EXHIBIT 99.1
CLAYTON WILLIAMS ENERGY, INC.
FINANCIAL GUIDANCE DISCLOSURES FOR 2007
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 each quarter during the year ending December 31, 2007. 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 these periods 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 or developments that we expect, project, believe or anticipate will or may occur in the future, or may have occurred through the date of this filing, including such matters as production of oil and gas, product prices, oil and gas reserves, drilling and completion results, capital expenditures 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”; |
| (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, expenses and minority interest related to our investment in Larclay JV. |
As discussed in “Capital Expenditures”, more than half of our 2007 planned exploration and development expenditures relate to exploratory prospects. Exploratory prospects involve a higher degree of risk than development prospects. To offset the higher risk, we generally strive to achieve a higher reserve potential and rate of return on investments in exploratory prospects. Actual results from our exploratory drilling activities, when ultimately reported, may have a material impact on the estimates of oil and gas production and exploration costs stated in this guidance.
Summary of Estimates
The following table sets forth certain estimates being used by us to model our anticipated results of operations for each quarter during the fiscal year ending December 31, 2007. When a single value is provided, such value represents the mid-point of the approximate range of estimates. Otherwise, each range of values provided represents the expected low and high estimates for such financial or operating factor. See “Supplemental Information.”
| | | Year Ending December 31, 2007 | |
| | | Actual | | | Actual | | | Estimated | | | Estimated |
| | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter |
| | | (Dollars in thousands, except per unit data) | |
Average Daily Production: | | | | | | | | | | | | |
| Gas (Mcf) | | | 48,078 | | | | 56,604 | | | 56,000 to 60,000 | | 61,500 to 65,500 |
| Oil (Bbls) | | | 6,033 | | | | 6,341 | | | 6,700 to 6,900 | | 6,825 to 7,025 |
| Natural gas liquids (Bbls) | | | 511 | | | | 626 | | | 550 to 600 | | 525 to 575 |
| Total gas equivalents (Mcfe) | | | 87,342 | | | | 98,406 | | | 99,500 to 105,000 | | 105,600 to 111,100 |
| | | | | | | | | | | | | | | |
Differentials: | | | | | | | | | | | | | | |
| Gas (Mcf) | | $ | (0.05 | ) | | $ | (0.36 | ) | | $(0.35) to $(0.65) | | $(0.35) to $(0.65) |
| Oil (Bbls) | | $ | (3.06 | ) | | $ | (2.52 | ) | | $(2.75) to $(3.35) | | $(2.75) to $(3.35) |
| Natural gas liquids (Bbls) | | $ | (24.97 | ) | | $ | (22.19 | ) | | $(22.00) to $(28.00) | | $(22.00) to $(28.00) |
| | | | | | | | | | | | | | | | | |
Costs Variable by Production ($/Mcfe): | | | | | | | | | | | | | | | | |
| Production expenses (including | | | | | | | | | | | | | | | | |
| production taxes) | | $ | 2.20 | | | $ | 1.99 | | | $1.70 to $2.10 | | $1.70 to $2.10 |
| DD&A – Oil and gas properties | | $ | 1.72 | | | $ | 1.82 | | | $1.75 to $2.05 | | $1.75 to $2.05 |
| | | | | | | | | | | | | | | | | |
Other Revenues (Expenses): | | | | | | | | | | | | | | | | |
| Natural gas services: | | | | | | | | | | | | | | | | |
| Revenues | | $ | 2,654 | | | $ | 2,909 | | | $2,900 to $3,100 | | $2,900 to $3,100 |
| Operating costs | | $ | (2,413 | ) | | $ | (2,904 | ) | | $(2,800) to $(3,000) | | $(2,800) to $(3,000) |
| Exploration costs: | | | | | | | | | | | | | | | | |
| Abandonments and impairments | | $ | (11,105 | ) | | $ | (23,519 | ) | | $(1,000) to $(3,000) | | $(1,000) to $(3,000) |
| Seismic and other | | $ | (890 | ) | | $ | (1,580 | ) | | $(500) to $(2,500) | | $(500) to $(2,500) |
DD&A – Other (a) | | $ | (300 | ) | | $ | (294 | ) | | $(250) to $(350) | | $(250) to $(350) |
General and administrative (a) | | $ | (3,871 | ) | | $ | (4,906 | ) | | $(3,100) to $(3,300) | | $(4,300) to $(4,500) |
Interest expense (a) | | $ | (6,795 | ) | | $ | (6,939 | ) | | $(7,350) to $(7,550) | | $(7,600) to $(7,800) |
| Other income (expense) | | $ | 713 | | | $ | 3,614 | | | $250 to $350 | | $250 to $350 |
| | | | | | | | | | | | | | | | | |
Effective Federal and State Income | | | | | | | | | | | | | | | | |
Tax Rate: | | | | | | | | | | | | | | | | |
| Current | | | 0 | % | | | 0 | % | | | 0% | | | 0% |
| Deferred | | | 35 | % | | | 35 | % | | | 35% | | | 35% |
| | | | | | | | | | | | | | | | | |
Weighted Average Shares Outstanding | | | | | | | | | | | | | | | | |
(In thousands): | | | | | | | | | | | | | | | | |
| Basic | | | 11,290 | | | | 11,352 | | | 11,350 to 11,400 | | 11,350 to 11,400 |
| Diluted | | | 11,290 | | | | 11,507 | | | 12,000 to 12,200 | | 12,000 to 12,200 |
| | | | | | | | | | | | | | | | | |
(a) Excludes amounts derived from Larclay JV.
Capital Expenditures
We have increased our estimates for planned exploration and development expenditures for fiscal 2007 by $48.9 million from $186.2 million to $235.1 million. The following table summarizes, by area, certain information about our planned expenditures for 2007.
| | | Total | | | | |
| | | Planned | | | | |
| | | Expenditures | | | | |
| | | Year Ending | | | Percentage | |
| | | December 31, 2007 | | | of Total | |
| | | (In thousands) | | | | |
| | | | | | | |
| North Louisiana | | $ | 84,700 | | | | 36 | % |
| South Louisiana | | | 65,700 | | | | 28 | % |
| East Texas Bossier | | | 34,200 | | | | 15 | % |
| Permian Basin | | | 28,300 | | | | 12 | % |
| Austin Chalk (Trend) | | | 14,500 | | | | 6 | % |
| Utah/California | | | 7,200 | | | | 3 | % |
| Other | | | 500 | | | | - | |
| | | $ | 235,100 | | | | 100 | % |
Most of the $48.9 million increase in estimated exploration and development expenditures for fiscal 2007 relates to increased drilling activity in the Terryville area in North Louisiana, the Austin Chalk (Trend) and the Permian Basin. Based on recent drilling results, we have changed the classification on wells drilled in 2007 in our Terryville prospect from exploratory to developmental and have added nine additional locations for developmental drilling during the last half of 2007. In addition, we have decided to increase developmental drilling activities in oil-prone areas such as our core acreage block in the Austin Chalk (Trend), where we have in-fill drilling opportunities, and in the Permian Basin. As a result, we now estimate that our expenditures for exploration and development activities for fiscal 2007 will be more balanced, with approximately 53% relating to exploratory prospects and approximately 47% relating to development activities, as compared to our previous estimate of 78% and 22%, respectively.
Supplementary Information
Oil and Gas Production
The following table summarizes, by area, our actual and estimated daily net production for each quarter during the year ending December 31, 2007. These estimates represent the approximate mid-point of the estimated production range.
| | | Daily Net Production for 2007 | |
| | | Actual | | | Actual | | | Estimated | | | Estimated | |
| | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
Gas (Mcf): | | | | | | | | | | | | |
| Permian Basin | | | 15,389 | | | | 13,724 | | | | 15,260 | | | | 13,717 | |
| Louisiana | | | 22,530 | | | | 32,435 | | | | 32,859 | | | | 40,478 | |
| Austin Chalk (Trend) | | | 2,011 | | | | 2,445 | | | | 2,239 | | | | 2,196 | |
| Cotton Valley Reef Complex | | | 7,697 | | | | 7,651 | | | | 7,283 | | | | 6,750 | |
| Other | | | 451 | | | | 349 | | | | 359 | | | | 359 | |
Total | | | 48,078 | | | | 56,604 | | | | 58,000 | | | | 63,500 | |
| | | | | | | | | | | | | | | | | |
Oil (Bbls): | | | | | | | | | | | | | | | | |
| Permian Basin | | | 3,096 | | | | 3,135 | | | | 3,282 | | | | 3,077 | |
| Louisiana | | | 1,201 | | | | 1,486 | | | | 1,670 | | | | 1,826 | |
| Austin Chalk (Trend) | | | 1,672 | | | | 1,627 | | | | 1,783 | | | | 1,957 | |
| Other | | | 64 | | | | 93 | | | | 65 | | | | 65 | |
Total | | | 6,033 | | | | 6,341 | | | | 6,800 | | | | 6,925 | |
| | | | | | | | | | | | | | | | | |
Natural Gas Liquids (Bbls): | | | | | | | | | | | | | | | | |
| Permian Basin | | | 199 | | | | 226 | | | | 226 | | | | 229 | |
| Austin Chalk (Trend) | | | 265 | | | | 251 | | | | 251 | | | | 223 | |
| Other | | | 47 | | | | 149 | | | | 98 | | | | 98 | |
Total | | | 511 | | | | 626 | | | | 575 | | | | 550 | |
| | | | | | | | | | | | | | | | | |
Accounting for Derivatives
The following summarizes information concerning our net positions in open commodity derivatives applicable to periods subsequent to June 30, 2007. The settlement prices of commodity derivatives are based on NYMEX futures prices.
Collars:
| | | Gas | | | Oil | |
| | | MMBtu (a) | | | Floor | | | Ceiling | | | Bbls | | | Floor | | | Ceiling | |
| Production Period: | | | | | | | | | | | | | | | | | | |
3rd Quarter 2007 | | | 459,000 | | | $ | 4.00 | | | $ | 5.18 | | | | 141,000 | | | $ | 23.00 | | | $ | 25.20 | |
4th Quarter 2007 | | | 459,000 | | | $ | 4.00 | | | $ | 5.18 | | | | 141,000 | | | $ | 23.00 | | | $ | 25.20 | |
2008 | | | 1,279,000 | | | $ | 4.00 | | | $ | 5.15 | | | | 392,000 | | | $ | 23.00 | | | $ | 25.07 | |
| | | | 2,197,000 | | | | | | | | | | | | 674,000 | | | | | | | | | |
Swaps:
| | | Gas | | | Oil | | | | |
| | | MMBtu (a) | | | Price | | | Bbls | | | Price | |
| Production Period: | | | | | | | | | | | | |
3rd Quarter 2007 | | | 2,400,000 | | | $ | 8.34 | | | | 75,000 | | | $ | 72.75 | |
4th Quarter 2007 | | | 2,400,000 | | | $ | 8.34 | | | | 225,000 | | | $ | 72.75 | |
2008 | | | 6,300,000 | | | $ | 8.19 | | | | 720,000 | | | $ | 65.60 | |
| | | | 11,100,000 | | | | | | | | 1,020,000 | | | | | |
| | | | | | | | | | | | | | | | | |
(a) One MMBtu equals one Mcf at a Btu factor of 1,000.
In January 2007, we terminated certain fixed-price oil swaps covering 150,000 barrels at a price of $55.35 per barrel, from July 2007 through August 2007, resulting in an aggregate gain of approximately $2.6 million, which will be collected from the counterparty monthly during 2007.
In July 2006, we also terminated certain fixed-price oil swaps covering 150,000 barrels at a price of $80.45 per barrel, from July 2007 through December 2007, resulting in an aggregate loss of approximately $1.2 million, which will be paid to the counterparty monthly during 2007.
Interest Rates
The following summarizes information concerning our net positions in open interest rate swaps applicable to periods subsequent to June 30, 2007.
| | | Principal | | | Fixed Libor | |
| | | Balance | | | Rates | |
| Period: | | | | | | |
July 1, 2007 to November 1, 2007 | | $ | 50,000,000 | | | | 5.19 | % |
November 1, 2007 to November 1, 2008 | | $ | 45,000,000 | | | | 5.73 | % |
We did not designate any of the derivatives shown in the preceding tables as cash flow hedges under SFAS 133; 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).
