Clayton Williams Energy Announces Second Quarter 2015 Financial Results

MIDLAND, Texas--(BUSINESS WIRE)--Clayton Williams Energy, Inc. (the “Company”) (NYSE:CWEI) today reported its financial results for the second quarter 2015.

Summary

• Core drilling suspended in early 2015; resumed at a two-rig pace in July 2015
• Oil and gas production of 16.6 MBOE/d
• Adjusted net loss¹ (non-GAAP) of $12.8 million
• EBITDAX² (non-GAAP) of $37 million

Financial Results for the Second Quarter of 2015

The Company reported a net loss for the second quarter of 2015 (“2Q15”) of $23.3 million, or $1.92 per share, as compared to net income of $9.3 million, or $0.77 per share, for the second quarter of 2014 (“2Q14”). Adjusted net loss¹ (non-GAAP) for 2Q15 was $12.8 million, or $1.05 per share, as compared to adjusted net income¹ (non-GAAP) of $18.2 million, or $1.50 per share, for 2Q14. Cash flow from operations for 2Q15 was $9 million as compared to $45.8 million for 2Q14. EBITDAX² (non-GAAP) for 2Q15 was $37 million as compared to $81.5 million for 2Q14.

For the six months ended June 30, 2015, net loss attributable to Company stockholders was $41.6 million, or $3.42 per share, as compared to net income of $20.7 million, or $1.70 per share, for the same period in 2014. Adjusted net loss¹ (non-GAAP) for the six-month period in 2015 was $33.6 million, or $2.76 per share, as compared to adjusted net income¹ (non-GAAP) of $34.7 million, or $2.85 per share, for the same period in 2014. Cash flow from operations for the six-month period in 2015 was $28.6 million as compared to $125.1 million during the same period in 2014. EBITDAX² (non-GAAP) for the six-month period in 2015 was $62.6 million as compared to $158.4 million for the same period in 2014.

The key factors affecting the comparability of financial results for 2Q15 versus 2Q14 were:

• The downturn in commodity prices continues to have a significant impact on our business and results of operations. We suspended drilling operations in our core resource plays early in 2015 until well costs could adjust to a lower commodity price environment. We resumed drilling activities in July 2015 with one rig in the Delaware Basin and one rig in the Eagle Ford.
• Oil and gas sales for 2Q15, excluding amortized deferred revenues, decreased $44.4 million compared to 2Q14. Price variances accounted for a $53.9 million decrease and production variances accounted for a $9.5 million increase. Average realized oil prices were $53.32 per barrel in 2Q15 versus $96.01 per barrel in 2Q14, average realized gas prices were $2.58 per Mcf in 2Q15 versus $4.49 per Mcf in 2Q14, and average realized natural gas liquids (“NGL”) prices were $15.30 per barrel in 2Q15 versus $31.55 per barrel in 2Q14. Oil and gas sales in 2Q15 also includes $1.7 million of amortized deferred revenue compared to $1.9 million in 2Q14 attributable to a volumetric production payment (“VPP”). Reported production and related average realized sales prices exclude volumes associated with the VPP.
• Oil, gas and NGL production per barrel of oil equivalent (“BOE”) increased 7% in 2Q15 as compared to 2Q14, with oil production increasing 8% to 12,363 barrels per day, gas production increasing 6% to 16,066 Mcf per day, and NGL production decreasing 1% to 1,560 barrels per day. Oil and NGL production accounted for approximately 84% of the Company’s total BOE production in 2Q15 and 2Q14. See accompanying tables for additional information about the Company’s oil and gas production.
• Production costs in 2Q15 were $23.1 million versus $24.6 million in 2Q14 due primarily to lower production taxes associated with a decrease in oil and gas sales. Production costs on a BOE basis, excluding production taxes, decreased 3% to $13.02 per BOE in 2Q15 versus $13.41 per BOE in 2Q14.
• Loss on derivatives for 2Q15 was $12.3 million (including a $1.8 million loss on settled contracts) versus a loss on derivatives in 2Q14 of $8.3 million (including a $3.5 million loss on settled contracts). See accompanying tables for additional information about the Company’s accounting for derivatives.
• General and administrative expenses for 2Q15 were $11.3 million versus $21.4 million for 2Q14. Of the $10.1 million reduction, changes in compensation expense attributable to the Company’s APO reward plans accounted for a net decrease of $7 million ($6.5 million in 2Q15 versus $13.5 million in 2Q14). The remainder was largely attributable to salary and personnel reductions implemented in the first quarter of 2015.

¹ See “Computation of Adjusted Net Income (Loss) (non-GAAP)” below for an explanation of how the Company calculates and uses adjusted net income (loss) (non-GAAP) and for a reconciliation of net income (loss) (GAAP) to adjusted net income (loss) (non-GAAP).

² See “Computation of EBITDAX (non-GAAP)” below for an explanation of how the Company calculates and uses EBITDAX (non-GAAP) and for a reconciliation of net income (loss) (GAAP) to EBITDAX (non-GAAP).

Balance Sheet and Liquidity

As of June 30, 2015, total long-term debt was $746.7 million, consisting of $147 million of secured debt under a revolving credit facility and $599.7 million of 7.75% Senior Notes due 2019. The borrowing base established by the banks under the credit facility and the aggregate lender commitment was $500 million at June 30, 2015. Liquidity, consisting of cash plus funds available on the bank credit facility, totaled $358.7 million. The Company’s liquidity position was supplemented during the quarter by the previously reported sale of 3,700 net acres in Burleson County, Texas for $22.1 million.

Scheduled Conference Call

The Company will host a conference call to discuss these results and other forward-looking items Wednesday, August 5th at 1:30 p.m. CT (2:30 p.m. ET).

A live webcast for investors and analysts will be available on the Company’s website at www.claytonwilliams.com under the “Investors” section. The webcast will be archived on the site for 30 days following the call.

Participants should call [phone] and indicate 92552652 as the conference passcode. A replay will be available from 4:30 p.m. CT (5:30 p.m. ET) on August 5th until August 12th. To listen to the replay dial [phone] and enter passcode 92552652.

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 June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
REVENUES
Oil and gas sales	$	68,662		$	113,303		$	127,232		$	223,889
Midstream services		1,603			1,837			3,214			3,453
Drilling rig services		—			8,493			23			15,372
Other operating revenues		2,966			6,262			6,904			11,786
Total revenues		73,231			129,895			137,373			254,500
COSTS AND EXPENSES
Production		23,093			24,632			46,523			51,079
Exploration:
Abandonments and impairments		2,508			2,887			4,131			6,726
Seismic and other		105			225			971			1,708
Midstream services		534			490			933			1,024
Drilling rig services		1,620			5,482			3,496			10,338
Depreciation, depletion and amortization		42,121			38,950			84,775			75,205
Impairment of property and equipment		—			—			2,531			3,406
Accretion of asset retirement obligations		977			901			1,935			1,787
General and administrative		11,328			21,351			20,471			33,169
Other operating expenses		2,003			238			2,847			740
Total costs and expenses		84,289			95,156			168,613			185,182
Operating income (loss)		(11,058	)		34,739			(31,240	)		69,318
OTHER INCOME (EXPENSE)
Interest expense		(13,609	)		(12,845	)		(26,886	)		(25,366	)
Loss on derivatives		(12,300	)		(8,324	)		(7,668	)		(13,365	)
Other		871			1,049			1,564			1,889
Total other income (expense)		(25,038	)		(20,120	)		(32,990	)		(36,842	)
Income (loss) before income taxes		(36,096	)		14,619			(64,230	)		32,476
Income tax (expense) benefit		12,764			(5,292	)		22,666			(11,757	)
NET INCOME (LOSS)	$	(23,332	)	$	9,327		$	(41,564	)	$	20,719
Net income (loss) per common share:
Basic	$	(1.92	)	$	0.77		$	(3.42	)	$	1.70
Diluted	$	(1.92	)	$	0.77		$	(3.42	)	$	1.70
Weighted average common shares outstanding:
Basic		12,170			12,166			12,170			12,166
Diluted		12,170			12,166			12,170			12,166

CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
	June 30,			December 31,
	2015			2014
CURRENT ASSETS	(Unaudited)
Cash and cash equivalents	$	7,634		$	28,016
Accounts receivable:
Oil and gas sales		25,262			36,526
Joint interest and other, net		4,802			14,550
Affiliates		307			322
Inventory		40,907			42,087
Deferred income taxes		9,389			6,911
Prepaids and other		3,655			4,208
		91,956			132,620
PROPERTY AND EQUIPMENT
Oil and gas properties, successful efforts method		2,733,183			2,684,913
Pipelines and other midstream facilities		59,795			59,542
Contract drilling equipment		123,415			122,751
Other		20,465			20,915
		2,936,858			2,888,121
Less accumulated depreciation, depletion and amortization		(1,626,571	)		(1,539,237	)
Property and equipment, net		1,310,287			1,348,884
OTHER ASSETS
Debt issue costs, net		11,299			12,712
Investments and other		16,274			16,669
		27,573			29,381
	$	1,429,816		$	1,510,885
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade	$	29,316		$	93,650
Oil and gas sales		32,233			41,328
Affiliates		159			717
Fair value of derivatives		5,901			—
Accrued liabilities and other		19,139			20,658
		86,748			156,353
NON-CURRENT LIABILITIES
Long-term debt		746,728			704,696
Deferred income taxes		144,411			164,599
Asset retirement obligations		50,326			45,697
Deferred revenue from volumetric production payment		20,135			23,129
Accrued compensation under non-equity award plans		24,761			17,866
Other		477			751
		986,838			956,738
STOCKHOLDERS’ EQUITY
Preferred stock, par value $.10 per share		—			—
Common stock, par value $.10 per share		1,216			1,216
Additional paid-in capital		152,686			152,686
Retained earnings		202,328			243,892
Total stockholders' equity		356,230			397,794
	$	1,429,816		$	1,510,885

CLAYTON WILLIAMS ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(23,332	)	$	9,327		$	(41,564	)	$	20,719
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation, depletion and amortization		42,121			38,950			84,775			75,205
Impairment of property and equipment		—			—			2,531			3,406
Abandonments and impairments		2,508			2,887			4,131			6,726
Gain on sales of assets and impairment of inventory, net		(1,178	)		(4,829	)		(4,249	)		(9,469	)
Deferred income tax expense (benefit)		(12,764	)		5,292			(22,666	)		11,757
Non-cash employee compensation		5,770			12,950			7,084			16,374
Loss on derivatives		12,300			8,324			7,668			13,365
Cash settlements of derivatives		(1,767	)		(3,454	)		(1,767	)		(4,591	)
Accretion of asset retirement obligations		977			901			1,935			1,787
Amortization of debt issue costs and original issue discount		748			940			1,495			1,644
Amortization of deferred revenue from volumetric production payment		(1,723	)		(1,947	)		(3,501	)		(3,957	)
Other		404			—			404			—
Changes in operating working capital:
Accounts receivable		(1,528	)		4,508			21,027			434
Accounts payable		(33	)		(10,078	)		(26,211	)		(5,027	)
Other		(13,469	)		(18,007	)		(2,472	)		(3,306	)
Net cash provided by operating activities		9,034			45,764			28,620			125,067
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment		(35,730	)		(84,799	)		(125,267	)		(184,218	)
Proceeds from volumetric production payment		249			256			507			552
Proceeds from sales of assets		27,745			4,794			32,740			73,773
Decrease (increase) in equipment inventory		(680	)		8,134			1,027			11,523
Other		(515	)		(175	)		(9	)		(133	)
Net cash used in investing activities		(8,931	)		(71,790	)		(91,002	)		(98,503	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt		—			22,522			42,000			22,522
Repayments of long-term debt		—			—			—			(40,000	)
Net cash provided by (used in) financing activities		—			22,522			42,000			(17,478	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		103			(3,504	)		(20,382	)		9,086
CASH AND CASH EQUIVALENTS
Beginning of period		7,531			39,213			28,016			26,623
End of period	$	7,634		$	35,709		$	7,634		$	35,709

CLAYTON WILLIAMS ENERGY, INC.
COMPUTATION OF ADJUSTED NET INCOME (LOSS) (NON-GAAP)
(Unaudited)
(In thousands, except per share)
Adjusted net income (loss) 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 a tool for operating trends analysis and industry comparisons. Adjusted net income (loss) is not an alternative to net income (loss) presented in conformity with GAAP.
The Company defines adjusted net income (loss) as net income (loss) before changes in fair value of derivatives, abandonments and impairments of property and equipment, net gain on sales of assets and impairment of inventory, amortization of deferred revenue from volumetric production payment, certain non-cash and unusual items and the impact on taxes of the adjustments for each period presented.
The following table is a reconciliation of net income (loss) (GAAP) to adjusted net income (loss) (non-GAAP):
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Net income (loss)	$	(23,332	)	$	9,327		$	(41,564	)	$	20,719
Loss on derivatives		12,300			8,324			7,668			13,365
Cash settlements of derivatives		(1,767	)		(3,454	)		(1,767	)		(4,591	)
Abandonments and impairments		2,508			2,887			4,131			6,726
Impairment of property and equipment		—			—			2,531			3,406
Net gain on sales of assets and impairment of inventory		(1,178	)		(4,829	)		(4,249	)		(9,469	)
Amortization of deferred revenue from volumetric production payment		(1,723	)		(1,947	)		(3,501	)		(3,957	)
Non-cash employee compensation		5,770			12,950			7,084			16,374
Other		404			—			404			—
Tax impact (a)		(5,775	)		(5,043	)		(4,342	)		(7,911	)
Adjusted net income (loss)	$	(12,793	)	$	18,215		$	(33,605	)	$	34,662
Adjusted earnings per share:
Diluted	$	(1.05	)	$	1.50		$	(2.76	)	$	2.85
Weighted average common shares outstanding:
Diluted		12,170			12,166			12,170			12,166
Effective tax rates		35.4	%		36.2	%		35.3	%		36.2	%
_______
(a) The tax impact is computed utilizing the Company’s effective tax rate on the adjustments for each period presented.

CLAYTON WILLIAMS ENERGY, INC.
COMPUTATION OF EBITDAX (NON-GAAP)
(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. 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 Company defines EBITDAX as net income (loss) before interest expense, income taxes, exploration costs, net gain 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 asset retirement obligations, amortization of deferred revenue from volumetric production payment, certain employee compensation, changes in fair value of derivatives and certain non-cash and unusual items.
The following table reconciles net income (loss) to EBITDAX:
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Net income (loss)	$	(23,332	)	$	9,327		$	(41,564	)	$	20,719
Interest expense		13,609			12,845			26,886			25,366
Income tax expense (benefit)		(12,764	)		5,292			(22,666	)		11,757
Exploration:
Abandonments and impairments		2,508			2,887			4,131			6,726
Seismic and other		105			225			971			1,708
Net gain on sales of assets and impairment of inventory		(1,178	)		(4,829	)		(4,249	)		(9,469	)
Depreciation, depletion and amortization		42,121			38,950			84,775			75,205
Impairment of property and equipment		—			—			2,531			3,406
Accretion of asset retirement obligations		977			901			1,935			1,787
Amortization of deferred revenue from volumetric production payment		(1,723	)		(1,947	)		(3,501	)		(3,957	)
Non-cash employee compensation		5,770			12,950			7,084			16,374
Loss on derivatives		12,300			8,324			7,668			13,365
Cash settlements of derivatives		(1,767	)		(3,454	)		(1,767	)		(4,591	)
Other		404			—			404			—
EBITDAX (a)	$	37,030		$	81,471		$	62,638		$	158,396
The following table reconciles net cash provided by operating activities to EBITDAX:
Net cash provided by operating activities	$	9,034		$	45,764		$	28,620		$	125,067
Changes in operating working capital		15,030			23,577			7,656			7,899
Seismic and other		105			225			971			1,708
Cash interest expense		12,861			11,905			25,391			23,722
	$	37,030		$	81,471		$	62,638		$	158,396
______
(a)  In March 2014, the company sold interests in certain non-core Austin Chalk/Eagle Ford assets. Revenue, net of direct expenses, associated with the sold properties was $2.5 million for the six months ended June 30, 2014.

CLAYTON WILLIAMS ENERGY, INC.
SUMMARY PRODUCTION AND PRICE DATA
(Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Oil and Gas Production Data:
Oil (MBbls)		1,125			1,042			2,304			2,053
Gas (MMcf)		1,462			1,379			2,868			2,793
Natural gas liquids (MBbls)		142			144			276			290
Total (MBOE)		1,511			1,416			3,058			2,809
Total (BOE/d)		16,601			15,559			16,895			15,517
Average Realized Prices (a) (b):
Oil ($/Bbl)	$	53.32		$	96.01		$	48.56		$	94.82
Gas ($/Mcf)	$	2.58		$	4.49		$	2.61		$	4.73
Natural gas liquids ($/Bbl)	$	15.30		$	31.55		$	14.20		$	35.65
Loss on Settled Derivative Contracts (b):
($ in thousands, except per unit)
Oil:
Cash settlements paid	$	(1,767	)	$	(3,454	)	$	(1,767	)	$	(4,591	)
Per unit produced ($/Bbl)	$	(1.57	)	$	(3.31	)	$	(0.77	)	$	(2.24	)
Average Daily Production:
Oil (Bbls):
Permian Basin Area:
Delaware Basin		3,735			3,613			3,757			3,593
Other		3,080			3,306			3,100			3,385
Austin Chalk (c)		1,929			2,122			1,924			2,146
Eagle Ford Shale (c)		3,238			1,953			3,592			1,802
Other		381			457			356			417
Total		12,363			11,451			12,729			11,343
Natural Gas (Mcf):
Permian Basin Area:
Delaware Basin		3,305			2,932			3,172			2,870
Other		6,391			6,588			6,596			6,861
Austin Chalk (c)		1,783			1,593			1,750			1,800
Eagle Ford Shale (c)		566			344			585			304
Other		4,021			3,697			3,742			3,596
Total		16,066			15,154			15,845			15,431
Natural Gas Liquids (Bbls):
Permian Basin Area:
Delaware Basin		451			537			422			490
Other		802			732			782			816
Austin Chalk (c)		164			152			167			187
Eagle Ford Shale (c)		119			141			129			89
Other		24			20			25			20
Total		1,560			1,582			1,525			1,602
BOE:
Permian Basin Area:
Delaware Basin		4,738			4,639			4,707			4,561
Other		4,947			5,136			4,981			5,345
Austin Chalk (c)		2,390			2,540			2,383			2,633
Eagle Ford Shale (c)		3,451			2,151			3,819			1,942
Other		1,075			1,093			1,005			1,036
Total		16,601			15,559			16,895			15,517
Oil and Gas Costs ($/BOE Produced):
Production costs	$	15.28		$	17.40		$	15.21		$	18.18
Production costs (excluding production taxes)	$	13.02		$	13.41		$	13.14		$	14.14
Oil and gas depletion	$	25.32		$	25.20		$	25.23		$	24.57

______
(a)	Oil and gas sales includes $1.7 million for the three months ended June 30, 2015, $1.9 million for the three months ended June 30, 2014, $3.5 million for the six months ended June 30, 2015 and $4 million for the six months ended June 30, 2014 of amortized deferred revenue attributable to a volumetric production payment (“VPP”) transaction effective March 1, 2012. The calculation of average realized sales prices excludes production of 22,503 barrels of oil and 14,750 Mcf of gas for the three months ended June 30, 2015, 25,826 barrels of oil and 10,689 Mcf of gas for the three months ended June 30, 2014, 45,654 barrels of oil and 30,837 Mcf of gas for the six months ended June 30, 2015 and 52,421 barrels of oil and 22,622 Mcf of gas for the six months ended June 30, 2014 associated with the VPP.
(b)	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 2015 or 2014 derivative contracts as cash flow hedges. This means that the Company's derivatives for 2015 and 2014 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.
(c)	Following is a recap of the average daily production related to interests in producing properties sold by the Company effective March 2014.

	Six Months Ended June 30,
	2015	2014
Average Daily Production:
Austin Chalk/Eagle Ford:
Oil (Bbls)	—	188
Natural gas (Mcf)	—	22
NGL (Bbls)	—	6
Total (BOE)	—	198

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, 2015. The settlement prices of commodity derivatives are based on NYMEX futures prices.

Swaps:
	Oil
	MBbls	Price
Production Period:
3rd Quarter 2015	697	$	55.65
4th Quarter 2015	592	$	55.65
	1,289