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Clayton Williams Energy Announces Third Quarter 2012 Financial Results

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MIDLAND, Texas--(BUSINESS WIRE)--

Clayton Williams Energy, Inc. (the “Company”) (NASDAQ: CWEI) today reported its financial results for the third quarter of 2012.

Financial Results for the Third Quarter of 2012

Net loss attributable to Company stockholders for the third quarter of 2012 (“3Q12”) was $7.2 million, or $0.59 per share, as compared to net income of $74.5 million, or $6.13 per share, for the third quarter of 2011 (“3Q11”). Cash flow from operations for 3Q12 was $60.6 million as compared to $55.6 million for 3Q11.

For the nine-months ended September 30, 2012, net income attributable to Company stockholders was $33.4 million, or $2.75 per share, as compared to net income of $109.3 million, or $8.99 per share, for the same period in 2011. Cash flow from operations for the nine-month period in 2012 was $157.9 million as compared to $175.3 million during the same period in 2011.

The key factors affecting the comparability of financial results for 3Q12 versus 3Q11 were:

  • Oil and gas sales increased $1.9 million in 3Q12 versus 3Q11. Production variances accounted for a $6.3 million increase, and price variances accounted for a $6.9 million decrease. Average realized oil prices were $89.48 per barrel in 3Q12 versus $89.36 per barrel in 3Q11, and average realized gas prices were $3.29 per Mcf in 3Q12 versus $5.46 per Mcf in 3Q11. In addition, oil and gas sales in 3Q12 includes $2.5 million of amortized deferred revenue attributable to a volumetric production payment (“VPP”) granted effective March 1, 2012 in connection with the mergers of 24 Southwest Royalties, Inc. limited partnerships. Reported production and related average realized sales prices exclude volumes associated with the VPP.
  • Oil and gas production per barrel of oil equivalent (“BOE”) increased 5% in 3Q12 as compared to 3Q11, with oil production increasing 5% and gas production declining 8%. Oil production increased to 993,000 barrels, or 10,793 barrels per day, as compared to 945,000 barrels, or 10,272 barrels per day, while gas production declined to 2 Bcf, or 21,848 Mcf per day as compared to 2.2 Bcf or 23,859 Mcf per day for 3Q11. Oil and natural gas liquids comprised 77% of the Company's BOE production in 3Q12.
  • Production costs increased 34% from $24.3 million in 3Q11 to $32.6 million in 3Q12 due to a combination of more producing wells and rising costs of field services including salt water disposal costs.
  • Loss on derivatives for 3Q12 was $21.9 million ($20.5 million non-cash mark-to-market loss and $1.4 million realized loss on settled contracts) versus a gain in 3Q11 of $92.3 million ($91.1 million non-cash mark-to-market gain and $1.2 million realized gain on settled contracts). See accompanying tables for additional information about the Company's accounting for derivatives.
  • Depreciation, depletion and amortization expense increased 45% to $37.7 million in 3Q12 versus $25.9 million in 3Q11 due primarily to a 33% increase in the average depletion rate per BOE of production. Most of the increase related to the Company's Wolfbone play in Reeves County, Texas.
  • General and administrative (“G&A”) expenses were $5.8 million in 3Q12 versus $7.1 million in 3Q11. Non-cash employee compensation expense from incentive compensation plans accounted for a $2.2 million credit to expense in 3Q12 versus $1.1 million expense in 3Q11. Cash G&A expenses, excluding non-cash employee compensation expense, increased to $8 million in 3Q12 from $6 million in 3Q11 due primarily to higher personnel costs and a $1 million contribution to a 527 organization.
  • No provision for non-cash impairments of property and equipment was made in 3Q12 as compared to $5 million in 3Q11.

Scheduled Conference Call

The Company will host a conference call to discuss these results and other forward-looking items today, October 25th at 1:30 p.m. CT (2:30 p.m. ET). The dial-in conference number is: 877-868-1835, passcode 47041399. The replay will be available for one week at 855-859-2056, passcode 47041399.

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 Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
REVENUES
Oil and gas sales $ 101,638 $ 99,752 $ 308,116 $ 300,488
Natural gas services 671 334 1,305 1,108
Drilling rig services 5,348 929 11,478 3,614
Gain on sales of assets   106     49     543     14,570  
Total revenues   107,763     101,064     321,442     319,780  
 
COSTS AND EXPENSES
Production 32,564 24,284 93,937 75,237
Exploration:
Abandonments and impairments 306 1,256 2,292 2,307
Seismic and other 2,710 1,842 5,445 5,287
Natural gas services 508 233 956 781
Drilling rig services 5,335 1,673 12,164 4,378
Depreciation, depletion and amortization 37,661 25,901 103,486 74,987
Impairment of property and equipment - 5,035 5,711 9,459
Accretion of asset retirement obligations 1,069 706 2,628 2,077
General and administrative 5,830 7,142 25,133 22,678

Loss on sales of assets and impairment of inventory

 

207

   

114

   

485

   

417

 
Total costs and expenses   86,190     68,186     252,237     197,608  
Operating income   21,573     32,878     69,205     122,172  
 
OTHER INCOME (EXPENSE)
 
Interest expense (9,786 ) (8,717 ) (27,817 ) (24,304 )
Loss on early extinguishment of long-term debt - (907 ) - (5,501 )
Gain (loss) on derivatives (21,901 ) 92,286 9,856 74,128
Other (559 ) 527 739 3,514
       
Total other income (expense)   (32,246 )   83,189     (17,222 )   47,837  
 
Income (loss) before income taxes (10,673 ) 116,067 51,983 170,009
 
Income tax (expense) benefit 3,497 (41,544 ) (18,558 ) (60,693 )
       
NET INCOME (LOSS) $ (7,176 ) $ 74,523   $ 33,425   $ 109,316  
 
 
Net income (loss) per common share:
Basic $ (0.59 ) $ 6.13   $ 2.75   $ 8.99  
Diluted $ (0.59 ) $ 6.13   $ 2.75   $ 8.99  
 
Weighted average common shares outstanding:
Basic   12,164     12,163     12,164     12,160  
Diluted   12,164     12,163     12,164     12,161  
   
 
CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
ASSETS
September 30, December 31,
2012 2011
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 22,694 $ 17,525
Accounts receivable:
Oil and gas sales 36,770 41,282
Joint interest and other, net 12,357 14,517
Affiliates 513 990
Inventory 44,272 44,868
Deferred income taxes 8,202 8,948
Fair value of derivatives 945 -
Prepaids and other   5,730     14,813  
  131,483     142,943  
PROPERTY AND EQUIPMENT
Oil and gas properties, successful efforts method 2,497,466 2,103,085
Natural gas gathering and processing systems 45,477 26,040
Contract drilling equipment 88,570 75,956
Other   20,970     19,134  
2,652,483 2,224,215
Less accumulated depreciation, depletion and amortization   (1,271,601 )   (1,156,664 )
Property and equipment, net   1,380,882     1,067,551  
 
OTHER ASSETS
Debt issue costs, net 10,898 11,644
Fair value of derivatives 7,745 -
Investments and other   15,531     4,133  
  34,174     15,777  
 
$ 1,546,539   $ 1,226,271  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES
Accounts payable:
Trade $ 76,426 $ 98,645
Oil and gas sales 36,129 37,409
Affiliates 123 1,501
Fair value of derivatives - 5,633
Accrued liabilities and other   21,088     13,042  
  133,766     156,230  
 
NON-CURRENT LIABILITIES
Long-term debt 769,572 529,535
Deferred income taxes 152,022 134,209
Fair value of derivatives - 494
Asset retirement obligations 51,547 40,794
Deferred revenue from volumetric production payment 39,170 -
Accrued compensation under non-equity award plans 22,675 20,757
Other   861     751  
  1,035,847     726,540  
 
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per share - -
Common stock, par value $.10 per share 1,216 1,216
Additional paid-in capital 152,515 152,515
Retained earnings   223,195     189,770  
Total stockholders' equity   376,926     343,501  
 
$ 1,546,539   $ 1,226,271  
       
 
CLAYTON WILLIAMS ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,176 ) $ 74,523 $ 33,425 $ 109,316
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation, depletion and amortization 37,661 25,901 103,486 74,987
Impairment of property and equipment - 5,035 5,711 9,459
Exploration costs 306 1,256 2,292 2,307
(Gain) loss on sales of assets and impairment of inventory, net 101 65 (58 ) (14,153 )
Deferred income tax expense (benefit) (3,497 ) 41,544 18,558 60,693
Non-cash employee compensation (2,194 ) 1,141 2,200 6,104
Unrealized (gain) loss on derivatives 20,511 (91,098 ) (14,817 ) (82,029 )
Accretion of asset retirement obligations 1,069 706 2,628 2,077
Amortization of debt issue costs and original issue discount 548 493 1,587 1,623
Loss on early extinguishment of long-term debt - 907 - 5,501
Amortization of deferred revenue from volumetric production payment (2,479 ) - (5,862 ) -
 
Changes in operating working capital:
Accounts receivable 1,893 (1,299 ) 7,150 768
Accounts payable 7,055 (5,430 ) (5,772 ) (4,456 )
Other   6,819     1,819     7,355     3,090  
Net cash provided by operating activities   60,617     55,563     157,883     175,287  
 
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (125,312 ) (102,193 ) (438,482 ) (282,474 )
Proceeds from volumetric production payment 609 - 45,032 -
Proceeds from sales of assets 216 361 867 12,466
(Increase) decrease in equipment inventory 4,201 (1,939 ) 64 2,844
Other   (181 )   (23 )   (195 )   (133 )
Net cash used in investing activities   (120,467 )   (103,794 )   (392,714 )   (267,297 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 70,000 103,511 240,000 445,366
Repayments of long-term debt - (37,335 ) - (323,500 )
Premium on early extinguishment of long-term debt - - - (2,765 )
Proceeds from exercise of stock options   -     -     -     213  
Net cash provided by financing activities   70,000     66,176     240,000     119,314  
 
NET INCREASE IN CASH
AND CASH EQUIVALENTS 10,150 17,945 5,169 27,304
 
CASH AND CASH EQUIVALENTS
Beginning of period 12,544 18,079 17,525 8,720
       
End of period $ 22,694   $ 36,024   $ 22,694   $ 36,024  
       
 
CLAYTON WILLIAMS ENERGY, INC.
SUMMARY PRODUCTION AND PRICE DATA
(Unaudited)
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
 
Oil and Gas Production Data:
Oil (MBbls) 993 945 2,889 2,730
Gas (MMcf) 2,010 2,195 6,154 6,569
Natural gas liquids (MBbls) 115 61 304 217
Total (MBOE) 1,443 1,372 4,219 4,042
 
Average Realized Prices (a) (b):
Oil ($/Bbl) $ 89.48   $ 89.36   $ 92.62   $ 92.70  
Gas ($/Mcf) $ 3.29   $ 5.46   $ 3.46   $ 5.42  
Natural gas liquids ($/Bbl) $ 31.37   $ 54.36   $ 40.05   $ 53.00  
 
Gain (Loss) on Settled Derivative Contracts (b):
($ in thousands, except per unit)
Oil:
Net realized loss $ (1,390 ) $ (3,292 ) $ (4,961 ) $ (21,989 )
Per unit produced ($/Bbl) $ (1.40 ) $ (3.48 ) $ (1.72 ) $ (8.05 )
 
Gas:
Net realized gain $ - $ 4,481 $ - $ 14,088
Per unit produced ($/Mcf) $ - $ 2.04 $ - $ 2.14
 
Average Daily Production:
Oil (Bbls):
Permian Basin Area:
Delaware Basin 2,018 170 1,575 61
Other 5,247 6,152 5,473 6,003
Austin Chalk/ Eagle Ford Shale 3,199 3,458 3,115 3,418
Other   329     492     378     518  
Total   10,793     10,272     10,541     10,000  
 
Natural Gas (Mcf):
Permian Basin Area:
Delaware Basin 1,449 27 780 20
Other 12,246 12,885 12,797 12,991
Austin Chalk/ Eagle Ford Shale 1,793 1,958 1,997 2,029
Other   6,360     8,989     6,881     9,022  
Total   21,848     23,859     22,455     24,062  
 
Natural Gas Liquids (Bbls):
Permian Basin Area:
Delaware Basin 257 - 117 -
Other 711 366 687 500
Austin Chalk/ Eagle Ford Shale 232 215 241 208
Other   50     82     63     87  
Total   1,250     663     1,108     795  
 
Oil and Gas Costs ($/BOE Produced):
Production costs $ 22.57 $ 17.70 $ 22.27 $ 18.61
Production costs (excluding production taxes) $ 18.99 $ 13.84 $ 18.55 $ 14.77
Oil and gas depletion $ 24.36 $ 18.25 $ 23.16 $ 18.01
 
General and Administrative Expenses (in thousands):
Excluding non-cash employee compensation $ 8,024 $ 6,001 $ 22,933 $ 16,574
Non-cash employee compensation (c)   (2,194 )   1,141     2,200     6,104  
Total $ 5,830   $ 7,142   $ 25,133   $ 22,678  
   
(a)

Oil and gas sales for 2012 includes $2.5 million for the three months ended September 30, 2012 and $5.9 million for the nine months ended September 30, 2012 of amortized deferred revenue attributable to a volumetric production payment ("VPP") effective March 1, 2012. The calculation of average realized sales prices for 2012 excludes production of 32,788 barrels of oil and 14,826 Mcf of gas for the three months ended September 30, 2012 and 77,755 barrels of oil and 32,000 Mcf of gas for the nine months ended September 30, 2012 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 2012 or 2011 derivative contracts as cash flow hedges. This means that the Company's derivatives for 2012 and 2011 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) Non-cash employee compensation relates to the Company's non-equity award plans.
 
 
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, net (gain) loss on sales of assets and impairment of inventory, loss on early extinguishment of long-term 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 asset retirement obligations, amortization of deferred revenue from volumetric production payment, 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 Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
 
Net income (loss) $ (7,176 ) $ 74,523 $ 33,425 $ 109,316
Interest expense 9,786 8,717 27,817 24,304
Income tax expense (benefit) (3,497 ) 41,544 18,558 60,693
Exploration:
Abandonments and impairments 306 1,256 2,292 2,307
Seismic and other 2,710 1,842 5,445 5,287
Net (gain) loss on sales of assets and impairment of inventory 101 65 (58 ) (14,153 )
Loss on early extinguishment of long-term debt - 907 - 5,501
Depreciation, depletion and amortization 37,661 25,901 103,486 74,987
Impairment of property and equipment - 5,035 5,711 9,459
Accretion of asset retirement obligations 1,069 706 2,628 2,077
Amortization of deferred revenue from volumetric production payment (2,479 ) - (5,862 ) -
Non-cash employee compensation (2,194 ) 1,141 2,200 6,104
Unrealized (gain) loss on derivatives   20,511     (91,098 )   (14,817 )   (82,029 )
$ 56,798   $ 70,539   $ 180,825   $ 203,853  
 
 
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 September 30, 2012.
                 
Oil Gas
Swaps: Bbls Price MMBtu (a) Price
Production Period:
4th Quarter 2012 702,000 $ 90.40 - $ -
2013 1,913,000 $ 97.20 1,480,000 $ 3.34
2014 600,000 $ 99.30 - $ -
3,215,000 1,480,000
 
 
(a) One MMBtu equals one Mcf at a Btu factor of 1,000.

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

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