CWEI Clayton Williams Energy, Inc.

Clayton Williams Energy, Inc. (NASDAQ:CWEI) reported net income for the second quarter of 2005 of $10 million, or $.90 per share, as compared to net income of $2.9 million, or $.28 per share, for the second quarter of 2004. Cash flow from operations for the quarter was $39.3 million, as compared to $27.8 million during the same period in 2004. For the six months ended June 30, 2005, the Company reported net income of $1 million, or $.09 per share, as compared to net income of $7.7 million, or $.77 per share, for the same period in 2004. Cash flow from operations for the six-month period in 2005 was $69.3 million, as compared to $49.4 million during the same period in 2004. Oil and gas sales for the second quarter of 2005 increased $22.2 million (54%) to $63.3 million from $41.1 million in the 2004 quarter. Higher oil and gas prices resulted in $13.1 million of the increase, and higher oil and gas production accounted for the remaining $9.1 million. Average realized oil prices in the second quarter of 2005 increased 36% from $37.04 to $50.35 per barrel, while gas prices increased 17% from $5.68 to $6.62 per Mcf. Oil production for the second quarter of 2005 increased 32% to 615,000 barrels, or 6,758 barrels per day, from 465,000 barrels, or 5,110 barrels per day. Gas production increased 11% to 4.5 Bcf, or 49,967 Mcf per day, from 4.1 Bcf, or 45,110 Mcf per day in 2004. Incremental production from the Southwest Royalties acquisition in May 2004 and from recently completed wells in Louisiana accounted for most of the increase in production. Exploration costs for the second quarter of 2005 were $8.1 million, as compared to $15.3 million for the same period in 2004. During the second quarter of 2005, the Company recorded a pre-tax charge of $4.5 million related to the recent abandonment of the Deer-Hamilton #1 well, a 17,000-foot exploratory well in Nueces County, Texas targeting the Vicksburg formation. The Company estimates that an additional charge of $3.2 million will be recorded in the third quarter of 2005 for drilling and abandonment costs incurred after June 30, 2005. For the second quarter of 2005, the Company reported a $9.8 million expense for the change in fair value of derivatives, $3.7 million of which was a non-cash charge to record the Company's derivative positions at their fair value on June 30, 2005. The Company will host a conference call to discuss these results and other forward-looking items today, August 3rd at 1:30 pm CT (2:30 pm ET). The dial-in conference number is: 800-901-5213, passcode 59083952. The replay will be available for one week at 888-286-8010, passcode 68558209. To access the Internet webcast, please go to the Investor Relations section of the Company's website at www.claytonwilliams.com and click on "Live Webcast." Following the live webcast, the call will be archived for a period of 90 days on the Company's website. Clayton Williams Energy, Inc. is an independent energy company located in Midland, Texas. Except for historical information, statements made in this release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and the Company's future performance are subject to a wide range of business risks and uncertainties, and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, production variance from expectations, volatility or oil and gas prices, the need to develop and replace reserves, the substantial capital expenditures required to fund operations, exploration risks, uncertainties about estimates of reserves, competition, government regulation, costs and results of drilling new projects, and mechanical and other inherent risks associated with oil and gas production. These risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements. TABLES AND SUPPLEMENTAL INFORMATION FOLLOW . . . -0- *T CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- REVENUES Oil and gas sales $63,301 $41,119 $124,797 $77,451 Natural gas services 2,550 2,372 5,131 4,899 Gain on sales of property and equipment 467 61 2,079 66 --------- --------- --------- --------- Total revenues 66,318 43,552 132,007 82,416 --------- --------- --------- --------- COSTS AND EXPENSES Production 13,856 8,175 26,427 15,130 Exploration: Abandonments and impairments 6,430 13,467 17,700 18,099 Seismic and other 1,665 1,812 2,453 3,737 Natural gas services 2,374 2,295 4,791 4,647 Depreciation, depletion and amortization 12,288 9,247 24,580 17,771 Accretion of abandonment obligations 288 265 567 440 General and administrative 3,134 2,286 5,652 5,587 Loss on sales of property and equipment -- -- 32 -- --------- --------- --------- --------- Total costs and expenses 40,035 37,547 82,202 65,411 --------- --------- --------- --------- Operating income 26,283 6,005 49,805 17,005 --------- --------- --------- --------- OTHER INCOME (EXPENSE) Interest expense (2,566) (1,449) (4,932) (1,909) Change in fair value of derivatives (9,837) (309) (44,926) (3,402) Other 650 87 1,096 (37) --------- --------- --------- --------- Total other income (expense) (11,753) (1,671) (48,762) (5,348) --------- --------- --------- --------- Income before income taxes 14,530 4,334 1,043 11,657 Income tax expense 4,580 1,465 85 3,975 --------- --------- --------- --------- NET INCOME $9,950 $2,869 $958 $7,682 ========= ========= ========= ========= Net income per common share: Basic $0.92 $0.29 $0.09 $0.80 ========= ========= ========= ========= Diluted $0.90 $0.28 $0.09 $0.77 ========= ========= ========= ========= Weighted average common shares outstanding: Basic 10,800 9,923 10,796 9,647 ========= ========= ========= ========= Diluted 11,089 10,230 11,068 9,958 ========= ========= ========= ========= CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) ASSETS June 30, December 31, 2005 2004 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $10,677 $16,359 Accounts receivable: Oil and gas sales, net 26,718 25,573 Joint interest and other, net 4,530 4,653 Affiliates 668 553 Inventory 13,482 5,202 Deferred income taxes 691 625 Fair value of derivatives 212 2,333 Prepaids and other 2,951 1,401 ----------- ----------- 59,929 56,699 ----------- ----------- PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts method 953,009 909,095 Natural gas gathering and processing systems 17,448 17,286 Other 11,919 11,839 ----------- ----------- 982,376 938,220 Less accumulated depreciation, depletion and amortization (555,140) (539,860) ----------- ----------- Property and equipment, net 427,236 398,360 ----------- ----------- OTHER ASSETS 6,978 7,176 ----------- ----------- $494,143 $462,235 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable: Trade $37,284 $51,014 Oil and gas sales 10,238 11,223 Affiliates 2,386 2,954 Current maturities of long- term debt 27 31 Fair value of derivatives 27,779 16,026 Accrued liabilities and other 3,103 3,017 ----------- ----------- 80,817 84,265 ----------- ----------- NON-CURRENT LIABILITIES Long-term debt 189,607 177,519 Deferred income taxes 36,911 36,897 Fair value of derivatives 50,305 28,958 Other 17,487 17,000 ----------- ----------- 294,310 260,374 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred stock, par value $.10 per share -- -- Common stock, par value $.10 per share 1,080 1,078 Additional paid-in capital 105,134 104,674 Retained earnings 12,802 11,844 ----------- ----------- 119,016 117,596 ----------- ----------- $494,143 $462,235 =========== =========== CLAYTON WILLIAMS ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 2005 2004 2005 2004 -------- --------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $9,950 $2,869 $958 $7,682 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, depletion and amortization 12,288 9,247 24,580 17,771 Exploration costs 6,430 13,467 17,700 18,099 Gain on sales of property and equipment (467) (61) (2,047) (66) Deferred income taxes 4,607 1,465 (44) 3,975 Non-cash employee compensation 387 (596) 720 156 Change in fair value of derivatives 3,769 (2,508) 35,221 437 Settlements on derivatives with financing elements 5,591 -- 9,796 -- Accretion of abandonment obligations 288 265 567 440 Changes in operating working capital: Accounts receivable 3,330 3,454 (1,137) 5,067 Accounts payable 1,339 3,289 (8,827) (255) Other (8,176) (3,136) (8,205) (3,907) -------- --------- -------- -------- Net cash provided by operating activities 39,336 27,755 69,282 49,399 -------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (40,187) (37,495) (79,001) (66,099) Investment in SWR -- (167,841) -- (167,841) Proceeds from sales of property and equipment 457 432 2,151 437 Other (140) (34) (418) 103 -------- --------- -------- -------- Net cash used in investing activities (39,870) (204,938) (77,268)(233,400) -------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 5,900 186,662 12,100 186,662 Repayments of long-term debt -- (24,359) -- (25,000) Proceeds from sale of common stock -- 30,003 -- 30,003 Settlements on derivatives with financing elements (5,591) -- (9,796) -- Payment of debt issue costs -- (4,156) -- (4,156) -------- --------- -------- -------- Net cash provided by financing activities 309 188,150 2,304 187,509 -------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (225) 10,967 (5,682) 3,508 CASH AND CASH EQUIVALENTS Beginning of period 10,902 7,995 16,359 15,454 -------- --------- -------- -------- End of period $10,677 $18,962 $10,677 $18,962 ======== ========= ======== ======== Clayton Williams Energy, Inc. Summary Production and Price Data (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Average Daily Production: Natural Gas (Mcf): Permian Basin 16,063 7,505 16,110 4,670 Louisiana 14,604 9,898 14,935 10,319 Austin Chalk (Trend) 2,103 3,110 2,329 3,386 Cotton Valley Reef Complex 16,618 23,295 17,312 25,707 Other 579 1,302 739 1,423 --------- --------- --------- --------- Total 49,967 45,110 51,425 45,505 ========= ========= ========= ========= Oil (Bbls): Permian Basin 3,281 2,109 3,305 1,524 Louisiana 1,494 693 1,485 716 Austin Chalk (Trend) 1,920 2,242 1,976 2,318 Other 63 66 52 57 --------- --------- --------- --------- Total 6,758 5,110 6,818 4,615 ========= ========= ========= ========= Natural gas liquids (Bbls): Permian Basin 220 83 227 135 Austin Chalk (Trend) 392 136 365 252 Other 124 166 143 184 --------- --------- --------- --------- Total 736 385 735 571 ========= ========= ========= ========= Total Production: Natural Gas (MMcf) 4,547 4,105 9,308 8,282 Oil (MBbls) 615 465 1,234 840 Natural gas liquids (MBbls) 67 35 133 104 --------- --------- --------- --------- Gas Equivalents (MMcfe) 8,639 7,105 17,510 13,946 Average Realized Prices (a): Gas ($/Mcf): $6.62 $5.68 $6.41 $5.42 ========= ========= ========= ========= Oil ($/Bbl): $50.35 $37.04 $49.08 $35.67 ========= ========= ========= ========= Natural gas liquids ($/Bbl) $31.73 $22.34 $29.63 $23.82 ========= ========= ========= ========= Losses on settled derivative contracts (a): ($ in thousands, except per unit) Gas: Net realized loss $(1,271) $(950) $(562) $(950) Per unit produced ($/Mcf) $(0.51) $(0.49) $(0.06) $(0.49) Oil: Net realized loss $(4,763) $(1,855) $(8,983) $(2,004) Per unit produced ($/Bbl) $(16.50) $(8.79) $(15.32) $(7.68) CLAYTON WILLIAMS ENERGY, INC. Notes to tables and supplemental information (a) Hedging gains (losses) are only included in the determination of our average realized prices if the underlying derivative contracts are designated as cash flow hedges under applicable accounting standards. We did not designate any of our 2004 or 2005 derivative contracts as cash flow hedges. This means that our derivatives for 2004 and 2005 have been marked-to-market through our statement of operations as other income/expense instead of through accumulated other comprehensive income on our balance sheet. This also means that all realized gains/losses on these derivatives are reported in other income/loss instead of as a component of oil and gas sales. *T