EXHIBIT 99.1
CLAYTON WILLIAMS ENERGY, INC.
FINANCIAL GUIDANCE DISCLOSURES FOR 2008
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, 2008. 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”, approximately 22% of our planned 2008 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, 2008. 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, 2008 |
| | Estimated | | Estimated | | Estimated | | Estimated |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | (Dollars in thousands, except per unit data) |
| Average Daily Production: | | | | | | | |
| Gas (Mcf) | 57,000 to 61,000 | | 54,000 to 58,000 | | 54,250 to 58,250 | | 55,500 to 59,500 |
| Oil (Bbls) | 6,750 to 6,950 | | 7,600 to 7,800 | | 8,025 to 8,225 | | 8,625 to 8,825 |
| Natural gas liquids (Bbls) | 575 to 625 | | 575 to 625 | | 550 to 600 | | 550 to 600 |
| Total gas equivalents (Mcfe) | 100,950 to 106,450 | | 103,050 to 108,550 | | 105,700 to 111,200 | | 110,550 to 116,050 |
| | | | | | | | |
| Differentials: | | | | | | | |
| Gas (Mcf) | $(0.40) to $(0.70) | | $(0.40) to $(0.70) | | $(0.40) to $(0.70) | | $(0.40) to $(0.70) |
| Oil (Bbls) | $(2.80) to $(3.40) | | $(2.80) to $(3.40) | | $(2.80) to $(3.40) | | $(2.80) to $(3.40) |
| Natural gas liquids (Bbls) | $(22.00) to $(28.00) | | $(22.00) to $(28.00) | | $(22.00) to $(28.00) | | $(22.00) to $(28.00) |
| | | | | | | | |
| Costs Variable by Production ($/Mcfe): | | | | | | | |
| Production expenses (including | | | | | | | |
| production taxes) | $2.10 to $2.30 | | $2.10 to $2.30 | | $2.10 to $2.30 | | $2.00 to $2.20 |
| DD&A – Oil and gas properties | $2.00 to $2.30 | | $2.00 to $2.30 | | $2.00 to $2.30 | | $2.00 to $2.30 |
| | | | | | | | |
| Other Revenues (Expenses): | | | | | | | |
| Natural gas services: | | | | | | | |
| Revenues | $2,900 to $3,100 | | $2,900 to $3,100 | | $2,900 to $3,100 | | $2,900 to $3,100 |
| Operating costs | $(2,800) to $(3,000) | | $(2,800) to $(3,000) | | $(2,800) to $(3,000) | | $(2,800) to $(3,000) |
| Exploration costs: | | | | | | | |
| Abandonments and impairments | $(1,000) to $(3,000) | | $(1,000) to $(3,000) | | $(1,000) to $(3,000) | | $(1,000) to $(3,000) |
| Seismic and other | $(1,000) to $(2,000) | | $(500) to $(2,500) | | $(500) to $(2,500) | | $(500) to $(2,500) |
DD&A – Other (a) | $(250) to $(350) | | $(250) to $(350) | | $(250) to $(350) | | $(250) to $(350) |
General and administrative (a) | $(4,750) to $(4,950) | | $(5,300) to $(5,500) | | $(4,600) to $(4,800) | | $(5,300) to $(5,500) |
Interest expense (a) | $(6,800) to $(7,000) | | $(7,000) to $(7,200) | | $(7,150) to $(7,350) | | $(7,250) to $(7,450) |
| Other income (expense) | $250 to $350 | | $250 to $350 | | $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 | 11,400 to 12,000 | | 11,400 to 12,000 | | 11,400 to 12,000 | | 11,400 to 12,000 |
| Diluted | 11,400 to 12,600 | | 11,400 to 12,600 | | 11,400 to 12,600 | | 11,400 to 12,600 |
| | | | | | | | |
(a) Excludes amounts derived from Larclay JV.
Capital Expenditures
The following table sets forth, by area, certain information about our planned exploration and development activities for 2008.
| | | Total | | | | |
| | | Planned | | | | |
| | | Expenditures | | | | |
| | | Year Ending | | | Percentage | |
| | | December 31, 2008 | | | of Total | |
| | | (In thousands) | | | | |
| Permian Basin | | $ | 74,300 | | | | 33 | % |
| Austin Chalk (Trend) | | | 59,300 | | | | 27 | % |
| North Louisiana | | | 47,900 | | | | 22 | % |
| East Texas Bossier | | | 17,200 | | | | 8 | % |
| South Louisiana | | | 13,400 | | | | 6 | % |
| Utah/California | | | 8,300 | | | | 4 | % |
| Other | | | 100 | | | | - | |
| | | $ | 220,500 | | | | 100 | % |
Our actual expenditures during fiscal 2008 may be substantially higher or lower than these estimates since our plans for exploration and development activities may change during the year. Other factors, such as prevailing product prices and the availability of capital resources, could also increase or decrease the ultimate level of expenditures during fiscal 2008.
In 2008, we plan to allocate a majority of our capital resources to developmental drilling activities in oil-prone areas such as the Permian Basin and the Austin Chalk (Trend). In addition, we plan to continue drilling developmental gas wells in North Louisiana, primarily on our Terryville prospect. Based on these current estimates, approximately 78% of our expenditures for exploration and development activities for fiscal 2008 will relate to developmental prospects, as compared to an estimated 50% in fiscal 2007.
Supplementary Information
Oil and Gas Production
The following table summarizes, by area, our estimated daily net production for each quarter during the year ending December 31, 2008. These estimates represent the approximate mid-point of the estimated production range.
| | | Daily Net Production for 2008 | |
| | | Estimated | | | Estimated | | | Estimated | | | Estimated | |
| | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| Gas (Mcf): | | | | | | | | | | | | |
Permian Basin | | | 14,200 | | | | 14,175 | | | | 15,728 | | | | 17,739 | |
North Louisiana | | | 11,778 | | | | 10,747 | | | | 11,163 | | | | 12,304 | |
South Louisiana | | | 24,256 | | | | 22,934 | | | | 21,728 | | | | 20,185 | |
Austin Chalk (Trend) | | | 2,111 | | | | 2,001 | | | | 1,925 | | | | 1,913 | |
Cotton Valley Reef Complex | | | 6,322 | | | | 5,824 | | | | 5,391 | | | | 5,033 | |
Other | | | 333 | | | | 319 | | | | 315 | | | | 326 | |
Total | | | 59,000 | | | | 56,000 | | | | 56,250 | | | | 57,500 | |
| | | | | | | | | | | | | | | | | |
| Oil (Bbls): | | | | | | | | | | | | | | | | |
Permian Basin | | | 3,255 | | | | 3,901 | | | | 4,250 | | | | 4,544 | |
North Louisiana | | | 389 | | | | 341 | | | | 315 | | | | 337 | |
South Louisiana | | | 1,011 | | | | 1,033 | | | | 880 | | | | 913 | |
Austin Chalk (Trend) | | | 2,128 | | | | 2,359 | | | | 2,615 | | | | 2,866 | |
Other | | | 67 | | | | 66 | | | | 65 | | | | 65 | |
Total | | | 6,850 | | | | 7,700 | | | | 8,125 | | | | 8,725 | |
| | | | | | | | | | | | | | | | | |
| Natural Gas Liquids (Bbls): | | | | | | | | | | | | | | | | |
Permian Basin | | | 166 | | | | 165 | | | | 163 | | | | 163 | |
Austin Chalk (Trend) | | | 234 | | | | 226 | | | | 227 | | | | 216 | |
Other | | | 200 | | | | 209 | | | | 185 | | | | 196 | |
Total | | | 600 | | | | 600 | | | | 575 | | | | 575 | |
Accounting for Derivatives
The following summarizes information concerning our net positions in open commodity derivatives applicable to periods subsequent to December 31, 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: | | | | | | | | | | | | | | | | | | |
1st Quarter 2008 | | | 434,000 | | | $ | 4.00 | | | $ | 5.15 | | | | 132,000 | | | $ | 23.00 | | | $ | 25.07 | |
2nd Quarter 2008 | | | 426,000 | | | $ | 4.00 | | | $ | 5.15 | | | | 132,000 | | | $ | 23.00 | | | $ | 25.07 | |
3rd Quarter 2008 | | | 419,000 | | | $ | 4.00 | | | $ | 5.15 | | | | 128,000 | | | $ | 23.00 | | | $ | 25.07 | |
| | | | 1,279,000 | | | | | | | | | | | | 392,000 | | | | | | | | | |
Swaps:
| | | Gas | | | Oil | |
| | | MMBtu (a) | | | Price | | | Bbls | | | Price | |
| Production Period: | | | | | | | | | | | | |
1st Quarter 2008 | | | 1,800,000 | | | $ | 8.26 | | | | 380,000 | | | $ | 91.85 | |
2nd Quarter 2008 | | | 1,500,000 | | | $ | 8.16 | | | | 330,000 | | | $ | 79.84 | |
3rd Quarter 2008 | | | 1,500,000 | | | $ | 8.16 | | | | 310,000 | | | $ | 78.96 | |
4th Quarter 2008 | | | 1,500,000 | | | $ | 8.16 | | | | 400,000 | | | $ | 82.21 | |
2009 | | | - | | | $ | - | | | | 1,440,000 | | | $ | 85.30 | |
| | | | 6,300,000 | | | | | | | | 2,860,000 | | | | | |
| | | | | | | | | | | | | | | | | |
In September 2007, we terminated certain fixed-priced oil swaps covering 270,000 barrels at a price of $78.64 from January 2008 through March 2008 and a price of $76.65 from April 2008 through December 2008, resulting in an aggregate loss of approximately $3.3 million, which will be paid to the counterparty monthly during 2008.
Interest Rates
The following summarizes information concerning our net positions in open interest rate swaps applicable to periods subsequent to December 31, 2007.
Interest Rate Swaps:
| | | Principal | | | Fixed Libor | |
| | | Balance | | | Rates | |
| Period: | | | | | | |
January 1, 2008 to September 24, 2008 | | $ | 100,000,000 | | | | 4.73 | % |
January 1, 2008 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).
