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Clayton Williams Energy Provides Financial Guidance for 2014

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Clayton Williams Energy, Inc. (NYSE:CWEI) today filed a Form 8-K with the Securities and Exchange Commission to provide financial guidance disclosures for the year ending December 31, 2014.

A copy of these disclosures accompanies this release or may be obtained electronically by accessing the Company’s website at www.claytonwilliams.com.

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 oil and natural gas 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 environment 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.

FINANCIAL GUIDANCE DISCLOSURES FOR 2014

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 the year ending December 31, 2014. 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 this period 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 operating expenses related to Drilling Rig or Midstream Services.

The accompanying guidance does not include any divestitures, joint venture arrangements or similar structures that have not been consummated.

Summary of Estimates

The following table sets forth certain estimates being used to model our anticipated results of operations for the fiscal year ending December 31, 2014. Each range of values provided represents the expected low and high estimates for such financial or operating factor.

Actual Actual Estimated Ranges Estimated Ranges
Three Months Ended Nine Months Ended Three Months Ended Fiscal Year Ending
September 30, 2014 September 30, 2014 December 31, 2014 December 31, 2014
(Dollars in thousands, except per unit data)
Average Daily Production:
Oil (Bbls) 11,304 11,330 12,400 to 12,600 11,500 to 11,700
Gas (Mcf) 16,304 15,725 15,500 to 16,500 15,500 to 16,500
Natural gas liquids (Bbls) 1,565 1,590

1,600 to 1,700

1,550 to 1,650

Total oil equivalents (BOE) 15,586 15,541

16,583 to 17,050

15,633 to 16,100

Price Differentials to NYMEX:
Oil 93 % 94 % 93% to 96% 93% to 96%
Gas 103 % 104 % 90% to 100% 90% to 100%
Natural gas liquids (based on oil) 33 % 34 % 30% to 40% 30% to 40%
Other Costs and Expenses:
Production expenses:
Direct costs ($/BOE) $ 14.19 $ 14.16 $ 14.00 to 15.00 $ 14.00 to 15.00
Production taxes (% of sales) 5 % 5 % 5% to 6% 5% to 6%
General and Administrative:
Excluding non-cash compensation $ 7,206 $ 24,001 $ 8,000 to 10,000 $ 32,000 to 34,000
Non-cash compensation $ (6,395 ) $ 9,979 $ 500 to 1,000 $ 10,500 to 11,000
DD&A:
Oil and gas ($/BOE) $ 23.78 $ 24.31 $ 24.00 to 26.00 $ 24.00 to 26.00
Other $ 2,932 $ 9,109 $ 2,500 to 3,500 $ 11,600 to 12,600
Exploration costs:
Abandonments and impairments $ 2,026 $ 8,752 $ 2,000 to 3,000 $ 10,800 to 11,800
Seismic and other $ 247 $ 1,955 $ 500 to 1,000 $ 2,500 to 3,000
Interest expense (cash rates):
$600 million Senior Notes due 2019 7.75% 7.75% 7.75% 7.75%
Bank credit facility

LIBOR plus

(150 to 250 bps)

LIBOR plus

(150 to 250 bps)

LIBOR plus

(150 to 250 bps)

LIBOR plus

(150 to 250 bps)

Effective Federal and State Income Tax Rate:

Current 0% 0% 0% 0%
Deferred 36% 36% 37% 37%

Current estimates of our average daily production, as indicated by the mid-point of ranges set forth in the above table for the year ending December 31, 2014, differ from the corresponding mid-points shown in our previous guidance, as follows: Oil – down 550 Bbls; Gas – up 500 Mcf; NGL – up 50 Bbls; and Total – down 417 BOE. The 3% downward revision in estimated 2014 oil production was due to production delays from certain wells in our Delaware Basin and Eagle Ford Shale plays.

Supplemental Analysis

The following table compares our estimated 2014 average daily production to our 2013 production, with both periods adjusted on a pro forma basis for the sale of our Andrews County assets in April 2013 and certain non-core Eagle Ford Shale/Austin Chalk assets in March 2014.

Average Daily Production (BOE)
As Reported Pro Forma Pro Forma Pro Forma %
2013 2013 2014 (E) Change
Delaware Basin 2,730 2,730 4,400 61 %
Eagle Ford Shale 1,168 551 2,600 372 %
3,898 3,281 7,000 113 %
Other 10,501 9,935 8,800 (11 )%
14,399 13,216 15,800 20 %

Capital Expenditures

The following table sets forth, by area, our actual expenditures for the first nine months of 2014 and our planned capital expenditures for the year ending December 31, 2014.

Actual Planned
Expenditures Expenditures 2014
Nine Months Ended Year Ending Percentage
September 30, 2014 December 31, 2014 of Total
(In thousands)
Drilling and Completion:
Permian Basin Area:
Delaware Basin $ 105,300 $ 149,400 37 %
Other 19,900 25,800 6 %
Austin Chalk/Eagle Ford Shale 107,000 158,200 40 %
Other 6,400 11,800 3 %
238,600 345,200 86 %
Leasing and seismic 43,200 55,900 14 %
Exploration and development $ 281,800 $ 401,100 100 %

We currently plan to spend approximately $401.1 million on exploration and development activities during fiscal 2014, down 9% from our previous guidance of $440 million. The reduction in planned capital expenditures for fiscal 2014 resulted from not adding a rig in the fourth quarter of 2014 in the Delaware Basin as previously planned and we encountered drilling and completion delays during the third quarter of 2014. Our actual expenditures during 2014 may vary significantly from these estimates since our plans for exploration and development activities may change during the remainder of the year. Factors, such as product prices, changes in operating margins and the availability of capital resources and other factors, could increase or decrease our actual expenditures during the remainder of fiscal 2014.

Accounting for Derivatives

The following summarizes information concerning our net positions in open commodity derivatives applicable to periods subsequent to September 30, 2014. The settlement prices of commodity derivatives are based on NYMEX futures prices.

Swaps:

Oil
Bbls Price
Production Period:
4th Quarter 2014 503,200 $ 96.92
503,200

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 and comprehensive income (loss).

Volumetric production payment

In March 2012, we entered into a volumetric production payment (“VPP”) with a third party. Under the terms of the VPP, we conveyed a term overriding royalty interest covering approximately 725,000 barrels of oil equivalents (“BOE”) of estimated future oil and gas production from certain properties related to production months from March 2012 through December 2019. The scheduled remaining volumes for production months from October 2014 through December 2019 are shown below.

Oil Gas
Bbls Mcf
Production Period:

2014

24,469 11,784

2015

88,954 60,218
2016 64,808 112,928
2017 56,785 96,792

2018

49,455 84,734
2019 43,820 72,874
328,291 439,330

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