CWEI Clayton Williams Energy, Inc.

Clayton Williams Energy, Inc. (the “Company”) (NASDAQ: CWEI) today reported its financial results for the second quarter of 2010 and revised its capital spending estimates for the remainder of 2010.

Financial Results

Net income attributable to Company stockholders for the second quarter of 2010 was $14 million, or $1.15 per share, as compared to a net loss of $38.6 million, or $3.18 per share, for the second quarter of 2009. Cash flow from operations for the second quarter of 2010 was $66.3 million as compared to $26.6 million during the same period in 2009.

For the six months ended June 30, 2010, net income attributable to Company stockholders was $30.6 million, or $2.52 per share, as compared to a net loss of $60.9 million, or $5.02 per share, for the same period in 2009. Cash flow from operations for the six-month period in 2010 was $96.7 million as compared to $39.9 million during the same period in 2009.

The key factors affecting the comparability of financial results for the second quarter of 2010 (“2Q10”) versus the second quarter of 2009 (“2Q09”) were:

• Oil and gas sales increased $19.7 million in 2Q10 versus 2Q09. Price variances accounted for an $18.9 million increase, and production variances accounted for the remaining $800,000 increase. Oil production increased 13% compared to 2Q09 while gas production declined 27% in 2Q10 versus 2Q09. Average realized oil prices were $74.27 per barrel in 2Q10 versus $56.55 per barrel in 2Q09, and average realized gas prices were $5.14 per Mcf in 2Q10 versus $3.84 per Mcf in 2Q09.
• Oil and gas production (per barrel of oil equivalent) declined by 6% in 2Q10 as compared to 2Q09. Oil production for 2Q10 increased to 808,000 barrels, or 8,879 barrels per day, as compared to 716,000 barrels, or 7,868 barrels per day, for 2Q09 due primarily to added production from the Company’s oil-prone drilling programs in the Permian Basin and the Austin Chalk. Gas production for 2Q10 declined to 2.8 Bcf, or 30,846 Mcf per day, as compared to 3.9 Bcf, or 42,374 Mcf per day, for 2Q09 due primarily to a combination of normal production declines from existing wells and the loss of production related to the sale of certain properties in North Louisiana in June 2010.
• Gain on derivatives for 2Q10 was $21 million ($17.3 million non-cash mark-to-market gain and a $3.7 million realized gain on settled contracts) versus a loss in 2Q09 of $21.8 million ($20.3 million non-cash mark-to-market loss and a $1.5 million realized loss on settled contracts). See accompanying tables for additional information about the Company’s accounting for derivatives.
• 2Q10 included an impairment of proved properties of $11.1 million for certain non-core assets in the Permian Basin to reduce the carrying value of those properties to their estimated fair value at June 30, 2010.
• Exploration charges decreased $2 million in 2Q10 to $3.9 million compared to $5.9 million in 2Q09 due primarily to the Company’s current emphasis on developmental drilling.
• In June 2010, the Company sold its interest in 22 operated and 76 non-operated producing wells in North Louisiana for net proceeds of $73.1 million, after giving effect to customary closing adjustments and the allocation of approximately $2 million of proceeds to applicable after-payout incentive plans, resulting in a loss on sale of assets of approximately $1.4 million during 2Q10. Proceeds from the sale were used to repay indebtedness on the Company’s revolving credit facility.

Revised Plans for Capital Spending in 2010

The Company has updated its estimates for capital spending for the remainder of 2010. The Company now plans to spend approximately $315.4 million on exploration and development activities in 2010, as compared to the previous estimate of approximately $281.9 million. A significant portion of the increase is attributable to the Company’s previously announced acquisition of certain leases in its Wolfberry play in Andrews County, Texas for $9.6 million, after giving effect to customary closing adjustments. This acquisition increased the Company’s working interest in wells to be drilled on the acquired acreage from 86% to 100%.

Scheduled Conference Call

The Company will host a conference call to discuss these results and other forward-looking items, August 9th at 2:00 pm CT (3:00 pm ET). The dial-in conference number is: 800-901-5213, passcode 87930359. The replay will be available for one week at 888-286-8010, passcode 72561822.

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.

  CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share)             Three Months Ended Six Months Ended June 30, June 30, 2010 2009 2010 2009 REVENUES Oil and gas sales $ 76,918 $ 57,206 $ 155,960 $ 108,002 Natural gas services 452 1,355 955 2,939 Drilling rig services - 1,462 - 6,681 Gain on sales of assets   113     480     399     663  

Total revenues

  77,483     60,503     157,314     118,285     COSTS AND EXPENSES Production 20,567 18,296 41,494 37,359 Exploration: Abandonments and impairments 2,891 4,505 5,769 16,917 Seismic and other 974 1,388 2,634 5,658 Natural gas services 306 1,211 654 2,622 Drilling rig services 419 2,911 1,081 9,997 Depreciation, depletion and amortization 25,437 26,186 51,049 62,651 Impairment of property and equipment 11,114 32,068 11,114 32,068 Accretion of abandonment obligations 647 748 1,294 1,466 General and administrative 7,832 6,256 14,056 10,784 Loss on sales of assets and impairment of inventory   1,443     396     1,443     3,845   Total costs and expenses   71,630     93,965     130,588     183,367   Operating income (loss)   5,853     (33,462 )   26,726     (65,082 )   OTHER INCOME (EXPENSE)   Interest expense (6,244 ) (5,736 ) (12,353 ) (11,174 ) Gain (loss) on derivatives 20,983 (21,770 ) 31,284 (19,260 ) Other 1,016 826 1,844 1,727        

Total other income (expense)

  15,755     (26,680 )   20,775     (28,707 )   Income (loss) before income taxes 21,608 (60,142 ) 47,501 (93,789 )   Income tax (expense) benefit (7,645 ) 21,943 (16,863 ) 34,321         NET INCOME (LOSS) 13,963 (38,199 ) 30,638 (59,468 ) Less income attributable to noncontrolling interest, net of tax   -     (409 )   -     (1,455 ) NET INCOME (LOSS) attributable to Clayton Williams Energy, Inc. $ 13,963   $ (38,608 ) $ 30,638   $ (60,923 )   Net income (loss) per common share attributable to Clayton Williams Energy, Inc. stockholders: Basic $ 1.15   $ (3.18 ) $ 2.52   $ (5.02 ) Diluted $ 1.15   $ (3.18 ) $ 2.52   $ (5.02 )   Weighted average common shares outstanding: Basic   12,146     12,142     12,146     12,132   Diluted   12,146     12,142     12,146     12,132    

CLAYTON WILLIAMS ENERGY, INC.

CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS   June 30,   December 31, 2010 2009 (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 10,375 $ 14,013 Accounts receivable: Oil and gas sales 25,861 28,721 Joint interest and other, net 4,281 6,669 Affiliates 638 624 Inventory 40,488 43,068 Deferred income taxes 817 1,362 Fair value of derivatives 16,264 - Assets held for sale 7,411 7,411 Prepaids and other   4,555     1,729     110,690     103,597   PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts method 1,565,365 1,579,664 Natural gas gathering and processing systems 18,399 17,816 Contract drilling equipment 48,348 41,533 Other   17,761     16,550   1,649,873 1,655,563 Less accumulated depreciation, depletion and amortization   (979,985 )   (985,517 ) Property and equipment, net   669,888     670,046   OTHER ASSETS Debt issue costs, net 4,592 4,874 Fair value of derivatives 8,128 4,427 Other   1,768     1,660     14,488     10,961     $ 795,066   $ 784,604     LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable: Trade $ 53,415 $ 47,211 Oil and gas sales 15,746 18,063 Affiliates 1,055 1,097 Fair value of derivatives - 5,907 Accrued liabilities and other   15,629     11,995     85,845     84,273   NON-CURRENT LIABILITIES Long-term debt 356,000 395,000 Deferred income taxes 70,306 54,065 Other   40,002     38,991     466,308     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   89,647     59,009   Total stockholders' equity   242,913     212,275     $ 795,066   $ 784,604     CLAYTON WILLIAMS ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)           Three Months Ended Six Months Ended June 30, June 30, 2010 2009 2010 2009    

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss) $ 13,963 $ (38,199 ) $ 30,638 $ (59,468 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation, depletion and amortization 25,437 26,186 51,049 62,651 Impairment of property and equipment 11,114 32,068 11,114 32,068 Exploration costs 2,891 4,505 5,769 16,917 (Gain) loss on sales of assets and impairment of inventory, net 1,330 (84 ) 1,044 3,182 Deferred income tax expense (benefit) 7,645 (21,943 ) 16,863 (34,321 ) Non-cash employee compensation 3,069 244 5,079 627 Unrealized (gain) loss on derivatives (17,269 ) 20,286 (25,871 ) 18,907 Amortization of debt issue costs 439 316 774 624 Accretion of abandonment obligations 647 748 1,294 1,466   Changes in operating working capital: Accounts receivable 6,702 475 5,234 10,579 Accounts payable 5,586 (3,219 ) (3,403 ) (16,626 ) Other   4,747     5,196     (2,907 )   3,264   Net cash provided by operating activities   66,301     26,579     96,677     39,870     CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (77,252 ) (26,456 ) (135,528 ) (69,082 ) Proceeds from sales of assets 72,532 411 73,011 670 Change in equipment inventory (1,152 ) (6,577 ) 1,300 (12,594 ) Other   (3 )   13     (98 )   (97 ) Net cash used in investing activities   (5,875 )   (32,609 )   (61,315 )   (81,103 )   CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt - 10,800 - 25,200 Repayments of long-term debt (65,000 ) (4,688 ) (39,000 ) (9,375 ) Proceeds from exercise of stock options   -     45     -     152   Net cash provided by (used in) financing activities   (65,000 )   6,157     (39,000 )   15,977     NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,574 ) 127 (3,638 ) (25,256 )   CASH AND CASH EQUIVALENTS Beginning of period 14,949 15,816 14,013 41,199         End of period $ 10,375   $ 15,943   $ 10,375   $ 15,943     CLAYTON WILLIAMS ENERGY, INC. COMPUTATION OF EBITDAX (Unaudited) (In thousands)

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 Six Months Ended June 30, June 30, 2010 2009 2010 2009   Net income (loss) $ 13,963 $ (38,199 ) $ 30,638 $ (59,468 ) Interest expense 6,244 5,736 12,353 11,174 Income tax (benefit) expense 7,645 (21,943 ) 16,863 (34,321 ) Exploration: Abandonments and impairments 2,891 4,505 5,769 16,917 Seismic and other 974 1,388 2,634 5,658 (Gain) loss on sales of assets and impairment of inventory 1,330 (84 ) 1,044 3,182 Depreciation, depletion and amortization 25,437 26,186 51,049 62,651 Impairment of property and equipment 11,114 32,068 11,114 32,068 Accretion of abandonment obligations 647 748 1,294 1,466 Non-cash employee compensation 3,069 244 5,079 627 Non-cash changes in fair value of derivatives (17,269 ) 20,286 (25,871 ) 18,907         $ 56,045   $ 30,935   $ 111,966   $ 58,861     Clayton Williams Energy, Inc. Summary Production and Price Data (Unaudited)         Three Months Ended   Six Months Ended June 30, June 30, 2010   2009 2010   2009 Average Daily Production: Oil (Bbls): Permian Basin 5,390 4,058 5,151 4,256 Austin Chalk (Trend) 2,835 2,742 2,717 2,942 North Louisiana 137 273 142 271 South Louisiana 435 701 530 548 Other   82     94     79     88   Total   8,879     7,868     8,619     8,105   Natural Gas (Mcf): Permian Basin 13,263 15,432 13,586 15,553 Austin Chalk (Trend) 1,810 2,412 2,169 2,718 North Louisiana 5,747 11,445 7,225 12,989 South Louisiana 4,930 7,699 6,213 10,132 Cotton Valley Reef Complex 4,072 3,781 3,802 4,026 Other   1,024     1,605     900     1,372   Total   30,846     42,374     33,895     46,790   Natural gas liquids (Bbls): Permian Basin 356 248 314 238 Austin Chalk (Trend) 185 290 228 299 North Louisiana 26 37 15 19 South Louisiana 86 60 83 52 Other   6     13     6     11   Total   659     648     646     619   Total Production: Oil (MBbls) 808 716 1,560 1,467 Natural Gas (MMcf) 2,807 3,856 6,135 8,469 Natural gas liquids (MBbls)   60     59     117     112   Total (MBOE) 1,336 1,418 2,700 2,991   Average Realized Prices (a): Oil ($/Bbl) $ 74.27   $ 56.55   $ 75.10   $ 46.55   Gas ($/Mcf) $ 5.14   $ 3.84   $ 5.48   $ 4.25   Natural gas liquids ($/Bbl) $ 40.13   $ 24.53   $ 43.08   $ 23.78     Gain (Loss) on settled derivative contracts (a): ($ in thousands, except per unit) Oil: Net realized loss $ (1,249 ) $ (4,572 ) $ (2,871 ) $ (4,839 ) Per unit produced ($/Bbl) $ (1.55 ) $ (6.39 ) $ (1.84 ) $ (3.30 )   Gas: Net realized gain $ 4,964 $ 3,088 $ 8,283 $ 4,486 Per unit produced ($/Mcf) $ 1.77 $ 0.80 $ 1.35 $ 0.53 (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 Capital Expenditures (Unaudited)     Planned Expenditures Year Ending Percentage 12/31/2010 of Total (In thousands)   Permian Basin $ 224,900 71 % Austin Chalk (Trend)/ Eagle Ford Shale 74,200 24 % South Louisiana 8,700 3 % California 2,000 1 % Other   5,600 1 % $ 315,400 100 %          

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 June 30, 2010.   Oil Gas Swaps: Bbls Price MMBtu (a) Price Production Period:

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 2,658,000 9,850,000     (a) One MMBtu equals one Mcf at a Btu factor of 1,000.