8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report

September 8, 2014

(Date of earliest event reported)

Callon Petroleum Company

(Exact name of registrant as specified in its charter)

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

200 North Canal St.

Natchez, Mississippi 39120

(Address of principal executive offices, including zip code)

(601) 442-1601

(Registrant’s telephone number, including area code)

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

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

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

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

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

EXPLANATORY NOTE

As previously disclosed in its Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on September 4, 2014 (the “Prior 8-K”), Callon Petroleum Operating Company (“CPOC”), a subsidiary of Callon Petroleum Company (“Callon” or the “Company”), on August 29, 2014, entered into definitive purchase and sale agreements (the “Agreements”) with unaffiliated private entities (the “Sellers”) to acquire certain undeveloped acreage and oil and gas producing properties located in Midland, Andrews, Ector and Martin Counties, Texas (the “Acquired Properties”) for an aggregate purchase price of $212.6 million in cash, subject to customary purchase price adjustments, with an effective date of May 1, 2014.

This Current Report on Form 8-K provides financial statements of the Acquired Properties and the pro forma financial statements required by Item 9.01 of Form 8-K. This Current Report on Form 8-K should be read in connection with the Prior 8-K, which provides a more complete description of the acquisition.

Section 9 – Financial Statements and Exhibits

Item 9.01. Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

Audited Statements of Revenues and Direct Operating Expenses of the Acquired Properties for the three years in the periods ended December 31, 2013, 2012 and 2011 and Unaudited Statements of Revenues and Direct Operating Expenses of the Acquired Properties for the six months ended June 30, 2014 and 2013, are attached hereto as Exhibit 99.1.

(b) Pro forma financial information.

Unaudited Pro Forma Consolidated Financial Statements of the Company as of June 30, 2014 and for the year ended December 31, 2013 and for the six months ended June 30, 2014, are attached hereto as Exhibit 99.2.

(d) Exhibits

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

SIGNATURES

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

	Callon Petroleum Company
	(Registrant)
September 8, 2014	By: /s/ Joseph C. Gatto, Jr.
	Joseph C. Gatto, Jr.
	Chief Financial Officer, Senior Vice President and Treasurer

Exhibit Index

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

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-176811) Form S-8 (No. 333-109744), Form S-8 (No. 333-176061) and Form S-8 (No. 333-188008) of Callon Petroleum Company of our report dated September 5, 2014 relating to the Statements of Revenues and Direct Operating Expenses of the Acquired Properties, as defined in Note 1 - Summary of Significant Accounting Policies, for the years ended December 31, 2011, 2012 and 2013 appearing in this Form 8-K.

Houston, Texas

September 5,2014

6002 Rogerdale, Ste. 200 Houston, Texas 77072 Tel 281-759-1120 Fax 281-759-5500

EX-99.1

Exhibit 99.1

Acquired Properties

Statements of Revenues and Direct Operating Expenses

For the Years Ended December 31, 2011, 2012 and 2013 and

For the Six Months Ended June 30, 2014 and 2013

CONTENTS

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

Independent Auditor’s Report

The Board of Directors and Stockholders of

Callon Petroleum Company

We have audited the accompanying Statements of Revenues and Direct Operating Expenses of the Acquired Properties, as defined in Note 1 - Summary of Significant Accounting Policies, for the years ended December 31, 2011, 2012 and 2013 (the “Statements”), and the related notes.

Management’s Responsibility for the Statements

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

Auditor’s Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the Statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the Statements of Revenues and Direct Operating Expenses referred to above present fairly, in all material respects the revenues and direct operating expenses of the Acquired Properties for the years ended December 31, 2011, 2012 and 2013, in accordance with accounting principles generally accepted in the United States of America.

Melton & Melton, L.L.P.

Houston, Texas

September 8, 2014

1

Acquired Properties

Audited Statements of Revenues and Direct Operating Expenses

(in thousands)

	For the Years Ended December 31,
	2013		2012		2011
Revenues:
Oil sales	$	43,271	$	53,522	$	47,043
Natural gas sales		5,926		6,665		6,006
Total revenues		49,197		60,187		53,049
Direct operating expenses:
Lease operating expenses		6,699		8,596		4,908
Production taxes		1,994		2,467		2,168
Total direct operating expenses		8,693		11,063		7,076
Revenues in excess of direct operating expenses	$	40,504	$	49,124	$	45,973

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

2

Acquired Properties

Notes to the Audited Statements of Revenues and Direct Operating Expenses

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

NOTE 1 - Summary of Significant Accounting Policies

Basis of Presentation

On August 29, 2014, Callon Petroleum Company (the “Company”) entered into a Purchase and Sale Agreement (the “Agreement”) with unaffiliated private entities (the “Sellers”) to acquire certain undeveloped acreage and oil and gas producing properties located in Midland, Andrews, Ector and Martin Counties, Texas (the “Acquired Properties”) for an approximate aggregate cash purchase price of $212.6 million, subject to customary purchase price adjustments with an effective date of May 1, 2014.

The Acquired Properties were not accounted for as a separate subsidiary or division during the periods presented. Accordingly, complete financial statements under U.S. generally accepted accounting principles (“GAAP”) are not available or practicable to obtain for the Acquired Properties. The Statements of Revenues and Direct Operating Expenses are not intended to be a complete presentation of the results of operations of the Acquired Properties and may not be representative of future operations as they do not include general and administrative expenses, effects of derivative transactions, interest income or expense, depreciation, depletion and amortization, provision for income taxes and other income and expense items not directly associated with revenues from natural gas, natural gas liquids (“NGLs”) and crude oil. The accompanying Statements of Revenues and Direct Operating Expenses are presented in lieu of the full financial statements required under Rule 3-05 of Securities and Exchange Commission (the “SEC”) Regulation S-X.

Revenue Recognition and Natural Gas Balancing

Revenue is recognized under the entitlement method of accounting in the accompanying Statements of Revenues and Direct Operating Expenses. Under this method, revenue is deferred for deliveries in excess of the Acquired Properties’ net revenue interest, while revenue is accrued for the undelivered volumes. The revenue received from the sale of NGLs is included in natural gas sales. The Acquired Properties had no significant imbalances during the periods presented.

Operating Expenses

Operating expenses are recognized when incurred and include amounts incurred to bring crude oil, natural gas, and natural gas liquids to the surface, gather, transport, field process, treat and store same.

Concentration of Credit Risk

The Acquired Properties’ revenues were derived from sales to one customer during the periods presented. This concentration may impact the Acquired Properties’ overall business risk, either positively or negatively, in that this customer may be similarly affected by changes in economic or other conditions. The Company believes this risk is mitigated by the size, reputation and nature of this customer and the availability of other purchasers. All of the Acquired Properties’ revenues are from oil and gas production in Texas. This concentration may also impact the Acquired Properties by changes in the Texas region.

3

NOTE 2 - Subsequent Events

No subsequent events have occurred through September 8, 2014, the date the Statements of Revenues and Direct Operating Expenses were available to be issued, that require consideration as adjustments to or disclosure in the Statements of Revenues and Direct Operating Expenses.

NOTE 3 - Supplemental Oil and Gas Information (Unaudited)

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

Proved reserves as of December 31, 2011, 2012 and 2013 were estimated by qualified petroleum engineers of the Company using historical data and other information from the records of the Sellers.

All information set forth herein relating to the proved reserves as of December 31, 2011, 2012 and 2013, including the estimated future net cash flows and present values, from those dates, is taken or derived from the records of the Sellers of the Acquired Properties. These estimates were based upon review of historical production data and other geological, economic, ownership, and engineering data provided related to the reserves. The reserve disclosures are based on reserve studies prepared as of December 31, 2013 and adjusted for production; accordingly, there are no revisions of the previous estimates. No reports on these reserves have been filed with any federal agency. In accordance with the SEC’s guidelines, estimates of proved reserves and the future net revenues from which present values are derived were based on an unweighted 12-month average of the first-day-of-the-month price for the period, held constant throughout the life of the Acquired Properties. Operating costs, development costs, and certain production-related taxes, which are based on current information and held constant, were deducted in arriving at estimated future net revenues.

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

	Changes in Reserve Quantities
	For the Years Ended December 31,
	2013			2012			2011
Proved developed and undeveloped reserves:
Oil (MBbls):
Beginning of period		3,368			3,963			4,468
Revisions to previous estimates		—			—			—
Production		(460	)		(595	)		(505	)
End of period		2,908			3,368			3,963
Natural Gas (MMcf):
Beginning of period		9,669			10,775			11,726
Revisions to previous estimates		—			—			—
Production		(1,260	)		(1,106	)		(951	)
End of period		8,409			9,669			10,775

4

	Reserve Quantities
	For the Years Ended December 31,
	2013		2012		2011
Proved developed:
Oil (MBbls)
Beginning of period		3,368		3,963		4,468
End of period		2,908		3,368		3,963
Natural gas (MMcf)
Beginning of period		9,669		10,775		11,726
End of period		8,409		9,669		10,775
MBOE:
Beginning of period		4,980		5,759		6,422
End of period		4,310		4,980		5,759
Proved undeveloped reserves:
Oil (MBbls)
Beginning of period		—		—		—
End of period		—		—		—
Natural gas (MMcf)
Beginning of period		—		—		—
End of period		—		—		—
MBOE:
Beginning of period		—		—		—
End of period		—		—		—

Future cash inflows are computed by applying a 12-month average commodity price adjusted for location and quality differentials for 2011, 2012 and 2013 to year-end quantities of proved reserves. Future development costs include future asset retirement costs. Future production costs do not include any general and administrative expenses. Income taxes were determined based on the statutory federal income tax rate. A discount factor of 10% was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair value of the Acquired Properties.

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

	2013		2012		2011
Average 12-month price, net of differentials, per Mcf of natural gas	$	4.70	$	6.03	$	6.32
Average 12-month price, net of differentials, per barrel of oil	$	94.04	$	89.99	$	93.09

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

	Standardized Measure
	For the Years Ended December 31,
	2013			2012			2011
Future cash inflows	$	312,942		$	361,356		$	436,958
Future costs -
Production		(141,193	)		(150,663	)		(163,021	)
Development and net abandonment		—			—			—
Future net inflows before income taxes		171,749			210,693			273,937
Future income taxes		(16,478	)		(22,773	)		(35,065	)
Future net cash flows		155,271			187,920			238,872
10% discount factor		(65,134	)		(78,264	)		(96,676	)
Standardized measure of discounted future net cash flows	$	90,137		$	109,656		$	142,196

5

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

	Changes in Standardized Measure
	For the Years Ended December 31,
	2013			2012			2011
Standardized measure at the beginning of the period	$	109,656		$	142,196		$	147,349
Changes
Sales and transfers, net of production costs		(40,504	)		(49,124	)		(45,973	)
Net change in sales and transfer prices, net of production costs		959			(8,631	)		28,728
Net change due to purchases and sales of in place reserves		—			—			—
Extensions, discoveries, and improved recovery, net of future production and development costs incurred		—			—			—
Changes in future development cost		—			—			—
Revisions of quantity estimates		—			—			—
Accretion of discount		12,614			16,736			17,015
Net change in income taxes		4,770			8,681			(2,365	)
Changes in production rates, timing and other		2,642			(202	)		(2,558	)
Aggregate change		(19,519	)		(32,540	)		(5,153	)
Standardized measure at the end of period	$	90,137		$	109,656		$	142,196

6

Acquired Properties

Unaudited Statements of Revenues and Direct Operating Expenses

(in thousands)

	For the Six Months Ended June 30,
	2014		2013
Revenues:
Oil sales	$	16,978	$	22,456
Natural gas sales		3,238		3,069
Total revenues		20,216		25,525
Direct operating expenses:
Lease operating expenses		2,375		2,950
Production taxes		782		1,035
Total direct operating expenses		3,157		3,985
Revenues in excess of direct operating expenses	$	17,059	$	21,540

7

Acquired Properties

Notes to the Unaudited Statements of Revenues and Direct Operating Expenses

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

NOTE 1 - Summary of Significant Accounting Policies

Basis of Presentation

On August 29, 2014, Callon Petroleum Company (the “Company”) entered into a Purchase and Sale Agreement (the “Agreement”) with unaffiliated private entities (the “Sellers”) to acquire certain undeveloped acreage and oil and gas producing properties located in Midland, Andrews, Ector and Martin Counties, Texas (the “Acquired Properties”) for an approximate aggregate cash purchase price of $212.6 million, subject to customary purchase price adjustments with an effective date of May 1, 2014.

The Acquired Properties were not accounted for as a separate subsidiary or division during the periods presented. Accordingly, complete financial statements under U.S. generally accepted accounting principles (“GAAP”) are not available or practicable to obtain for the Acquired Properties. The Statements of Revenues and Direct Operating Expenses are not intended to be a complete presentation of the results of operations of the Acquired Properties and may not be representative of future operations as they do not include general and administrative expenses, effects of derivative transactions, interest income or expense, depreciation, depletion and amortization, provision for income taxes and other income and expense items not directly associated with revenues from natural gas, natural gas liquids (“NGLs”) and crude oil. The accompanying Statements of Revenues and Direct Operating Expenses are presented in lieu of the full financial statements required under Rule 3-05 of Securities and Exchange Commission (the “SEC”) Regulation S-X.

In the opinion of management, the accompanying unaudited Statements of Revenues and Direct Operating Expenses reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Acquired Properties’ revenues and direct operating expenses for the periods indicated.

Revenue Recognition and Natural Gas Balancing

Revenue is recognized under the entitlement method of accounting in the accompanying Statements of Revenues and Direct Operating Expenses. Under this method, revenue is deferred for deliveries in excess of the Acquired Properties’ net revenue interest, while revenue is accrued for the undelivered volumes. The revenue received from the sale of NGLs is included in natural gas sales. The Acquired Properties had no significant imbalances during the periods presented.

Operating Expenses

Operating expenses are recognized when incurred and include amounts incurred to bring crude oil, natural gas, and natural gas liquids to the surface, gather, transport, field process, treat and store same.

Concentration of Credit Risk

The Acquired Properties’ revenues were derived from sales to one customer during the periods presented. This concentration may impact the Acquired Properties’ overall business risk, either positively or negatively, in that this customer may be similarly affected by changes in economic or other conditions. The Company believes this risk is mitigated by the size, reputation and nature of this customer and the availability of other purchasers. All of the Acquired Properties’ revenues are from oil and gas production in Texas. This concentration may also impact the Acquired Properties by changes in the Texas region.

NOTE 2 - Subsequent Events

No subsequent events have occurred through September 8, 2014, the date the Statements of Revenues and Direct Operating Expenses were available to be issued, that require consideration as adjustments to or disclosure in the Statements of Revenues and Direct Operating Expenses.

8

EX-99.2

Exhibit 99.2

CALLON PETROLEUM COMPANY, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

On August 29, 2014, Callon Petroleum Company, Inc., (“Callon” or the “Company”), entered into purchase and sale agreements with unaffiliated private sellers to acquire certain undeveloped acreage and producing oil and gas assets (the “Acquired Properties”) located in Midland, Andrews, Ector and Martin Counties, Texas (the “Acquisition”) for an aggregate cash purchase price of $212.6 million (approximately $207.4 million after estimated purchase price adjustments based on an effective date for the Acquisition of May 1, 2014).

In connection with the Acquisition, the Company proposes to effect, subject to market conditions, a public offering of 12,500,000 shares of its common stock. The estimated net proceeds from the offering will be approximately $118.6 million, based on an assumed offering price of $10.06 per share, which is the last reported sale price of the Company’s common stock on the NYSE on September 5, 2014, and after deducting $7.1 million of estimated underwriting commissions and issuance costs.

Also, in connection with the Acquisition on August 29, 2014, the Company secured a commitment from JPMorgan Chase Bank, National Association to increase its current senior secured revolving credit facility (the “Credit Facility”) to $500.0 million, with an initial borrowing base of $250.0 million, and to refinance its existing secured second lien term loan (the “Second Lien Loan”) with a new $275.0 million secured second lien term loan (the “New Second Lien Loan”). The Company plans to use the net proceeds from the common stock offering and the proceeds from the New Second Lien Loan to fund the Acquisition, redeem the Second Lien Loan and repay borrowings under the Credit Facility.

We derived the unaudited pro forma consolidated financial statements from the historical consolidated financial statements of the Company and the statements of revenues and direct operating expenses of the Acquired Properties for the respective periods. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2013 and six months ended June 30, 2014 give effect to the Acquisition, the issuance of common stock and the debt transactions referred to above as if they occurred on January 1, 2013. The unaudited pro forma consolidated balance sheet as of June 30, 2014 gives effect to such transactions as if they occurred on June 30, 2014.

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

The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the transactions been consummated on the dates or for the periods presented. The unaudited pro forma consolidated financial statements should be read in conjunction with the audited December 31, 2013 consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed on March 13, 2014, the unaudited June 30, 2014 consolidated financial statements contained in the Company’s Quarterly Report on Form 10-Q filed on August 6, 2014, the audited statements of revenues and direct operating expenses of the Acquired Properties for the year ended December 31, 2013 filed with this Current Report on Form 8-K, and the unaudited statements of revenue and direct operating expenses of the Acquired Properties for the six months ended June 30, 2014 filed with this Current Report on Form 8-K.

1

CALLON PETROLEUM COMPANY

Unaudited Pro Forma Consolidated Balance Sheet

as of June 30, 2014

($ in thousands, except share data)

	Historical			Acquired Properties					Pro forma
ASSETS
Current assets:
Cash and cash equivalents	$	1,172		$	3,628		(g	)	$	4,800
Accounts receivable		26,951			—					26,951
Deferred tax asset, current		5,846			—					5,846
Other current assets		1,798			—					1,798
Total current assets		35,767			3,628					39,395
Oil and natural gas properties, full-cost accounting method:
Evaluated properties		1,844,691			93,059		(a	)		1,937,750
Less accumulated depreciation, depletion and amortization		(1,444,169	)		—					(1,444,169	)
Net oil and natural gas properties		400,522			93,059					493,581
Unevaluated properties excluded from amortization		36,957			115,490		(a	)		152,447
Total oil and natural gas properties		437,479			208,549					646,028
Other property and equipment, net		7,388			—					7,388
Restricted investments		3,806			—					3,806
Deferred tax asset		50,421			791		(d	)(e)		51,212
Other assets, net		5,057			13,850		(c	)(d)		18,907
Total assets	$	539,918		$	226,818				$	766,736
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	61,028		$	—				$	61,028
Market-based restricted stock unit awards		6,683								6,683
Asset retirement obligations		2,846			—					2,846
Fair market value of derivatives		5,306			—					5,306
Total current liabilities		75,863			—					75,863
Senior secured revolving credit facility		84,000			(84,000	)	(b	)		—
Secured second lien term loan		82,500			(82,500	)	(b	)		—
New secured second lien term loan		—			275,000		(b	)		275,000
Asset retirement obligations		2,752			1,140		(a	)		3,892
Market-based restricted stock unit awards		10,717			—					10,717
Other long-term liabilities		1,497			—					1,497
Total liabilities		257,329			109,640					366,969
Stockholders’ equity:
Preferred stock, series A cumulative, $0.01 par value and $50.00 liquidation preference, 2,500,000 shares authorized: 1,578,948 shares outstanding		16			—					16
Common stock, $0.01 par value, 110,000,000 shares authorized; 40,785,751 shares outstanding		408			125		(f	)		533
Capital in excess of par value		402,375			118,523		(f	)		520,898
Accumulated deficit		(120,210	)		(1,470	)	(d	)(e)		(121,680	)
Total stockholders’ equity		282,589			117,178					399,767
Total liabilities and stockholders’ equity	$	539,918		$	226,818				$	766,736

2

CALLON PETROLEUM COMPANY

Unaudited Pro forma Consolidated Statements of Operations for the Year Ended December 31, 2013

($ in thousands, except share data)

	Historical			Acquired Properties				Pro forma Adjustments					Pro forma
Operating revenues:
Oil sales	$	88,960		$	43,271	(h	)	$	—				$	132,231
Natural gas sales		13,609			5,926	(h	)		—					19,535
Total operating revenues		102,569			49,197				—					151,766
Operating expenses:
Lease operating expenses		19,779			6,699	(h	)		—					26,478
Production taxes		4,133			1,994	(h	)		—					6,127
Depreciation, depletion and amortization		43,967			—				24,385		(i	)		68,352
General and administrative		20,534			—				—					20,534
Accretion expense		1,785			—				61		(i	)		1,846
Impairment of other property and equipment		1,707			—				—					1,707
Total operating expenses		91,905			8,693				24,446					125,044
Income from operations		10,664			40,504				(24,446	)				26,722
Other (income) expenses:
Interest expense		6,094			—				14,909		(j	)		21,003
Gain on early extinguishment of debt		(3,696	)		—				—					(3,696	)
Loss (gain) on derivative contracts		1,360			—				—					1,360
Other (income) expense		(485	)		—				—					(485	)
Total other expenses		3,273			—				14,909					18,182
Income (loss) before income taxes		7,391			40,504				(39,355	)				8,540
Income tax expense (benefit)		3,104			—				402		(k	)		3,506
Income (loss) before equity in earnings of
Medusa Spar LLC		4,287			40,504				(39,757	)				5,034
Equity in earnings of Medusa Spar LLC		17			—				—					17
Net income (loss)		4,304			40,504				(39,757	)				5,051
Preferred stock dividends		(4,627	)		—				—					(4,627	)
Income (loss) available to common stockholders	$	(323	)	$	40,504			$	(39,757	)			$	424
Income (loss) per common share:
Basic	$	(0.01	)										$	0.01
Diluted	$	(0.01	)										$	0.01
Shares used in computing income (loss) per common share:
Basic		40,133							12,500		(f	)		52,633
Diluted		40,133							12,500		(f	)		52,633

3

CALLON PETROLEUM COMPANY

Unaudited Pro forma Consolidated Statements of Operations for the Six Months Ended June 30, 2014

($ in thousands, except share data)

	Historical			Acquired Properties				Pro forma Adjustments					Pro forma
Operating revenues:
Oil sales	$	68,619		$	16,978	(l	)	$	—				$	85,597
Natural gas sales		5,168			3,238	(l	)		—					8,406
Total operating revenues		73,787			20,216				—					94,003
Operating expenses:
Lease operating expenses		8,593			2,375	(l	)		—					10,968
Production taxes		4,182			782	(l	)		—					4,964
Depreciation, depletion and amortization		22,520			—				8,338		(m	)		30,858
General and administrative		20,446			—				—					20,446
Accretion expense		401			—				32		(m	)		433
Gain on sale of other property and equipment		(1,080	)		—				—					(1,080	)
Total operating expenses		55,062			3,157				8,370					66,589
Income from operations		18,725			17,059				(8,370	)				27,414
Other (income) expenses:
Interest expense		2,802			—				6,022		(n	)		8,824
Gain on early extinguishment of debt		(3,205	)		—				—					(3,205	)
Loss (gain) on derivative contracts		7,198			—				—					7,198
Other (income) expense		(142	)		—				—					(142	)
Total other expenses		6,653			—				6,022					12,675
Income (loss) before income taxes		12,072			17,059				(14,392	)				14,739
Income tax expense		5,469			—				933		(o	)		6,402
Net income (loss)		6,603			17,059				(15,325	)				8,337
Preferred stock dividends		(3,947	)		—				—					(3,947	)
Income (loss) available to common stockholders	$	2,656		$	17,059			$	(15,325	)			$	4,390
Income (loss) per common share:
Basic	$	0.07											$	0.08
Diluted	$	0.06											$	0.08
Shares used in computing income (loss) per common share:
Basic		40,467							12,500		(f	)		52,967
Diluted		41,652							12,500		(f	)		54,152

4

1. Basis of Presentation

On August 29, 2014, Callon Petroleum Company, Inc., (“Callon” or the “Company”), entered into purchase and sale agreements with unaffiliated private sellers to acquire certain undeveloped acreage and producing oil and gas assets (the “Acquired Properties”) located in Midland, Andrews, Ector and Martin Counties, Texas (the “Acquisition”) for an aggregate cash purchase price of $212.6 million (approximately $207.4 million after estimated purchase price adjustments based on an effective date for the Acquisition of May 1, 2014).

In connection with the Acquisition, the Company proposes to effect, subject to market conditions, a public offering of 12,500,000 shares of its common stock. The estimated net proceeds from the offering will be approximately $118.6 million, based on an assumed offering price of $10.06 per share, which is the last reported sale price of the Company’s common stock on the NYSE on September 5, 2014, and after deducting $7.1 million of estimated underwriting commissions and issuance costs.

Also, in connection with the Acquisition on August 29, 2014, the Company secured a commitment from JPMorgan Chase Bank, National Association to increase its current senior secured revolving credit facility (the “Credit Facility”) to $500.0 million, with an initial borrowing base of $250.0 million, and to refinance its existing secured second lien term loan (the “Second Lien Loan”) with a new $275.0 million secured second lien term loan (the “New Second Lien Loan”). The Company plans to use the net proceeds from the common stock offering and the proceeds from the New Second Lien Loan to fund the Acquisition, redeem the Second Lien Loan and repay borrowings under the Credit Facility.

The accompanying unaudited consolidated pro forma financial statements present the consolidated financial statements of Callon assuming the Acquisition, the issuance of common stock and the debt transactions discussed above occurred as of June 30, 2014 for purposes of the pro forma consolidated balance sheet as of June 30, 2014, and assuming such transactions occurred as of January 1, 2013 for purposes of the pro forma consolidated statements of operations for the year ended December 31, 2013 and six months ended June 30, 2014.

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

2. Preliminary Purchase Accounting

The Company currently estimates that the Acquisition will close on or before October 8, 2014, for an estimated final adjusted purchase price of approximately $207.4 million, subject to customary closing conditions. The Acquisition will be accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed are presented based on their estimated acquisition date fair values. The purchase price allocation below is preliminary and based on management’s best estimates as of the date of this Current Report on Form 8-K. The preliminary purchase price allocation is subject to change based on numerous factors, including the final adjusted purchase price and the final estimated fair value of the assets acquired and liabilities assumed. Any such adjustments to the preliminary estimates of fair value could be material.

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

Oil and natural gas properties	$	93,059
Unevaluated oil and natural gas properties		115,490
Asset retirement obligations		(1,140	)
Net assets to be acquired	$	207,409

5

3. Pro Forma Adjustments

Pro forma Consolidated Balance Sheet as of June 30, 2014

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

(b) To record the borrowing of the full amount under the New Second Lien Loan and the use of proceeds to partially fund the Acquisition and to repay amounts outstanding under the Second Lien Loan and the Credit Facility.

(c) To record the deferred financing costs related to the amendment to the Credit Facility and the New Second Lien Loan.

(d) To record the write off of the deferred financing costs related to the Second Lien Loan.

(e) To record the termination fee related to the repayment of amounts outstanding under the Second Lien Loan.

(f) To record the issuance of 12,500,000 shares of common stock at an assumed offering price of $10.06 per share, which is the last reported sale price of our common stock on the NYSE on September 5, 2014, resulting in estimated net proceeds of $118.6 million after deducting $7.1 million of estimated underwriting commissions and issuance costs.

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

Pro forma Statement of Operations for the year ended December 31, 2013

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

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

(j) To record $23.2 million of interest expense related to the borrowings under the New Second Lien Loan and $2.2 million of amortization of the deferred financing costs related to the amendment to the Credit Facility and the New Second Lien Loan, partially offset by the reversal of $1.3 million of interest expense and amortization of deferred financing costs related to the repayment of amounts outstanding under the Second Lien Loan and the Credit Facility. The interest expense is net of $9.2 million of estimated interest costs capitalized to unevaluated oil and gas properties.

(k) To record the income tax effects of the above pro forma adjustments based on the Company’s estimated effective income tax rate.

Pro forma Statement of Operations for the three months ended June 30, 2014

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

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

(n) To record $11.6 million of interest expense related to borrowings under the New Second Lien Loan and $1.1 million of amortization of the deferred financing costs related to the amendment to the Credit Facility and the New Second Lien Loan, partially offset by the reversal of $2.1 million of interest expense and amortization of deferred financing costs related to the repayment of amounts outstanding under the Second Lien Loan and the Credit Facility. The interest expense is net of $4.6 million of estimated interest costs capitalized to unevaluated oil and gas properties.

(o) To record the income tax effects of the above pro forma adjustments based on the Company’s estimated effective income tax rate.

The pro forma statements of operations do not include adjustments for the termination fee and write off of deferred charges related to the extinguishment of the Second Lien Loan as such adjustments do not have a continuing impact on operations.

6

4. Supplemental Oil and Gas Disclosures

The following table sets forth unaudited pro forma information with respect to the Company’s estimated proved reserves, including changes therein, and proved developed and proved undeveloped reserves for the year ended December 31, 2013, giving effect to the Acquisition as if it had occurred on January 1, 2013. The estimates of reserves attributable to the Acquisition may include development plans for those properties which are different from those that the Company will ultimately implement. Reserve estimates are inherently imprecise, require extensive judgments of reservoir engineering data and are generally less precise than estimates made in connection with financial disclosures.

	Changes in Reserve Quantities
	Historical			Acquired Properties (1)			Pro forma
Proved developed and undeveloped reserves:
Oil (MBbls):
Proved reserves as of December 31, 2012		10,780			3,368			14,148
Revisions to previous estimates		(2,540	)		—			(2,540	)
Sale of reserves in place (net of purchases)		(3,144	)		—			(3,144	)
Extensions and discoveries		7,713			—			7,713
Production		(911	)		(460	)		(1,371	)
Proved reserves as of December 31, 2013		11,898			2,908			14,806
Natural Gas (MMcf):
Proved reserves as of December 31, 2012		19,753			9,669			29,422
Revisions to previous estimates		(5,351	)		—			(5,351	)
Sale of reserves in place (net of purchases)		(4,259	)		—			(4,259	)
Extensions and discoveries		10,619			—			10,619
Production		(3,011	)		(1,260	)		(4,271	)
Proved reserves as of December 31, 2013		17,751			8,409			26,160

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

The following tables present the unaudited pro forma standardized measure of future net cash flows related to proved oil and gas reserves together with changes therein, as defined by ASC Topic 932, for the year ended December 31, 2013, giving effect to the Acquisition as if it had occurred on January 1, 2013. Future production and development costs are based on current costs with no escalations. Estimated future cash flows have been discounted to their present values based on a 10% annual discount rate. We have assumed the federal tax rate of 35% on the Acquired Properties. The disclosures below do not purport to present the fair market value of the Company’s oil and gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money, and risks inherent in reserve estimates.

	Standardized Measure
	For the Year Ended December 31, 2013
	Historical			Acquired Properties			Pro forma
Future cash inflows	$	1,193,299		$	312,942		$	1,506,241
Future costs -
Production		(357,005	)		(141,193	)		(498,198	)
Development and net abandonment		(155,667	)		—			(155,667	)
Future net inflows before income taxes		680,627			171,749			852,376
Future income taxes		(68,239	)		(16,478	)		(84,717	)
Future net cash flows		612,388			155,271			767,659
10% discount factor		(328,442	)		(65,134	)		(393,576	)
Standardized measure of discounted future net cash flows	$	283,946		$	90,137		$	374,083

7

The following table presents unaudited pro forma changes in the standardized measure of discounted future net cash flows for the year ended December 31, 2013 relating to proved oil and natural gas reserves of the Company and the Acquired Properties.

	Changes in Standardized Measure
	For the Year Ended December 31, 2013
	Historical			Acquired Properties			Pro forma
Standardized measure at the beginning of the period	$	231,148		$	109,656		$	340,804
Changes
Sales and transfers, net of production costs		(78,661	)		(40,504	)		(119,165	)
Net change in sales and transfer prices, net of production costs		(46,088	)		959			(45,129	)
Net change due to purchases and sales of in place reserves		(145,711	)		—			(145,711	)
Extensions, discoveries, and improved recovery, net of future production and development costs incurred		212,431			—			212,431
Changes in future development cost		153,983			—			153,983
Revisions of quantity estimates		(68,958	)		—			(68,958	)
Accretion of discount		25,010			12,614			37,624
Net change in income taxes		1,751			4,770			6,521
Changes in production rates, timing and other		(959	)		2,642			1,683
Aggregate change		52,798			(19,519	)		33,279
Standardized measure at the end of period	$	283,946		$	90,137		$	374,083

The historical twelve-month average prices of oil and natural gas used in determining standardized measure as of December 31, 2013, were:

	Historical		Acquired Properties
Average 12-month price, net of differentials, per Mcf of natural gas	$	5.45	$	$	4.70
Average 12-month price, net of differentials, per barrel of oil	$	92.16	$	$	94.04

8