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Clayton Williams Energy Announces 2016 Financial Results and Year-End Reserves

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Clayton Williams Energy, Inc. (the "Company") (NYSE:CWEI) today reported
its financial results for the quarter and year ended December 31, 2016.

Highlights

Fiscal 2016 Results

  • Oil and Gas Production of 13.7 MBOE/d
  • Cash flow from operating activities of $10.7 million
  • Liquidity of $671.1 million

Year-End 2016 Reserves

  • Total Proved Reserves of 34.8 MMBOE
  • 84% Oil and NGL and 63% Proved Developed

Recent Transactions

  • Announced Proposed Merger with Noble Energy, Inc.
  • Purchase of Net Mineral Acres in Southern Reeves County, Texas
  • Sale of Giddings Area assets for $400 million

Financial Results for Fiscal Year 2016

The Company reported a net loss for fiscal 2016 of $292.2 million, or
$20.87 per share, as compared to net loss of $98.2 million, or $8.07 per
share, for fiscal 2015. Adjusted net loss1 (non-GAAP) for
2016 was $127.7 million, or $9.12 per share, as compared to adjusted net
loss1 (non-GAAP) of $70.4 million, or $5.78 per share, for
2015. Cash flow from operations for 2016 was $10.7 million as compared
to $52.2 million for 2015. EBITDAX2 (non-GAAP) for 2016 was
$54.6 million as compared to $112.1 million for 2015.

The key factors affecting the comparability of the past two years were:

  • Oil and gas sales, excluding amortized deferred revenues, decreased
    $54.1 million to $158.8 million in 2016 from $212.9 million in 2015.
    Production variances accounted for $30.7 million of the decrease and
    price variances accounted for $23.4 million of the decrease. Average
    realized oil prices were $38.58 per barrel in 2016 versus $44.76 per
    barrel in 2015, average realized gas prices were $2.31 per Mcf in 2016
    versus $2.52 per Mcf in 2015, and average realized natural gas liquids
    ("NGL") prices were $13.26 per barrel in 2016 versus $13.07 per barrel
    in 2015. Amortized deferred revenue in 2016 totaled $1.5 million as
    compared to $4.5 million in 2015.
  • Oil, gas and NGL production per barrel of oil equivalent per day
    ("BOE/d") decreased 14% in 2016, to 13,652 BOE/d, as compared to
    15,818 BOE/d in 2015, with oil production decreasing 15% to 9,899
    barrels per day, gas production decreasing 16% to 13,369 Mcf per day,
    and NGL production increasing 1% to 1,525 barrels per day. Oil and NGL
    production accounted for approximately 84% of the Company's total BOE
    production in 2016 versus 83% in 2015. After giving effect to the sale
    of substantially all of the Company's assets in the Giddings Area in
    East Central Texas in December 2016, the sale of interests in certain
    wells in Glasscock County, Texas in July 2016 and the sale of selected
    leases and wells in South Louisiana in September 2015, oil, gas and
    NGL production per BOE/d increased 1% in 2016 as compared to 2015. See
    accompanying tables for additional information about the Company's oil
    and gas production.
  • Production costs in 2016 were $70.9 million versus $87.6 million in
    2015 due to lower oilfield service costs and decreased activity. After
    giving effect to a 14% decrease in total production, production costs
    on a BOE basis, excluding production taxes, decreased 4% to $12.68 per
    BOE in 2016 versus $13.23 per BOE in 2015.
  • Interest expense for 2016 was $93.7 million versus $54.4 million for
    2015. The increase was due primarily to $44.3 million of incremental
    interest expense on funded indebtedness incurred under a second lien
    term loan credit facility issued in connection with a refinancing in
    March 2016 (the "Refinancing"). For the second and third quarters of
    2016, the Company elected to pay interest on the term loan facility
    in-kind and resulted in an increase in the principal amount of the
    term loan to $377.2 million.
  • The Company accounts for the warrants issued in connection with the
    Refinancing as derivative instruments and carries the warrants as a
    non-current liability at their fair value. The Company recorded a $230
    million loss on change in fair value in 2016 due primarily to the
    impact on the valuation model of a 730% increase in the market price
    of the Company's common stock from $14.37 at March 15, 2016 to $119.26
    at December 31, 2016.
  • Loss on commodity derivatives for 2016 was $20.3 million (including a
    $7.4 million loss on settled contracts) versus a gain on commodity
    derivatives in 2015 of $12.5 million (including a $12.5 million gain
    on settled contracts). See accompanying tables for additional
    information about the Company's accounting for commodity derivatives.
  • Lower commodity prices negatively impacted our results of operations
    due to asset impairments. The Company recorded impairments of property
    and equipment of $7.6 million in 2016, of which $5.2 million related
    primarily to impairments of proved non-core properties located in
    North Dakota, Oklahoma, California and the Cotton Valley area of Texas
    and $2.4 million related to the impairment of certain drilling rigs
    and related equipment to reduce the carrying value to their estimated
    fair values. By comparison, the Company recorded impairments of
    property and equipment of $41.9 million in 2015, of which $37.9
    million related primarily to impairments of proved non-core properties
    in the Permian Basin and Oklahoma and $4 million related to the
    impairment of certain drilling rigs and related equipment to reduce
    the carrying value to their estimated fair values.
  • The Company recorded a net gain of $118.8 million on sales of assets
    and impairment of inventory in 2016 compared to a net loss of $3
    million in 2015. The 2016 gain related primarily to the sale of
    substantially all of the Company's assets in the Giddings Area in East
    Central Texas in December 2016 and the sale of interests in certain
    wells in Glasscock County, Texas in July 2016. The 2015 loss related
    primarily to the write-down of inventory to reduce the carrying value
    to the estimated fair value offset by gains on the sale of selected
    leases and wells in South Louisiana in September 2015, the release of
    sales proceeds previously held in escrow pending resolution of title
    requirements associated with the sale of certain non-core Austin
    Chalk/Eagle Ford assets sold in March 2014, the sale of leases in
    Oklahoma in May and June 2015, and the sale of selected wells in
    Martin and Yoakum Counties, Texas in March 2015.
  • The Company recorded an $8.4 million charge to fully impair the
    carrying value of the Company's investment in Dalea Investment Group,
    LLC in 2016, as compared to a partial impairment of this investment of
    $2.6 million in 2015.
  • General and administrative ("G&A") expenses for 2016 were $23 million
    versus $22.8 million for 2015. G&A expense increased due primarily to
    increases in salary and personnel expense. Changes in compensation
    expense related to the Company's APO Reward Plans accounted for a $7.9
    million decrease ($7.9 million credit in 2016 versus a negligible
    credit in 2015) which was due primarily to reductions in previously
    accrued compensation associated with the APO Reward Plans affected by
    the Giddings sale. Compensation expense related to issuances of
    restricted stock and stock options under the Company's long-term
    incentive plan ("LTIP") accounted for a $5.7 million increase.
  • The Company redeemed $100 million of 7.75% Senior Notes due 2019
    ("2019 Senior Notes") in a tender offer in August 2016 and recorded a
    gain on early extinguishment of long-term debt during 2016 of $4
    million.

Financial Results for the Fourth Quarter of 2016

The Company reported net loss for the fourth quarter of 2016 ("4Q16") of
$27.2 million, or $1.54 per share, as compared to a net loss of $47.2
million, or $3.88 per share, for the fourth quarter of 2015 ("4Q15").
Adjusted net loss1 (non-GAAP) for 4Q16 was $26.2 million, or
$1.49 per share, as compared to adjusted net loss1 (non-GAAP)
of $22.1 million, or $1.82 per share, for 4Q15. Cash flow from
operations for 4Q16 was $2.8 million as compared to $(2.8) million for
4Q15. EBITDAX2 (non-GAAP) for 4Q16 was $13.3 million as
compared to $20.7 million for 4Q15.

The key factors affecting the comparability of financial results for
4Q16 versus 4Q15 were:

  • Oil and gas sales for 4Q16, excluding amortized deferred revenues,
    increased $7.9 million to $46.6 million in 4Q16 from $38.7 million in
    4Q15. Price variances accounted for $8.5 million of the increase and
    production variances accounted for $0.6 million of the decrease.
    Average realized oil prices were $44.87 per barrel in 4Q16 versus
    $36.91 per barrel in 4Q15, average realized gas prices were $2.70 per
    Mcf in 4Q16 versus $2.09 per Mcf in 4Q15, and average realized NGL
    prices were $16.72 per barrel in 4Q16 versus $13.00 per barrel in
    4Q15. Amortized deferred revenue in 4Q16 totaled $0.4 million as
    compared to $0.3 million in 4Q15.
  • Oil, gas and NGL production per BOE/d decreased 4% in 4Q16 to 13,441
    BOE/d as compared to 13,939 BOE/d in 4Q15, with oil production
    decreasing 1% to 9,957 barrels per day, gas production decreasing 15%
    to 12,359 Mcf per day, and NGL production decreasing 1% to 1,424
    barrels per day. Oil and NGL production accounted for approximately
    85% of the Company's total BOE production in 4Q16 versus 83% in 4Q15.
    After giving effect to the sale of substantially all of the Company's
    assets in the Giddings Area in East Central Texas in December 2016 and
    the sale of interests in certain wells in Glasscock County, Texas in
    July 2016, oil, gas and NGL production per BOE/d increased 11% in 4Q16
    as compared to 4Q15. See accompanying tables for additional
    information about the Company's oil and gas production.
  • Production costs in 4Q16 were $16.8 million versus $20.4 million in
    4Q15 due to lower oilfield service costs and decreased activity.
    Production costs on a BOE basis, excluding production taxes, decreased
    17% to $11.71 per BOE in 4Q16 versus $14.07 per BOE in 4Q15.
  • Interest expense for 4Q16 was $23.5 million versus $14 million for
    4Q15. The increase was due primarily to $13.1 million of incremental
    interest expense on funded indebtedness incurred under a second lien
    term loan credit facility issued in connection with the Refinancing.
  • The Company accounts for the warrants issued in connection with the
    Refinancing as derivative instruments and carries the warrants as a
    non-current liability at their fair value. The Company recorded a $75
    million loss on change in fair value in 4Q16 due primarily to the
    impact on the valuation model of a 40% increase in the market price of
    the Company's common stock from $85.44 at September 30, 2016 to
    $119.26 at December 31, 2016.
  • Loss on commodity derivatives for 4Q16 was $6.3 million (including a
    $5 million loss on settled contracts) versus a gain on commodity
    derivatives in 4Q15 of $2.1 million (including a $7.9 million gain on
    settled contracts). See accompanying tables for additional
    information about the Company's accounting for commodity derivatives.
  • Lower commodity prices negatively impacted our results of operations
    due to asset impairments. The Company recorded impairments of property
    and equipment of $4.2 million in 4Q16, of which $1.8 million related
    primarily to impairments of proved non-core properties in North Dakota
    and $2.4 million related to the impairment of certain drilling rigs
    and related equipment to reduce the carrying value to their estimated
    fair values. By comparison, the Company recorded impairments of
    property and equipment of $36.3 million in 4Q15, of which $32.3
    million related primarily to impairments of proved non-core properties
    in the Permian Basin and Oklahoma and $4 million related to the
    impairment of certain drilling rigs and related equipment to reduce
    the carrying value to their estimated fair values.
  • The Company recorded a net gain of $110.8 million on sales of assets
    and impairment of inventory in 4Q16 compared to a net loss of $3.9
    million in 4Q15. The 4Q16 gain related primarily to the sale of
    substantially all of the Company's assets in the Giddings Area in East
    Central Texas in December 2016 and the 4Q15 loss related primarily to
    the write-down of inventory to reduce the carrying value to the
    estimated fair value.
  • G&A expenses were negligible for 4Q16 versus a $2.3 million credit for
    4Q15. G&A expense increased due primarily to increases in salary and
    personnel expense. Changes in compensation expense related to the
    Company's APO Reward Plans accounted for a decrease of $8.5 million
    ($15.2 million credit in 4Q16 versus a $6.7 million credit in 4Q15)
    which was due primarily to reductions in previously accrued
    compensation associated with the APO Reward Plans affected by the
    Giddings sale. Compensation expense related to issuances of restricted
    stock and stock options under the Company's LTIP accounted for a $4.9
    million increase.
 
1 See "Computation of Adjusted Net Loss (non-GAAP)" below for an
explanation of how the Company calculates and uses adjusted net loss
(non-GAAP) and for a reconciliation of net loss (GAAP) to adjusted
net 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 loss (GAAP) to EBITDAX (non-GAAP).
 

Balance Sheet and Liquidity

As of December 31, 2016, total long-term debt was $848 million,
consisting of $352.5 million (net of $24.7 million of original issue
discount and debt issuance costs) under the second lien term loan credit
facility and $495.5 million (net of $4.5 million of original issue
discount and debt issuance costs) of 2019 Senior Notes. The borrowing
base established by the banks under the revolving credit facility and
the aggregate lender commitment was $100 million at December 31, 2016.
The Company had $98.1 million of availability under the revolving credit
facility after allowing for outstanding letters of credit of $1.9
million. Liquidity, consisting of cash and funds available on the
revolving credit facility, totaled $671.1 million.

Subsequent Events

Proposed Merger with Noble Energy, Inc.

On January 16, 2017, the Company and Noble Energy, Inc. ("Noble Energy")
announced that the Boards of Directors of both companies unanimously
approved and executed a definitive agreement under which Noble Energy
will acquire all of the outstanding common stock of the Company for $2.7
billion in Noble Energy common stock and cash. The merger is expected to
close in the second quarter of 2017.

Purchase of Net Mineral Acres in Southern Reeves County, Texas

In January 2017, the Company purchased approximately 1,900 net mineral
acres in Southern Reeves County, Texas from a private seller, for cash
consideration totaling $44.3 million. The acreage is located in and
around the Company's existing contiguous acreage block. Also included in
the deal was a non-operated gross working interest of approximately 26%
in an existing horizontal well.

Reserves

The Company reported total estimated proved oil and gas reserves as of
December 31, 2016 of 34.8 million barrels of oil equivalent ("MMBOE"),
consisting of 24.3 million barrels of oil, 4.8 million barrels of NGL
and 33.6 Bcf of natural gas. On a BOE basis, oil and NGL comprised 84%
of total proved reserves at year-end 2016 versus 83% at year-end 2015.
Proved developed reserves at year-end 2016 were 22 MMBOE, or 63% of
total proved reserves, versus 36.3 MMBOE, or 78% of total proved
reserves, at year-end 2015. The present value of estimated future net
cash flows from total proved reserves, before deductions for estimated
future income taxes and asset retirement obligations, discounted at 10%
(referred to as "PV-10"), totaled $204.4 million at year-end 2016 versus
$442.8 million at year-end 2015. See accompanying tables for a
reconciliation of PV-10 (a non-GAAP financial measure) to standardized
measure of discounted future net cash flows (a GAAP financial measure).

The following table summarizes the changes in total proved reserves
during 2016 on an MMBOE basis:

    MMBOE
 
Total proved reserves, December 31, 2015 46.6
Extensions and discoveries 4.1
Revisions (0.2 )
Sales of reserves (10.7 )
Production (5.0 )
Total proved reserves, December 31, 2016 34.8  
 

The Company replaced 82% of its 2016 oil and gas production through
extensions and discoveries. Most of the 4.1 MMBOE of reserve additions
in 2016 are attributable to the Company's Delaware Basin program in
Southern Reeves County, Texas. Oil and NGL accounted for 85.1% of the
2016 reserve additions.

The 0.2 MMBOE of net downward revisions in proved reserves resulted from
a combination of (1) net upward revisions of 11.6 MMBOE related to
performance in the Company's Delaware Basin reserves in Southern Reeves
County, Texas, and (2) downward revisions of 11.8 MMBOE related to the
effects of lower commodity prices on the estimated quantities of proved
reserves.

SEC guidelines require that the Company's estimated proved reserves and
related PV-10 be determined using benchmark commodity prices equal to
the unweighted arithmetic average of the first-day-of-the-month prices
for the 12-month period prior to the effective date of each reserve
estimate. The benchmark averages for 2016 were $42.75 per barrel of oil
and $2.49 per MMBtu of natural gas, as compared to $50.28 per barrel of
oil and $2.58 per MMBtu of natural gas for 2015. These benchmark prices
were further adjusted for quality, energy content, transportation fees
and other price differentials specific to the Company's properties,
resulting in an average adjusted price over the remaining life of the
proved reserves of $36.60 per barrel of oil, $13.60 per barrel of NGL
and $2.36 per Mcf of natural gas for year-end 2016, as compared to
$45.75 per barrel of oil, $15.84 per barrel of NGL and $2.52 per Mcf of
natural gas for year-end 2015.

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
ot

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