Callon Joins Oceaneering & Murphy on Medusa Spar Project

Callon Petroleum has signed an agreement to participate in the formation of a limited liability company, which will own a 75% undivided ownership interest in the deepwater production spar on the Medusa Field in the Gulf of Mexico, subject to the occurrence of certain events. Callon will contribute its 15% undivided ownership interest to the LLC and will retain a 10% ownership interest in the LLC. The LLC will earn a tariff based upon production volume throughput. The agreement is with Murphy Exploration & Production Company - USA, a subsidiary of Murphy Oil Corporation, and Oceaneering International, Inc. Two main conditions must be satisfied for closing of this transaction to occur. The first is that the spar production facility shall have met certain operational criteria. The second is securing non-recourse financing for at least one-half of the spar's cost.

Callon expects to realize cash proceeds of approximately $25 million from the transfer to the LLC and the proceeds of the non-recourse financing. Closing of this transaction is expected to occur in the fourth quarter of 2003.

The Medusa spar is moored in over 2,200 feet of water in the Gulf of Mexico at Mississippi Canyon Block 582. It is in the final stages of being outfitted for the commencement of production operations, initially from six wells.