Clayton Williams Energy, Inc. (the “Company”) (NASDAQ: CWEI)
today reported its financial results for the second quarter of 2011
and its outlook for capital spending and production for the
remainder of 2011.
Financial Results for the Second Quarter of 2011
Net income attributable to Company stockholders for the second
quarter of 2011 (“2Q11”) was $42.7 million, or $3.51 per share, as
compared to net income of $14 million, or $1.15 per share, for the
second quarter of 2010 (“2Q10”). Cash flow from operations for 2Q11
was $86.4 million as compared to $66.3 million for 2Q10.
For the six months ended June 30, 2011, net income attributable
to Company stockholders was $34.8 million, or $2.86 per share, as
compared to a net income of $30.6 million, or $2.52 per share, for
the same period in 2010. Cash flow from operations for the
six-month period in 2011 was $119.7 million as compared to $96.7
million during the same period in 2010.
The key factors affecting the comparability of financial results
for 2Q11 versus 2Q10 were:
- Oil and gas sales increased $28.9
million in 2Q11 versus 2Q10. Price variances accounted for $25.2
million of the increase and production variances accounted for the
remaining $3.7 million. Average realized oil prices were $100.07
per barrel in 2Q11 versus $74.27 per barrel in 2Q10, and average
realized gas prices were $5.56 per Mcf in 2Q11 versus $5.14 per Mcf
in 2Q10.
- Oil production increased 10% in 2Q11
versus 2Q10 while gas production declined 19%. Oil and gas
production per barrel of oil equivalent (“BOE”) was constant in
2Q11 as compared to 2Q10. Oil production increased to 886,000
barrels, or 9,736 barrels per day, as compared to 808,000 barrels,
or 8,879 barrels per day, while gas production declined to 2.3 Bcf,
or 24,846 Mcf per day as compared to 2.8 Bcf or 30,846 Mcf per day
for 2Q10. On a comparable basis, after giving effect to the sale of
properties in North Louisiana in June 2010, oil and gas production
in 2Q11 on a BOE basis was 8% higher than 2Q10. The increase in oil
production and the decline in gas production are indicative of the
Company’s current emphasis on the development of oil reserves in
the Permian Basin.
- Production costs increased 27% from
$20.6 million in 2Q10 to $26.1 million in 2Q11 due to a combination
of more producing wells, rising costs of field services and
increased production taxes on higher oil and gas sales.
- Gain on derivatives for 2Q11 was $28.2
million ($35.6 million non-cash mark-to-market gain and a $7.4
million realized loss on settled contracts) versus a gain in 2Q10
of $21 million ($17.3 million non-cash mark-to-market gain and a
$3.7 million realized gain on settled contracts). See accompanying
tables for additional information about the Company’s accounting
for derivatives.
- Interest expense increased to $9.2
million in 2Q11 compared to $6.2 million in 2Q10 due in part to the
increase in the total aggregate principal amount of the Company’s
Senior Notes.
- G&A expenses were $3 million in
2Q11 versus $7.8 million in 2Q10. Non-cash employee compensation
expense from incentive compensation plans accounted for a $2.4
million credit to expense in 2Q11 versus a $3.1 million charge for
2Q10. Excluding non-cash employee compensation expense, G&A
expenses increased 15% in 2Q11 compared to 2Q10.
- Non-cash impairments of property and
equipment were $4.4 million in 2Q11 versus $11.1 million in 2Q10.
The 2Q11 impairment related to certain non-core oil and gas
properties in the Permian Basin.
Comparisons to Guidance
Oil and gas production for 2Q11 was 14,679 BOE per day, just
slightly below the low end of the Company’s guidance range of
14,892 BOE per day and 5% below the mid-point of the guidance range
of 15,375 BOE per day. Production shortfalls in Andrews County
totaling approximately 1,000 BOE per day were partially offset by
surplus production from other areas of approximately 300 BOE per
day. Just over half of the Andrews County shortfall resulted from a
combination of completion delays and production disruptions caused
by wildfires. In addition, the pipelines carrying the Company’s
natural gas production in this area is at maximum capacity, causing
oil and gas production to be choked back due to high line
pressures. The Company is considering various actions to alleviate
this operating condition.
Outlook
The Company expects to provide an update to its financial
guidance disclosures for 2011 in August. As a result of its shift
in focus to the Reeves County Wolfbone play, the Company expects
capital spending to increase and production to decrease from the
existing guidance estimates.
Drilling and completion costs are expected to increase to a
range of $440 million to $460 million, as compared to existing
guidance of $410 million. The following factors contributed to the
upward cost revision:
- Increase in the rig count in the
Wolfbone play to 11 in the near term, from four rigs in the
existing guidance, while reducing the rig count in the Andrews
Wolfberry play from seven rigs to one rig, and reducing the rig
count in the Austin Chalk area from two rigs to one rig;
- Increase in the estimated cost to drill
and complete Wolfbone wells from $3.5 million to $4 million;
and
- Current plans to incur approximately
$10 million to begin construction of pipelines and infrastructure
for gathering and disposition of produced oil, gas and water.
Near-term production estimates are expected to decrease as the
Company’s drilling focus transitions from the Wolfberry play to the
Wolfbone play. The Company’s share of production from initial
Wolfbone wells is substantially less than its share of Wolfberry
production due to the terms of a drill-to-earn farm-out agreement
with Chesapeake Exploration which requires the Company to carry
Chesapeake on specified wells in order to earn acreage. The effect
of this structure is that the Company gives up a portion of its
initial production in lieu of paying substantial upfront acreage
costs.
Scheduled Conference Call
The Company will host a conference call to discuss these results
and other forward-looking items today, July 28th at 1:30 pm CT
(2:30 pm ET). The dial-in conference number is: 800-901-5213,
passcode 66471213. The replay will be available for one week at
888-286-8010, passcode 92233345.
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, 2011 2010 2011
2010 REVENUES Oil and gas sales $ 105,804 $ 76,918 $ 200,736
$ 155,960 Natural gas services 365 452 774 955 Drilling rig
services 2,425 - 2,685 - Gain on sales of assets 949
113 14,521 399 Total
revenues 109,543 77,483 218,716
157,314 COSTS AND EXPENSES Production
26,133 20,567 50,953 41,494 Exploration: Abandonments and
impairments 174 2,891 1,051 5,769 Seismic and other 2,167 974 3,445
2,634 Natural gas services 285 306 548 654 Drilling rig services
1,919 419 2,705 1,081 Depreciation, depletion and amortization
25,342 25,437 49,086 51,049 Impairment of property and equipment
4,424 11,114 4,424 11,114 Accretion of abandonment obligations 697
647 1,371 1,294 General and administrative 3,037 7,832 15,536
14,056 Loss on sales of assets and impairment of inventory
107 1,443 303 1,443
Total costs and expenses 64,285 71,630
129,422 130,588 Operating income
45,258 5,853 89,294
26,726 OTHER INCOME (EXPENSE) Interest
expense (9,175 ) (6,244 ) (15,587 ) (12,353 ) Loss on early
extinguishment of long-term debt - - (4,594 ) - Gain (loss) on
derivatives 28,187 20,983 (18,158 ) 31,284 Other 1,900 1,016 2,987
1,844 Total other income (expense)
20,912 15,755 (35,352 )
20,775 Income before income taxes 66,170 21,608
53,942 47,501 Income tax expense (23,502 ) (7,645 ) (19,149
) (16,863 ) NET INCOME $ 42,668
$ 13,963 $ 34,793 $ 30,638 Net
income per common share: Basic $ 3.51 $ 1.15 $ 2.86
$ 2.52 Diluted $ 3.51 $ 1.15 $ 2.86
$ 2.52 Weighted average common shares
outstanding: Basic 12,162 12,146
12,159 12,146 Diluted 12,163
12,146 12,159 12,146
CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED BALANCE
SHEETS (In thousands) ASSETS
June 30, December 31, 2011 2010
(Unaudited) CURRENT ASSETS Cash and cash equivalents $
18,079 $ 8,720 Accounts receivable: Oil and gas sales 30,629 35,361
Joint interest and other, net 7,757 9,893 Affiliates 600 796
Inventory 34,732 39,218 Deferred income taxes 3,808 5,074 Assets
held for sale - 8,762 Prepaids and other 16,532
5,997 112,137 113,821
PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts
method 1,873,222 1,707,252 Natural gas gathering and processing
systems 18,439 18,153 Contract drilling equipment 72,930 58,486
Other 18,512 17,425 1,983,103 1,801,316
Less accumulated depreciation, depletion and amortization
(1,092,607 ) (1,034,227 ) Property and equipment, net
890,496 767,089 OTHER ASSETS Debt issue
costs, net 13,064 8,323 Other 1,938 1,684
15,002 10,007 $ 1,017,635
$ 890,917
LIABILITIES AND STOCKHOLDERS'
EQUITY CURRENT LIABILITIES Accounts payable: Trade $
63,242 $ 74,123 Oil and gas sales 33,215 28,920 Affiliates 1,683
1,251 Fair value of derivatives 11,712 7,224 Accrued liabilities
and other 29,384 22,202 139,236
133,720 NON-CURRENT LIABILITIES
Long-term debt 448,347 385,000 Deferred income taxes 96,106 78,035
Fair value of derivatives 7,990 3,409 Other 41,498
41,301 593,941 507,745
STOCKHOLDERS' EQUITY Preferred stock, par value $.10 per
share - - Common stock, par value $.10 per share 1,216 1,215
Additional paid-in capital 152,502 152,290 Retained earnings
130,740 95,947 Total stockholders' equity
284,458 249,452 $ 1,017,635
$ 890,917
CLAYTON WILLIAMS ENERGY, INC. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In
thousands) Three Months
Ended Six Months Ended June 30, June
30, 2011 2010 2011
2010 CASH FLOWS FROM OPERATING ACTIVITIES Net
income $ 42,668 $ 13,963 $ 34,793 $ 30,638 Adjustments to reconcile
net income to cash provided by operating activities: Depreciation,
depletion and amortization 25,342 25,437 49,086 51,049 Impairment
of property and equipment 4,424 11,114 4,424 11,114 Exploration
costs 174 2,891 1,051 5,769 (Gain) loss on sales of assets and
impairment of inventory, net (842 ) 1,330 (14,218 ) 1,044 Deferred
income tax expense 23,502 7,645 19,149 16,863 Non-cash employee
compensation (2,438 ) 3,069 4,963 5,079 Unrealized (gain) loss on
derivatives (35,558 ) (17,269 ) 9,069 (25,871 ) Accretion of
abandonment obligations 697 647 1,371 1,294 Amortization of debt
issue costs 562 439 1,130 774 Loss on early extinguishment of
long-term debt - - 4,594 - Changes in operating working
capital: Accounts receivable 12,785 6,702 7,064 5,234 Accounts
payable 7,931 5,586 (4,023 ) (3,403 ) Other 7,186
4,747 1,271 (2,907 ) Net cash
provided by operating activities 86,433 66,301
119,724 96,677 CASH FLOWS
FROM INVESTING ACTIVITIES Additions to property and equipment
(97,288 ) (77,252 ) (180,281 ) (135,528 ) Proceeds from sales of
assets 1,103 72,532 12,105 73,011 Change in equipment inventory
(5,733 ) (1,152 ) 4,783 1,300 Other 10 (3 )
(110 ) (98 ) Net cash used in investing activities
(101,908 ) (5,875 ) (163,503 ) (61,315
) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from
long-term debt 48,855 - 341,855 - Repayments of long-term debt
(30,000 ) (65,000 ) (286,165 ) (39,000 ) Premium on early
extinguishment of long-term debt - - (2,765 ) - Proceeds from
exercise of stock options 187 -
213 - Net cash provided by (used in) financing
activities 19,042 (65,000 ) 53,138
(39,000 )
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
3,567 (4,574 ) 9,359 (3,638 ) CASH AND CASH EQUIVALENTS
Beginning of period 14,512 14,949 8,720 14,013
End of period $ 18,079 $ 10,375 $ 18,079
$ 10,375
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, loss on early extinguishment of debt 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 to EBITDAX:
Three Months Ended Six Months
Ended June 30, June 30, 2011
2010 2011 2010 Net income $
42,668 $ 13,963 $ 34,793 $ 30,638 Interest expense 9,175 6,244
15,587 12,353 Income tax expense 23,502 7,645 19,149 16,863
Exploration: Abandonments and impairments 174 2,891 1,051 5,769
Seismic and other 2,167 974 3,445 2,634 Net (gain) loss on sales of
assets and impairment of inventory (842 ) 1,330 (14,218 ) 1,044
Loss on early extinguishment of debt - - 4,594 - Depreciation,
depletion and amortization 25,342 25,437 49,086 51,049 Impairment
of property and equipment 4,424 11,114 4,424 11,114 Accretion of
abandonment obligations 697 647 1,371 1,294 Non-cash employee
compensation (2,438 ) 3,069 4,963 5,079 Non-cash changes in fair
value of derivatives (35,558 ) (17,269 ) 9,069 (25,871 )
$ 69,311 $ 56,045 $ 133,314
$ 111,966
Clayton Williams Energy, Inc. Summary Production
and Price Data (Unaudited)
Three Months Ended Six Months Ended June
30, June 30, 2011 2010 2011
2010 Oil and Gas Production Data: Oil
(MBbls) 886 808 1,785 1,560 Gas (MMcf) 2,261 2,807 4,374 6,135
Natural gas liquids (MBbls) 73 60 156 117 Total (MBOE) 1,336 1,336
2,670 2,700
Average Realized Prices (a):
Oil ($/Bbl) $ 100.07 $ 74.27 $ 94.47 $ 75.10
Gas ($/Mcf) $ 5.56 $ 5.14 $ 5.40 $ 5.48
Natural gas liquids ($/Bbl) $ 57.16 $ 40.13 $
52.47 $ 43.08
Gain (Loss) on settled derivative
contracts (a):
($ in thousands, except per unit) Oil: Net realized loss $ (11,919
) $ (1,249 ) $ (18,697 ) $ (2,871 ) Per unit produced ($/Bbl) $
(13.45 ) $ (1.55 ) $ (10.47 ) $ (1.84 ) Gas: Net realized
gain $ 4,548 $ 4,964 $ 9,608 $ 8,283 Per unit produced ($/Mcf) $
2.01 $ 1.77 $ 2.20 $ 1.35
Average Daily Production:
Oil (Bbls): Permian Basin 5,680 5,390 5,927 5,151 Austin Chalk/
Eagle Ford Shale 3,335 2,835 3,333 2,717 South Louisiana 493 435
454 530 Other 228 219 (b) 148
221 (b) Total 9,736 8,879
9,862 8,619 Natural Gas
(Mcf): Permian Basin 12,176 13,263 13,043 13,586 Giddings Area:
Austin Chalk/ Eagle Ford Shale 2,177 1,810 2,060 2,169 Cotton
Valley Reef Complex 2,931 4,072 2,942 3,802 South Louisiana 6,134
4,930 4,650 6,213 Other 1,428 6,771 (b)
1,471 8,125 (b) Total 24,846
30,846 24,166 33,895
Natural gas liquids (Bbls): Permian Basin 519 356 568
314 Austin Chalk/ Eagle Ford Shale 183 185 205 228 South Louisiana
60 86 52 83 Other 40 32 (b) 37
21 (b) Total 802 659
862 646
Three Months Ended Six Months Ended June 30,
June 30, 2011 2010
2011 2010 Oil
and Gas Costs ($/BOE Produced): Production costs $ 19.56 $
15.39 $ 19.08 $ 15.37 Production costs (excluding production taxes)
$ 15.61 $ 12.25 $ 15.14 $ 12.22 Oil and gas depletion $ 18.31 $
18.57 $ 17.89 $ 18.30
General and Administrative Expenses
(in thousands): Excluding non-cash employee compensation $
5,475 $ 4,763 $ 10,573 $ 8,977 Non-cash employee compensation (c)
(2,438 ) 3,069 4,963
5,079 Total $ 3,037 $ 7,832 $ 15,536 $
14,056
(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 2011
or 2010 derivative contracts as cash flow hedges. This means that
the Company's derivatives for 2011 and 2010 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) Other for 2010 includes production attributable to sold
properties in North Louisiana as follows: Three months: Oil 137,
Gas 5,747, NGL 26 and Six months: Oil 142, Gas 7,225, NGL 15.
(c) Non-cash employee compensation relates to the Company's
non-equity award plans. In June 2011, the Compensation Committee of
the Board of Directors approved the modification of certain
existing reward plans. The impact of this modification resulted in
a credit to expense of $2.4 million during 2Q11.
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, 2011.
Oil
Gas Swaps: Bbls Price
MMBtu (a) Price Production Period: 3rd
Quarter 2011 547,000 $ 83.78 1,560,000 $ 7.07 4th Quarter 2011
540,000 $ 83.78 1,500,000 $ 7.07 2012 1,864,000 $ 93.65 - $ - 2013
480,000 $ 96.70 - $ - 3,431,000 3,060,000 (a) One
MMBtu equals one Mcf at a Btu factor of 1,000.
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