TO OUR SHAREHOLDERS
Callon Petroleum Company
2007 Annual Report to Shareholders
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Louisiana
Mississippi
Alabama
Texas
TO OUR SHAREHOLDERS
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No. Padre
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CORPORATE PROFILE
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allon Petroleum Company is engaged in the exploration, development,
acquisition and operation of oil and gas properties in the Gulf Coast region. The majority
of Callon’s properties and operations are concentrated in Louisiana and the Gulf of Mexico.
At December 31, 2007, Callon owned working interests in a total of 104 blocks/leases covering
212,000 net acres. As of December 31, 2007, the Company’s estimated net proved reserves
totaled 263.6 billion cubic feet of natural gas equivalent (Bcfe), and included 24.5 million
barrels of oil (MMbo) and 116.5 billion cubic feet of natural gas (Bcf).
ON THE COVER: Crude oil and natural gas from the Company’s Entrada Field, shown in the
foreground, will be produced via a sub-sea tie-back to ConocoPhillips/Devon’s Magnolia tension leg
platform, seen here in the distance on the adjacent block.
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TO OUR SHAREHOLDERS
D
uring 2007, a signifi cant milestone in your Company’s growth was reached,
when in April we increased our working interest in the Entrada Field, located in the Deepwater
Region of the Gulf of Mexico, from 20% to 100% by acquiring the interest held by BP Exploration
and Production Company (BP). In this one landmark transaction, the largest in your Company’s
history, we doubled our proved oil and natural gas reserves to 49.3 million barrels of oil equivalent
(MMboe) compared to 12/31/06. With anticipated fi rst production in early 2009, Callon’s total
production is expected to double at that time. Successfully completing this project and realizing
the expected level of growth in production and cash fl ow will have
a far-reaching favorable impact on the Company.
Entrada Field – History
The Entrada Field, which is in 4,650 feet of water, is in an area
known for large hydrocarbon discoveries, including Kaskida
(800 feet of net pay), the Auger Field (341 MMboe cumulative
production), Serrano/Oregano/Macaroni (47 MMboe cumulative
production), Habanero/Llano (58 MMboe cumulative production),
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and Magnolia (29 MMboe cumulative production). Entrada was
12.31.06
12.31.07
originally discovered in 2000 by drilling two discovery wells
and seven delineation wells at Garden Banks Block 782. The Company’s independent petroleum
engineers have estimated Entrada’s net proved reserves at 17.5 million barrels of crude oil (MMbo)
and 87.1 billion cubic feet of natural gas (Bcf), or 32.0 MMboe. In addition, the fi eld’s probable
reserves, net of royalties, are estimated to be 17.6 MMbo and 42.2 Bcf (24.6 MMboe), representing
a total proved and probable net reserve base of approximately 56.6 MMboe.
When the discovery wells were drilled, we owned a 20% working interest in Entrada, with Vastar
(subsequently acquired by BP) holding the remaining 80%. In April 2007, we acquired BP’s interest
for a purchase price of $150 million plus an additional $40 million payable after the achievement of
agreed production milestones.
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Entrada Field - Path to First Production
Since the acquisition of BP’s interest, we have been working diligently on the development of the
Entrada Field and expect initial daily production to be 22,500 barrels of oil (Bbls) and 36 million
cubic feet of natural gas (MMcf).
In September 2007, we signed a production handling agreement with ConocoPhillips and
Devon Energy Corporation. This agreement provides for the processing of our oil and gas production
from our Entrada wells through their Magnolia tension leg production platform (TLP) located
approximately fi ve miles from Entrada. Using this existing TLP saves us an estimated $500 million
in development costs and provides a faster timetable to fi rst production.
In November 2007, we contracted with Diamond Offshore Drilling, Inc.
264 Bcfe
for their semi-submersible rig Ocean Victory to drill and complete our
two planned development wells. The Ocean Victory was the rig used to
drill the two discovery wells at Entrada and recently received upgrades
and refurbishments to increase its drilling effi ciency and capability.
In April 2008, we sold a 50% working interest in the Entrada Field
to CIECO Energy (US) Limited, a subsidiary of Tokyo-based ITOCHU
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Corporation. CIECO agreed to pay Callon a total cash consideration of
12.31.06
12.31.07
$175 million, comprised of $155 million at closing and an agreement to
fund half of the $40 million contingent payment due to BP in the future. Additionally,
CIECO will pay Callon $2.50 per barrel of oil equivalent (Boe) for every Boe produced
after cumulative gross fi eld production has reached 30 MMboe through December 31, 2018.
CIECO also provided a development loan of $150 million to Callon for the fi nancing of
Company’s share of the estimated $300 million of gross development costs.
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ITOCHU Corporation is one of the oldest and most highly respected international trading houses
in Japan and has oil and gas operations throughout the world. We are excited about our new partner
and look forward to a long-term relationship with CIECO Energy as a strong strategic partner for
your Company.
Operations Overview
Callon Petroleum is not new to the Deepwater Region of the Gulf. We acquired our fi rst Deepwater
leases over 10 years ago. In 2003, our fi rst two Deepwater discoveries began producing at our
Habanero and Medusa Fields, where we are partners with Shell and Murphy Oil, respectively.
These properties helped balance our asset portfolio across the Shelf, Deepwater and onshore areas,
as each area has unique risk and reward profi les.
Currently our Medusa and Habanero properties produce a combined gross total of 20,500 Bbls of oil
and 25 MMcf of gas per day, while two of our important Shelf properties, located on West Cameron
Block 295 and High Island Blocks 165 / 130, add additional gross production of 300 Bbls and
40 MMcf per day to our overall daily production.
In 2007, we invested approximately $124 million in drilling new wells and recompleting Deepwater
wells in our existing fi elds and limited exploration prospects. In 2008, we plan to continue to drill
development wells and pursue a limited exploration program as we continue to focus on the
development of our Entrada Field.
Liquidity for Growth
During the year, we sold certain non-core, non-operated royalty and mineral interests in legacy
onshore properties for $61.5 million. The divested properties were located in 15 different states
and represented less than 2% of our estimated proved reserves at the time. This transaction
was an opportunistic way to accelerate the realization of value of these non-strategic
assets and capitalize on high commodity prices.
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TO OUR SHAREHOLDERS
Using the initial cash proceeds from the Entrada working interest sale to CIECO, plus cash on hand,
we repaid in full the $200 million “bridge” loan arranged by Merrill Lynch Capital Corporation to
fi nance our acquisition of BP’s 80% interest in Entrada. We believe we will have suffi cient cash on
hand, cash fl ow from operations and borrowing capacity to fund our capital development plan and
operations without having to raise additional fi nancing in 2008.
In summary, the Entrada transaction and its expected strong production are the catalysts for taking
Callon Petroleum Company to the next level in production, reserves and cash fl ow growth.
Looking forward, we plan to continue to pursue a diversifi ed crude oil and natural gas asset mix
within the Gulf of Mexico region. We will also continue to monitor
attractive Deepwater, Shelf and onshore opportunities to balance our
Entrada asset.
On behalf of all our employees, we thank you for your continued
support and confi dence.
Fred L. Callon
Fred L. Callon
Chairman
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CORPORATE DATA
Form 10-K
The Company’s annual report on Form 10-K,
excluding exhibits, has been incorporated into
this Annual Report. Extra copies of the Form
10-K may be obtained upon written request to
B. F. Weatherly at the address above.
Common Stock
Dividend Policy
It is anticipated that all available funds will be
reinvested in the Company’s business activities.
Therefore, the Company does not anticipate
paying cash dividends on its common stock for
the foreseeable future.
Market for Common Stock
Effective April 22, 1998, the Company’s
Common Stock began trading on the New York
Stock Exchange under the symbol “CPE.”
Notice of Annual
Shareholders’ Meeting
The Annual Meeting of Shareholders will be held
Thursday, May 1, 2008 at 9:00 a.m. in the Grand
Ballroom of the Country Inn & Suites, 111
Broadway, Natchez, MS 39120.
Information with respect to this meeting is
contained in the Proxy Statement sent to
shareholders of record on March 20, 2008.
The 2007 Annual Report is not to be considered
a part of the proxy soliciting materials.
Callon Home Page
www.callon.com
The Company has a homepage on the internet,
www.callon.com. It contains news releases,
corporate governance materials, the annual
report, recent investor presentations, stock
quotes and a link to our SEC fi lings.
Board of Directors
Fred L. Callon
Chairman and Chief Executive Offi cer
B.F. Weatherly
Executive Vice President
and Chief Financial Offi cer
L. Richard Flury
Former Chief Executive
Gas, Power & Renewables
British Petroleum plc (Retired)
Larry D. McVay
Former Chief Operating Offi cer
TNK-BP Holding
British Petroleum
plc Joint Venture (Retired)
John C. Wallace
Chairman, Fred. Olsen Ltd.
London, England
Richard O. Wilson
Offshore Consultant
Houston, Texas
Officers of the Company
Fred L. Callon
Chairman and Chief Executive Officer
B.F. Weatherly
Executive Vice President
and Chief Financial Offi cer
Mitzi P. Conn
Corporate Controller
Robert A. Mayfi eld
Corporate Secretary
Thomas E. Schwager
Vice President, Engineering
and Operations
H. Clark Smith
Chief Information Offi cer
Rodger W. Smith
Vice President and Treasurer
Stephen F. Woodcock
Vice President, Exploration
Transfer Agent and Registrar
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, NY 10273
(718) 921-8200
Legal Counsel
Haynes and Boone, LLP
Houston, Texas
Simon, Peragine, Smith & Redfern
New Orleans, Louisiana
Independent Registered
Public Accounting Firm
Ernst & Young LLP
New Orleans, Louisiana
Banks
Union Bank of California N.A.
San Francisco, California
Regions Bank
Jackson, Mississippi
Corporate Offices
Callon Headquarters Building
200 North Canal Street
Natchez, Mississippi 39120
Callon Petroleum Company
1200 Enclave Parkway, Suite 225
Houston, Texas 77077
2007 Annual Report
This Annual Report and the statements contained
in it are submitted for the general information of
the shareholders of Callon Petroleum Company.
The information is not presented in connection with
the sale or the solicitation of any offer to buy any
securities, nor is it intended to be a representation by
the Company of the value of its securities. If you have
questions regarding this Annual Report or the
Company, or would like additional copies of this report,
please contact our Investor Relations Department at
200 North Canal Street, Natchez, MS 39120
(601) 442-1601. Security analysts and investment
professionals should direct inquiries to B. F. Weatherly,
Executive Vice President and CFO, Callon Petroleum
Company, 200 North Canal Street, Natchez, MS
39120, (601) 442-1601, (601) 446-1410 (fax).
TO OUR SHAREHOLDERS
CALLON PETROLEUM COMPANY
200 North Canal Street
Natchez, Mississippi 39120
www.callon.com
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