CWEI Clayton Williams Energy, Inc.

Clayton Williams Energy, Inc. (NASDAQ:CWEI) reported net income for the first quarter of 2008 of $7.2 million, or $.62 per share, as compared to a net loss of $12.3�million, or $1.09 per share, for the first quarter of 2007. Cash flow from operations for the first quarter of 2008 was $78�million, as compared to $36.2 million during the same period in 2007. Oil and gas sales increased 94% from $61.2 million for the first quarter of 2007 to $118.9 million for the same quarter in 2008 due to a combination of higher prices and incremental production volumes. Gas production increased 28% to 5.5 Bcf, or 60,967 Mcf per day, from 4.3 Bcf, or 48,078 Mcf per day, in the 2007 quarter. Oil production for the first quarter of 2008 increased 26% to 684,000 barrels, or 7,516 barrels per day, compared to 543,000 barrels, or 6,033 barrels per day, in the 2007 quarter. The increase in gas production was attributable primarily to recent drilling activity in North and South Louisiana. The increase in oil production was due primarily to in-fill drilling and secondary water frac operations on existing wells in the Austin Chalk (Trend) and increased drilling activities in the Permian Basin. For the first quarter of 2008, average realized gas prices increased 28% to $8.86 per Mcf from $6.91 per Mcf in the same quarter of 2007, while oil prices increased 75% to $96.37 per barrel from $55.21 per barrel in the 2007 period. Average realized prices for 2008 and 2007 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 first quarter of 2008, the Company reported a $46.1 million net loss on derivatives, consisting of a $32 million non-cash loss to mark the Company�s derivative positions to their fair value on March 31, 2008 and a $14.1 million realized loss on settled contracts. For the same period in 2007, the Company reported a $16.8 million net loss on derivatives, consisting of a $18.8 million non-cash loss due to changes in mark-to-market valuations and a $2 million realized gain on settled contracts. The Company recorded exploration costs during the first quarter of 2008 of $4 million compared to $12 million for the first quarter of 2007. The 2008 quarter related primarily to seismic expense. Although write-offs related to abandonments and impairments were minimal during the current quarter, completion operations remain in-progress on two exploratory wells in the Company�s East Texas Bossier prospect, the Big Bill Simpson #1 and the Margarita #1. If the Company is unable to establish sufficient production levels from either or both of these wells, results of operations in subsequent quarters may be adversely affected by the outcome of those wells. The Company has increased its estimates for planned exploration and development expenditures for fiscal 2008 by $88�million from $256.5�million to $344.5�million. Strong cash flow from operations resulting from higher commodity prices and rising oil and gas production have afforded the Company the opportunity to make this upward change. The increase in capital spending relates primarily to activities in the Permian Basin and North Louisiana, including an exploratory well on the Winnsboro prospect to test the pressured Bossier interval in this area. The Company will host a conference call to discuss these results and other forward-looking items today, May 6th at 1:30 pm CT (2:30 pm ET). The dial-in conference number is: 800-901-5213, passcode 26036272. The replay will be available for one week at 888-286-8010, passcode 33611138. 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 March 31, � 2008 � � 2007 � REVENUES Oil and gas sales $ 118,919 $ 61,180 Natural gas services 2,538 2,654 Drilling rig services 14,832 8,417 Gain on sales of property and equipment � 569 � � 259 � Total revenues � 136,858 � � 72,510 � � COSTS AND EXPENSES Production 20,579 17,278 Exploration: Abandonments and impairments 297 11,105 Seismic and other 3,675 890 Natural gas services 2,515 2,413 Drilling rig services 11,117 4,933 Depreciation, depletion and amortization 30,273 15,231 Impairment of property and equipment - 565 Accretion of abandonment obligations 530 618 General and administrative 3,448 3,903 Loss on sales of property and equipment � 9 � � 9,332 � Total costs and expenses � 72,443 � � 66,268 � Operating income � 64,415 � � 6,242 � � OTHER INCOME (EXPENSE) Interest expense (7,446 ) (7,629 ) Loss on derivatives (46,109 ) (16,849 ) Other � 655 � � 713 � Total other income (expense) � (52,900 ) � (23,765 ) � Income (loss) before income taxes andminority interest 11,515 (17,523 ) � Income tax (expense) benefit (4,222 ) 6,080 � Minority interest, net of tax (114 ) (867 ) � � NET INCOME (LOSS) $ 7,179 � $ (12,310 ) � � Net income (loss) per common share: Basic $ 0.63 � $ (1.09 ) Diluted $ 0.62 � $ (1.09 ) � Weighted average common shares outstanding: Basic � 11,387 � � 11,290 � Diluted � 11,643 � � 11,290 � CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) ASSETS � � March 31, December 31, � 2008 � � 2007 � CURRENT ASSETS Cash and cash equivalents $ 18,523 $ 12,344 Accounts receivable: Oil and gas sales, net 48,991 36,698 Joint interest and other, net 18,241 16,666 Affiliates 9,608 308 Inventory 14,896 14,348 Deferred income taxes 3,581 3,581 Fair value of derivatives - 7,191 Assets held for sale 72,135 17,281 Prepaids and other � 3,583 � � 3,962 � � 189,558 � � 112,379 � PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts method 1,313,786 1,374,090 Natural gas gathering and processing systems 18,604 18,404 Contract drilling equipment 89,965 89,956 Other � 14,536 � � 14,505 � 1,436,891 1,496,955 Less accumulated depreciation, depletion and amortization � (736,153 ) � (765,877 ) Property and equipment, net � 700,738 � � 731,078 � � OTHER ASSETS Debt issue costs, net 6,615 6,963 Fair value of derivatives 72 - Other � 11,059 � � 10,676 � � 17,746 � � 17,639 � $ 908,042 � $ 861,096 � � LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable: Trade $ 84,602 $ 72,477 Oil and gas sales 27,954 24,806 Affiliates 2,190 1,747 Current maturities of long-term debt 20,625 22,500 Fair value of derivatives 71,646 56,929 Accrued liabilities and other � 5,884 � � 10,308 � � 212,901 � � 188,767 � NON-CURRENT LIABILITIES Long-term debt 414,688 430,175 Deferred income taxes 48,633 44,302 Fair value of derivatives 10,192 - Other � 37,371 � � 37,046 � � 510,884 � � 511,523 � STOCKHOLDERS' EQUITY: Preferred stock, par value $.10 per share - - Common stock, par value $.10 per share 1,210 1,135 Additional paid-in capital 136,831 121,063 Retained earnings 43,069 35,890 Accumulated other comprehensive income, net of tax � 3,147 � � 2,718 � � 184,257 � � 160,806 � $ 908,042 � $ 861,096 � � CLAYTON WILLIAMS ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) � � Three Months Ended March 31, � 2008 � � 2007 � � � CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 7,179 $ (12,310 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation, depletion and amortization 30,273 15,231 Impairment of proved properties - 565 Exploration costs 297 11,105 Gain on sales of property and equipment, net (565 ) (128 ) Deferred income taxes 4,100 (6,080 ) Non-cash employee compensation 342 610 Unrealized loss on derivatives 32,028 18,822 Settlements on derivatives with financing elements 10,415 5,593 Amortization of debt issue costs 346 309 Accretion of abandonment obligations 530 618 Minority interest, net of tax 114 867 � Changes in operating working capital: Accounts receivable (13,869 ) (286 ) Accounts payable 11,985 (3,703 ) Other � (5,130 ) � 5,016 � Net cash provided by operating activities � 78,045 � � 36,229 � � CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (49,610 ) (55,749 ) Additions to equipment of Larclay JV (9 ) (19,316 ) Proceeds from sales of property and equipment 629 645 Change in equipment inventory (1,620 ) 3,896 Other � 69 � � (2,970 ) Net cash used in investing activities � (50,541 ) � (73,494 ) � CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt - 25,000 Proceeds from long-term debt of Larclay JV - 8,727 Repayments of long-term debt (10,800 ) - Repayments of long-term debt of Larclay JV (6,562 ) - Proceeds from sale of common stock 6,452 5,962 Settlements on derivatives with financing elements � (10,415 ) � (5,593 ) Net cash provided by (used in) financing activities � (21,325 ) � 34,096 � � NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,179 (3,169 ) � CASH AND CASH EQUIVALENTS Beginning of period 12,344 13,840 � � End of period $ 18,523 � $ 10,671 � Clayton Williams Energy, Inc. Summary Production and Price Data (Unaudited) � � � � Three Months Ended March 31, � 2008 � � 2007 � � Average Daily Production: Natural Gas (Mcf): Permian Basin 15,562 15,389 North Louisiana 13,596 2,409 South Louisiana 23,552 20,121 Austin Chalk (Trend) 2,460 2,011 Cotton Valley Reef Complex 5,270 7,697 Other � 527 � � 451 � Total � 60,967 � � 48,078 � � Oil (Bbls): Permian Basin 3,494 3,096 North Louisiana 343 29 South Louisiana 985 1,172 Austin Chalk (Trend) 2,635 1,672 Other � 59 � � 64 � Total � 7,516 � � 6,033 � � Natural gas liquids (Bbls): Permian Basin 215 199 Austin Chalk (Trend) 272 265 Other � 150 � � 47 � Total � 637 � � 511 � � � � Total Production: Natural Gas (MMcf) 5,548 4,327 Oil (MBbls) 684 543 Natural gas liquids (MBbls) � 58 � � 46 � Gas Equivalents (MMcfe) 10,000 7,861 � � Average Realized Prices (a): Gas ($/Mcf): $ 8.86 � $ 6.91 � Oil ($/Bbl): $ 96.37 � $ 55.21 � Natural gas liquids ($/Bbl) $ 54.83 � $ 33.30 � � Gains (Losses) on settled derivative contracts (a): ($ in thousands, except per unit) Gas: Net realized gain (loss) $ (884 ) $ 4,509 Per unit produced ($/Mcf) $ (0.16 ) $ 1.04 � Oil: Net realized loss $ (12,906 ) $ (2,559 ) Per unit produced ($/Bbl) $ (18.87 ) $ (4.71 ) Clayton Williams Energy, Inc. Summary of Capital Expenditures (Unaudited) � � � Planned Expenditures Year Ending Percentage � 12/31/2008 of Total � � Permian Basin $ 168,000 49 % North Louisiana 62,600 18 % Austin Chalk (Trend) 55,400 16 % East Texas Bossier 28,600 8 % South Louisiana 18,700 6 % Utah/California 10,900 3 % Other � 300 - � $ 344,500 100 % 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 2008 or 2007 derivative contracts as cash flow hedges. This means that the Company's derivatives for 2008 and 2007 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.