Clayton Williams Energy Announces Second Quarter 2010 Financial Results

MIDLAND, Texas--(BUSINESS WIRE)--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:
	3rdQuarter 2010	522,000	$	76.40	1,750,000	$	6.80
	4thQuarter 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.