Entrada oil field could double Callon production

Published 11:01 pm Saturday, January 19, 2008

NATCHEZ — The Callon Petroleum Company headquarters stands just a little over 200 feet above sea level, but the Natchez-based company has big plans 4,650 feet below the ocean’s surface.

As the company enters its 58th year in the oil and gas business, it’s moving forward with a project that couldn’t be more aptly named. The company’s Entrada oil field, located in the Gulf of Mexico’s deep water, is the biggest development Callon Petroleum has on tap for 2008 and CEO Fred Callon is expecting big things.

“This project will have a significant impact on our company,” said Callon, who also serves as company chairman. “It will more than double our current production.”

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The company first discovered the Entrada field in 2000 and acquired 100 percent ownership of it in 2007 after buying out BP’s 80 percent share. BP’s stake in the field was worth $190 million.

Since acquiring sole ownership, Callon Petroleum has been working to develop the deepwater field.

“Since it’s in deep water, there was no infrastructure present,” Callon said. “Rather than build a production facility, we negotiated a contract to use an existing field platform.”

Callon will flow oil and gas from their deepwater wells to the ConocoPhillips-owned Magnolia Field platform, located about two miles from the wells.

In November of 2007, the company awarded contracts to drill and complete two wells at the Entrada field.

“We plan to start installing flow lines and pipes in the third or fourth quarter of this year,” Callon said. “We will tie it all together in the first quarter of 2009 and start the initial production.”

Callon Petroleum is expecting the field to deliver 22,500 barrels of oil per day, said public relations manager Terry Trovato. According to the company’s Web site, the Entrada field has 88.6 million barrels of oil in proved net reserves, and the potential to deliver millions more.

“This is definitely the biggest project for us,” Callon said.

With oil prices reaching record-highs, Callon is confident that the field will be profitable. But $100 oil was not the driving force behind Callon’s interest in Entrada. When the Entrada field was initially discovered, oil prices were nowhere near the highs of today and Callon said he wasn’t counting on prices remaining that high.

“Obviously, the higher price of oil helps cash flow,” he said. “But I think most exploration and production companies don’t know where prices will be in the future. It will take a period of time before oil and gas companies get comfortable with prices in this range.”

Callon said most oil and gas analysts predict that prices will be in $75 to $80 range in the future. And these are prices that Callon seems to be happy with.

“To make an investment like this, you have to be comfortable that you will see sustained oil prices,” he said. “We’re making very large capital investments in this project.”

To make the investment possible, Callon Petroleum recently sold $61.5 million worth of small, onshore oil and gas interests.

“The purpose of the sale was to provide additional liquidity to help with Entrada,” Trovato said.

Those onshore interests represented less than 2 percent of the company’s net reserves and produced about 420 barrels of oil per day.

Aside from oil production, the Entrada field is also expected to deliver 36 million cubic feet of natural gas per day, Trovato said. Currently, natural gas production accounts for about 60 percent of the company’s business. The remaining 40 percent goes to oil production.

The Entrada field is not Callon’s only deepwater oil and gas discovery. Since beginning deepwater exploration 10 years ago, the company has had three significant discoveries in the Gulf of Mexico.

And for a “small oil company,” that’s a big deal. Callon said he would guess his company is the smallest offshore exploration company operating today. Small or not, 2008 looks to be big for Callon Petroleum.