Clayton Williams Energy Provides Financial Guidance for 2014

MIDLAND, Texas--()--Clayton Williams Energy, Inc. (NYSE: CWEI) today filed a Form 8-K with the Securities and Exchange Commission to provide financial guidance disclosures for the year ending December 31, 2014.

A copy of these disclosures accompanies this release or may be obtained electronically by accessing the Company’s website at www.claytonwilliams.com.

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 2014

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 the year ending December 31, 2014. 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 this period 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 operating expenses related to Drilling Rig or Midstream Services.

The accompanying guidance does not include any divestitures, joint venture arrangements or similar structures that have not been consummated.

Summary of Estimates

The following table sets forth certain estimates being used to model our anticipated results of operations for the fiscal year ending December 31, 2014. Each range of values provided represents the expected low and high estimates for such financial or operating factor.

    Actual     Actual     Estimated Ranges     Estimated Ranges
Three Months Ended Three Months Ended Six Months Ending Fiscal Year Ending
March 31, 2014 June 30, 2014 December 31, 2014 December 31, 2014
(Dollars in thousands, except per unit data)
Average Daily Production:
Oil (Bbls) 11,233 11,451 12,700 to 12,900 12,000 to 12,300
Gas (Mcf) 15,711 15,154 14,000 to 15,000 15,000 to 16,000
Natural gas liquids (Bbls) 1,622 1,582 1,550 to 1,650 1,500 to 1,600
Total oil equivalents (BOE) 15,474 15,559 16,583 to 17,050 16,000 to 16,567
 
Price Differentials to NYMEX:
Oil 95 % 93 % 94% to 97% 94% to 97%
Gas 105 % 98 % 90% to 100% 90% to 100%
Natural gas liquids (based on oil) 40 % 31 % 30% to 40% 30% to 40%
 
Other Costs and Expenses:
Production expenses:
Direct costs ($/BOE) $ 14.89 $ 13.41 $ 14.00 to 15.00 $ 14.00 to 15.00
Production taxes (% of sales) 5 % 5 % 5% to 6% 5% to 6%
 
General and Administrative:
Excluding non-cash compensation $ 8,394 $ 8,401 $

15,500 to 17,500

$ 32,300 to 34,300
Non-cash compensation $ 3,424 $ 12,950 $ 1,000 to 3,000 $ 17,400 to 19,400
 
DD&A:
Oil and gas ($/BOE) $ 23.93 $ 25.20 $ 24.00 to 26.00 $ 24.00 to 26.00
Other $ 2,914 $ 3,263 $ 6,000 to 7,000 $ 12,000 to 14,000
 
Exploration costs:
Abandonments and impairments $ 3,839 $ 2,887 $ 3,000 to 5,000 $ 9,700 to 11,700
Seismic and other $ 1,483 $ 225 $ 1,000 to 3,000 $ 2,700 to 4,700
 
Interest expense (cash rates):
$600 million Senior Notes due 2019 7.75 % 7.75 % 7.75 % 7.75 %
Bank credit facility LIBOR plus

(175 to 275 bps)

LIBOR plus

(150 to 250 bps)

LIBOR plus

(150 to 250 bps)

LIBOR plus

(150 to 250 bps)

 
Effective Federal and State Income
Tax Rate:
Current 0 % 0 % 0 % 0 %
Deferred 36 % 36 % 37 % 37 %

Current estimates of our average daily production, as indicated by the mid-point of ranges set forth in the above table for the year ending December 31, 2014, differ from the corresponding mid-points shown in our previous guidance, as follows: Oil – down 350 Bbls; Gas – up 500 Mcf; NGL – up 50 Bbls; and Total – down 217 BOE. The 3% downward revision in estimated 2014 oil production was driven by production shortfalls in certain step-out or delineation wells in our Delaware Basin and Eagle Ford Shale plays. We believe the causes of these production shortfalls are isolated and can be corrected through improved completion techniques.

Supplemental Analysis

The following table compares our estimated 2014 average daily production to our 2013 production, with both periods adjusted on a pro forma basis for the sale of our Andrews County assets in April 2013 and certain non-core Eagle Ford Shale/Austin Chalk assets in March 2014.

    Average Daily Production (BOE)    
As Reported     Pro Forma     Pro Forma Pro Forma %
2013 2013 2014 (E) Change
 
Delaware Basin 2,730 2,730 4,800 76 %
Eagle Ford Shale 1,168 551 2,800   408 %
3,898 3,281 7,600 132 %
Other 10,501 9,935 8,600   (13 )%
14,399 13,216 16,200   23 %
 
 

Capital Expenditures

The following table sets forth, by area, our actual expenditures for the first six months of 2014 and our planned capital expenditures for the year ending December 31, 2014.

    Actual     Planned    
Expenditures Expenditures 2014
Six Months Ended Year Ending Percentage
June 30, 2014 December 31, 2014 of Total
(In thousands)
Drilling and Completion:
Permian Basin Area:
Delaware Basin $ 74,600 $ 175,900 40 %
Other 11,400 21,300 5 %
Austin Chalk/Eagle Ford Shale 59,600 182,000 41 %
Other   4,900   9,500 2 %
150,500 388,700 88 %
Leasing and seismic   25,700   51,300 12 %
Exploration and development $ 176,200 $ 440,000 100 %

We currently plan to spend approximately $440 million on exploration and development activities during fiscal 2014, up 5% from our previous guidance of $418.7 million. This increase is attributable to our plans to add a fourth drilling rig in the Delaware Basin in September 2014. Our actual expenditures during 2014 may vary significantly from these estimates since our plans for exploration and development activities may change during the remainder of the year. Factors, such as changes in operating margins and the availability of capital resources and other factors, could increase or decrease our actual expenditures during the remainder of fiscal 2014.

Accounting for Derivatives

The following summarizes information concerning our net positions in open commodity derivatives applicable to periods subsequent to June 30, 2014. The settlement prices of commodity derivatives are based on NYMEX futures prices.

Swaps:

    Oil
Bbls     Price
Production Period:
3rd Quarter 2014 530,200 $ 96.87
4th Quarter 2014 503,200 $ 96.92
1,033,400

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 and comprehensive income (loss).

Volumetric production payment

In March 2012, we entered into a volumetric production payment (“VPP”) with a third party. Under the terms of the VPP, we conveyed a term overriding royalty interest covering approximately 725,000 barrels of oil equivalents (“BOE”) of estimated future oil and gas production from certain properties related to production months from March 2012 through December 2019. The scheduled remaining volumes for production months from July 2014 through December 2019 are shown below.

    Oil     Gas
Bbls Mcf
Production Period:

2014

49,590 22,771

2015

88,954 60,218

2016

64,808 112,928

2017

56,785 96,792

2018

49,455 84,734

2019

43,820 72,874
353,412 450,317

Contacts

Clayton Williams Energy, Inc.
Patti Hollums, 432-688-3419
Director of Investor Relations
cwei@claytonwilliams.com
www.claytonwilliams.com
or
Michael L. Pollard, 432-688-3029
Chief Financial Officer

Contacts

Clayton Williams Energy, Inc.
Patti Hollums, 432-688-3419
Director of Investor Relations
cwei@claytonwilliams.com
www.claytonwilliams.com
or
Michael L. Pollard, 432-688-3029
Chief Financial Officer