CWEI Clayton Williams Energy, Inc.

Clayton Williams Energy, Inc. (the “Company”) (NASDAQ: CWEI) today reported its financial results for the third quarter of 2010.

Financial Results

Net income attributable to Company stockholders for the third quarter of 2010 was $11.6 million, or $.96 per share, as compared to a net loss of $13.6 million, or $1.12 per share, for the third quarter of 2009. Cash flow from operations for the third quarter of 2010 was $57.5 million as compared to $28.3 million during the same period in 2009.

For the nine months ended September 30, 2010, net income attributable to Company stockholders was $42.3 million, or $3.48 per share, as compared to a net loss of $74.5 million, or $6.14 per share, for the same period in 2009. Cash flow from operations for the nine-month period in 2010 was $154.2 million as compared to $68.2 million during the same period in 2009.

The key factors affecting the comparability of financial results for the third quarter of 2010 (“3Q10”) versus the third quarter of 2009 (“3Q09”) were:

• Oil and gas sales increased $22.5 million in 3Q10 versus 3Q09. Production variances accounted for $12.3 million of this increase, and price variances accounted for the remaining $10.2 million. Oil production increased 38% in 3Q10 compared to 3Q09 while gas production declined 35% versus 3Q09. Average realized oil prices were $73.18 per barrel in 3Q10 versus $64.60 per barrel in 3Q09, and average realized gas prices were $4.56 per Mcf in 3Q10 versus $3.79 per Mcf in 3Q09.
• Oil and gas production per BOE (barrel of oil equivalent) increased by 4% in 3Q10 as compared to 3Q09. Oil production for 3Q10 increased 38% to 915,000 barrels, or 9,946 barrels per day, as compared to 662,000 barrels, or 7,196 barrels per day, for 3Q09 due primarily to added production from the Company’s oil-prone drilling programs in the Permian Basin and the Austin Chalk. Gas production for 3Q10 declined 35% to 2.5 Bcf, or 27,500 Mcf per day, as compared to 3.9 Bcf, or 42,391 Mcf per day, for 3Q09 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 as discussed below.
• 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. During 3Q09 the sold wells produced 230 barrels of oil per day and 10,076 Mcf of gas per day. After giving pro forma effect to the sale of these properties on the reported production for 3Q09, oil and gas production per BOE increased 19% as compared to a 4% unadjusted increase in production.
• Loss on derivatives for 3Q10 was $4 million ($8 million non-cash mark-to-market loss and $4 million realized gain on settled contracts) versus a gain in 3Q09 of $4.7 million ($10.6 million non-cash mark-to-market gain and $5.9 million realized loss on settled contracts). See accompanying tables for additional information about the Company’s accounting for derivatives.
• Exploration charges decreased $23.3 million in 3Q10 to $1.7 million compared to $25 million in 3Q09 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, November 3rd at 1:30 pm CT (2:30 pm ET). The dial-in conference number is: 800-901-5213, passcode 75748062. The replay will be available for one week at 888-286-8010, passcode 88716373.

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 Nine Months Ended September 30, September 30, 2010 2009 2010 2009 REVENUES Oil and gas sales $ 81,978 $ 59,436 $ 237,938 $ 167,438 Natural gas services 397 1,639 1,352 4,578 Drilling rig services - - - 6,681 Gain on sales of assets   2,857     1,351     3,256     2,014   Total revenues   85,232     62,426     242,546     180,711     COSTS AND EXPENSES Production 20,518 19,258 62,012 56,617 Exploration: Abandonments and impairments 364 24,149 6,133 41,066 Seismic and other 1,361 898 3,995 6,556 Natural gas services 297 1,344 951 3,966 Drilling rig services 123 904 1,204 10,901 Depreciation, depletion and amortization 25,223 30,053 76,272 92,704 Impairment of property and equipment 794 - 11,908 32,068 Accretion of abandonment obligations 659 824 1,953 2,290 General and administrative 8,730 4,012 22,786 14,796 Loss on sales of assets and impairment of inventory   80     555     1,523     4,400   Total costs and expenses   58,149     81,997     188,737     265,364   Operating income (loss)   27,083     (19,571 )   53,809     (84,653 )   OTHER INCOME (EXPENSE)   Interest expense (6,040 ) (6,526 ) (18,393 ) (17,700 ) Gain (loss) on derivatives (3,995 ) 4,723 27,289 (14,537 ) Other 972 (76 ) 2,816 1,651         Total other income (expense)   (9,063 )   (1,879 )   11,712     (30,586 )   Income (loss) before income taxes 18,020 (21,450 ) 65,521 (115,239 )   Income tax (expense) benefit (6,397 ) 7,850 (23,260 ) 42,171         NET INCOME (LOSS) 11,623 (13,600 ) 42,261 (73,068 ) Less income attributable to noncontrolling interest, net of tax   -     -     -     (1,455 ) NET INCOME (LOSS) attributable to Clayton Williams Energy, Inc. $ 11,623   $ (13,600 ) $ 42,261   $ (74,523 )   Net income (loss) per common share attributable to Clayton Williams Energy, Inc. stockholders: Basic $ 0.96   $ (1.12 ) $ 3.48   $ (6.14 ) Diluted $ 0.96   $ (1.12 ) $ 3.48   $ (6.14 )   Weighted average common shares outstanding: Basic   12,146     12,144     12,146     12,136   Diluted   12,146     12,144     12,146     12,136       CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED BALANCE SHEETS (In thousands)     ASSETS September 30, December 31, 2010 2009 (Unaudited)

CURRENT ASSETS

Cash and cash equivalents $ 22,004 $ 14,013 Accounts receivable: Oil and gas sales 28,766 28,721 Joint interest and other, net 4,815 6,669 Affiliates 690 624 Inventory 45,080 43,068 Deferred income taxes 168 1,362 Fair value of derivatives 14,239 - Assets held for sale 7,411 7,411 Prepaids and other   2,724     1,729     125,897     103,597   PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts method 1,631,453 1,579,664 Natural gas gathering and processing systems 18,401 17,816 Contract drilling equipment 50,158 41,533 Other   20,196     16,550   1,720,208 1,655,563 Less accumulated depreciation, depletion and amortization   (1,008,119 )   (985,517 ) Property and equipment, net   712,089     670,046     OTHER ASSETS Debt issue costs, net 4,210 4,874 Fair value of derivatives 2,155 4,427 Other   1,836     1,660     8,201     10,961     $ 846,187   $ 784,604     LIABILITIES AND STOCKHOLDERS' EQUITY   CURRENT LIABILITIES Accounts payable: Trade $ 48,389 $ 47,211 Oil and gas sales 26,218 18,063 Affiliates 1,015 1,097 Fair value of derivatives - 5,907 Accrued liabilities and other   13,910     11,995     89,532     84,273     NON-CURRENT LIABILITIES Long-term debt 385,000 395,000 Deferred income taxes 76,016 54,065 Other   41,103     38,991     502,119     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   101,270     59,009   Total stockholders' equity   254,536     212,275     $ 846,187   $ 784,604     CLAYTON WILLIAMS ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)           Three Months Ended Nine Months Ended September 30, September 30, 2010 2009 2010 2009     CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 11,623 $ (13,600 ) $ 42,261 $ (73,068 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation, depletion and amortization 25,223 30,053 76,272 92,704 Impairment of property and equipment 794 - 11,908 32,068 Exploration costs 364 24,149 6,133 41,066 (Gain) loss on sales of assets and impairment of inventory, net (2,777 ) (796 ) (1,733 ) 2,386 Deferred income tax expense (benefit) 6,397 (7,850 ) 23,260 (42,171 ) Non-cash employee compensation 2,987 326 8,066 953 Unrealized (gain) loss on derivatives 7,997 (10,593 ) (17,874 ) 8,314 Amortization of debt issue costs 400 539 1,174 1,163 Accretion of abandonment obligations 659 824 1,953 2,290   Changes in operating working capital: Accounts receivable (3,491 ) 2,198 1,743 12,777 Accounts payable 8,650 (9,449 ) 5,247 (26,075 ) Other   (1,335 )   12,536     (4,242 )   15,800   Net cash provided by operating activities   57,491     28,337     154,168     68,207     CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (73,113 ) (30,726 ) (208,641 ) (99,808 ) Proceeds from sales of assets 2,659 1,439 75,670 2,109 Change in equipment inventory (4,375 ) (13,274 ) (3,075 ) (25,868 ) Other   (33 )   (12 )   (131 )   (109 ) Net cash used in investing activities   (74,862 )   (42,573 )   (136,177 )   (123,676 )   CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 29,000 50,700 - 75,900 Repayments of long-term debt - (30,000 ) (10,000 ) (39,375 ) Proceeds from exercise of stock options   -     -     -     152   Net cash provided by (used in) financing activities   29,000     20,700     (10,000 )   36,677     NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,629 6,464 7,991 (18,792 )   CASH AND CASH EQUIVALENTS Beginning of period 10,375 15,943 14,013 41,199         End of period $ 22,004   $ 22,407   $ 22,004   $ 22,407     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

Nine Months Ended

 

September 30, September 30, 2010   2009 2010   2009   Net income (loss) $ 11,623 $ (13,600 ) $ 42,261 $ (73,068 ) Interest expense 6,040 6,526 18,393 17,700 Income tax (benefit) expense 6,397 (7,850 ) 23,260 (42,171 ) Exploration: Abandonments and impairments 364 24,149 6,133 41,066 Seismic and other 1,361 898 3,995 6,556 (Gain) loss on sales of assets and impairment of inventory (2,777 ) (796 ) (1,733 ) 2,386 Depreciation, depletion and amortization 25,223 30,053 76,272 92,704 Impairment of property and equipment 794 - 11,908 32,068 Accretion of abandonment obligations 659 824 1,953 2,290 Non-cash employee compensation 2,987 326 8,066 953 Non-cash changes in fair value of derivatives 7,997 (10,593 ) (17,874 ) 8,314         $ 60,668   $ 29,937   $ 172,634   $ 88,798     Clayton Williams Energy, Inc. Summary Production and Price Data (Unaudited)             Three Months Ended Nine Months Ended September 30, September 30, 2010 2009 2010 2009   Average Daily Production:   Oil (Bbls): Permian Basin 6,092 3,526 5,469 4,010 Austin Chalk (Trend) 3,044 2,585 2,827 2,821 North Louisiana - 230

94

257 South Louisiana 727 773 596 624 Other   83     82    

80

    87   Total   9,946     7,196     9,066     7,799     Natural Gas (Mcf): Permian Basin 13,931 14,374 13,702 15,157 Austin Chalk (Trend) 2,325 2,306 2,222 2,580 North Louisiana

-

10,076

4,790

12,007 South Louisiana 5,650 10,755 6,024 10,342 Cotton Valley Reef Complex 3,708 3,916 3,770 3,989 Other  

1,886

    964    

1,232

    1,233   Total   27,500     42,391     31,740     45,308     Natural gas liquids (Bbls): Permian Basin 535 246 388 241 Austin Chalk (Trend) 258 288 238 296 North Louisiana

-

26

10

21 South Louisiana 119 116 95 73 Other  

66

    9    

27

    10   Total   978     685     758     641     Total Production: Oil (MBbls) 915 662 2,475 2,129 Natural Gas (MMcf) 2,530 3,900 8,665 12,369 Natural gas liquids (MBbls)   90     63     207     175   Total (MBOE) 1,427 1,375 4,126 4,366     Average Realized Prices (a): Oil ($/Bbl) $ 73.18   $ 64.60   $ 74.39   $ 52.10   Gas ($/Mcf) $ 4.56   $ 3.79   $ 5.21   $ 4.11   Natural gas liquids ($/Bbl) $ 36.88   $ 31.89   $ 40.38   $ 26.70     Gain (Loss) on settled derivative contracts (a): ($ in thousands, except per unit) Oil: Net realized loss $ (227 ) $ (8,861 ) $ (3,098 ) $ (13,701 ) Per unit produced ($/Bbl) $ (0.25 ) $ (13.39 ) $ (1.25 ) $ (6.44 )   Gas: Net realized gain $ 4,230 $ 2,992 $ 12,514 $ 7,478 Per unit produced ($/Mcf) $ 1.67 $ 0.77 $ 1.44 $ 0.60       (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 September 30, 2010.   Oil Gas Swaps: Bbls Price MMBtu (a) Price Production Period: 4th Quarter 2010 480,000 $ 76.24 1,680,000 $ 6.80

2011

2,376,000 $ 83.75 6,420,000 $ 7.07

2012

570,000 $ 87.60 - $ - 3,426,000 8,100,000  

____

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