Clayton Williams Energy Announces 2006 Second Quarter Results.MIDLAND, Texas Midland is the county seat of Midland CountyGR6 located on the Southern Plains of the western area of the U.S. State of Texas. As of the 2006 U.S. Census estimate, the city had a total population of 102,073. -- Clayton Williams Clayton Wheat Williams, Jr. (b. 1931), a businessman from Midland, Texas, was the unsuccessful Republican gubernatorial nominee in 1990 against the Democratic State Treasurer Dorothy Ann Willis Richards even though he initially led in opinion polls by twenty points. Energy Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CWEI CWEI Combat Warfare Electronic Intelligence ) reported net income for the second quarter of 2006 of $18 million, or $1.59 per share, as compared to net income of $10 million, or $.90 per share, for the second quarter of 2005. Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses for the second quarter of 2006 was $39.5 million, as compared to $39.3 million during the same period in 2005. For the six months ended June June: see month. 30, 2006, the Company reported net income of $21.3 million, or $1.89 per share, as compared to net income of $1 million, or $.09 per share, for the same period in 2005. Cash flow from operations for the six-month period in 2006 was $77 million, as compared to $69.3 million during the same period in 2005. Oil and gas sales for the second quarter of 2006 totaled $66.4 million compared to $63.3 million for the same quarter in 2005. Of the $3.1 million increase in oil and gas sales, higher oil and gas prices accounted for an increase of $10.1 million, which was largely offset by a $7 million decrease related to lower oil and gas production volumes. Oil production for the second quarter of 2006 decreased 10% to 555,000 barrels, or 6,099 barrels per day Barrels per day (abbreviated BPD, bbl/d, bpd, bd or b/d) is a measurement used to describe the amount of crude oil (measured in barrels) produced or consumed by an entity in one day. , from 615,000 barrels, or 6,758 barrels per day in the 2005 quarter. Gas production decreased 12% to 4 Bcf, or 44,132 Mcf per day, from 4.5 Bcf, or 49,967 Mcf per day in the 2005 quarter. Average realized oil prices in the second quarter of 2006 increased 33% from $50.35 to $66.78 per barrel barrel: see English units of measurement. , while gas prices increased 2% from $6.62 to $6.78 per Mcf. Average realized prices for 2006 and 2005 exclude the effects of any gains or losses realized on commodity hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. transactions since those derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. were not designated as cash flow hedges A cash flow hedge is a hedge of the exposure to the variability of cash flow that
Production costs for the second quarter of 2006 increased 15% to $15.9 million from $13.9 million in the 2005 quarter. On an Mcfe basis, production costs increased 30% from $1.60 per Mcfe for the 2005 quarter to $2.08 per Mcfe for the second quarter of 2006. For the second quarter of 2006, the Company reported a $245,000 net gain on derivatives, consisting of a $7.8 million non-cash gain to mark the Company's derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. positions to their fair value on June 30, 2006 which was mostly offset by a $7.5 million charge for cash settlements during the quarter. For the same period in 2005, the Company reported a $9.8 million net loss on derivatives, consisting of a $3.7 million non-cash mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. loss and a $6.1 million charge for cash settlements. The Company will host a conference call to discuss these results and other forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. items today, August 3rd, at 1:30 p.m. CT (2:30 p.m. ET). The dial-in conference number is: 800-901-5213, passcode 59083952. The replay will be available for one week at 888-286-8010, passcode 12038883. To access the conference call via Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the webcast, please go to the Investor Relations Investor relations The process by which the corporation communicates with its investors. 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. Except for historical information, statements made in this release are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and the Company's future performance are subject to a wide range of business risks and uncertainties, and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, production variance The discrepancy between what a party to a lawsuit alleges will be proved in pleadings and what the party actually proves at trial. In Zoning law, an official permit to use property in a manner that departs from the way in which other property in the same locality from expectations, volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the of oil and gas prices, the need to develop and replace reserves, the substantial capital expenditures required to fund operations, exploration risks, uncertainties about estimates of reserves, competition, government regulation, costs and results of drilling new projects, and mechanical and other inherent risks associated with oil and gas production. These 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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
REVENUES
Oil and gas sales $66,443 $63,301 $126,624 $124,797
Natural gas services 2,789 2,550 5,985 5,131
Drilling rig services 374 -- 374 --
Gain on sales of property
and equipment 735 467 752 2,079
---------- ---------- ---------- ----------
Total revenues 70,341 66,318 133,735 132,007
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Production 15,931 13,856 30,896 26,427
Exploration:
Abandonments and
impairments 3,329 6,430 16,172 17,700
Seismic and other 2,587 1,665 5,688 2,453
Natural gas services 2,261 2,374 5,090 4,791
Drilling rig services 216 -- 216 --
Depreciation, depletion
and amortization 15,982 12,288 30,692 24,580
Accretion of abandonment
obligations 417 288 796 567
General and
administrative 4,252 3,134 8,319 5,652
Loss on sales of property
and equipment -- -- 13 32
---------- ---------- ---------- ----------
Total costs and expenses 44,975 40,035 97,882 82,202
---------- ---------- ---------- ----------
Operating income 25,366 26,283 35,853 49,805
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest expense (4,961) (2,566) (9,300) (4,932)
Gain (loss) on
derivatives 245 (9,837) (1,327) (44,926)
Other 450 650 1,068 1,096
---------- ---------- ---------- ----------
Total other income
(expense) (4,266) (11,753) (9,559) (48,762)
---------- ---------- ---------- ----------
Income before income taxes 21,100 14,530 26,294 1,043
Income tax expense (3,094) (4,580) (4,912) (85)
Minority interest (40) -- (40) --
---------- ---------- ---------- ----------
NET INCOME $17,966 $9,950 $21,342 $958
========== ========== ========== ==========
Net income
per common share:
Basic $1.66 $0.92 $1.97 $0.09
========== ========== ========== ==========
Diluted $1.59 $0.90 $1.89 $0.09
========== ========== ========== ==========
Weighted average
common shares
outstanding:
Basic 10,850 10,800 10,845 10,796
========== ========== ========== ==========
Diluted 11,286 11,089 11,294 11,068
========== ========== ========== ==========
CLAYTON WILLIAMS ENERGY INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 30, December 31,
2006 2005
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $16,869 $5,935
Accounts receivable:
Oil and gas sales, net 23,648 28,317
Joint interest and other, net 10,561 6,972
Affiliates 1,248 254
Inventory 46,069 43,753
Deferred income taxes 426 439
Fair value of derivatives 3,850 191
Prepaids and other 1,987 2,581
------------ ------------
104,658 88,442
------------ ------------
PROPERTY AND EQUIPMENT
Oil and gas properties,
successful efforts method 1,138,718 1,037,862
Natural gas gathering and processing
systems 18,052 18,034
Contract drilling equipment 31,607 --
Other 14,862 12,396
------------ ------------
1,203,239 1,068,292
Less accumulated depreciation,
depletion and amortization (624,914) (594,225)
------------ ------------
Property and equipment, net 578,325 474,067
------------ ------------
OTHER ASSETS
Debt issue costs 8,260 8,557
Advances to drilling rig joint venture -- 10,329
Fair value of derivatives 5,099 127
Other 15,886 5,813
------------ ------------
29,245 24,826
------------ ------------
$712,228 $587,335
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade $52,884 $59,861
Oil and gas sales 12,334 18,236
Affiliates 1,877 2,857
Current maturities of long-term debt 3,174 19
Fair value of derivatives 35,968 33,670
Accrued liabilities and other 9,952 9,611
------------ ------------
116,189 124,254
------------ ------------
NON-CURRENT LIABILITIES
Long-term debt 348,430 235,700
Deferred income taxes 41,919 37,042
Fair value of derivatives 41,755 49,705
Other 21,976 20,343
------------ ------------
454,080 342,790
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.10 per share -- --
Common stock, par value $.10 per share 1,085 1,082
Additional paid-in capital 107,431 107,108
Retained earnings 33,443 12,101
------------ ------------
141,959 120,291
------------ ------------
$712,228 $587,335
============ ============
CLAYTON WILLIAMS ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
2006 2005 2006 2005
---------- ---------- ---------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $17,966 $9,950 $21,342 $958
Adjustments to reconcile
net income to cash
provided by operating
activities:
Depreciation, depletion
and amortization 15,982 12,288 30,692 24,580
Exploration costs 3,329 6,430 16,172 17,700
Accretion of abandonment
obligations 417 288 796 567
Gain on sales
of property and
equipment, net (735) (467) (739) (2,047)
Deferred income taxes 3,094 4,607 4,912 (44)
Non-cash employee
compensation 546 387 1,151 720
Unrealized (gain) loss
on derivatives (7,778) 3,769 (14,283) 35,221
Settlements on
derivatives with
financing elements 7,587 5,591 15,508 9,796
Amortization
of debt issue costs 364 -- 735 --
Minority interest,
net of tax 40 -- 40 --
Changes in operating
working capital:
Accounts receivable (3,960) 3,330 86 (1,137)
Accounts payable (724) 1,339 143 (8,827)
Other 3,384 (8,176) 493 (8,205)
---------- ---------- ---------- ---------
Net cash provided by
operating activities 39,512 39,336 77,048 69,282
---------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to property
and equipment (59,241) (40,187) (134,857) (79,001)
Additions to equipment
of Larclay JV (31,607) -- (31,607) --
Proceeds from sales of
property and equipment 655 457 684 2,151
Other 6,585 (140) (886) (418)
---------- ---------- ---------- ---------
Net cash used in
investing activities (83,608) (39,870) (166,666) (77,268)
---------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds
from long-term debt 23,700 5,900 79,700 12,100
Proceeds from long-term
debt of Larclay JV 36,197 -- 36,197 --
Repayments of other
long-term debt (5) -- (12) --
Proceeds from sale
of common stock -- -- 175 --
Settlements on
derivatives with
financing elements (7,587) (5,591) (15,508) (9,796)
---------- ---------- ---------- ---------
Net cash provided by
financing activities 52,305 309 100,552 2,304
---------- ---------- ---------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 8,209 (225) 10,934 (5,682)
CASH AND CASH EQUIVALENTS
Beginning of period 8,660 10,902 5,935 16,359
---------- ---------- ---------- ---------
End of period $16,869 $10,677 $16,869 $10,677
========== ========== ========== =========
Clayton Williams Energy Inc.
Summary Production and Price Data
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Average Daily Production:
Natural Gas (Mcf):
Permian Basin 15,744 16,063 14,789 16,110
Louisiana 15,428 14,604 12,465 14,935
Austin Chalk (Trend) 2,757 2,103 3,007 2,329
Cotton Valley Reef
Complex 9,723 16,618 10,576 17,312
Other 480 579 483 739
---------- ---------- ---------- ----------
Total 44,132 49,967 41,320 51,425
========== ========== ========== ==========
Oil (Bbls):
Permian Basin 3,274 3,281 3,244 3,305
Louisiana 933 1,494 1,011 1,485
Austin Chalk (Trend) 1,833 1,920 1,827 1,976
Other 59 63 51 52
---------- ---------- ---------- ----------
Total 6,099 6,758 6,133 6,818
========== ========== ========== ==========
Natural gas liquids
(Bbls):
Permian Basin 227 220 244 227
Austin Chalk (Trend) 265 392 262 365
Other 57 124 35 143
---------- ---------- ---------- ----------
Total 549 736 541 735
========== ========== ========== ==========
Total Production:
Natural Gas (MMcf) 4,016 4,547 7,479 9,308
Oil (MBbls) 555 615 1,110 1,234
Natural gas liquids
(MBbls) 50 67 98 133
---------- ---------- ---------- ----------
Gas Equivalents (MMcfe) 7,646 8,639 14,727 17,510
Average Realized
Prices(a):
Gas ($/Mcf): $6.78 $6.62 $6.99 $6.41
========== ========== ========== ==========
Oil ($/Bbl): $66.78 $50.35 $63.41 $49.08
========== ========== ========== ==========
Natural gas liquids
($/Bbl) $37.56 $31.73 $38.21 $29.63
========== ========== ========== ==========
Losses on settled
derivative contracts(a):
($ in thousands, except
per unit)
Gas:
Net realized loss $(887) $(1,271) $(3,065) $(562)
Per unit produced
($/Mcf) $(0.22) $(0.28) $(0.41) $(0.06)
Oil:
Net realized loss $(6,700) $(4,763) $(12,595) $(8,983)
Per unit produced
($/Bbl) $(12.07) $(7.74) $(11.35) $(7.28)
CLAYTON WILLIAMS ENERGY INC.
Notes to tables and supplemental information
(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
2006 or 2005 derivative contracts as cash flow hedges. This means
that the Company's derivatives for 2006 and 2005 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/loss instead of as a component of oil and gas sales.
(b) The accompanying consolidated financial statements include the
accounts of Larclay JV, a drilling rig joint venture formed with
Lariat Services, Inc. ("Lariat") in April 2006 to own and operate
twelve new drilling rigs. Although the Company and Lariat own
equal interests in Larclay JV, the Company meets the definition of
the primary beneficiary of Larclay JV's expected cash flows under
Financial Interpretation No. 46R, "Consolidation of Variable
Interest Entities -- an interpretation of ARB No. 51 (as amended)"
("FIN 46R"). Accordingly, the Company is required to include the
accounts of Larclay JV in the Company's consolidated financial
statements. Lariat's net equity in the assets, liabilities and
operations of Larclay JV are reflected as minority interest
accounts in the Company's consolidated financial statements. The
Company's share of all intercompany accounts with Larclay JV have
been eliminated.
(c) In May 2006, the State of Texas adopted House Bill 3, which
modified the state's franchise tax structure, replacing the
previous tax based on capital or earned surplus with a margin tax
(the "Texas Margin Tax") effective with franchise tax reports
filed on or after January 1, 2008. The Texas Margin Tax is
computed by applying the applicable tax rate (1% for the Company's
business sector) to the profit margin, which is generally
determined by total revenue less either cost of goods sold or
compensation, as applicable. Although House Bill 3 states that the
Texas Margin Tax is not an income tax, the Company believes that
Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS 109") applies to the Texas Margin Tax.
Accordingly, the Company has computed its consolidated deferred
tax liability based on its current interpretation of the Texas
Margin Tax, resulting in a reduction of deferred tax expense
during the quarter ended June 30, 2006 of $4.1 million.
The Company's effective federal and state income tax rate for the
six months ended June 30, 2006 of 18.6% differed from the
statutory federal rate of 35% due to reductions in the tax
provision related to the adoption of the Texas Margin Tax and
statutory depletion, offset in part by certain non-deductible
expenses.
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