CWEI Clayton Williams Energy, Inc.

Clayton Williams Energy, Inc. (NASDAQ:CWEI) reported net income for the fourth quarter of 2007 of $8.5 million, or $.74 per share, as compared to a net loss of $8.9�million, or $.81 per share, for the fourth quarter of 2006. Cash flow from operations for the fourth quarter of 2007 was $72.6�million, as compared to $29.5 million during the same period in 2006. For the year ended December 31, 2007, the Company reported net income of $6 million, or $.52 per share, as compared to net income of $17.8�million, or $1.58 per share, for the same period in 2006. Cash flow from operations for fiscal 2007 was $234.9�million, as compared to $146 million during fiscal 2006. Oil and gas sales increased 67% from $57.8 million for the fourth quarter of 2006 to $96.3 million for the same quarter in 2007 due to a combination of higher prices and incremental production volumes. Gas production increased 36% to 5.4 Bcf, or 58,924 Mcf per day, from 4 Bcf, or 43,272 Mcf per day, in the 2006 quarter. Oil production for the fourth quarter of 2007 increased 16% to 616,000 barrels, or 6,696 barrels per day, compared to 529,000 barrels, or 5,750 barrels per day, in the 2006 quarter. The increase in gas production was attributable primarily to recent drilling activity in North and South Louisiana. For the fourth quarter of 2007, average realized gas prices increased 9% to $7.06 per Mcf from $6.49 per Mcf in the same quarter of 2006, while oil prices increased 56% to $89.55 per barrel from $57.41 per barrel in the 2006 period. Average realized prices for 2007 and 2006 exclude the effects of any gains or losses realized on commodity hedging transactions since those derivatives were not designated as cash flow hedges and have been reported in the Company�s statements of operations as gain/loss on derivatives under applicable accounting standards. For the fourth quarter of 2007, the Company reported a $18.9 million net loss on derivatives, consisting of a $9.8 million realized loss on settled contracts and a $9.1 million non-cash loss to mark the Company�s derivative positions to their fair value on December 31, 2007. For the same period in 2006, the Company reported a $11.9 million net gain on derivatives, consisting of a $3 million realized loss on settled contracts and a $14.9 million non-cash gain due to changes in mark-to-market valuations. Exploration costs related to abandonments and impairments were $15.4 million during the fourth quarter of 2007 compared to $29.4 million in the fourth quarter of 2006. The 2007 costs related primarily to North Louisiana which included $7.1 million for the abandonment of the Dugdale #1 (Choudrant) and $4.9 million for the Benoit #1 (Sarepta) and leasehold impairments of $1.7 million. The Company sold all of its producing and non-producing acreage in Pecos County, Texas for $21 million. The Company recorded a gain of approximately $12.5 million in the fourth quarter of 2007 in connection with this sale. Proceeds from the sale were used to repay indebtedness on the Company's revolving credit facility. The Company recorded a non-cash charge during the fourth quarter of 2007 of $3.1 million for impairments pursuant to Statement of Financial Accounting Standards No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets," consisting of a $2 million write-down of two 2000 horsepower drilling rigs and related components and a $1.1 million charge for well service equipment to reduce these assets� carrying values to their estimated fair market values. The Company also announced today that its total proved oil and gas reserves as of December 31, 2007 were 290.8 Bcfe, consisting of 27.9 million barrels of oil and NGL and 123.2 Bcf of natural gas. By comparison, the Company reported proved reserves of 271.5 Bcfe as of December 31, 2006, consisting of 25.4 million barrels of oil and NGL and 119.2 Bcf of natural gas. The pre-tax present value of estimated future net revenues from these reserves, discounted at 10% and computed in accordance with SEC guidelines, totaled $1.3 billion at December 31, 2007, as compared to $712.4 million at December 31, 2006. The estimates were based on weighted average oil and NGL prices of $91.30 per Bbl in 2007, as compared to $57.18 in 2006, and gas prices of $7.37 per Mcf in 2007, as compared to $5.24 per Mcf in 2006. During 2007, the Company replaced 97% of the 35.9 Bcfe produced in 2007 through extensions and discoveries. The following table summarizes the changes in proved reserves during 2007 on a Bcfe basis and as a percentage of 2007 production. � Bcfe � % of 2007Production Total proved reserves, 12/31/06 271.5 Extensions and discoveries 34.9 97 % Revisions 20.9 58 % Sales of minerals-in-place (.6 ) (2 )% Production (35.9 ) Total proved reserves, 12/31/07 290.8 � Net upward revisions of 20.9 Bcfe consisted of approximately 23.9 Bcfe of upward revisions attributable to the effects of higher oil and gas prices on the estimated quantities of proved reserves and approximately 3 Bcfe of downward revisions attributable to well performance. The Company has increased its estimates for planned exploration and development expenditures for fiscal 2008 by $36�million from $220.5�million to $256.5�million. The increase in capital spending is due primarily to the addition of two drilling rigs to be utilized in the Permian Basin. The Company will host a conference call to discuss these results and other forward-looking items today, March 12th at 1:30 pm CT (2:30 pm ET). The dial-in conference number is: 800-901-5213, passcode 71742162. The replay will be available for one week at 888-286-8010, passcode 27601585. To access the conference call via 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 expectations, volatility of 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 . . . CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share) � � � Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 REVENUES Oil and gas sales $ 96,280 $ 57,824 $316,992 $245,967 Natural gas services 2,399 2,437 10,230 11,327 Drilling rig services 15,198 4,762 52,649 6,937 Gain on sales of assets 13,114 � 851 � 14,024 � 1,767 � Total revenues 126,991 � 65,874 � 393,895 � 265,998 � � COSTS AND EXPENSES Production 19,350 15,935 75,319 63,298 Exploration: Abandonments and impairments 15,444 29,351 68,870 65,173 Seismic and other 1,059 1,933 4,765 11,299 Natural gas services 2,307 2,185 9,745 10,005 Drilling rig services 10,450 3,165 32,964 4,538 Depreciation, depletion and amortization 27,740 17,785 84,476 66,163 Impairment of property and equipment 3,114 8,934 12,137 21,848 Accretion of abandonment obligations 644 429 2,508 1,653 General and administrative 6,142 5,271 19,266 16,676 Loss on sales of assets 400 � 17 � 9,815 � 99 � Total costs and expenses 86,650 � 85,005 � 319,865 � 260,752 � Operating income (loss) 40,341 � (19,131 ) 74,030 � 5,246 � � OTHER INCOME (EXPENSE) Interest expense (8,055 ) (6,267 ) (32,118 ) (20,895 ) Gain (loss) on derivatives (18,945 ) 11,933 (31,968 ) 37,340 Other 662 � (824 ) 5,355 � (1,339 ) Total other income (expense) (26,338 ) 4,842 � (58,731 ) 15,106 � � Income (loss) before income taxes 14,003 (14,289 ) 15,299 20,352 � Income tax (expense) benefit (5,047 ) 5,775 (5,497 ) (1,979 ) � Minority interest, net of tax (452 ) (378 ) (3,812 ) (574 ) � � � � NET INCOME (LOSS) $ 8,504 � $ (8,892 ) $ 5,990 � $ 17,799 � � � Net income (loss) per common share: Basic $ 0.75 � $ (0.81 ) $ 0.53 � $ 1.64 � Diluted $ 0.74 � $ (0.81 ) $ 0.52 � $ 1.58 � � Weighted average common shares outstanding: Basic 11,352 � 11,000 � 11,337 � 10,885 � Diluted 11,529 � 11,000 � 11,494 � 11,244 � CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) ASSETS December 31, � December 31, 2007 2006 CURRENT ASSETS Cash and cash equivalents $ 12,344 $ 13,840 Accounts receivable: Oil and gas sales, net 36,698 23,398 Joint interest and other, net 16,666 17,810 Affiliates 308 2,436 Inventory 14,348 40,392 Deferred income taxes 3,581 505 Fair value of derivatives 7,191 23,729 Assets held for sale 17,281 - Prepaids and other 3,962 � 3,888 � 112,379 � 125,998 � PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts method 1,374,090 1,226,761 Natural gas gathering and processing systems 18,404 18,068 Contract drilling equipment 89,956 66,418 Other 14,505 � 15,848 � 1,496,955 1,327,095 Less accumulated depreciation, depletion and amortization (765,877 ) (682,286 ) Property and equipment, net 731,078 � 644,809 � OTHER ASSETS Debt issue costs 6,963 8,104 Fair value of derivatives - 1,785 Other 10,676 � 14,737 � 17,639 � 24,626 � $ 861,096 � $ 795,433 � � LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable: Trade $ 72,477 $ 75,815 Oil and gas sales 24,806 14,222 Affiliates 1,747 1,407 Current maturities of long-term debt 22,500 17,397 Fair value of derivatives 56,929 29,722 Accrued liabilities and other 10,308 � 10,503 � 188,767 � 149,066 � NON-CURRENT LIABILITIES Long-term debt 430,175 413,876 Deferred income taxes 44,302 36,409 Fair value of derivatives - 21,281 Other 37,046 � 29,821 � 511,523 � 501,387 � STOCKHOLDERS' EQUITY: Preferred stock, par value $.10 per share - - Common stock, par value $.10 per share 1,135 1,115 Additional paid-in capital 121,063 113,965 Retained earnings 35,890 29,900 Accumulated other comprehensive income, net of tax 2,718 � - � 160,806 � 144,980 � $ 861,096 � $ 795,433 � CLAYTON WILLIAMS ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) � � � Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 � CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 8,504 $ (8,892 ) $ 5,990 $ 17,799 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation, depletion and amortization 27,740 17,785 84,476 66,163 Impairment of proved properties 3,114 8,934 12,137 21,848 Exploration costs 15,444 29,351 68,870 65,173 Gain on sales of assets, net (12,714 ) (834 ) (4,209 ) (1,668 ) Deferred income taxes 3,318 (7,539 ) 3,768 215 � Non-cash employee compensation 255 628 1,865 2,279 Unrealized (gain) loss on derivatives 9,086 (14,884 ) 24,249 (57,568 ) Settlements on derivatives with financing elements 9,518 6,096 28,468 29,407 Amortization of debt issue costs 328 286 1,281 1,308 Accretion of abandonment obligations 644 429 2,508 1,653 Excess tax benefit on exercise of stock options (963 ) (1,807 ) (963 ) (1,807 ) Minority interest, net of tax 452 � 378 3,812 � 574 Changes in operating working capital: Accounts receivable 5,061 (8,217 ) (10,028 ) (8,101 ) Accounts payable (4,884 ) 470 10,992 3,543 Other 7,652 � 7,324 � 1,650 � 5,172 � Net cash provided by operating activities 72,555 � 29,508 � 234,866 � 145,990 � � CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (53,341 ) (66,234 ) (233,453 ) (254,840 ) Additions to equipment of Larclay JV (1,899 ) (14,529 ) (29,302 ) (60,655 ) Proceeds from sales of assets 21,120 3,368 22,773 4,451 Change in equipment inventory 1,901 (1,701 ) 18,166 (662 ) Other (226 ) (873 ) (14,443 ) 1,753 � Net cash used in investing activities (32,445 ) (79,969 ) (236,259 ) (309,953 ) � CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt - 35,600 25,800 129,300 Proceeds from long-term debt of Larclay JV - 20,505 8,727 66,254 Repayments of long-term debt (22,200 ) - - - Repayments of long-term debt of Larclay JV (6,563 ) - (13,125 ) - Proceeds from sale of common stock 30 3,739 6,000 3,914 Settlements on derivatives with financing elements (9,518 ) (6,096 ) (28,468 ) (29,407 ) Excess tax benefit on exercise of stock options 963 � 1,807 � 963 � 1,807 � Net cash provided by (used in) financing activities (37,288 ) 55,555 � (103 ) 171,868 � � NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,822 5,094 (1,496 ) 7,905 � CASH AND CASH EQUIVALENTS Beginning of period 9,522 8,746 13,840 5,935 � � � � End of period $ 12,344 � $ 13,840 � $ 12,344 � $ 13,840 � Clayton Williams Energy, Inc. Summary Production and Price Data (Unaudited) � � � Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 � Average Daily Production: Natural Gas (Mcf): Permian Basin 14,024 13,668 14,649 14,260 North Louisiana 12,524 1,486 8,096 988 South Louisiana 23,262 16,966 24,025 13,638 Austin Chalk (Trend) 2,249 1,912 2,220 2,504 Cotton Valley Reef Complex 6,390 8,732 7,133 9,735 Other 475 � 508 � 450 � 513 � Total 58,924 � 43,272 � 56,573 � 41,638 � � Oil (Bbls): Permian Basin 3,319 3,095 3,212 3,172 North Louisiana 317 30 182 12 South Louisiana 922 858 1,139 943 Austin Chalk (Trend) 2,057 1,731 1,737 1,770 Other 81 � 36 � 81 � 51 � Total 6,696 � 5,750 � 6,351 � 5,948 � � Natural gas liquids (Bbls): Permian Basin 171 191 198 226 Austin Chalk (Trend) 279 261 259 269 Other 213 � 70 � 151 � 50 � Total 663 � 522 � 608 � 545 � � � � Total Production: Natural Gas (MMcf) 5,421 3,981 20,649 15,198 Oil (MBbls) 616 529 2,318 2,171 Natural gas liquids (MBbls) 61 � 48 � 222 � 199 � Gas Equivalents (MMcfe) 9,483 7,443 35,889 29,418 � � Average Realized Prices (a): Gas ($/Mcf): $ 7.06 � $ 6.49 � $ 7.01 � $ 6.68 � Oil ($/Bbl): $ 89.55 � $ 57.41 � $ 70.36 � $ 62.92 � Natural gas liquids ($/Bbl) $ 60.21 � $ 32.83 � $ 43.74 � $ 38.18 � � Gains (Losses) on settled derivative contracts (a): ($ in thousands, except per unit) Gas: Net realized gain (loss) $ 2,445 $ (3,157 ) $ 12,229 $ (679 ) Per unit produced ($/Mcf) $ 0.45 $ (0.79 ) $ 0.59 $ (0.04 ) � Oil: Net realized gain (loss) $ (12,376 ) $ 37 $ (20,086 ) $ (19,886 ) Per unit produced ($/Bbl) $ (20.09 ) $ 0.07 $ (8.67 ) $ (9.16 ) Clayton Williams Energy, Inc. Summary of Capital Expenditures (Unaudited) � � Planned Expenditures Year Ending Percentage 12/31/2008 of Total � � Permian Basin $ 110,300 43% Austin Chalk (Trend) 59,300 23% North Louisiana 47,900 19% East Texas Bossier 17,200 7% South Louisiana 13,400 5% Utah/California 8,300 3% Other 100 0% $ 256,500 100% CLAYTON WILLIAMS ENERGY, INC. Notes to tables and supplemental information � � (a) Hedging gains (losses) are only included in the determination of the Company's average realized prices if the underlying derivative contracts are designated as cash flow hedges under applicable accounting standards. The Company did not designate any of its 2007 or 2006 derivative contracts as cash flow hedges. This means that the Company's derivatives for 2007 and 2006 have been marked-to-market through its statement of operations as other income/expense instead of through accumulated other comprehensive income on the Company's 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. � Certain reclassifications of prior period financial statement amounts have been made to conform to current period presentations.