Clayton Williams Energy Announces 2007 Financial Results and Reserves

Business Wire, March 12, 2008

MIDLAND, Texas -- Clayton Williams Energy, Inc. (NASDAQ:CWEI) reported net income for the fourth quarter of 2007 of $8.5 million, or $.74 per share, as compared to a net loss of $8.9 million, or $.81 per share, for the fourth quarter of 2006. Cash flow from operations for the fourth quarter of 2007 was $72.6 million, as compared to $29.5 million during the same period in 2006.

For the year ended December 31, 2007, the Company reported net income of $6 million, or $.52 per share, as compared to net income of $17.8 million, or $1.58 per share, for the same period in 2006. Cash flow from operations for fiscal 2007 was $234.9 million, as compared to $146 million during fiscal 2006.

Oil and gas sales increased 67% from $57.8 million for the fourth quarter of 2006 to $96.3 million for the same quarter in 2007 due to a combination of higher prices and incremental production volumes. Gas production increased 36% to 5.4 Bcf, or 58,924 Mcf per day, from 4 Bcf, or 43,272 Mcf per day, in the 2006 quarter. Oil production for the fourth quarter of 2007 increased 16% to 616,000 barrels, or 6,696 barrels per day, compared to 529,000 barrels, or 5,750 barrels per day, in the 2006 quarter. The increase in gas production was attributable primarily to recent drilling activity in North and South Louisiana. For the fourth quarter of 2007, average realized gas prices increased 9% to $7.06 per Mcf from $6.49 per Mcf in the same quarter of 2006, while oil prices increased 56% to $89.55 per barrel from $57.41 per barrel in the 2006 period. Average realized prices for 2007 and 2006 exclude the effects of any gains or losses realized on commodity hedging transactions since those derivatives were not designated as cash flow hedges and have been reported in the Company's statements of operations as gain/loss on derivatives under applicable accounting standards.

For the fourth quarter of 2007, the Company reported a $18.9 million net loss on derivatives, consisting of a $9.8 million realized loss on settled contracts and a $9.1 million non-cash loss to mark the Company's derivative positions to their fair value on December 31, 2007. For the same period in 2006, the Company reported a $11.9 million net gain on derivatives, consisting of a $3 million realized loss on settled contracts and a $14.9 million non-cash gain due to changes in mark-to-market valuations.

Exploration costs related to abandonments and impairments were $15.4 million during the fourth quarter of 2007 compared to $29.4 million in the fourth quarter of 2006. The 2007 costs related primarily to North Louisiana which included $7.1 million for the abandonment of the Dugdale #1 (Choudrant) and $4.9 million for the Benoit #1 (Sarepta) and leasehold impairments of $1.7 million.

The Company sold all of its producing and non-producing acreage in Pecos County, Texas for $21 million. The Company recorded a gain of approximately $12.5 million in the fourth quarter of 2007 in connection with this sale. Proceeds from the sale were used to repay indebtedness on the Company's revolving credit facility.

The Company recorded a non-cash charge during the fourth quarter of 2007 of $3.1 million for impairments pursuant to Statement of Financial Accounting Standards No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets," consisting of a $2 million write-down of two 2000 horsepower drilling rigs and related components and a $1.1 million charge for well service equipment to reduce these assets' carrying values to their estimated fair market values.

The Company also announced today that its total proved oil and gas reserves as of December 31, 2007 were 290.8 Bcfe, consisting of 27.9 million barrels of oil and NGL and 123.2 Bcf of natural gas. By comparison, the Company reported proved reserves of 271.5 Bcfe as of December 31, 2006, consisting of 25.4 million barrels of oil and NGL and 119.2 Bcf of natural gas. The pre-tax present value of estimated future net revenues from these reserves, discounted at 10% and computed in accordance with SEC guidelines, totaled $1.3 billion at December 31, 2007, as compared to $712.4 million at December 31, 2006. The estimates were based on weighted average oil and NGL prices of $91.30 per Bbl in 2007, as compared to $57.18 in 2006, and gas prices of $7.37 per Mcf in 2007, as compared to $5.24 per Mcf in 2006.

During 2007, the Company replaced 97% of the 35.9 Bcfe produced in 2007 through extensions and discoveries. The following table summarizes the changes in proved reserves during 2007 on a Bcfe basis and as a percentage of 2007 production.

[TABLE OMITTED]

Net upward revisions of 20.9 Bcfe consisted of approximately 23.9 Bcfe of upward revisions attributable to the effects of higher oil and gas prices on the estimated quantities of proved reserves and approximately 3 Bcfe of downward revisions attributable to well performance.

The Company has increased its estimates for planned exploration and development expenditures for fiscal 2008 by $36 million from $220.5 million to $256.5 million. The increase in capital spending is due primarily to the addition of two drilling rigs to be utilized in the Permian Basin.