Callon Sees Improvement in Three Consecutive Quarters

Callon Petroleum Company today reported net income of $1.6 million, or $0.05 per diluted share, for the third quarter, and $7.7 million, or $0.26 per diluted share, for the nine-month period ended September 30, 2010. These results represent three consecutive quarters of improved earnings over the corresponding periods of 2009, during which the company reported a net loss of $1.0 million, or $0.04 per diluted share, for the third quarter of 2009 and net income of $0.5 million, or $0.02 per diluted share, for the nine-month period ended September 30, 2009.

Highlights from the first nine months of 2010 include:

Drilled and placed on production nine wells in the Permian Basin, increasing our net production in the play by 43% to 500 barrels of oil equivalent per day (Boe/d) and our proved reserves by 2.1 million of barrels of oil equivalent (MMboe). As of September 30, 2010, we were drilling two wells and had two wells awaiting fracture stimulation. With two rigs running in the Permian Basin, the company expects to drill a total of 23 wells in 2010, increasing net production of oil to approximately 750 Boe/d by year-end.

Completed and placed on production our first operated Haynesville Shale well, which began producing at a restricted flow rate of 10.5 million cubic feet of natural gas equivalent per day (MMcfe/d). This is the first of seven planned Haynesville wells. Through September 30, 2010, a total of 2.3 MMboe have been converted from probable reserves to proved status.

Total proved reserves based on internal engineering estimates have increased to 13 MMboe as of September 30, 2010, a 34% increase year-to-date.

The borrowing base on the company’s credit facility was increased 50% to $30 million based on the growth of the company’s proved reserves.

"With the third quarter, we delivered another period of positive execution of our strategic growth plan that we implemented a little more than a year ago,” Fred Callon, Chairman and CEO, points out. “This time last year, we had no onshore oil production. Today we are reporting onshore oil production of 500 net barrels per day, and we have our Haynesville Shale acreage held by production. Our diversification strategy for reinvesting cash flow generated from our offshore deepwater fields into lower-risk onshore oil and shale gas plays has enabled us to increase our long-term visible growth prospects, strengthen our balance sheet and continue growing per-share value.”

Third Quarter and Nine Months 2010 Operating Results.

Operating results for the three months ended September 30, 2010 include oil and gas sales of $20.5 million from average production of 25.6 MMcfe/d, as compared to sales of $21.3 million from average production of 27.4 MMcfe/d during the comparable 2009 period. The average price per thousand cubic feet of natural gas (Mcf) received during the quarter ended September 30, 2010, after the impact of hedging, increased 33% to $4.84, as compared to $3.64 for the quarter ended September 30, 2009. The average price per barrel of oil (Bbl) received in the third quarter of 2010, after hedging impact, decreased 13% to $72.47, as compared to $83.38 for the same period in 2009.

Oil and gas sales for the first nine months of 2010 totaled $65.4 million from average production of 26.5 MMcfe/d. This corresponds to sales of $71.2 million from average production of 31.3 MMcfe/d during the same period in 2009. The average price received per Mcf of natural gas in the nine-month period of 2010, after the impact of hedging, increased 13% to $5.29, as compared to $4.69 during the first nine months of 2009. Likewise, the average price received per barrel of oil in the first nine months of 2010, after hedging impact, increased 4% to $73.78, as compared to $71.03 during the same period in 2009.

Third Quarter and Nine Months 2010 Discretionary Cash Flow.

Discretionary cash flow for the three and nine-month periods ended September 30, 2010 totaled $8.1 million and $29.9 million, respectively, compared to $7.0 million and $30.0 million, respectively, during the comparable prior year periods. Net cash flow provided by operating activities, as defined by GAAP, totaled $16.1 million and $82.2 million during the three and nine-month periods ended September 30, 2010, significant increases over the $0.6 million and $11.6 million cash provided by operating activities during the three and nine-month periods of 2009, respectively. (See “Non-GAAP Financial Measure” that follows and the accompanying reconciliation of discretionary cash flow, a non-GAAP measure, to net cash flow provided by operating activities.)

Liquidity and Capital Resources.

At September 30, 2010, cash was $19.8 million, up from $3.6 million at December 31, 2009. Successful drilling activity in the Permian Basin and the Haynesville Shale play led to the conversion of non-proved reserves into the proved category, resulting in the previously mentioned increase in borrowing base to $30 million. As of September 30, no borrowings were outstanding under the bank credit facility.

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