CWEI Clayton Williams Energy, Inc.

Clayton Williams Energy, Inc. (NASDAQ: CWEI) reported net income for the fourth quarter of 2008 of $59.9 million, or $4.93 per share, as compared to net income of $8.5 million, or $.74 per share, for the fourth quarter of 2007. Cash flow from operations for the fourth quarter of 2008 was $158.9�million, as compared to $72.6 million during the same period in 2007.

For the year ended December 31, 2008, the Company reported net income of $140.5 million, or $11.67 per share, as compared to net income of $6 million, or $.52 per share, for the same period in 2007. Cash flow from operations for fiscal 2008 was $382 million, as compared to $234.9 million during fiscal 2007.

Gains on derivative contracts resulting from declines in oil and gas prices during the fourth quarter of 2008 had a significant impact on reported net income and cash flow from operations.

Oil and gas sales decreased 14% from $96.3 million for the fourth quarter of 2007 to $82.4 million for the same quarter in 2008 despite a 6% increase in oil and gas production on an equivalent Mcf basis. Oil production for the fourth quarter of 2008 increased 31% to 810,000 barrels, or 8,804 barrels per day, compared to 616,000 barrels, or 6,696 barrels per day, in the fourth quarter of 2007. Gas production for the fourth quarter 2008 decreased 9% to 4.9 Bcf, or 53,348 Mcf per day, from 5.4 Bcf, or 58,924 Mcf per day, in the 2007 quarter. The comparability of production between the two quarters was affected by the sale of certain South Louisiana properties during the second quarter of 2008 which produced a daily average of approximately 740 barrels of oil and 13,000 Mcf of gas during the fourth quarter of 2007.

Average realized oil prices for the fourth quarter of 2008 decreased 33% to $59.63 per barrel from $89.55 per barrel in the 2007 period, while gas prices decreased 4% to $6.75 per Mcf from $7.06 per Mcf in the same quarter of 2007. 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 fourth quarter of 2008, the Company reported a $136.7 million net gain on derivatives, consisting of a $110.9 million realized gain on settled contracts and a $25.8 million non-cash gain to mark the Company�s derivative positions to their fair value on December 31, 2008. For the same period in 2007, the Company reported an $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 due to changes in mark-to-market valuations. In December 2008, the Company terminated substantially all of its then-existing derivative contracts for cash proceeds of $99.3 million. The terminated contracts covered 2.6 million barrels of oil production and 15.2 million MMBtu of gas production for 2009 and 2010. Subsequent to December 31, 2008, the Company entered into other derivative contracts covering 1,470,000 barrels of oil and 20 million MMBtu of gas production from 2009 through 2011 at fixed prices ranging from $44.80 to $53.25 per barrel and from $5.47 to $7.07 per MMBtu.

The Company recorded abandonment and impairment costs during the fourth quarter of 2008 of $34.8 million compared to $15.4 million for the fourth quarter of 2007. The 2008 quarter included a previously announced pre-tax charge of $20.2 million for the abandonment of the Claudia�s Education Trust 33-1 #1 (Winnsboro prospect), $6.4 million of drilling and impairment charges related to the Ron Lamb #1 in the Overthrust area in Sanpete County, Utah and $4.5 million for other leasehold impairments in North Louisiana.

The Company also announced today that its total proved oil and gas reserves as of December 31, 2008 were 228.6 Bcfe, consisting of 20.8 million barrels of oil and NGL and 103.9 Bcf of natural gas. By comparison, the Company reported proved reserves of 290.8 Bcfe as of December 31, 2007, consisting of 27.9 million barrels of oil and NGL and 123.2 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 $511.7 million at December 31, 2008, as compared to $1.3 billion at December 31, 2007. The estimates were based on weighted average oil and NGL prices of $42.03 per Bbl in 2008, as compared to $91.30 per Bbl in 2007, and gas prices of $5.90 per Mcf in 2008, as compared to $7.37 per Mcf in 2007.

During 2008, the Company replaced 97% of the 37.4 Bcfe produced in 2008 through extensions and discoveries. The following table summarizes the changes in proved reserves during 2008 on a Bcfe basis and as a percentage of 2008 production.

� Bcfe �

% of 2008 Production

Total proved reserves, 12/31/07 290.8 Extensions and discoveries 36.2 97% Revisions (49.7) (133)% Sales of minerals-in-place (11.3) (30)% Production (37.4) Total proved reserves, 12/31/08 228.6

Net downward revisions of 49.7 Bcfe consisted of approximately 57.1 Bcfe of downward revisions attributable to the effects of lower oil and gas prices on the estimated quantities of proved reserves and approximately 7.4 Bcfe of upward revisions attributable to well performance.

In December�2008, the SEC issued release 33-8995, Modernization of Oil and Gas Reporting. This release changes the accounting and disclosure requirements surrounding oil and gas reserves, and is intended to modernize and update oil and gas disclosure requirements, to align them with current industry practices and to adapt to changes in technology. Under the new rules, which will be effective for financial statements filed with the SEC after December 31, 2009, companies will report oil and gas reserves using a 12-month historical average price based upon closing NYMEX prices on the first day of each calendar month rather than using year-end prices. Using the new guidelines, benchmark oil and gas prices for the 2008 proved reserves would have been $101.65 per barrel and $9.04 per Mcf compared to year-end 2008 benchmark prices of $44.60 per barrel and $5.62 per Mcf.

The Company will host a conference call to discuss these results and other forward-looking items today, March 10th at 10:00 am CT (11:00 am ET). The dial-in conference number is: 800-901-5213, passcode 69141930. The replay will be available for one week at 888-286-8010, passcode 47137893.

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.

CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share) � � � � � � � Three Months Ended Year Ended December 31, December 31, 2008 2007 2008 2007 REVENUES Oil and gas sales $ 82,419 $ 96,280 $463,964 $316,992 Natural gas services 1,857 2,399 10,926 10,230 Drilling rig services 6,074 15,198 46,124 52,649 Gain on sales of property and equipment 56 13,114 44,503 14,024 Total revenues 90,406 126,991 565,517 393,895 � COSTS AND EXPENSES Production 23,689 19,350 89,054 75,319 Exploration: Abandonments and impairments 34,846 15,444 80,112 68,870 Seismic and other 11,455 1,059 22,685 4,765 Natural gas services 1,595 2,307 10,060 9,745 Drilling rig services 6,986 10,450 37,789 32,964 Depreciation, depletion and amortization 38,069 27,740 120,542 84,476 Impairment of property and equipment 2,897 3,114 12,882 12,137 Accretion of abandonment obligations 686 644 2,355 2,508 General and administrative 7,742 6,142 25,635 19,266 Loss on sales of property and equipment 1,702 400 2,122 9,815 Total costs and expenses 129,667 86,650 403,236 319,865 Operating income (loss) (39,261) 40,341 162,281 74,030 � OTHER INCOME (EXPENSE) Interest expense (6,065) (8,055) (24,994) (32,118) Gain (loss) on derivatives 136,729 (18,945) 74,743 (31,968) Other 840 662 6,539 5,355 Total other income (expense) 131,504 (26,338) 56,288 (58,731) � Income before income taxes and minority interest 92,243 14,003 218,569 15,299 � Income tax expense (31,918) (5,047) (77,327) (5,497) � Minority interest, net of tax (428) (452) (708) (3,812) � � � � NET INCOME $ 59,897 $ 8,504 $140,534 $ 5,990 � � Net income per common share: Basic $ 4.94 $ 0.75 $ 11.78 $ 0.53 Diluted $ 4.93 $ 0.74 $ 11.67 $ 0.52 � Weighted average common shares outstanding: Basic 12,114 11,352 11,932 11,337 Diluted 12,148 11,529 12,039 11,494 CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) � � �

ASSETS

December 31, December 31, 2008 2007 � CURRENT ASSETS Cash and cash equivalents $ 41,199 $ 12,344 Accounts receivable: Oil and gas sales, net 26,009 36,698 Joint interest and other, net 14,349 16,666 Affiliates 227 308 Inventory 20,052 14,348 Deferred income taxes 3,637 3,581 Fair value of derivatives - 7,191 Assets held for sale - 17,281 Prepaids and other 20,011 3,962 125,484 112,379 PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts method 1,526,473 1,374,090 Natural gas gathering and processing systems 17,816 18,404 Contract drilling equipment 91,151 89,956 Other 14,954 14,505 1,650,394 1,496,955 Less accumulated depreciation, depletion and amortization (840,366) (765,877) Property and equipment, net 810,028 731,078 � OTHER ASSETS Debt issue costs, net 6,225 6,963 Other 1,672 10,676 7,897 17,639 � $ 943,409 $ 861,096 � LIABILITIES AND STOCKHOLDERS' EQUITY � CURRENT LIABILITIES Accounts payable: Trade $ 67,189 $ 72,477 Oil and gas sales 24,702 24,806 Affiliates 1,627 1,747 Current maturities of long-term debt 18,750 22,500 Fair value of derivatives - 56,929 Accrued liabilities and other 10,609 10,308 122,877 188,767 � NON-CURRENT LIABILITIES Long-term debt 347,225 430,175 Deferred income taxes 120,414 44,302 Other 38,211 37,046 505,850 511,523 � STOCKHOLDERS' EQUITY: Preferred stock, par value $.10 per share - - Common stock, par value $.10 per share 1,212 1,135 Additional paid-in capital 137,046 121,063 Retained earnings 176,424 35,890 Accumulated other comprehensive income, net of tax - 2,718 314,682 160,806 � $ 943,409 $ 861,096 CLAYTON WILLIAMS ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) � � � � � � � Three Months Ended Year Ended December 31, December 31, 2008 2007 2008 2007 � � CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 59,897 $ 8,504 $ 140,534 $ 5,990

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Depreciation, depletion and amortization 38,069 27,740 120,542 84,476 Impairment of proved properties 2,897 3,114 12,882 12,137 Exploration costs 34,846 15,444 80,112 68,870 (Gain) loss on sales of property and equipment, net 1,646 (12,714) (42,381) (4,209) Deferred income taxes 32,434 3,318 77,315 3,768 Non-cash employee compensation 1,892 255 5,834 1,865 Unrealized (gain) loss on derivatives (25,808) 9,086 (49,738) 24,249 Settlements on derivatives with financing elements 3,226 9,518 43,486 28,468 Amortization of debt issue costs 305 328 1,354 1,281 Accretion of abandonment obligations 686 644 2,355 2,508 Excess tax benefit on exercise of stock options - (963) - (963) Minority interest, net of tax 428 452 708 3,812 �

�

Changes in operating working capital: Accounts receivable 18,088 5,061 13,087 (10,028) Accounts payable 5,428 (4,884) (4,946) 10,992 Other (15,110) 7,652 (19,164) 1,650 Net cash provided by operating activities 158,924 72,555 381,980 234,866 � CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (120,473) (53,341) (350,106) (233,453) Additions to equipment of Larclay JV - (1,899) (1,683) (29,302) Proceeds from sales of property and equipment 117 21,120 117,226 22,773 Change in equipment inventory 3,137 1,901 (8,247) 18,166 Other 55 (226) 3,935 (14,443) Net cash used in investing activities (117,164) (32,445) (238,875) (236,259) � CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt - - - 25,800 Proceeds from long-term debt of Larclay JV 2,000 - 7,500 8,727 Repayments of long-term debt (29,200) (22,200) (71,700) - Repayments of long-term debt of Larclay JV (4,688) (6,563) (22,500) (13,125) Proceeds from sale of common stock 21 30 15,936 6,000 Settlements on derivatives with financing elements (3,226) (9,518) (43,486) (28,468) Excess tax benefit on exercise of stock options - 963 - 963 Net cash used in financing activities (35,093) (37,288) (114,250) (103) � NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,667 2,822 28,855 (1,496) � CASH AND CASH EQUIVALENTS Beginning of period 34,532 9,522 12,344 13,840 � � � � End of period $ 41,199 $ 12,344 $ 41,199 $ 12,344 Clayton Williams Energy, Inc. Summary Production and Price Data (Unaudited) � � � � � � � Three Months Ended Year Ended December 31, December 31, 2008 2007 2008 2007 � Average Daily Production: Natural Gas (Mcf): Permian Basin 14,288 14,024 14,326 14,649 North Louisiana 24,252 12,524 17,500 8,096 South Louisiana 6,477 23,262 10,402 24,025 Austin Chalk (Trend) 2,496 2,249 2,367 2,220 Cotton Valley Reef Complex 5,376 6,390 5,745 7,133 Other 459 475 490 450 Total 53,348 58,924 50,830 56,573 � Oil (Bbls): Permian Basin 4,184 3,319 3,821 3,212 North Louisiana 565 317 415 182 South Louisiana 334 922 378 1,139 Austin Chalk (Trend) 3,630 2,057 3,384 1,737 Other 91 81 90 81 Total 8,804 6,696 8,088 6,351 � Natural gas liquids (Bbls): Permian Basin 190 171 183 198 Austin Chalk (Trend) 252 279 250 259 Other 36 213 66 151 Total 478 663 499 608 � � � Total Production: Natural Gas (MMcf) 4,908 5,421 18,553 20,649 Oil (MBbls) 810 616 2,952 2,318 Natural gas liquids (MBbls) 44 61 182 222 Gas Equivalents (MMcfe) 10,032 9,483 37,357 35,889 � � Average Realized Prices (a): Gas ($/Mcf): $ 6.75 $ 7.06 $ 9.02 $ 7.01 Oil ($/Bbl): $ 59.63 $ 89.55 $ 97.35 $ 70.36 Natural gas liquids ($/Bbl) $ 31.70 $ 60.21 $ 54.45 $ 43.74 � Gains (Losses) on settled derivative contracts (a): ($ in thousands, except per unit) Gas: Net realized gain (loss) (b) $ 30,124 $ 2,445 $ 11,764 $ 12,229 Per unit produced ($/Mcf) $ 6.14 $ 0.45 $ 0.63 $ 0.59 � Oil: Net realized gain (loss) (b) $ 81,139 $ (12,376) $ 15,560 $ (20,086) Per unit produced ($/Bbl) $ 100.17 $ (20.09) $ 5.27 $ (8.67) Clayton Williams Energy, Inc. Summary of Open Commodity Derivatives (Unaudited) � � � � � �

The following summarizes information concerning the Company�s net positions in open commodityderivatives applicable to periods subsequent to December 31, 2008, all of which were enteredinto after December 31, 2008.

� Swaps: Gas Oil MMBtu (a) Price Bbls Price Production Period: � 1st Quarter 2009 1,180,000 $ 5.47 160,000 $ 46.39 2nd Quarter 2009 1,570,000 $ 5.47 470,000 $ 49.68 3rd Quarter 2009 1,450,000 $ 5.47 440,000 $ 48.13 4th Quarter 2009 1,850,000 $ 5.47 400,000 $ 46.15 2010 7,540,000 $ 6.80 - $ - 2011 6,420,000 $ 7.07 - $ - 20,010,000 1,470,000 � � (a) One MMBtu equals one Mcf at a Btu factor of 1,000. 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/expense instead of as a component of oil and gas sales. � (b) In December 2008, the Company terminated substantially all of its then-existing oil and gas derivative contracts for cash proceeds of $99.3 million. The terminated contracts covered approximately 2.6 million barrels of oil and 15.2 million MMBtu of gas production for the months of January 2009 through December 2010.