Strong numbers dominated a report to shareholders by Callon Petroleum Company executives on Thursday. Production is up, cash flowing and stock prices rising.

&uot;To say there have been significant changes would be an understatement,&uot; said Fred Callon, president and CEO since the late 1990s and now chairman of the board since Thursday’s announcement that John S. Callon has stepped down from that office.

&uot;We’ve seen significant increases in production and cash flow. And our capital budget is refocused with new exploration going on in three major areas,&uot; Fred Callon told the 75 employees of Callon and some shareholders who had traveled long distances to attend the annual meeting at the Natchez Convention Center.

The glowing health of the company rides the success of a plan carefully laid &045;&045; a focus on off-shore drilling in the Gulf of Mexico, both on the continental shelf and in deep waters. And the rosy future follows a determined effort to revive a company that, like others of its kind, found the serious downturn in the oil industry of the 1980s nearly squeeze the life from it.

In 1985 and 1986, the price of a barrel of oil dropped from $40 to $11. &uot;By late 1986, the price had dropped to below $10 a barrel,&uot; Fred Callon said.

Callon Petroleum reserves dropped in value from $110 million to $28 million. Taking the company private again in 1987 &045;&045; it had been public since 1974 &045;&045; and making a number of difficult but

ultimately successful moves, the Callon family saved the company and gradually rebuilt it.

&uot;We had to sell a significant portion of our properties to meet our bank obligations,&uot; Fred Callon said. &uot;And then we began focusing on the off-shore properties, shallow water and then deep water. We began drilling in those fields. We took the company public again in 1994.&uot;

The first two deep-water discoveries, named Medusa and Habanero, began producing in late 2003. The success of these properties has allowed the company to fund new drilling and also to reduce its debt.

&uot;It’s very capital-intense work,&uot; Fred Callon said, explaining that much of his time is spent on getting financial backing for the company’s oil and gas production costs.

With the two off-shore wells in significant production, &uot;our daily production is double what it was last year,&uot; he said.

The Medusa Field now has reached 25,000 barrels of oil a day and 25 million cubic feet of natural gas per day. Peak production is expected to reach 40,000 barrels

of oil and 35 million cubic feet of gas. Callon owns 15 percent of this field.

Further drilling at the Medusa Field will include a well at the area known as Medusa North, the first satellite prospect, Fred Callon said. Drilling will be accomplished through a high-angle sidetrack and will be produced using a bellow-the-sea tie-back to the main Medusa facility.

The Habanero Field now is producing 23,000 barrels of oil a day and 65 million cubic feet of natural gas. Callon owns an 11.25 percent working interest in this field.

The coming year will bring more exciting activity in the Gulf of Mexico, Fred Callon said. &uot;We have new projects and new technologies. We’ve started to drill eight to 10 new properties. We’re looking forward to having additional successes there.&uot;

Technology continues to improve, providing new ways to look for oil and gas and to have success in finding it and producing it.

&uot;With all the improvements in the seismic technology, there continue to be ways to shoot the data and reprocess the data,&uot; Callon said. &uot;Technology allows us to reprocess and look at deeper horizons using older data. And we’re looking deeper and expect significant discoveries.&uot;

Technology will allow explorations not known before, he said. &uot;The industry is exploring in depths unheard of 15 to 20 years ago,&uot; he said.

John Weatherly, chief financial officer, told shareholders and employees that the company target was to double production in 2004 from 2003. &uot;On April 14, we exceeded that. We are well ahead of schedule,&uot; Weatherly said.

What’s more, the cash generated from the recent successes puts the company in an excellent position, he said. &uot;Internally generated cash will completely fund this company in addition to ridding the company of debt. We will fully fund our capital budget and make a meaningful reduction of our capital debt.&uot;

Budgeting for 2004 includes $29 million for deepwater development and exploration and $18 million for development and exploration in the continental shelf area of the Gulf.

Callon Petroleum was founded about 1950. Fred Callon, who joined the company in 1976, when his father, Sim Callon, was chairman of the board, worked his way up, starting in accounting and then becoming treasurer and chief financial officer.

He recalls that, as a boy, he often went with his father to the oil fields to log wells.

However, when the time came for him to begin his career, he chose to spend a short time with one of the nation’s top accounting firms. &uot;I did that for a few years and then realized I was not cut out to be an accountant,&uot; he said. &uot;I decided to come back.&uot;

John Callon, acknowledging at the Thursday meeting that he would continue to serve on the board of directors but not as chairman, said the timing was perfect for his decision.

&uot;It is with great pride and confidence that I retire as chairman of the board at this time, when the company is strong and doing well,&uot; he said. &uot;It makes it much easier to step down as chairman knowing Fred, who has led the company’s operations for the last seven years as president and chief executive officer, will be assuming my duties.&uot;

John Callon gave credit for the company’s success to the employees. &uot;Their professional commitment to the company is only matched by their dedication to the community, where our employees have been so active in so many areas helping those who are in need.&uot;

The strong financial position provides additional stability for Callon Petroleum, Fred Callon said, and that is good for Natchez. He does not anticipate further growth in the company’s employee numbers.

&uot;I don’t anticipate new employees in large part because of technology,&uot; he said. &uot;We work a lot more efficiently. But I do think the company enjoys a stability that is good for the community.&uot;

Energy in general will be high on the nation’s priorities in coming years, Fred Callon said.

&uot;We’ve struggled to come up with a good energy policy. The United States is importing more than half its oil, and we’re dependent on those areas for a stable supply of oil.&uot;

The rise of prices of oil force the nation’s leaders to look for alternative sources and to influence production of fuel-efficient cars and better conservation of energy sources, he said.