Callon Signs Agreement With CIECO to Fully Develop Entrada Field

Callon Petroleum Company has signed a Purchase and Sale Agreement with CIECO Energy (US) Limited, a subsidiary of Tokyo-based ITOCHU Corporation. Terms of the agreement provide for Callon to sell CIECO a 50% working interest in the Entrada Field, located in the Deepwater Region of the Gulf of Mexico, for total cash consideration of $175 million and additional contingent cash payments based upon field production milestones. CIECO has also agreed to provide a non-recourse loan to Callon for its $150 million share of field development costs through initial production. Callon will retain a 50% working interest and continue as operator of the field. The transaction will have an effective date of January 1, 2008 and is expected to close by February 29, 2008.

CIECO will pay Callon total cash consideration of $175 million, including a $155 million payment at closing and $20 million of the $40 million contingent payment due to BP Exploration and Production Company (BP) after meeting certain cumulative field production milestones. Callon plans to utilize the $155 million of initial cash proceeds plus existing cash balances to repay in full the $200 million Senior Revolving Credit Facility that Callon executed in conjunction with its acquisition of BP's 80% ownership of Entrada in April 2007.

At closing, CIECO will also reimburse Callon for 50% of Entrada capital expenditures incurred prior to the closing date, estimated to be $18 million.

Additionally CIECO will pay Callon an additional $2.50 per barrel of oil equivalent (Boe) for every Boe produced after cumulative gross field production has reached 30 million Boe through December 31, 2018.

As part of the transaction, CIECO will provide a non-recourse loan of $150 million to Callon for the financing of Callon's 50% share of the $300 million of estimated costs to develop the Entrada Field. The loan will bear interest at LIBOR plus 375 basis points and will mature within five years from date of first production. Semiannual payments will be based on expected Entrada production profile. Final documentation of this financing will occur in conjunction with closing of the sale of the 50% Entrada interest.

Fred Callon, Chairman and CEO, said "We feel we have gained a strong and important strategic partner in CIECO. ITOCHU Corporation, CIECO's parent company, is one of the oldest and most highly respected international trading houses in Japan with a global enterprise which includes significant long-term investments in the energy industry."

Callon continued: "This agreement provides for a fully funded development plan for the Entrada Field and represents the final major step in meeting our goal of achieving initial production from the Entrada Field in the first quarter of 2009. Since increasing our working interest ownership in the Entrada Field to 100% in April 2007, our focus has been on meeting critical project milestones. In less than a year, we have: 1) completed the engineering and design for the project; 2) negotiated and signed a production handling agreement with ConocoPhillips and Devon Energy Corporation to process our production through their Magnolia TLP; and 3) contracted Diamond Offshore's Ocean Victory semisubmersible rig, which drilled the discovery wells at Entrada, to drill and complete the development wells. We are very excited to have completed this final major step of securing a strong partner in the project and fully funding the development."