Document

DEF 14A 1 callon2021proxydef14a.htm DEF 14A Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )

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Callon Petroleum Company
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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ABOUT CALLON

Callon Petroleum is an independent oil and natural gas company focused on the acquisition, exploration and development of high-quality assets in the leading oil plays of West and South Texas.



			Our Values

			Responsibility			The safety of our employees, contractors and communities is of utmost importance – this is not negotiable. We recognize that we earn the right to operate every day by developing our assets responsibly and with respect for the environment. We focus on safety and protection of the environment in every operation, and all Callon representatives are authorized to “stop work” if these are at risk.


			Integrity			We always strive to do the right thing and pride ourselves on being a preferred partner. We are consistently open, honest, ethical and genuine. We do what we say and are accountable for our actions.


			Drive			Keenly focused on leading, we relentlessly challenge the status quo to meet and exceed our expectations for top-tier performance in all aspects of our business.


			Respect			We value the ideas and contributions of all team members and show consideration and appreciation for one another. We recognize and embrace each other’s differences and work towards our common goals.


			Excellence			Our business requires focused innovation and evaluation of new opportunities for resource extraction. We balance the application of new technologies and testing of new concepts with prudent risk management and thorough data analysis.

Awards and Recognition

We were recognized as one of the top places to work in 2017, 2018, 2019 and 2020 by the Houston Chronicle.


	A JOINT LETTER FROM OUR CHAIRMAN AND OUR CHIEF EXECUTIVE OFFICER
	April 9, 2021
	DEAR FELLOW SHAREHOLDERS,
	On behalf of the Board of Directors of Callon Petroleum Company, we are pleased to invite you to our 2021 Annual Meeting of Shareholders, which will take place on Friday, May 14, 2021 at 9:00 a.m. Central Daylight Time (CDT), in the Wishmaker Ballroom of the Hotel ZaZa, located at 9787 Katy Freeway in Houston, Texas. Today we are filing the Notice of Annual Meeting of Shareholders and the Proxy Statement which describe the matters to be acted upon at the meeting. This year we are asking our shareholders to elect directors; approve, on a non-binding advisory basis, the compensation of our named executive officers; ratify the appointment of our auditors; and approve an amendment to our certificate of incorporation to increase the number of authorized shares of common stock. This past year presented our company, our employees, and the oil and gas sector as a whole with challenges unlike anything in recent memory. Our leadership was swift to react, our people were dedicated and innovative, and the Callon spirit was on display as our team successfully navigated some difficult situations; all while completing a corporate integration remotely. Our team found ways to help relieve financial pressures and showed enormous operational prowess, significantly reducing our capital expectations while improving field efficiency. We closed the year on a high note - exceeding our own expectations across nearly every guidance metric provided and generating positive adjusted free cash flow for the full year. Despite the financial and operational hurdles presented by highly volatile commodity prices and the presence of COVID-19, our team still set new records for safety and showed significant progress in emissions reduction efforts. The continued focus on advancing our ESG initiatives and aligning ourselves with changing investor norms was well represented in our inaugural sustainability report. We are happy to present additional progress and notable changes in the pages that follow. Your vote is important, and we encourage you to review this proxy statement and to vote promptly so that your shares will be represented at the meeting. On behalf of everyone at Callon, we want to thank you, our valued shareholders, for your continued support of the work we do. Sincerely,
L. Richard Flury Chairman of the Board

Joseph C. Gatto, Jr. President, Chief Executive Officer and Director

	L. Richard Flury Chairman of the Board	Joseph C. Gatto, Jr. President, Chief Executive Officer and Director

We encourage you to read our 2020 Annual Report, which includes our financial statements as of and for the year ended December 31, 2020. Please also refer to the sections captioned “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” for a description of the substantial risks and uncertainties related to the forward-looking statements included herein.

2021 PROXY STATEMENT 3


			NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS

Dear Shareholders,

You are invited to participate in the 2021 Annual Meeting of Shareholders (the “Annual Meeting”) of Callon Petroleum Company (“Callon,” the “Company,” “us,” “we,” “our” or like terms), a Delaware corporation.

When

Friday, May 14, 2021, at 9:00 a.m.

Central Daylight Time (“CDT")

Where

Hotel ZaZa

Wishmaker Ballroom

9787 Katy Freeway

Houston, Texas 77024

We are monitoring coronavirus (COVID-19) developments and the related recommendations and protocols issued by public health authorities and federal, state and local governments, and we are sensitive to the public health and travel concerns that our shareholders may have. In the event we determine it is necessary or appropriate to postpone or move the Annual Meeting to another location or hold the Annual Meeting virtually, we will announce this decision in advance in a press release and post details on our website, which will also be filed with the Securities and Exchange Commission.

Whether or not you plan to attend the Annual Meeting, please vote electronically via the Internet, by telephone, or by mail as soon as possible.

Voting Matters

Board
Recommendation

Proposal 1:
To elect four Class III directors to serve on our Board of Directors (the “Board”), each for three years.

FOR each of the Class III directors

See page 10

Proposal 2:
To approve, on a non-binding advisory basis, the compensation of our named executive officers (“NEOs”).

FOR

See page 35

Proposal 3:
To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021.

FOR

See page 63

Proposal 4:
To approve an amendment to our certificate of incorporation to increase the number of authorized shares of our common stock.

FOR

See page 65

We will also transact other business that may properly come before the Annual Meeting.

This Notice of Annual Meeting of Shareholders and the Proxy Statement provide further information on the Company’s performance and corporate governance and describe the matters to be presented at the Annual Meeting. The Board set March 15, 2021, as the record date (the “Record Date”) for the Annual Meeting. Holders of record of our common stock at the close of business on the Record Date are entitled to receive this notice of, and vote at, the Annual Meeting. A list of the names of shareholders entitled to vote at the Annual Meeting will be available for ten days prior to the Annual Meeting for examination by any shareholder for any purpose germane to the Annual Meeting between the hours of 9:00 a.m. and 5:00 p.m., Central Time, at our headquarters at 2000 W. Sam Houston Parkway South, Suite 2000, Houston, TX 77042. This list will also be available for such purposes during the Annual Meeting at the place of the Annual Meeting or, in the event that the Annual Meeting is held virtually, at a website to be provided in the announcement notifying shareholders of the change in meeting format.

Beginning on or about April 9, 2021, we will mail this proxy statement, our 2020 Annual Report on Form 10-K, and the form of proxy to shareholders.

We thank you for your continued support and look forward to seeing you at the Annual Meeting.

By Order of the Board of Directors,

Michol L. Ecklund
Senior Vice President, General Counsel
and Corporate Secretary.
Houston, Texas
April 9, 2021

By Internet or telephone following the simple instructions on the enclosed proxy card or voting instruction form

By mail

mark, date and sign your proxy card, and return it in the reply envelope provided

YOUR VOTE IS IMPORTANT!

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders. This Proxy Statement and our 2020 Annual Report on Form 10-K are available at: www.viewproxy.com/ CallonPetroleum/2021. If you have any questions or need assistance voting your shares, please call our proxy solicitor, Innisfree M&A Incorporated, 501 Madison Avenue, 20th Floor, New York, NY 10022

Banks and Brokerage Firms, please call: (212) 750-5833

Shareholders, please call toll-free:(888) 750-5834

4 CALLON PETROLEUM

TABLE OF CONTENTS


A JOINT LETTER FROM OUR CHAIRMAN AND OUR CHIEF EXECUTIVE OFFICER			3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS			4
PERFORMANCE HIGHLIGHTS			6
SUSTAINABILITY AT CALLON PETROLEUM			7
PROPOSAL 1 - ELECTION OF CLASS III DIRECTORS			10
Board of Directors			10
Directors Nominated for Re-Election			13
CORPORATE GOVERNANCE			16
Directors Continuing in Office			16
Director Compensation			21
Director Independence			23
Board Structure and Responsibilities			23
Committees of the Board			26
Corporate Governance Matters			31
EXECUTIVE OFFICERS			33
PROPOSAL 2 - APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE COMPANY'S NEOS			35
EXECUTIVE COMPENSATION			37
Compensation Discussion and Analysis			37
Compensation Committee Report			52
Executive Compensation Tables			53
CEO Pay Ratio			62
PROPOSAL 3 - RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, GRANT THORNTON LLP, FOR 2021			63
Audit Committee Report			64
PROPOSAL 4 - APPROVE THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON STOCK			65
OTHER MATTERS			67
Beneficial Ownership of Securities			67
Principal Shareholders and Management			67
Section 16(a) Beneficial Ownership Reporting Compliance			68
Certain Relationships and Related Party Transactions			69
Shareholders’ Proposals and Director Nominations for the 2022 Annual Meeting			69
ANNUAL MEETING INFORMATION			70
Information Concerning Solicitation and Voting			70
Information About Voting and the Annual Meeting			70
Required Vote			73
Voting Results			74
Householding Information			74
Financial Statements and Other Available Documents			74
Other Business			74
APPENDIX A			75
APPENDIX B			76

2021 PROXY STATEMENT 5

PERFORMANCE HIGHLIGHTS

Callon is an independent oil and natural gas company focused on the acquisition, exploration, and development of high-quality assets in leading Texas oil plays located in the Permian and the Eagle Ford. Callon’s strong foundation spans over 70 years with an ongoing mission to build trust, create long-term value, and drive sustainable cash flow growth for our stakeholders. The critical elements of our business that contribute to our ability to generate meaningful value for our shareholders include:

PREPARATION

PURPOSE

EXECUTION

• Significant scale and high operational control of ~180,000 net acres in Texas's producer-friendly Permian Basin and Eagle Ford Shale

• A robust infrastructure network from multiple years of thoughtful planning and investment that reduces overall capital intensity over time

• Scaled and cost-efficient multi-zone asset development programs that generate attractive rates of return while preserving future inventory value

• Talented workforce with expansive technical expertise paired with a culture of responsibility and adaptability in a cyclical commodity business

• Stakeholder alignment through a governance structure and ongoing engagement across shareholders, employees, and communities in which we operate

• Expanded sustainability disclosures and environmental, social and governance ("ESG") oversight to maximize impact of initiatives and ensure corporate responsibility priorities are achieved

• Durable business model which balances capital efficiency improvements with longer-term reinvestment reduction initiatives

• Specific targets for corporate returns on capital through margin preservation, capital intensity reduction, and portfolio optimization

• The ability to generate durable free cash flow through breakeven cost reduction and moderation of production declines

• Improved liquidity and no near-term maturities coupled with a variety of asset monetization opportunities

2020 was a year marked by extraordinary volatility in commodity prices and workplace challenges created by the COVID-19 pandemic. While the dramatic decline in oil prices led to significant reduction in industry-wide activity, Callon’s rapid reduction in drilling and completion activity resulted in a more flexible operational plan that created opportunities for optimizing our balance sheet. Because of our thoughtful approach, we were able to achieve a number of initiatives that had a positive effect on both our margins and our surrounding community.



• Completed the full integration of Carrizo and Callon, much of which was handled with a fully remote workforce due to social distancing and pandemic safety-related concerns.
• Generated over $120 million of adjusted free cash flow(i) ("Adjusted FCF") during the last three quarters of the year, resulting in a positive FCF position for the full year.
• Posted annual adjusted EBITDA(i) of over $700 million despite a drop of more than 40% in average realized prices compared to the prior year.
• Issued $300 million in new second lien notes providing a meaningful increase in liquidity.
• Exchanged $389 million of our existing senior notes for second lien notes, reducing our long-term debt outstanding by $172 million.
• Completed an overriding royalty interest sale and non-operated property divestiture for combined net proceeds of approximately $170 million which were used to reduce outstanding borrowings.
• Achieved full year production of 101.6 MBoe per day (63% oil) exceeding annual production guidance expectations.
• Reduced lease operating expenses by more than $30 million (>10%) from pro forma 2019(ii) levels through effective implementation of our field operating best practices.
• Reduced total cash general and administrative expenses by more than 60% from pro forma 2019(ii) levels.
• Completed the expansion of our Delaware recycling facilities allowing for handling of up to 60,000 barrels per day of produced water volumes.
• Completed our first six-well pad in the Delaware that sourced more than 95% of fracture stimulation volumes (nearly 100 million gallons) from recycled produced water volumes.
• Expanded our electrical substation network allowing for the removal of over 40 diesel generators improving operating reliability and reducing our carbon emissions by approximately 34 metric tons.
• Achieved our best year on record for safety with a total recordable incident rate of just 0.54.
• Reduced our flaring volumes by 40%.
• Lowered our spill rate by 66% as compared to our 2019 figures.

(i) Adjusted FCF and adjusted EBITDA are non-GAAP financial measures. See Appendix A for reconciliations of our non-GAAP financials measures.

(ii) All references to 2019 pro forma figures assume full year Callon and Carrizo combined financials.

6 CALLON PETROLEUM

SUSTAINABILITY AT
CALLON PETROLEUM

At Callon, our commitment to our shareholders is simple: create value in a responsible manner. Our focus on integrating sustainable business practices and achieving long-term results drives our operations. In alignment with these goals, our Board oversees the Company’s safety and environmental policies, development of a positive corporate culture and an effective corporate governance program. To ensure that sustainability matters remain a priority at Callon, the independent Nominating, Environmental, Social and Governance Committee of our Board has direct oversight responsibility for our ESG policies and performance for the development of Company positions related to emerging issues that affect our industry. The entire Callon team is committed to improving returns for our shareholders while positively impacting the communities in which we live and work. Our 2020 ESG initiatives built a strong foundation for 2021 objectives.

The Callon executive team recognizes the need for transparent and robust ESG reporting. In 2020, we published our inaugural sustainability report in alignment with the Sustainability Accounting Standards Board (SASB) framework. We plan to publish our 2020 Sustainability Report with highlights of Callon’s continued commitment to ESG and transparency later this year which will include the following highlights:

Environmental

In 2020, we expanded on several strategies and programs to develop our natural resources in a responsible manner while working to minimize our impact on the environment. Our continued focus to reduce flaring by actively working with third party natural gas gatherers and minimizing processing downtimes reduced flare volumes by 40%. We also connected to secondary gathering systems for our two highest-volume natural gas gathering systems and continue to pursue back-up options to minimize flaring in the future. Additionally, we implemented spill mitigation measures and achieved a 66% reduction in our total fluid spill rate. These additional measures, including night-time monitoring and activation of wellhead valves to shut in wells in emergency situations, demonstrate our commitment to prevent unnecessary releases to the environment.

WATER

AIR

LAND

Protecting local water supplies and minimizing our use of fresh water resources are high priorities in our operations.

As part of our environmental program, Callon monitors and seeks to reduce greenhouse gas (GHG) and other emissions from our operations.

At Callon, we strive to be good stewards of the environment and minimize our impact in the areas where we operate.

10% increase in recycled produced water usage(1)

40% reduction in flared volumes(2)

66% reduction in total spill volumes(3)

(1)Percentage of recycled water utilized in all operations.

(2)Percent change of total gas flared year-over-year.

(3)Percent change in total fluids released from primary containment year-over-year.

2021 PROXY STATEMENT 7

SUSTAINABILITY AT CALLON PETROLEUM

Social

Callon employs a talented workforce, and we are committed to the safety, health, and development of each team member. We remained focus on improving our safety culture and implementing programs to create a safe workplace for all stakeholders. In 2020, we reduced our OSHA Total Recordable Incident Rate (TRIR) by 10% and achieved record safety performance for the second consecutive year despite the combined challenges of the pandemic. In addition, we recognized the hardship that the pandemic has caused to many of the communities where we operate and increased our philanthropic support in the areas of education and social welfare.

Safety

Community

At Callon, protecting our people and our communities is our top priority. We believe that a strong safety culture is tantamount to being a leading operator in the exploration and production (E&P) business.In 2020 Callon quickly adapted operations to incorporate strict COVID-10 safety protocols.

OPERATING IN LOCAL COMMUNITIES

When our assets necessitate development projects near populated areas, we make every effort to mitigate the impact of our activities and work closely with city officials and neighboring landowners to proactively address considerations such as: noise, traffic, GHG emissions, and liquid spill prevention.

We also partner with beautification groups in Permian and Houston.

SUPPORTING LOCAL COMMUNITIES

Callon has a longstanding history of supporting the local communities in which we operate. It is our privilege to make a positive impact through charitable giving and volunteerism to support education, community, and the environment.

We also sponsor a charitable matching program to support our employees’ philanthropic priorities.

10%

improvement in safety TRIR to 0.54 for a second straight record year for safety performance

Workforce

BUILDING A TOP PLACE TO WORK

At Callon, a goal is to assemble and inspire a team of passionate and innovative professionals in an environment where they can achieve their professional goals. We empower our employees and engage team members in decision-making at every level while recognizing contributions to our success. This unique environment has helped us achieve top-tier engagement scores, resulting in Callon being named a Top Workplace by Houston Chronicle in for the fourth straight year.

EMBRACING DIVERSE BACKGROUNDS AND PERSPECTIVES

At Callon, we value the diversity of our employees and their contributions. We are firmly committed to fostering an inclusive environment and providing equal opportunity to all qualified persons.

MINORITY EMPLOYEES

IN 2020

8 CALLON PETROLEUM

SUSTAINABILITY AT CALLON PETROLEUM

Governance


At Callon, we are committed to high ethical standards and effective and sustainable corporate governance. We believe this commitment promotes the long-term interests of our shareholders, helps build public trust in our Company and strengthens Board and management accountability. We continually assess our governance principles to ensure that we are operating our business responsibly, ethically and in a manner aligned with the interests of our shareholders. Our Compensation Discussion and Analysis ("CD&A") beginning on page 37 provides additional information on governance practices for executive compensation.			Our Board expanded the remit and renamed our independent Nominating and Corporate Governance Committee as "Nominating, Environmental, Social, and Governance Committee" to better reflect the Committee's focus and oversight on the Company’s ESG policies, performance and disclosure.


Diversity	Refreshment	Independence

One minority and two female directors	Less than five years' tenure for nearly half the directors	Ten directors are independent and a non-executive director serves as chair of the Board

Our corporate focus is anchored by five core values: Responsibility, Integrity, Drive, Respect and Excellence. More information regarding our core values and details on our ESG initiatives and outcomes can be found in our 2019 Sustainability Report located on our Company’s website (https://www.callon.com/sustainability).

2021 PROXY STATEMENT 9



Proposal 1 Election of Class III Directors						The Board recommends a vote FOR each of the Class III director nominees named in this Proxy Statement. • Our director nominees provide experience and perspectives that enhance the overall strategic and oversight functions of Callon’s Board. • For more information about the nominees’ experience, skills, and qualifications, please see page 13.

Board of Directors

Process for Selecting Directors

Director Identification and Selection

Criteria. The Nominating, Environmental, Social and Governance Committee (the "N&ESG Committee") has established guidelines for considering nominations to the Board. The N&ESG Committee evaluates potential nominees based on the contribution such nominee’s background and skills could have upon achieving the goal of a well-rounded, diverse Board that functions collegially as a unit. While not an exhaustive list, key criteria include:

• Relevant oil and gas E&P industry knowledge and experience;

• Complementary mix of backgrounds and experience in areas including business, finance, accounting, ESG, technology, and strategy;

• Personal qualities of leadership, character, judgment and personal and professional integrity and high ethical standards;

• The candidate’s ability to exercise independent and informed business judgment;

• Whether the candidate is free of conflicts and has the time required for preparation, participation, and attendance at meetings;

• Diversity, including differences in viewpoints, background

SEC Form DEF 14A filed by Callon Petroleum Company