Change in Accounting Principle

9 Months Ended

Sep. 30, 2023

Accounting Changes and Error Corrections [Abstract]

Change in Accounting Principle

Change in Accounting PrincipleIn the first quarter of 2023, the Company voluntarily changed its method of accounting for oil and natural gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In general, under successful efforts, exploration costs such as exploratory dry holes, exploratory geophysical and geological costs, delay rentals, unproved leasehold impairments and

exploration overhead are expensed as incurred as opposed to being capitalized under the full cost method of accounting. The successful efforts method also provides for the assessment of potential proved oil and gas property impairments by comparing the net book value of proved oil and gas properties to associated estimated undiscounted future net cash flows. If the net book value exceeds the estimated undiscounted future net cash flows, an impairment is recorded to reduce the net book value to fair value. Under the full cost method of accounting, an impairment would be required if the net book value of oil and natural gas properties exceeds a full cost ceiling using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are recognized more frequently on the divestitures of oil and gas properties under the successful efforts method, as opposed to an adjustment to the net book value of the oil and gas properties under the full cost method.

The “Impairment of oil and gas properties” and “Gain on sale of oil and gas properties” line items presented in the tables below are in connection with the sale of all of the Company’s interests of Callon (Eagle Ford) LLC to Ridgemar Energy Operating, LLC. See “Note 5 — Acquisitions and Divestitures” for additional details.

The following tables present the effects of the change to the successful efforts method in the consolidated balance sheets:

	As of September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Oil and natural gas properties:
Proved properties	$11,191,350	($1,947,545)	$9,243,805
Accumulated depreciation, depletion, amortization and impairments	(6,734,174)	2,306,145	(4,428,029)
Unproved properties	1,807,300	(520,281)	1,287,019
Total oil and gas properties, net	6,264,476	(161,681)	6,102,795
Deferred income taxes	170,001	29,733	199,734
Total assets	$6,860,471	($131,948)	$6,728,523
Stockholders’ equity:
Accumulated deficit	(232,855)	(131,948)	(364,803)
Total stockholders' equity	3,993,006	(131,948)	3,861,058
Total liabilities and stockholders' equity	$6,860,471	($131,948)	$6,728,523

	As of December 31, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Oil and natural gas properties:
Proved properties	$10,367,478	($1,099,343)	$9,268,135
Accumulated depreciation, depletion, amortization and impairments	(6,343,875)	1,927,269	(4,416,606)
Unproved properties	1,711,306	(485,538)	1,225,768
Total oil and gas properties, net	5,734,909	342,388	6,077,297
Total assets	$6,146,081	$342,388	$6,488,469
Deferred income taxes (1)	4,279	2,029	6,308
Stockholders’ equity:
Accumulated deficit	(937,388)	340,359	(597,029)
Total stockholders' equity	3,085,422	340,359	3,425,781
Total liabilities and stockholders' equity	$6,146,081	$342,388	$6,488,469

(1)    Included in “Other long-term liabilities” in the consolidated balance sheets.

The following tables present the effects of the change to the successful efforts method in the consolidated statements of operations:

	Three Months Ended September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share amounts)
Operating Expenses:
Exploration	$—	$3,588	$3,588
Depreciation, depletion and amortization	138,313	285	138,598
Gain on sale of oil and gas properties	—	(20,570)	(20,570)
General and administrative	22,016	7,323	29,339
Income From Operations	211,554	9,374	220,928
Other Expenses:
Interest expense	14,145	29,004	43,149
Income Before Income Taxes	139,623	(19,630)	119,993
Income tax benefit (expense)	10,663	(11,172)	(509)
Net Income	$150,286	($30,802)	$119,484
Net Income Per Common Share:
Basic	$2.21		$1.76
Diluted	$2.21		$1.75

	Three Months Ended September 30, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share amounts)
Operating Expenses:
Exploration	$—	$2,942	$2,942
Depreciation, depletion and amortization	122,833	7,062	129,895
General and administrative	14,022	10,231	24,253
Income From Operations	440,597	(20,235)	420,362
Other Expenses:
Interest expense	19,468	27,461	46,929
Income Before Income Taxes	553,118	(47,696)	505,422
Income tax expense	(3,515)	132	(3,383)
Net Income	$549,603	($47,564)	$502,039
Net Income Per Common Share:
Basic	$8.91		$8.14
Diluted	$8.88		$8.11

	Nine Months Ended September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share amounts)
Operating Expenses:
Exploration	$—	$7,702	$7,702
Depreciation, depletion and amortization	396,348	(4,437)	391,911
Impairment of oil and gas properties	—	406,898	406,898
Gain on sale of oil and gas properties	—	(20,570)	(20,570)
General and administrative	56,305	30,600	86,905
Income From Operations	602,555	(420,193)	182,362
Other Expenses:
Interest expense	52,818	83,876	136,694
Income Before Income Taxes	529,897	(504,069)	25,828
Income tax benefit	174,636	31,762	206,398
Net Income	$704,533	($472,307)	$232,226
Net Income Per Common Share:
Basic	$11.04		$3.64
Diluted	$11.01		$3.63

	Nine Months Ended September 30, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share amounts)
Operating Expenses:
Exploration	$—	$7,237	$7,237
Depreciation, depletion and amortization	335,221	24,273	359,494
General and administrative	42,052	29,433	71,485
Income From Operations	1,356,719	(60,943)	1,295,776
Other Expenses:
Interest expense	61,717	79,303	141,020
Income Before Income Taxes	944,357	(140,246)	804,111
Income tax expense	(7,008)	472	(6,536)
Net Income	$937,349	($139,774)	$797,575
Net Income Per Common Share:
Basic	$15.21		$12.94
Diluted	$15.14		$12.88

The following tables present the effects of the change to the successful efforts method in the consolidated statements of cash flows:

	Nine Months Ended September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Cash flows from operating activities:
Net income	$704,533	($472,307)	$232,226
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	396,348	(4,437)	391,911
Impairment of oil and gas properties	—	406,898	406,898
Amortization of non-cash debt related items, net	3,064	4,915	7,979
Deferred income tax benefit	(174,279)	(31,762)	(206,041)
Gain on sale of oil and gas properties	—	(20,570)	(20,570)
Non-cash expense related to share-based awards	3,848	5,676	9,524
Net cash provided by operating activities	905,850	(111,587)	794,263
Cash flows from investing activities:
Capital expenditures	(854,889)	103,885	(751,004)
Acquisition of oil and gas properties	(286,136)	7,702	(278,434)
Net cash used in investing activities	(592,429)	111,587	(480,842)
Net change in cash and cash equivalents	61	—	61
Balance, beginning of period	3,395	—	3,395
Balance, end of period	$3,456	$—	$3,456

	Nine Months Ended September 30, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Cash flows from operating activities:
Net income	$937,349	($139,774)	$797,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	335,221	24,273	359,494
Amortization of non-cash debt related items, net	4,263	5,417	9,680
Deferred income tax expense	1,626	(516)	1,110
Non-cash expense related to share-based awards	1,055	3,372	4,427
Changes in current assets and liabilities:
Accounts payable and accrued liabilities	(8,693)	44	(8,649)
Net cash provided by operating activities	1,128,870	(107,184)	1,021,686
Cash flows from investing activities:
Capital expenditures	(754,225)	106,076	(648,149)
Acquisition of oil and gas properties	(18,114)	1,108	(17,006)
Net cash used in investing activities	(768,700)	107,184	(661,516)
Net change in cash and cash equivalents	(5,532)	—	(5,532)
Balance, beginning of period	9,882	—	9,882
Balance, end of period	$4,350	$—	$4,350

The following tables present the effects of the change to the successful efforts method in the consolidated statements of stockholders’ equity:

	As of September 30, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Accumulated deficit	($232,855)	($131,948)	($364,803)
Total stockholders’ equity	$3,993,006	($131,948)	$3,861,058

	As of December 31, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Accumulated deficit	($937,388)	$340,359	($597,029)
Total stockholders’ equity	$3,085,422	$340,359	$3,425,781