lenders. Continued disruptions in the capital markets could cause our lenders to be more restrictive in calculating the amount of credit available under the credit facility.
We have outstanding $200 million of 9.75% Senior Notes due 2010 ("Senior Notes"). Subsequent to September 30, 2009, we commenced an exchange offer for any and all of our outstanding Senior Notes. No assurances can be made as to the results of these efforts. Continued disruptions in the capital markets could make it more difficult or expensive to refinance or restructure these notes when they come due. See Subsequent Events below for more details.
Current market conditions also elevate the concern over counterparty risks related to our commodity derivative contracts and trade credit. At September 30, 2009, our open commodity derivative instruments were in a net receivable position with a fair value of $3.6 million. All of our commodity derivative instruments are with a major financial institution. Should the financial counterparty not perform, we may not realize the benefit of some of our derivative instruments under lower commodity prices and we could incur a loss. We sell our production to a variety of purchasers. Some of these parties may experience liquidity problems. Credit enhancements have been obtained from some parties in the way of parental guarantees or letters of credit; however, we do not have all of our trade credit enhanced through guarantees or credit support. Impairment of Oil and Gas Properties. If oil and gas prices decrease further or remain depressed for extended periods of time, we may be required to take additional writedowns of the carrying value of our oil and gas properties. We may be required to writedown the carrying value of our oil and gas properties when oil and gas prices are low or if we have substantial downward adjustments to our estimated net proved reserves, increases in our estimates of development costs or deterioration in our exploration results. Under the full-cost method which we use to account for our oil and gas properties, the net capitalized costs of our oil and gas properties may not exceed the present value, discounted at 10%, of future net cash flows from estimated net proved reserves, using period end oil and gas prices or prices as of the date of our auditor's report, plus the lower of cost or fair market value of our unproved properties. If net capitalized costs of our oil and gas properties exceed this limit, we must charge the amount of the excess to earnings. This type of charge will not affect our cash flows, but will reduce the book value of our stockholders' equity. We review the carrying value of our properties quarterly, based on prices in effect as of the end of each quarter or at the time of reporting our results. Once incurred, a writedown of oil and gas properties is not reversible at a later date, even if prices increase.

Reduced Prices for Oil and Gas Production. The United States and world economies are currently in a recession which could last through 2009 and perhaps longer. Both oil and gas prices have undergone significant decline during the second half of 2008 and into the first half of 2009 as a result of the reduced economic activity brought on by the recession. Continued lower commodity prices will reduce our cash flows from operations. To mitigate the impact of lower commodity prices on our cash flows, we have entered into crude oil and natural gas commodity derivative contracts for 2009. See Note 5 to our Consolidated Financial Statements. Depending on the length of the current recession, commodity prices may stay depressed or decline further, thereby causing a prolonged downturn, which would further reduce our cash flows from operations. This could cause us to alter our business plans including reducing or delaying our exploration and development program spending and other cost reduction initiatives.
Abandonment of the Entrada Project. In late November 2008, we and our joint working interest owner, CIECO Entrada, decided to abandon the Entrada project. Under the terms of our agreements with CIECO Entrada, Callon Entrada is responsible for its share of the costs to plug and abandon the Entrada project, which was $45.8 million, $22.9 million net to Callon Entrada. As of September 30, 2009 the wind down of the Entrada project was complete and substantially all of the costs have been paid.
We continue to discuss with CIECO Entrada its failure to fund $40 million in loan requests and its share of a settlement payment to terminate a drilling contract. No assurances can be made regarding the outcome of these discussions. We do not believe that we have waived any of our rights under the agreements with CIECO Entrada or its parent, CIECO. Prior to abandonment of the project, CIECO Entrada failed to fund two loan requests totaling $40 million under the Callon Entrada non-recourse credit agreement with CIECO Entrada. CIECO Entrada also failed to fund its working interest share of a settlement payment in the amount of $7.3 million to terminate a drilling contract for the Entrada project, which has been settled by Callon. Callon has paid its share of the settlement payment.
The Callon Entrada Non-Recourse Credit Facility. The Callon Entrada non-recourse credit facility with CIECO Entrada is a direct obligation of Callon Entrada, an indirect, wholly-owned subsidiary of Callon Petroleum Company. The Callon Entrada non-recourse credit facility is secured by a lien on the assets of Callon Entrada which generally are comprised of the Entrada Field and related equipment. Neither Callon Petroleum Company nor any other subsidiary of Callon Petroleum Company guaranteed or otherwise agreed to pay the principal or interest payments due on the Callon Entrada non-recourse credit facility, so such facility is non-recourse to Callon Petroleum Company and its other subsidiaries.
On April 2, 2009, Callon Entrada received a notice from CIECO Entrada advising Callon Entrada that certain alleged events of default occurred under the Callon Entrada non-recourse credit agreement relating to failure to pay interest when due and the breach of various other covenants related to the decision to abandon the Entrada project. The lenders under our senior secured credit facility have amended the Second Amended and Restated Credit Agreement dated September 25, 2008 to state that a default under the Callon Entrada non-recourse credit facility is not a default under their facility. In addition, this amendment eliminates a possible cross default with regard to our Senior Notes. Accordingly, we do not believe that a default under the Callon Entrada non-recourse credit agreement will have a material negative impact on our financial position, results of operations and cash flows. See Note 1 to the Consolidated Financial Statements.

Other Events
On March 16, 2009, we were notified by the New York Stock Exchange that we had fallen below one of the NYSE's continued listing standards. We received this notification pursuant to Rule 802.01B(I) of the NYSE Listed Company Manual because our average market capitalization has been less than $75 million over a 30-day trading period and our last reported stockholder's equity was less than $75 million.
We submitted a plan with the NYSE on April 30, 2009, which demonstrated our ability to achieve compliance with Rule 802.01B(I) within an 18 month cure period. On June 12, 2009, the NYSE accepted the plan and our common stock will continue to be listed on the NYSE during the cure period, subject to ongoing monitoring and our compliance with other NYSE continued listing requirements. Subsequent Events
On October 21, 2009, we commenced an exchange offer for any and all of our outstanding Senior Notes. For each $1,000 principal amount of outstanding Senior Notes tendered in accordance with the terms and conditions of the exchange offer, each tendering holder of the Senior Notes will receive $750 principal amount of 13% Senior Secured Notes due 2016 ("Exchange Notes), 20.625 shares of common stock and 1.6875 shares of Convertible Preferred Stock. Each share of the Convertible Preferred Stock would be automatically convertible by us into 10 shares of common stock following shareholder approval and the filing of an amendment to our charter increasing the number of authorized shares of common stock as necessary to accommodate such conversion. Holders of 73.5% of the Senior Notes have committed to tender their notes in the exchange offer. The exchange offer is conditioned upon the valid tender of at least 80% of the aggregate principal amount of the outstanding Senior Notes.
In connection with the exchange offer, we are soliciting consents to amend the indenture governing the Senior Notes. Holders tendering their Senior Notes will be required to consent to certain proposed amendments to the indenture governing the Seniors Notes, which will eliminate substantially all of the indenture's restrictive covenants.
On October 16, 2009, we entered into Amendment No. 3 to the Second Amended and Restated Credit Agreement dated as of September 25, 2008, as amended by that certain Amendment No. 1 dated as of March 19, 2009 and that certain Amendment No. 2 dated as of August 31, 2009 with Union Bank, as administrative agent and issuing lender, which gave the consent to commence the exchange offer for any and all of our outstanding Senior Notes for Exchange Notes as discussed above. On October 28, 2009, Callon completed the acquisition of interests in Wolfberry production and development properties located in Crockett, Ector, Midland and Upton Counties, Texas from Ambrose Energy I, Ltd., a subsidiary of ExL Petroleum, LP. The purchase price of $16.25 million is subject to standard industry closing adjustments. The acquisition includes 1.6 million barrels of oil equivalent of proved reserves, 23 wells producing 475 net barrels of oil equivalent per day, 4 uphole recompletion targets, 14 proved undeveloped locations and 142 non-proven, 40-acre drilling locations. The Company will operate substantially all of the production and development.
On November 6, 2009, we received notification from the MMS relating to the U.S. Supreme Court's October 2009 refusal to review the decision handed down by the U. S. Court of Appeals for the Fifth Circuit whereby Kerr-McGee was not held liable for royalties when oil and/or natural gas price thresholds were exceeded for certain deepwater Gulf of Mexico leases. We paid federal royalties on our impacted leases, Mississippi Canyon Blocks 538 and 582 (Medusa Field), when the prices exceeded the benchmark levels. A preliminary estimate for this recovery of a contingent gain indicates that we have paid royalties of approximately $40 million. The exact amount is subject to final determination including possible interest. However, whether or not we will be able to recover all or part of these paid royalties is unclear at this time. Therefore we do not intend to recognize any benefit to income until we finalize and file our claims to the MMS and determine that the MMS intends to refund the overpaid royalties. Additionally, the benefit received by us in connection with any refund paid will be reduced by taxes imposed on the refund.

Liquidity and Capital Resources
Our primary sources of capital are cash flows from operations, borrowings from financial institutions and the sale of debt and equity securities. On September 30, 2009, we had cash and cash equivalents of $1.1 million and $30.3 million of availability under our senior secured credit agreement. Cash provided by operating activities during the nine-month period ended September 30, 2009 totaled $17.0 million, an 86% decrease when compared to the corresponding period in 2008. The decrease in liquidity is attributable to the reduction of accounts payable related to the Entrada project during the first nine months of 2009, lower commodity prices and lower production rates on an equivalent basis.
On September 25, 2008, we completed a $250 million second amended and restated senior secured credit agreement with Union Bank as issuing lender, which matures September 25, 2012. As of August 1, 2009, our borrowing base and MCR are $35.0 million and $4.7 million, respectively. Borrowings under the credit agreement are secured by mortgages covering our major fields excluding Entrada. As of September 30, 2009, there were no borrowings outstanding under the agreement with $30.3 million, subject to MCR, available for future borrowings. See Note 4 to the Consolidated Financial Statements.
As of September 30, 2009, we were not in compliance with two financial covenants associated with our senior secured credit facility with Union Bank. Our lenders have waived these events of noncompliance as of September 30, 2009. If we are not in compliance with these covenants at December 31, 2009, we will require similar waivers at that time. No assurances can be made that we will receive future waivers from the bank.
On April 1, 2009, Diamond Offshore Drilling, Inc. ("Diamond") called on the outstanding letter of credit for CIECO Energy (US) Limited's ("CIECO") share of the settlement for the termination of the Ocean Victory drilling contract in the amount of $7.3 million. We paid our share, in the amount of $7.3 million, in March 2009. The remaining balance of the letter of credit was released by Diamond on April 2, 2009. We continue to discuss with CIECO its failure to fund the settlement for the termination of the drilling contract. The $7.3 million due from CIECO for their share of the settlement for the termination of the drilling contract is recorded as a receivable as of September 30, 2009. We have designed a flexible capital spending program that will be responsive to conditions that develop during the remainder of 2009. Our base capital program, including plugging and abandonment, for 2009 is currently $40 million, which is 44% less than the 2008 budget of $71 million, excluding the Entrada project. The program includes $16 million for the acquisition of proved oil and gas properties with development and exploitation upside, which was completed in October 2009. However, depending on commodity prices and other economic conditions we experience during the fourth quarter of 2009, this base capital program may be adjusted up or down. See "Capital Expenditures" for more detail on our capital expenditure forecast for 2009.
We expect that the 2009 budget will be funded primarily from cash flows from operations, cash on hand, and borrowings under our senior secured credit facility and/or other financing. We will evaluate the level of capital spending throughout the year based on commodity prices, cash flows from operations and property acquisitions and divestitures.

Inflation has not had a material impact on us and is not expected to have a material impact on us in the immediate future.
The Callon Entrada non-recourse credit facility, which has a balance of $84.5 million, is a direct obligation of Callon Entrada, an indirect, wholly-owned subsidiary of Callon Petroleum Company. The Callon Entrada non-recourse credit facility is secured by a lien on the stock of Callon Entrada and all the assets of Callon Entrada which generally are comprised of the Entrada Field and related equipment. On June 1, 2009 the lease expired and reverted to the Minerals Management Service ("MMS"). At September 30, 2009, there was no value included on the balance sheet for the lease or related equipment. Neither Callon Petroleum Company nor any other subsidiary of Callon Petroleum Company guaranteed or otherwise agreed to pay the principal or interest payments due on the Callon Entrada non-recourse credit facility, so such facility is non-recourse to Callon Petroleum Company and its other subsidiaries.
On April 2, 2009, Callon Entrada received a notice of default from CIECO Entrada advising Callon Entrada that certain events of default occurred under the non-recourse credit agreement relating to failure to pay interest when due and the breach of various other covenants related to the decision to abandon the Entrada project. This notice of default invoked CIECO's Entrada rights under the Callon Entrada non-recourse credit agreement to accelerate payment of the principal and interest due. The acceleration of payment causes the principal and interest balances under the Callon Entrada non-recourse credit agreement to be reclassified as current liabilities from long-term liabilities under U.S. generally accepted accounting principles ("GAAP"). The agreement has not been legally extinguished and as such under GAAP, the agreement remains a liability of Callon Entrada. We are currently required to continue to consolidate the financial statements and results of operations of Callon Entrada which results in Callon Entrada's non-recourse liability being reflected in a separate line item in the consolidated financial statements. See Note 1 to the Consolidated Financial Statements for more information regarding the deficiency in assets of Callon Entrada with which to repay the non-recourse credit facility. In addition, we also guaranteed the obligations of Callon Entrada to fund its proportionate share of any operating costs related to the Entrada project that Callon Entrada may, from time to time, expressly approve under the Entrada joint operating agreement for which none remain nor are there any planned. We also have guaranteed Callon Entrada's payment of all amounts to plug and abandon wells and related facilities and for a breach of law, rule or regulation (including environmental laws) and for any losses of CIECO Entrada attributable to gross negligence of Callon Entrada. The well for which Callon Entrada was responsible for was plugged and abandoned in the fourth of quarter of 2008 and the MMS has confirmed to us that all abandonment obligations have been satisfied.
The Indenture governing our Senior Notes and our senior secured credit facility contain various covenants, including restrictions on additional indebtedness and payment of cash dividends. In addition, our senior secured credit agreement contains covenants for maintenance of certain financial ratios. We were in compliance with these covenants at September 30, 2009. See Note 7 of the Consolidated Financial Statements for the year ended December 31, 2008 included in our Annual Report on Form 10-K filed March 19, 2009 for a more detailed discussion of long-term debt.

The following table describes our outstanding contractual obligations (in thousands) as of September 30, 2009:

Contractual                                           Less Than         One-Three         Four-Five          After-Five
Obligations                            Total           One Year           Years             Years              Years
Senior Secured Credit Facility       $       -        $        -        $        -        $        -        $          -
9.75% Senior Notes                     200,000                 -           200,000                 -                   -
Throughput Commitments:
Medusa Oil Pipeline                        175                59                71                29                  16

                                     $ 200,175        $       59        $  200,071        $       29        $         16

Capital Expenditures
Capital expenditures on an accrual basis were $19 million for the nine-months ended September 30, 2009. Included in this amount was capitalized interest of approximately $2 million and capitalized general and administrative costs allocable directly to exploration and development projects of approximately $7 million. The remainder of the capital expended primarily includes the cost of seismic data, leases and plugging and abandonment costs.
Capital expenditures for the remainder of 2009 are projected to be $20 million and include:
• proved producing property acquisitions;

• development costs on our legacy properties;

• the cost of seismic data and leases; and

• capitalized interest and general and administrative costs.

In addition, we are projecting to spend $1 million for the remainder of 2009 for asset retirement obligations.
On October 28, 2009, we closed the West Texas acquisition with cash on hand and borrowings of $10 million under our Union Bank senior secured credit facility. As of November 1, 2009, we have $10.9 million available under the Union Bank senior secured credit facility to fund future acquisitions approved by the lenders.
Off-Balance Sheet Arrangements
We have a 10% ownership interest in Medusa Spar LLC ("LLC"), which is a limited liability company that owns a 75% undivided ownership interest in the deepwater Spar production facilities on our Medusa Field in the Gulf of Mexico. We contributed a 15% undivided ownership interest in the production facility to the LLC in return for approximately $25 million in cash and a 10% ownership interest in the LLC. The LLC earns a tariff based upon production volume throughput from the Medusa area. We are obligated to process our share of production from the Medusa Field and any future discoveries in the area through the Spar production facilities. This arrangement allowed us to defer the cost of the Spar production facility over the life of the Medusa Field. The balance of Medusa Spar LLC is owned by Oceaneering International, Inc. and Murphy Oil Corporation. We are accounting for our 10% ownership interest in the LLC under the equity method.

Results of Operations
The following table sets forth certain unaudited operating information with
respect to the Company's oil and gas operations for the periods indicated:

                                                  Three Months Ended                Nine Months Ended
                                                    September 30,                     September 30,
                                                 2009             2008            2009            2008
Net production :
Oil (MBbls)                                          197             205             723              780
Gas (MMcf)                                         1,336           1,153           4,216            4,913
Total production (MMcfe)                           2,520           2,383           8,556            9,593
Average daily production (MMcfe)                    27.4            25.9            31.3             35.0

Average sales price:
Oil (Bbls) (a)                                $    83.38        $  99.40        $  71.03        $   94.89
Gas (Mcf)                                           3.64           10.77            4.69            10.53
Total (Mcfe)                                        8.46           13.76            8.32            13.11

Oil and gas revenues:
Oil revenue                                   $   16,451        $ 20,366        $ 51,374        $  74,016
Gas revenue                                        4,869          12,417          19,786           51,756

Total                                         $   21,320        $ 32,783        $ 71,160        $ 125,772


Oil and gas production costs:
Lease operating expenses                      $    4,962        $  3,701        $ 13,657        $  13,749

Additional per Mcfe data:
Sales price                                   $     8.46        $  13.76        $   8.32        $   13.11
Lease operating expense                             1.97            1.55            1.60             1.43

Operating margin                              $     6.49        $  12.21        $   6.72        $   11.68


Depletion, depreciation and amortization      $     2.72        $   4.83        $   2.89        $    4.35
General and administrative (net of
management fees)                              $     1.19        $   0.61        $   1.19        $    0.73

(a) Below is a reconciliation of the average NYMEX price to the average realized sales price per barrel of oil:

  Average NYMEX oil price                      $ 68.27     $ 117.98     $ 56.99     $ 113.29
  Basis differential and quality adjustments     (2.60 )       1.32       (4.40 )      (3.07 )
. . .