CLAYTON WILLIAMS ENERGY, INC.
FINANCIAL GUIDANCE DISCLOSURES FOR 2011
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, 2011. 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, 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 expenses related to Desta Drilling, L.P., a wholly-owned subsidiary of the Company which provides contract drilling services for the Company. |
Summary of Estimates
The following table sets forth actual and certain estimates being used by us to model our anticipated results of operations for each quarter during the fiscal year ending December 31, 2011. 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 “Supplementary Information.”
| | | Year Ending December 31, 2011 |
| | | Actual | | Estimated | | Estimated | | Estimated |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | | (Dollars in thousands, except per unit data) |
| Average Daily Production: | | | | | | | | |
| Oil (Bbls) | | | 9,989 | | 10,400 to 10,600 | | 11,500 to 11,700 | | 13,000 to 13,200 |
| Gas (Mcf) | | | 23,478 | | 22,000 to 26,000 | | 21,000 to 25,000 | | 21,500 to 25,500 |
| Natural gas liquids (Bbls) | | | 922 | | 825 to 925 | | 800 to 900 | | 750 to 850 |
| Total oil equivalents (BOE) | | | 14,824 | | 14,892 to 15,858 | | 15,800 to 16,767 | | 17,333 to 18,300 |
| | | | | | | | | | |
| Differentials: | | | | | | | | | |
| Oil (Bbls) | | $ | (5.17 | ) | $(4.50) to $(5.50) | | $(4.50) to $(5.50) | | $(4.50) to $(5.50) |
| Gas (Mcf) | | $ | 1.04 | | $0.15 to $0.45 | | $0.15 to $0.45 | | $0.15 to $0.45 |
| Natural gas liquids (Bbls) | | $ | (45.76 | ) | $(42.00) to $(48.00) | | $(42.00) to $(48.00) | | $(42.00) to $(48.00) |
| | | | | | | | | | |
| Costs Variable by Production ($/BOE): | | | | | | | | | |
| Production expenses (excluding | | | | | | | | | |
production taxes) (a) | | $ | 14.67 | | $14.00 to $15.00 | | $13.75 to $14.75 | | $13.00 to $14.00 |
| DD&A – Oil and gas properties | | $ | 17.46 | | $17.50 to $18.50 | | $17.50 to $18.50 | | $17.50 to $18.50 |
| | | | | | | | | | |
| Other Revenues (Expenses): | | | | | | | | | |
| Natural gas services: | | | | | | | | | |
| Revenues | | $ | 409 | | $450 to $550 | | $450 to $550 | | $450 to $550 |
| Operating costs | | $ | (263 | ) | $(300) to $(500) | | $(300) to $(500) | | $(300) to $(500) |
| Exploration costs: | | | | | | | | | |
| Abandonments and impairments | | $ | (877 | ) | $(500) to $(2,500) | | $(500) to $(2,500) | | $(500) to $(2,500) |
| Seismic and other | | $ | (1,278 | ) | $(250) to $(750) | | $(250) to $(750) | | $(250) to $(750) |
DD&A – Other (b) | | $ | (193 | ) | $(250) to $(350) | | $(250) to $(350) | | $(250) to $(350) |
General and administrative (b) (c) | | $ | (5,025 | ) | $(7,800) to $(8,000) | | $(7,300) to $(7,500) | | $(7,350) to $(7,550) |
| Interest expense | | $ | (6,412 | ) | $(8,900) to $(9,100) | | $(9,400) to $(9,600) | | $(8,600) to $(8,800) |
| Other income (expense) | | $ | 1,087 | | $450 to $550 | | $450 to $550 | | $450 to $550 |
| Gain (loss) on sales of assets, net | | $ | 13,376 | | - | | - | | - |
| | | | | | | | | | |
| | | | | | | | | | |
| Effective Federal and State Income | | | | | | | | | |
| Tax Rate: | | | | | | | | | |
| Current | | | 0 | % | 0% | | 0% | | 0% |
| Deferred | | | 36 | % | 36% | | 36% | | 36% |
| | | | | | | | | | |
| Weighted Average Shares Outstanding | | | | | | | | | |
| (In thousands): | | | | | | | | | |
| Basic | | | 12,156 | | 12,163 | | 12,163 | | 12,163 |
| Diluted | | | 12,156 | | 12,163 | | 12,163 | | 12,163 |
| | | | | | | | | | |
| (a) | Our current guidance for production expenses excludes production taxes. Historically, production taxes have ranged from 5% to 6 % of oil and gas sales. |
| (b) | Excludes amounts derived from Desta Drilling, L.P. |
| (c) | Excludes non-cash employee compensation. |
Capital Expenditures
The following table sets forth, by area, our actual expenditures for exploration and development activities for the first three months of 2011 and our planned expenditures for the year ending December 31, 2011.
| | | Actual | | | Planned | | | | |
| | | Expenditures | | | Expenditures | | | 2011 | |
| | | Three Months Ended | | | Year Ended | | | Percentage | |
| | | March 31, 2011 | | | December 31, 2011 | | | of Total | |
| | | (In thousands) | | | | |
| Permian Basin | | $ | 68,500 | | | $ | 337,900 | | | | 83 | % |
| Giddings Area: | | | | | | | | | | | | |
Austin Chalk/Eagle Ford Shale | | | 14,200 | | | | 50,100 | | | | 12 | % |
Deep Bossier | | | 200 | | | | 13,900 | | | | 3 | % |
| South Louisiana | | | 1,800 | | | | 4,200 | | | | 1 | % |
| Other | | | 3,100 | | | | 3,800 | | | | 1 | % |
| | | $ | 87,800 | | | $ | 409,900 | | | | 100 | % |
We currently plan to spend approximately $409.9 million on exploration and development activities in fiscal 2011, as compared to our previous estimate of $381.8 million. Most of the increase is due to additional drilling within the Permian Basin. Our actual expenditures during fiscal 2011 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 2011. Based on these current estimates, approximately 95% of our planned expenditures for exploration and development activities for fiscal 2011 will relate to developmental prospects, as compared to approximately 95% in fiscal 2010.
In April 2011, we committed to purchase two drilling rigs for our Desta Drilling fleet at a cost of approximately $15.3 million.
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, 2011. These estimates represent the approximate mid-point of the estimated production range.
| | | Daily Net Production for 2011 | |
| | | Actual | | | Estimated | | | Estimated | | | Estimated | |
| | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| Oil (Bbls): | | | | | | | | | | | | |
Permian Basin | | | 6,177 | | | | 6,703 | | | | 7,917 | | | | 9,405 | |
Austin Chalk/Eagle Ford Shale | | | 3,329 | | | | 3,258 | | | | 3,217 | | | | 3,424 | |
South Louisiana | | | 414 | | | | 484 | | | | 412 | | | | 217 | |
Other | | | 69 | | | | 55 | | | | 54 | | | | 54 | |
Total | | | 9,989 | | | | 10,500 | | | | 11,600 | | | | 13,100 | |
| | | | | | | | | | | | | | | | | |
| Gas (Mcf): | | | | | | | | | | | | | | | | |
Permian Basin | | | 13,920 | | | | 13,901 | | | | 13,967 | | | | 15,293 | |
Giddings Area: | | | | | | | | | | | | | | | | |
Austin Chalk/Eagle Ford Shale | | | 1,940 | | | | 1,934 | | | | 1,837 | | | | 1,772 | |
Cotton Valley Reef Complex | | | 2,953 | | | | 2,593 | | | | 2,446 | | | | 2,315 | |
South Louisiana | | | 3,149 | | | | 3,396 | | | | 2,837 | | | | 2,391 | |
Other | | | 1,516 | | | | 2,176 | | | | 1,913 | | | | 1,729 | |
Total | | | 23,478 | | | | 24,000 | | | | 23,000 | | | | 23,500 | |
| | | | | | | | | | | | | | | | | |
| Natural Gas Liquids (Bbls): | | | | | | | | | | | | | | | | |
Permian Basin | | | 618 | | | | 611 | | | | 589 | | | | 539 | |
Austin Chalk/Eagle Ford Shale | | | 226 | | | | 198 | | | | 196 | | | | 196 | |
Other | | | 78 | | | | 66 | | | | 65 | | | | 65 | |
Total | | | 922 | | | | 875 | | | | 850 | | | | 800 | |
Accounting for Derivatives
The following summarizes information concerning our net positions in open commodity derivatives applicable to periods subsequent to March 31, 2011. The settlement prices of commodity derivatives are based on NYMEX futures prices.
Swaps:
| | | Oil | | | Gas | |
| | | Bbls | | | Price | | | MMBtu (a) | | | Price | |
| Production Period: | | | | | | | | | | | | |
2nd Quarter 2011 | | | 632,000 | | | $ | 83.71 | | | | 1,650,000 | | | $ | 7.07 | |
3rd Quarter 2011 | | | 547,000 | | | $ | 83.78 | | | | 1,560,000 | | | $ | 7.07 | |
4th Quarter 2011 | | | 540,000 | | | $ | 83.78 | | | | 1,500,000 | | | $ | 7.07 | |
| 2012 | | | 1,864,000 | | | $ | 93.65 | | | | - | | | $ | - | |
| 2013 | | | 480,000 | | | $ | 96.70 | | | | - | | | $ | - | |
| | | | 4,063,000 | | | | | | | | 4,710,000 | | | | | |
| | | | | | | | | | | | | | | | | |
(a) One MMBtu equals one Mcf at a Btu factor of 1,000. | |
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.
