common stock issued in public offering (in shares) | 25,300,000 | ||||||||
Issuance of common stock | $ 287,988 |
Leases (Cost) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2019 |
Jun. 30, 2019 |
|
Leases [Abstract] | ||
Operating lease cost | $ 9,591 | $ 19,156 |
Short-term lease cost | $ 1,849 | $ 3,347 |
Leases (Narrative) (Details) |
6 Months Ended |
---|---|
Jun. 30, 2019 | |
Lessee, Lease, Description [Line Items] | |
Weighted average remaining lease term | 1 year 5 months 12 days |
Weighted average discount rate, percent | 4.02% |
Drilling Rigs | |
Lessee, Lease, Description [Line Items] | |
Extension period notice | 30 days |
Drilling Rigs | Minimum | |
Lessee, Lease, Description [Line Items] | |
Term of contract | 1 year |
Drilling Rigs | Maximum | |
Lessee, Lease, Description [Line Items] | |
Term of contract | 2 years |
Offices | Minimum | |
Lessee, Lease, Description [Line Items] | |
Term of contract | 2 years |
Offices | Maximum | |
Lessee, Lease, Description [Line Items] | |
Term of contract | 5 years |
Leases (Maturities) (Details) $ in Thousands |
Jun. 30, 2019
USD ($)
|
---|---|
Leases [Abstract] | |
Remainder of 2019 | $ 15,937 |
2020 | 13,847 |
2021 | 1,576 |
2022 | 534 |
2023 | 517 |
Thereafter | 431 |
Total lease payments | 32,842 |
Less imputed interest | 1,022 |
Total | $ 31,820 |
Asset Retirement Obligations (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2018
USD ($)
|
Jun. 30, 2019
USD ($)
well
|
Jun. 30, 2018
USD ($)
|
Dec. 31, 2018
USD ($)
|
|
Asset Retirement Obligation, Roll Forward Analysis [Roll Forward] | |||||
Asset retirement obligations at January 1, 2019 | $ 14,292 | ||||
Accretion expense | $ 216 | $ 206 | 457 | $ 424 | |
Liabilities incurred | 199 | ||||
Liabilities settled | (630) | ||||
Dispositions | (1,701) | ||||
Revisions to estimate | (199) | ||||
Asset retirement obligations at end of period | 12,418 | 12,418 | |||
Less: Current asset retirement obligations | (3,103) | (3,103) | $ (3,887) | ||
Long-term asset retirement obligations at June 30, 2019 | 9,315 | $ 9,315 | 10,405 | ||
Number of wells retired | well | 20 | ||||
Restricted Investments | |||||
Restricted investments | $ 3,468 | $ 3,468 | $ 3,424 |
Other (Details) - bbl / d |
1 Months Ended | |||
---|---|---|---|---|
Aug. 06, 2018 |
Jul. 31, 2019 |
Jun. 30, 2019 |
Jan. 31, 2019 |
|
Subsequent Event [Line Items] | ||||
Delivery commitments per day | 15,000 | 10,000 | 10,000 | |
Subsequent Event | ||||
Subsequent Event [Line Items] | ||||
Delivery commitments per day | 5,000 |
Carrizo Acquisition (Details) - Subsequent Event |
Jul. 14, 2019
shares
|
---|---|
Callon Petroleum Company | |
Subsequent Event [Line Items] | |
Post merger, percent of share outstanding owned | 54.00% |
Carrizo | |
Subsequent Event [Line Items] | |
Post merger, percent of share outstanding owned | 46.00% |
Carrizo | |
Subsequent Event [Line Items] | |
Exchange ratio (in shares) | 2.05 |
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