CWEI Clayton Williams Energy, Inc.

Clayton Williams Energy, Inc. (the “Company”) (NASDAQ: CWEI) today reported its financial results for the three months ended March 31, 2010.

Financial Results for the First Quarter of 2010

Net income attributable to Company stockholders for the first quarter of 2010 (“1Q10”) was $16.7 million, or $1.37 per share, as compared to a net loss of $22.3 million, or $1.84 per share, for the first quarter of 2009 (“1Q09”). Cash flow from operations for 1Q10 was $30.4 million as compared to $13.3 million for 1Q09. The key factors affecting the comparability of the two quarters were:

• Oil and gas sales increased $28.2 million in 1Q10 versus 1Q09. Price variances accounted for a $34.5 million increase, and production variances accounted for a $6.3 million decrease. Oil production was relatively constant compared to 1Q09 while gas production declined 28% in 1Q10 versus 1Q09. Average realized oil prices were $76.00 per barrel in 1Q10 versus $37.09 per barrel in 1Q09, and average realized gas prices were $5.76 per Mcf in 1Q10 versus $4.60 per Mcf in 1Q09.
• Oil and gas production (per barrel of oil equivalent) declined by 13% in 1Q10 as compared to 1Q09. Oil production remained relatively constant at 752,000 barrels, or 8,356 barrels per day, as compared to 751,000 barrels, or 8,344 barrels per day, while gas production declined to 3.3 Bcf, or 36,978 Mcf per day as compared to 4.6 Bcf or 51,256 Mcf per day for 1Q09. Since the Company’s current drilling emphasis is on the development of oil reserves, normal declines in gas production from existing wells is not being replaced with production from new drilling.
• Gain on derivatives for 1Q10 was $10.3 million ($8.6 million non-cash mark-to-market gain and a $1.7 million realized gain on settled contracts) versus a gain in 1Q09 of $2.5 million ($1.4 million non-cash mark-to-market gain and a $1.1 million realized gain on settled contracts). See accompanying tables for additional information about the Company’s accounting for derivatives.
• Exploration charges decreased $12.2 million in 1Q10 to $4.5 million compared to $16.7 million in 1Q09 due primarily to the Company’s current emphasis on developmental drilling.

Scheduled Conference Call

The Company will host a conference call to discuss these results and other forward-looking items today, May 4th at 1:30 pm CT (2:30 pm ET). The dial-in conference number is: 800-901-5213, passcode 40784916. The replay will be available for one week at 888-286-8010, passcode 57045526.

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.

This release contains 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. All statements, other than statements of historical or current facts, that address activities, events, outcomes and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. The Company cautions that its future natural gas and liquids production, revenues, cash flows, liquidity, plans for future operations, expenses, outlook for oil and natural gas prices, timing of capital expenditures and other forward-looking statements are subject to all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and marketing of oil and gas.

These risks include, but are not limited to, the possibility of unsuccessful exploration and development drilling activities, our ability to replace and sustain production, commodity price volatility, domestic and worldwide economic conditions, the availability of capital on economic terms to fund our capital expenditures and acquisitions, our level of indebtedness, the impact of the current economic recession on our business operations, financial condition and ability to raise capital, declines in the value of our oil and gas properties resulting in a decrease in our borrowing base under our credit facility and impairments, the ability of financial counterparties to perform or fulfill their obligations under existing agreements, the uncertainty inherent in estimating proved oil and gas reserves and in projecting future rates of production and timing of development expenditures, drilling and other operating risks, lack of availability of goods and services, regulatory and environmental risks associated with drilling and production activities, the adverse effects of changes in applicable tax, environmental and other regulatory legislation, and other 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, 2010 2009 REVENUES Oil and gas sales $ 79,042 $ 50,796 Natural gas services 503 1,584 Drilling rig services

 

- 5,219 Gain on sales of assets   286     183   Total revenues   79,831     57,782     COSTS AND EXPENSES Production 20,927 19,063 Exploration: Abandonments and impairments 2,878 12,412 Seismic and other 1,660 4,270 Natural gas services 348 1,411 Drilling rig services 662 7,086 Depreciation, depletion and amortization 25,612 36,465 Accretion of abandonment obligations 647 718 General and administrative 6,224 4,528 Loss on sales of assets and impairment of inventory   -     3,449   Total costs and expenses   58,958     89,402   Operating income (loss)   20,873     (31,620 )   OTHER INCOME (EXPENSE)   Interest expense (6,109 ) (5,438 ) Gain on derivatives 10,301 2,510 Other 828 901     Total other income (expense)   5,020     (2,027 )   Income (loss) before income taxes 25,893 (33,647 )   Income tax (expense) benefit (9,218 ) 12,378     NET INCOME (LOSS) 16,675 (21,269 ) Less income attributable to noncontrolling interest, net of tax   -     (1,046 ) NET INCOME (LOSS) attributable to Clayton Williams Energy, Inc. $ 16,675   $ (22,315 )  

Net income (loss) per common share attributable toClayton Williams Energy, Inc. stockholders:

Basic $ 1.37   $ (1.84 ) Diluted $ 1.37   $ (1.84 )   Weighted average common shares outstanding: Basic   12,146     12,122   Diluted   12,146     12,122   CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED BALANCE SHEETS (In thousands)     ASSETS March 31, December 31, 2010 2009 (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 14,949 $ 14,013 Accounts receivable: Oil and gas sales 31,736 28,721 Joint interest and other, net 5,397 6,669 Affiliates 349 624 Inventory 39,972 43,068 Deferred income taxes 915 1,362 Fair value of derivatives 16,245 - Assets held for sale 7,411 7,411 Prepaids and other   5,766     1,729     122,740     103,597   PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts method 1,631,207 1,579,664 Natural gas gathering and processing systems 17,891 17,816 Contract drilling equipment 44,186 41,533 Other   17,703     16,550   1,710,987 1,655,563 Less accumulated depreciation, depletion and amortization   (1,012,613 )   (985,517 ) Property and equipment, net   698,374     670,046     OTHER ASSETS Debt issue costs, net 4,539 4,874 Fair value of derivatives 8,049 4,427 Other   1,774     1,660     14,362     10,961     $ 835,476   $ 784,604     LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable: Trade $ 38,047 $ 47,211 Oil and gas sales 16,281 18,063 Affiliates 1,377 1,097 Fair value of derivatives 14,915 5,907 Accrued liabilities and other   9,649     11,995     80,269     84,273     NON-CURRENT LIABILITIES Long-term debt 421,000 395,000 Deferred income taxes 62,797 54,065 Fair value of derivatives 2,257 - Other   40,203     38,991     526,257     488,056     STOCKHOLDERS' EQUITY Preferred stock, par value $.10 per share - - Common stock, par value $.10 per share 1,215 1,215 Additional paid-in capital 152,051 152,051 Retained earnings   75,684     59,009   Total stockholders' equity   228,950     212,275     $ 835,476   $ 784,604   CLAYTON WILLIAMS ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)       Three Months Ended March 31, 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 16,675 $ (21,269 )

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

Depreciation, depletion and amortization 25,612 36,465 Exploration costs 2,878 12,412 (Gain) loss on sales of assets and impairment of inventory, net (286 ) 3,266 Deferred income tax expense (benefit) 9,218 (12,382 ) Non-cash employee compensation 2,010 383 Unrealized gain on derivatives (8,602 ) (1,379 ) Amortization of debt issue costs 335 308 Accretion of abandonment obligations 647 718   Changes in operating working capital: Accounts receivable (1,468 ) 10,104 Accounts payable (8,989 ) (13,407 ) Other   (7,654 )   (1,928 ) Net cash provided by operating activities   30,376     13,291     CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (58,276 ) (42,626 ) Proceeds from sales of assets 479 259 Change in equipment inventory 2,452 (6,017 ) Other   (95 )   (110 ) Net cash used in investing activities   (55,440 )   (48,494 )   CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 26,000 14,400 Repayments of long-term debt of Desta Drilling - (4,687 ) Proceeds from exercise of stock options   -     107   Net cash provided by financing activities   26,000     9,820  

 

NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS

936 (25,383 )   CASH AND CASH EQUIVALENTS Beginning of period 14,013 41,199     End of period $ 14,949   $ 15,816  

CLAYTON WILLIAMS ENERGY, INC.

COMPUTATION OF EBITDAX

EBITDAX is presented as a supplemental non-GAAP financial measure because of its wide acceptance by financial analysts, investors, debt holders, banks, rating agencies and other financial statement users as an indication of an entity's ability to meet its debt service obligations and to internally fund its exploration and development activities.

The Company defines EBITDAX as net income (loss) before interest expense, income taxes, exploration costs, (gain)/loss on sales of assets and impairment of inventory and all non-cash items in the Company's statements of operations, including depreciation, depletion and amortization, impairment of property and equipment, accretion of abandonment obligations, certain employee compensation and changes in fair value of derivatives. EBITDAX is not an alternative to net income (loss) or cash flow from operating activities, or any other measure of financial performance presented in conformity with GAAP.

The following table reconciles net income (loss) to EBITDAX:     Three Months Ended March 31, 2010 2009 (Unaudited and in thousands)   Net income (loss) $ 16,675 $ (21,269 ) Interest expense 6,109 5,438 Income tax (benefit) expense 9,218 (12,378 ) Exploration: Abandonments and impairments 2,878 12,412 Seismic and other 1,660 4,270 (Gain) loss on sales of assets and impairment of inventory (286 ) 3,266 Depreciation, depletion and amortization 25,612 36,465 Accretion of abandonment obligations 647 718 Non-cash employee compensation 2,010 383 Non-cash changes in fair value of derivatives (8,602 ) (1,379 )     $ 55,921   $ 27,926   Clayton Williams Energy, Inc. Summary Production and Price Data (Unaudited) Three Months Ended March 31,

2010

  2009 Average Daily Production: Oil (Bbls): Permian Basin 4,909 4,456 Austin Chalk (Trend) 2,595 3,142 North Louisiana 148 270 South Louisiana 627 391 Other   77     85   Total   8,356     8,344   Natural Gas (Mcf): Permian Basin 13,911 15,674 Austin Chalk (Trend) 2,531 3,030 North Louisiana 8,718 14,550 South Louisiana 7,513 12,592 Cotton Valley Reef Complex 3,529 4,274 Other   776     1,136   Total   36,978     51,256   Natural gas liquids (Bbls): Permian Basin 272 225 Austin Chalk (Trend) 271 307 North Louisiana 5 1 South Louisiana 79 45 Other   6     11   Total   633     589   Total Production: Oil (MBbls) 752 751 Natural Gas (MMcf) 3,328 4,613 Natural gas liquids (MBbls)   57     53   Total (MBOE) 1,364 1,573 Average Realized Prices (a): Oil ($/Bbl) $ 76.00   $ 37.09   Gas ($/Mcf) $ 5.76   $ 4.60   Natural gas liquids ($/Bbl) $ 46.18   $ 22.94   Gain (Loss) on settled derivative contracts (a): ($ in thousands, except per unit) Oil: Net realized loss $ (1,621 ) $ (267 ) Per unit produced ($/Bbl) $ (2.16 ) $ (0.36 ) Gas: Net realized gain $ 3,320 $ 1,398 Per unit produced ($/Mcf) $ 1.00 $ 0.30

(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 2010 or 2009 derivative contracts as cash flow hedges. This means that the Company's derivatives for 2010 and 2009 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.

Clayton Williams Energy, Inc. Summary of Open Commodity Derivatives (Unaudited)         The following summarizes information concerning the Company’s net positions in open commodity derivatives applicable to periods subsequent to March 31, 2010.   Oil     Gas     Swaps: Bbls Price MMBtu (a) Price Production Period:

2nd Quarter 2010

574,000 $ 76.60 1,830,000 $ 6.80 3rd Quarter 2010 522,000 $ 76.40 1,750,000 $ 6.80 4th Quarter 2010 480,000 $ 76.24 1,680,000 $ 6.80 2011 1,656,000 $ 84.38 6,420,000 $ 7.07 3,232,000 11,680,000    

(a) One MMBtu equals one Mcf at a Btu factor of 1,000.