Clayton Williams Energy (CWEI) 8-K Clayton Williams Energy Announces Third Quarter 2011 Financial Results

Exhibit 99.1

Clayton Williams Energy Announces Third Quarter 2011 Financial Results

MIDLAND, Texas--(BUSINESS WIRE)--October 27, 2011--Clayton Williams Energy, Inc. (the “Company”) (NASDAQ:CWEI) today reported its financial results for the third quarter of 2011.

Financial Results for the Third Quarter of 2011

Net income attributable to Company stockholders for the third quarter of 2011 (“3Q11”) was $74.5 million, or $6.13 per share, as compared to net income of $11.6 million, or $.96 per share, for the third quarter of 2010 (“3Q10”). Cash flow from operations for 3Q11 was $55.6 million as compared to $57.5 million for 3Q10.

For the nine months ended September 30, 2011, net income attributable to Company stockholders was $109.3 million, or $8.99 per share, as compared to net income of $42.3 million, or $3.48 per share, for the same period in 2010. Cash flow from operations for the nine-month period in 2011 was $175.3 million as compared to $154.2 million during the same period in 2010.

The key factors affecting the comparability of financial results for 3Q11 versus 3Q10 were:

• Gain on derivatives for 3Q11 was $92.3 million ($91.1 million non-cash mark-to-market gain and a $1.2 million realized gain on settled contracts) versus a loss in 3Q10 of $4 million ($8 million non-cash mark-to-market loss and a $4 million realized gain on settled contracts). See accompanying tables for additional information about the Company’s accounting for derivatives.
• Oil and gas sales increased $17.8 million in 3Q11 versus 3Q10. Price variances accounted for an $18.3 million increase, offset in part by a $500,000 decrease due to production variances. Average realized oil prices were $89.36 per barrel in 3Q11 versus $73.18 per barrel in 3Q10, and average realized gas prices were $5.46 per Mcf in 3Q11 versus $4.56 per Mcf in 3Q10.
• Oil production increased 3% in 3Q11 versus 3Q10 while gas production declined 13%. Oil and gas production per barrel of oil equivalent (“BOE”) decreased 4% in 3Q11 as compared to 3Q10. Oil production increased to 945,000 barrels, or 10,272 barrels per day, as compared to 915,000 barrels, or 9,946 barrels per day, while gas production declined to 2.2 Bcf, or 23,859 Mcf per day as compared to 2.5 Bcf or 27,500 Mcf per day for 3Q10. The increase in oil production and the decline in gas production are indicative of the Company’s current emphasis on the development of oil reserves in the Permian Basin.
• Production costs increased 18% from $20.5 million in 3Q10 to $24.3 million in 3Q11 due to a combination of more producing wells, rising costs of field services and increased production taxes on higher oil and gas sales.
• Interest expense increased to $8.7 million in 3Q11 compared to $6 million in 3Q10 due in part to the increase in the total aggregate principal amount of the Company’s Senior Notes.
• G&A expenses were $7.1 million in 3Q11 versus $8.7 million in 3Q10. Non-cash employee compensation expense from incentive compensation plans accounted for $1.1 million in 3Q11 versus $3 million in 3Q10. Excluding non-cash employee compensation expense, G&A expenses increased 4% in 3Q11 compared to 3Q10.
• Non-cash impairments of property and equipment were $5 million in 3Q11 versus $794,000 in 3Q10. The 3Q11 impairment related to certain non-core oil and gas properties.

Comparisons to Guidance

Oil and gas production for 3Q11 was 14,912 BOE per day, 6% above the mid-point of the Company’s guidance range of 14,075 BOE per day. More than half of the variance was attributable to higher than forecasted oil production from the Company’s Austin Chalk drilling program.

Monetization of Oil Hedges

In October 2011, the Company terminated substantially all of its existing 2012 and 2013 oil hedges for cash proceeds of $50 million. The terminated contracts covered 2,649,000 barrels of oil production for 2012 and 1,189,000 barrels for 2013. Proceeds from the termination of these contracts were used to repay a portion of the Company’s outstanding bank indebtedness.

Scheduled Conference Call

The Company will host a conference call to discuss these results and other forward-looking items today, October 27th at 1:30 p.m. CT (2:30 p.m. ET). The dial-in conference number is: 800-901-5213, passcode 28983054. The replay will be available for one week at 888-286-8010, passcode 79342999.

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,
				2011			2010			2011			2010
REVENUES
	Oil and gas sales		$	99,752		$	81,978		$	300,488		$	237,938
	Natural gas services			334			397			1,108			1,352
	Drilling rig services			929			-			3,614			-
	Gain on sales of assets			49			2,857			14,570			3,256
		Total revenues		101,064			85,232			319,780			242,546
COSTS AND EXPENSES
	Production			24,284			20,518			75,237			62,012
	Exploration:
		Abandonments and impairments		1,256			364			2,307			6,133
		Seismic and other		1,842			1,361			5,287			3,995
	Natural gas services			233			297			781			951
	Drilling rig services			1,673			123			4,378			1,204
	Depreciation, depletion and amortization			25,901			25,223			74,987			76,272
	Impairment of property and equipment			5,035			794			9,459			11,908
	Accretion of abandonment obligations			706			659			2,077			1,953
	General and administrative			7,142			8,730			22,678			22,786
	Loss on sales of assets and impairment of inventory			114			80			417			1,523
		Total costs and expenses		68,186			58,149			197,608			188,737
		Operating income		32,878			27,083			122,172			53,809
OTHER INCOME (EXPENSE)
	Interest expense			(8,717	)		(6,040	)		(24,304	)		(18,393	)
	Loss on early extinguishment of long-term debt			(907	)		-			(5,501	)		-
	Gain (loss) on derivatives			92,286			(3,995	)		74,128			27,289
	Other			527			972			3,514			2,816
		Total other income (expense)		83,189			(9,063	)		47,837			11,712
Income before income taxes				116,067			18,020			170,009			65,521
Income tax expense				(41,544	)		(6,397	)		(60,693	)		(23,260	)
NET INCOME			$	74,523		$	11,623		$	109,316		$	42,261
Net income per common share:
	Basic		$	6.13		$	0.96		$	8.99		$	3.48
	Diluted		$	6.13		$	0.96		$	8.99		$	3.48
Weighted average common shares outstanding:
	Basic			12,163			12,146			12,160			12,146
	Diluted			12,163			12,146			12,161			12,146

CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
			September 30,			December 31,
				2011			2010
			(Unaudited)
CURRENT ASSETS
	Cash and cash equivalents		$	36,024		$	8,720
	Accounts receivable:
		Oil and gas sales		34,399			35,361
		Joint interest and other, net		10,155			9,893
		Affiliates		728			796
	Inventory			37,309			39,218
	Deferred income taxes			3,439			5,074
	Fair value of derivatives			42,642			-
	Assets held for sale			-			8,762
	Prepaids and other			16,970			5,997
				181,666			113,821
PROPERTY AND EQUIPMENT
	Oil and gas properties, successful efforts method			2,001,354			1,707,252
	Natural gas gathering and processing systems			23,619			18,153
	Contract drilling equipment			71,851			58,486
	Other			18,574			17,425
				2,115,398			1,801,316
	Less accumulated depreciation, depletion and amortization			(1,126,137	)		(1,034,227	)
		Property and equipment, net		989,261			767,089
OTHER ASSETS
	Debt issue costs, net			11,683			8,323
	Fair value of derivatives			28,754			-
	Other			3,958			1,684
				44,395			10,007
			$	1,215,322		$	890,917
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
	Accounts payable:
		Trade	$	89,551		$	74,123
		Oil and gas sales		35,612			28,920
		Affiliates		2,048			1,251
	Fair value of derivatives			-			7,224
	Accrued liabilities and other			35,125			22,202
				162,336			133,720
NON-CURRENT LIABILITIES
	Long-term debt			514,523			385,000
	Deferred income taxes			137,374			78,035
	Fair value of derivatives			-			3,409
	Other			42,108			41,301
				694,005			507,745
STOCKHOLDERS' EQUITY
	Preferred stock, par value $.10 per share			-			-
	Common stock, par value $.10 per share			1,216			1,215
	Additional paid-in capital			152,502			152,290
	Retained earnings			205,263			95,947
		Total stockholders' equity		358,981			249,452
			$	1,215,322		$	890,917

CLAYTON WILLIAMS ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
			2011			2010			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income	$	74,523		$	11,623		$	109,316		$	42,261
	Adjustments to reconcile net income to cash
	provided by operating activities:
	Depreciation, depletion and amortization		25,901			25,223			74,987			76,272
	Impairment of property and equipment		5,035			794			9,459			11,908
	Exploration costs		1,256			364			2,307			6,133
	(Gain) loss on sales of assets and impairment of inventory, net		65			(2,777	)		(14,153	)		(1,733	)
	Deferred income tax expense		41,544			6,397			60,693			23,260
	Non-cash employee compensation		1,141			2,987			6,104			8,066
	Unrealized (gain) loss on derivatives		(91,098	)		7,997			(82,029	)		(17,874	)
	Accretion of abandonment obligations		706			659			2,077			1,953
	Amortization of debt issue costs		493			400			1,623			1,174
	Loss on early extinguishment of long-term debt		907			-			5,501			-
	Changes in operating working capital:
	Accounts receivable		(1,299	)		(3,491	)		768			1,743
	Accounts payable		(5,430	)		8,650			(4,456	)		5,247
	Other		1,819			(1,335	)		3,090			(4,242	)
	Net cash provided by operating activities		55,563			57,491			175,287			154,168
CASH FLOWS FROM INVESTING ACTIVITIES
	Additions to property and equipment		(102,193	)		(73,113	)		(282,474	)		(208,641	)
	Proceeds from sales of assets		361			2,659			12,466			75,670
	Change in equipment inventory		(1,939	)		(4,375	)		2,844			(3,075	)
	Other		(23	)		(33	)		(133	)		(131	)
	Net cash used in investing activities		(103,794	)		(74,862	)		(267,297	)		(136,177	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from long-term debt		161,500			29,000			445,366			-
	Repayments of long-term debt		(95,324	)		-			(323,500	)		(10,000	)
	Premium on early extinguishment of long-term debt		-			-			(2,765	)		-
	Proceeds from exercise of stock options		-			-			213			-
	Net cash provided by (used in) financing activities		66,176			29,000			119,314			(10,000	)
NET INCREASE IN CASH
AND CASH EQUIVALENTS			17,945			11,629			27,304			7,991
CASH AND CASH EQUIVALENTS
	Beginning of period		18,079			10,375			8,720			14,013
	End of period	$	36,024		$	22,004		$	36,024		$	22,004

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, (gain) loss on sales of assets and impairment of inventory, loss on early extinguishment of 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 abandonment obligations, 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 to EBITDAX:
			Three Months Ended						Nine Months Ended
			September 30,						September 30,
				2011			2010			2011			2010
Net income			$	74,523		$	11,623		$	109,316		$	42,261
	Interest expense			8,717			6,040			24,304			18,393
	Income tax expense			41,544			6,397			60,693			23,260
	Exploration:
		Abandonments and impairments		1,256			364			2,307			6,133
		Seismic and other		1,842			1,361			5,287			3,995
	Net (gain) loss on sales of assets and impairment of inventory			65			(2,777	)		(14,153	)		(1,733	)
	Loss on early extinguishment of debt			907			-			5,501			-
	Depreciation, depletion and amortization			25,901			25,223			74,987			76,272
	Impairment of property and equipment			5,035			794			9,459			11,908
	Accretion of abandonment obligations			706			659			2,077			1,953
	Non-cash employee compensation			1,141			2,987			6,104			8,066
	Non-cash changes in fair value of derivatives			(91,098	)		7,997			(82,029	)		(17,874	)
			$	70,539		$	60,668		$	203,853		$	172,634

Clayton Williams Energy, Inc.
Summary Production and Price Data
(Unaudited)
				Three Months Ended						Nine Months Ended
				September 30,						September 30,
					2011			2010			2011			2010
Oil and Gas Production Data:
	Oil (MBbls)				945			915			2,730			2,475
	Gas (MMcf)				2,195			2,530			6,569			8,665
	Natural gas liquids (MBbls)				61			90			217			207
	Total (MBOE)				1,372			1,427			4,042			4,126
Average Realized Prices (a):
	Oil ($/Bbl)			$	89.36		$	73.18		$	92.70		$	74.39
	Gas ($/Mcf)			$	5.46		$	4.56		$	5.42		$	5.21
	Natural gas liquids ($/Bbl)			$	54.36		$	36.88		$	53.00		$	40.38
Gain (Loss) on settled derivative contracts (a):
	($ in thousands, except per unit)
	Oil:
	Net realized loss			$	(3,292	)	$	(227	)	$	(21,989	)	$	(3,098	)
	Per unit produced ($/Bbl)			$	(3.48	)	$	(0.25	)	$	(8.05	)	$	(1.25	)
	Gas:
	Net realized gain			$	4,481		$	4,230		$	14,088		$	12,514
	Per unit produced ($/Mcf)			$	2.04		$	1.67		$	2.14		$	1.44
Average Daily Production:
	Oil (Bbls):
		Permian Basin Area:
		West Texas Andrews			2,768			2,246			2,625			1,609
		West Texas Reeves			170			-			61			-
		West Texas Other			3,384			3,846			3,378			3,860
		Austin Chalk/ Eagle Ford Shale			3,458			3,044			3,418			2,827
		South Louisiana			413			727			440			596
		Other			79			83			78			174		(b)
			Total		10,272			9,946			10,000			9,066
	Natural Gas (Mcf):
		Permian Basin Area:
		West Texas Andrews			1,116			962			1,237			690
		West Texas Reeves			27			-			20			-
		West Texas Other			11,769			12,969			11,754			13,012
		Giddings Area:
		Austin Chalk/ Eagle Ford Shale			1,958			2,325			2,029			2,222
		Cotton Valley Reef Complex			2,955			3,708			2,946			3,770
		South Louisiana			5,257			5,650			4,854			6,024
		Other			777			1,886			1,222			6,022		(b)
			Total		23,859			27,500			24,062			31,740
	Natural gas liquids (Bbls):
		Permian Basin Area:
		West Texas Andrews			124			310			277			184
		West Texas Other			242			225			223			204
		Austin Chalk/ Eagle Ford Shale			215			258			208			238
		South Louisiana			56			119			54			95
		Other			26			66			33			37		(b)
			Total		663			978			795			758
				Three Months Ended						Nine Months Ended
				September 30,						September 30,
					2011			2010			2011			2010
Oil and Gas Costs ($/BOE Produced):
	Production costs			$	17.70		$	14.38		$	18.61		$	15.03
	Production costs (excluding production taxes)			$	13.84		$	11.37		$	14.77		$	11.97
	Oil and gas depletion			$	18.25		$	17.27		$	18.01		$	17.95
General and Administrative Expenses (in thousands):
	Excluding non-cash employee compensation			$	6,001		$	5,743		$	16,574		$	14,720
	Non-cash employee compensation (c)				1,141			2,987			6,104			8,066
	Total			$	7,142		$	8,730		$	22,678		$	22,786
(a)	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 2011 or 2010 derivative contracts as cash flow hedges. This means that the Company's derivatives for 2011 and 2010 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.
(b)	Other for 2010 includes production attributable to sold properties in North Louisiana as follows: Nine months: Oil 94, Gas 4,790, NGL 10.
(c)	Non-cash employee compensation relates to the Company's non-equity award plans.

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, 2011.
		Oil			Gas
Swaps:		Bbls (a)	Price		MMBtu (b)	Price
	Production Period:
	4th Quarter 2011	733,949	$	87.58	1,500,000	$	7.07
	2012	107,506	$	91.15	-	$	-
	2013	95,996	$	91.15	-	$	-
	2014	85,772	$	91.15	-	$	-
	2015	76,309	$	91.15	-	$	-
	2016	28,280	$	91.15	-	$	-
		1,127,812			1,500,000
(a)	In September 2011, the Company entered into oil hedges covering 398,812 barrels of oil for production months from December 2011 through May 2016. These hedges cover production related to a volumetric production payment expected to be granted to finance the proposed merger with 24 affiliated partnerships.
(b)	One MMBtu equals one Mcf at a Btu factor of 1,000.

CONTACT:
Clayton Williams Energy, Inc.
Patti Hollums, 432-688-3419
Director of Investor Relations
e-mail: cwei@claytonwilliams.com
website: www.claytonwilliams.com
or
Michael L. Pollard, 432-688-3029
Chief Financial Officer