Clayton Williams Energy, Inc. (NASDAQ-NMS: CWEI) today
filed a Form 8-K with the Securities and Exchange Commission to
provide financial guidance disclosures for the year ending December
31, 2011. This guidance was furnished to provide public disclosure
of the estimates being used by the Company to model its anticipated
results of operations for the periods presented.
A copy of these disclosures accompanies this release or may be
obtained electronically by accessing the Company’s website at
www.claytonwilliams.com.
Revised Plans for Capital Spending in 2011
The Company now plans to spend $385 million in fiscal 2011 on
exploration and development activities, a reduction of $54 million
from estimates reported in the Company’s Form 10-Q for the second
quarter of 2011. Substantially all of these cost reductions relate
to the Company’s planned activities in its Reeves County Wolfbone
play and are based on several factors, including a reduction in the
total number of wells that the Company expects to be able to drill
in the area during the remainder of the year and an increase in the
estimated number of those wells in which the Company will own a 75%
net working interest versus 100%. These reductions were partially
offset by an increase in the estimated cost to drill and complete
each of its Wolfbone wells from $3.8 million to $4.2 million as a
result of changes in the planned frac design.
Oil and Gas Production
The Company has also revised downward its expected oil and gas
production for the remainder of 2011 in connection with the shift
in capital spending to the Reeves County Wolfbone play. Since its
last guidance in May 2011, the Company has reduced the planned rig
count in Andrews County from 3 rigs to 1 and has dropped both rigs
previously allocated to the Austin Chalk in order to allocate
resources to its Wolfbone play. In addition, estimated production
from the Andrews Wolfberry play was revised downward due to
continuing frac delays and revisions in production based on well
performance.
Oil and Gas Hedge Positions
In August 2011, the Company added hedges of 1.683 million
barrels of oil at fixed NYMEX-WTI prices as follows: 4th quarter of
2011 – 189,000 at $98.35; 2012 – 785,000 at $100.75; and 2013 –
709,000 at $102.10. Combined with its other oil hedges, the
Company’s cumulative positions and average fixed NYMEX-WTI prices
are as follows: 3rd quarter 2011 – 547,000 at $83.78; 4th quarter
2011 – 729,000 at $87.56; 2012 – 2,649,000 at $95.75; and 2013 –
1,189,000 at $99.92. As a percentage of the Company’s estimated
production from existing wells, these volumes cover approximately
100% through 2012 and 50% of 2013. In addition, the Company has
approximately 3 million MMBtu of natural gas hedged for the
remainder of 2011 at $7.07.
“We are watching very closely the economic climate in the US and
Europe and the related effects of those factors on the oil
markets,” stated Clayton W. Williams, Jr., Chairman, President and
Chief Executive Officer of the Company. “Lower spending levels will
obviously slow down our production growth somewhat, but cuts in
discretionary spending also help us keep our debt levels in check
as we guide our company through uncertain times.”
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 oil and natural gas 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 environment 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.
FINANCIAL GUIDANCE DISCLOSURES FOR
2011
Overview
Clayton Williams Energy, Inc. and its subsidiaries have prepared
this document to provide public disclosure of certain financial and
operating estimates in order to permit the preparation of models to
forecast our operating results for each quarter during the year
ending December 31, 2011. These estimates are based on
information available to us as of the date of this filing, and
actual results may vary materially from these estimates. We do not
undertake any obligation to update these estimates as conditions
change or as additional information becomes available.
The estimates provided in this document are based on assumptions
that we believe are reasonable. Until our actual results of
operations for these periods have been compiled and released, all
of the estimates and assumptions set forth herein constitute
“forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included in this document 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, could or may occur in the future, including such
matters as production of oil and gas, product prices, oil and gas
reserves, drilling and completion results, capital expenditures,
operating costs and other such matters, are forward-looking
statements. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors that may cause our
actual results, performance, or achievements to be materially
different from the results, performance, or achievements expressed
or implied by such forward-looking statements. Such factors
include, among others, the following: the volatility of oil and gas
prices; the unpredictable nature of our exploratory drilling
results; the reliance upon estimates of proved reserves; operating
hazards and uninsured risks; competition; government regulation;
and other factors referenced in filings made by us with the
Securities and Exchange Commission.
As a matter of policy, we generally do not attempt to provide
guidance on:
(a) production which may be obtained through future exploratory
drilling;
(b) dry hole and abandonment costs that may result from future
exploratory drilling;
(c) the effects of Statement of Financial Accounting Standards
No. 133, “Accounting for Derivative Instruments and Hedging
Activities” superseded by topic 815-10 of the Financial Accounting
Standards Board Accounting Standards Codification;
(d) gains or losses from sales of property and equipment unless
the sale has been consummated prior to the filing of financial
guidance;
(e) capital expenditures related to completion activities on
exploratory wells or acquisitions of proved properties until the
expenditures are estimable and likely to occur; and
(f) revenues and expenses related to Desta Drilling, L.P., a
wholly-owned subsidiary of the Company which provides contract
drilling services for the Company.
Summary of Estimates
The following table sets forth actual and certain estimates
being used by us to model our anticipated results of operations for
each quarter during the fiscal year ending December 31, 2011. When
a single value is provided, such value represents the mid-point of
the approximate range of estimates. Otherwise, each range of values
provided represents the expected low and high estimates for such
financial or operating factor. See “Supplementary Information.”
Year Ending December 31, 2011 Actual
Actual Estimated Estimated
First Quarter Second Quarter Third Quarter
Fourth Quarter (Dollars in thousands, except per unit
data) Average Daily Production: Oil (Bbls) 9,989 9,736
9,425 to 9,625 10,250 to 10,450 Gas (Mcf) 23,478 24,846 20,500 to
24,500 19,500 to 23,500 Natural gas liquids (Bbls) 922 802 750 to
850 750 to 850 Total oil equivalents (BOE) 14,824 14,679 13,592 to
14,558 14,250 to 15,217
Differentials: Oil (Bbls) $
(5.17 ) $ (2.49 ) $(3.50) to $(4.50) $(3.50) to $(4.50) Gas (Mcf) $
1.04 $ 1.18 $0.15 to $0.45 $0.15 to $0.45 Natural gas liquids
(Bbls) $ (45.76 ) $ (45.40 ) $(42.00) to $(48.00) $(42.00) to
$(48.00)
Costs Variable by Production ($/BOE):
Production expenses (excluding production taxes) (a) $ 14.67 $
15.61 $14.75 to $15.75 $14.75 to $15.75 DD&A – Oil and gas
properties $ 17.46 $ 18.31 $17.50 to $18.50 $17.50 to $18.50
Other Revenues (Expenses): Natural gas services: Revenues $
409 $ 365 $450 to $550 $450 to $550 Operating costs $ (263 ) $ (285
) $(300) to $(500) $(300) to $(500) Exploration costs: Abandonments
and impairments $ (877 ) $ (174 ) $(250) to $(750) $(250) to $(750)
Seismic and other $ (1,278 ) $ (2,167 ) $(500) to $(2,500) $(500)
to $(2,500) DD&A – Other (b) $ (193 ) $ (153 ) $(250) to $(350)
$(250) to $(350) General and administrative (b) (c) $ (5,025 ) $
(5,405 ) $(5,100) to $(5,300) $(5,900) to $(6,100) Interest expense
$ (6,412 ) $ (9,175 ) $(9,200) to $(9,400) $(8,800) to $(9,000)
Other income (expense) $ 1,087 $ 1,900 $(450) to $(550) $(450) to
$(550) Gain (loss) on sales of assets, net $ 13,376 $ 842 - -
Effective Federal and State Income
Tax Rate:
Current 0 % 0 % 0 % 0 % Deferred 36 % 36 % 36 % 36 %
Weighted Average Shares Outstanding (In thousands):
Basic 12,156 12,162 12,162 12,162 Diluted 12,156 12,163 12,163
12,163
(a) Our current guidance for production expenses excludes
production taxes. Historically, production taxes have ranged from
5% to 6% of oil and gas sales.(b) Excludes amounts derived from
Desta Drilling, L.P.(c) Excludes non-cash employee
compensation.
Oil and Gas Production
We have revised downward our expected oil and gas production for
the remainder of 2011 in connection with the shift in capital
spending to the Reeves County Wolfbone play. Since our last
guidance in May 2011, we have reduced the planned rig count in
Andrews County from 3 rigs to 1 and have dropped both rigs
previously allocated to the Austin Chalk in order to allocate
resources to our Wolfbone play. In addition, estimated production
from the Andrews Wolfberry play was revised downward due to
continuing frac delays and revisions in production based on well
performance.
Capital Expenditures
The following table sets forth, by area, our actual expenditures
for exploration and development activities for the first six months
of 2011 and our planned expenditures for the year ending December
31, 2011.
Actual Planned
Expenditures Expenditures 2011 Six Months
Ended Year Ended Percentage June 30, 2011
December 31, 2011 of Total (In thousands)
Permian Basin Area: West Texas - Reeves $ 44,300 $ 188,400 49 %
West Texas - Andrews 77,300 112,300 29 % West Texas - Other 13,700
17,700 5 % Giddings Area: Austin Chalk/Eagle Ford Shale 25,900
41,400 11 % Deep Bossier 200 13,800 3 % South Louisiana 3,400 6,800
2 % Other 3,700 4,600 1 % $ 168,500 $ 385,000 100 %
We currently plan to spend approximately $385 million on
exploration and development activities in fiscal 2011, as compared
to $439.4 million reported in our Form 10-Q for the second quarter
of 2011. Substantially all of these cost reductions relate to our
planned activities in the Reeves County Wolfbone play and are based
on several factors, including a reduction in the total number of
wells that we expect to be able to drill in the area during the
remainder of the year and an increase in the estimated number of
those wells in which we will own a 75% net working interest versus
100%. These reductions were partially offset by an increase in the
estimated cost to drill and complete each of the Wolfbone wells
from $3.8 million to $4.2 million as a result of changes in the
planned frac design.
We are also purchasing two drilling rigs for our Desta Drilling
fleet at a cost of approximately $15.3 million, of which
approximately $8 million was spent during the second quarter of
2011. In addition, we plan to spend approximately $15 million
during the remainder of 2011 to begin constructing a gas gathering
and treating system to facilitate the transportation and marketing
of our Wolfbone oil and gas production in Reeves County.
Our actual expenditures during fiscal 2011 may be substantially
higher or lower than these estimates since our plans for
exploration and development activities may change during the year.
Other factors, such as prevailing product prices and the
availability of capital resources, could also increase or decrease
the ultimate level of expenditures during fiscal 2011. Based on
these current estimates, approximately 94% of our planned
expenditures for exploration and development activities for fiscal
2011 will relate to developmental prospects, as compared to
approximately 95% in fiscal 2010.
Supplementary Information
Oil and Gas Production
The following table summarizes, by area, our actual and
estimated daily net production for each quarter during the year
ending December 31, 2011. These estimates represent the approximate
mid-point of the estimated production range.
Daily Net Production for 2011 Actual
Actual Estimated Estimated
First Quarter Second Quarter Third Quarter
Fourth Quarter Oil (Bbls): Permian Basin Area: West
Texas - Andrews 2,607 2,585 2,744
3,014
West Texas - Reeves - 11 141 1,087 West Texas - Other 3,570 3,095
3,217 3,010 Austin Chalk/Eagle Ford Shale 3,329 3,335 2,978 3,011
South Louisiana 414 493 380 163 Other 69 217 65 65 Total 9,989
9,736 9,525
10,350
Gas (Mcf): Permian Basin Area: West Texas - Andrews
1,588 1,719 2,011 2,207 West Texas - Reeves 7 25 - - West Texas -
Other 12,333 10,457 10,272 9,690 Giddings Area: Austin Chalk/Eagle
Ford Shale 1,940 2,177 2,195 2,190 Cotton Valley Reef Complex 2,953
2,931 2,435 2,315 South Louisiana 3,149 6,134 4,576 4,087 Other
1,508 1,403 1,011 1,011 Total 23,478 24,846 22,500 21,500
Natural Gas Liquids (Bbls): Permian Basin Area: West Texas -
Andrews 364 368 344 355 West Texas - Other 255 151 195 184 Austin
Chalk/Eagle Ford Shale 226 183 196 196 Other 77 100 65 65 Total 922
802 800 800
Accounting for Derivatives
The following summarizes information concerning our net
positions in open commodity derivatives applicable to periods
subsequent to June 30, 2011. The settlement prices of commodity
derivatives are based on NYMEX futures prices.
Swaps:
Oil Gas Bbls Price
MMBtu (a) Price Production Period: 3rd
Quarter 2011 547,000 $ 83.78 1,560,000 $ 7.07 4th Quarter 2011
729,000 $ 87.56 1,500,000 $ 7.07
2012
2,649,000 $ 95.75 - $ -
2013
1,189,000 $ 99.92 - $ - 5,114,000 3,060,000
(a) One MMBtu equals one Mcf at a Btu factor of 1,000.
We did not designate any of the derivatives shown in the
preceding table as cash flow hedges; therefore, all changes in the
fair value of these contracts prior to maturity, plus any realized
gains or losses at maturity, will be recorded as other income
(expense) in our statement of operations.
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