Clayton Williams Energy Announces Second Quarter 2016 Financial Results

Clayton Williams Energy, Inc. (the “Company”) (NYSE:CWEI) today reported its financial results for the second quarter of 2016.

Summary

• Oil and Gas Production of 13.6 MBOE/d
• Net Loss of $73.8 million; Adjusted Net Loss1 (non-GAAP) of $34.3 million
• Cash Flow from Operations of $(16.6) million; EBITDAX2 (non-GAAP) of $13.4 million
• Liquidity of $255.7 million
• Recent Actions to Improve Balance Sheet

Financial Results for the Second Quarter of 2016

The Company reported a net loss for the second quarter of 2016 (“2Q16”) of $73.8 million, or $6.06 per share, as compared to a net loss of $23.3 million, or $1.92 per share, for the second quarter of 2015 (“2Q15”). Adjusted net loss1 (non-GAAP) for 2Q16 was $34.3 million, or $2.82 per share, as compared to adjusted net loss1 (non-GAAP) of $13.1 million, or $1.08 per share, for 2Q15. Cash flow from operations for 2Q16 was $(16.6) million as compared to $8.5 million for 2Q15. EBITDAX2 (non-GAAP) for 2Q16 was $13.4 million as compared to $36.5 million for 2Q15.

For the six months ended June 30, 2016, net loss attributable to Company stockholders was $109 million, or $8.96 per share, as compared to net loss of $41.6 million, or $3.42 per share, for the same period in 2015. Adjusted net loss1 (non-GAAP) for the six-month period in 2016 was $65 million, or $5.34 per share, as compared to adjusted net loss1 (non-GAAP) of $33.6 million, or $2.76 per share, for the same period in 2015. Cash flow from operations for the six-month period in 2016 was $(16.1) million as compared to $28.6 million during the same period in 2015. EBITDAX2 (non-GAAP) for the six-month period in 2016 was $22.9 million as compared to $62.6 million for the same period in 2015.

The key factors affecting the comparability of financial results for 2Q16 versus 2Q15 were:

• Oil and gas sales for 2Q16, excluding amortized deferred revenues, decreased $26.3 million compared to 2Q15. Production variances accounted for a $13.8 million decrease and price variances accounted for a $12.5 million decrease. Average realized oil prices were $40.51 per barrel in 2Q16 versus $53.32 per barrel in 2Q15, average realized gas prices were $1.87 per Mcf in 2Q16 versus $2.58 per Mcf in 2Q15, and average realized natural gas liquids (“NGL”) prices were $14.09 per barrel in 2Q16 versus $15.30 per barrel in 2Q15. Amortized deferred revenue in 2Q16 totaled $0.4 million as compared to $1.7 million in 2Q15.
• Oil, gas and NGL production per barrel of oil equivalent (“BOE”) decreased 18% in 2Q16 as compared to 2Q15, with oil production decreasing 20% to 9,835 barrels per day, gas production decreasing 20% to 12,890 Mcf per day, and NGL production increasing 2% to 1,593 barrels per day. Oil and NGL production accounted for approximately 84% of the Company’s total BOE production in 2Q16 and 2Q15. After giving effect to the sale of selected leases and wells in South Louisiana in September 2015, oil, gas and NGL production per BOE decreased 16% in 2Q16 as compared to 2Q15. See accompanying tables for additional information about the Company’s oil and gas production.
• Production costs in 2Q16 were $19.2 million versus $23.1 million in 2Q15 due to lower oilfield service costs and reductions in production taxes associated with a decrease in commodity prices. Production costs on a BOE basis, excluding production taxes, increased 6% to $13.81 per BOE in 2Q16 versus $13.02 per BOE in 2Q15.
• Interest expense for 2Q16 was $26.6 million versus $13.6 million for 2Q15. The increase was due primarily to $13.3 million of incremental interest expense on funded indebtedness incurred under a second lien term loan credit facility issued in connection with a refinancing in March 2016 (the “Refinancing”). The Company elected to pay interest on the term loan facility in-kind and resulted in an increase in the principal amount of the term loan to $363.3 million.
• The Company accounts for the warrants issued in connection with the Refinancing as derivative instruments and carries the warrants as a non-current liability at their fair value. The Company recorded a $37.9 million loss on change in fair value in 2Q16.
• Loss on commodity derivatives for 2Q16 was $15.9 million (including a $2.9 million loss on settled contracts) versus a loss on commodity derivatives in 2Q15 of $12.3 million (including a $1.8 million loss on settled contracts). See accompanying tables for additional information about the Company’s accounting for derivatives.
• General and administrative expenses for 2Q16 were $13.6 million versus $11.3 million for 2Q15. The increase was attributable to a $2.6 million net change in compensation expense related to the Company’s APO reward plans ($9.1 million in 2Q16 versus $6.5 million in 2Q15).

Balance Sheet and Liquidity

As of June 30, 2016, total long-term debt was $930.1 million, consisting of $336.6 million (net of $26.6 million of original issue discount and debt issuance costs) under the second lien term loan credit facility and $593.5 million of 7.75% Senior Notes due 2019. The borrowing base established by the banks under the revolving credit facility and the aggregate lender commitment was $100 million at June 30, 2016. The Company had $98.1 million of availability under the revolving credit facility after allowing for outstanding letters of credit of $1.9 million. Liquidity, consisting of cash, certificates of deposit and commercial paper and funds available on the revolving credit facility, totaled $255.7 million.

As announced on July 25, 2016, the Company has agreed to sell 5,051,100 shares of common stock to funds managed by Ares Management, L.P. for cash proceeds of $150 million or approximately $29.70 per share. When closed, proceeds from this sale will provide additional liquidity for potential debt reduction transactions related to its 7.75% Senior Notes due 2019 (“Notes”) and for developmental drilling on its 65,000 net acre position in the core of the southern Delaware Basin. In connection with the transaction, lenders under the Company’s term loan credit facility waived certain restrictions to enable the Company to use proceeds from equity issuances and specified asset sales for debt reduction and capital expenditures.

On July 28, 2016, the Company commenced a modified “Dutch Auction” cash tender offer to purchase up to $100 million aggregate principal amount of its Notes with a bid range from $880 to $950 per each $1,000 aggregate principal amount of Notes. The tender offer will expire on August 29, 2016.

Scheduled Conference Call

The Company will host a conference call to discuss these results and other forward-looking items Wednesday, August 3rd at 9:30 a.m. CT (10:30 a.m. ET).

A live webcast for investors and analysts will be available on the Company’s website at www.claytonwilliams.com under the “Investors” section. The webcast will be archived on the site for 30 days following the call.

Participants should call (877) 868-1835 and indicate 54104739 as the conference passcode. A replay will be available from 1:30 p.m. CT (2:30 p.m. ET) on August 3rd until August 10th. To listen to the replay dial (855) 859-2056 and enter passcode 54104739.

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.

Adjusted net loss 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 a tool for operating trends analysis and industry comparisons. Adjusted net loss is not an alternative to net loss presented in conformity with GAAP.

The Company defines adjusted net loss as net loss before changes in fair value of commodity derivatives and common stock warrants, abandonments and impairments, impairments of property and equipment, net (gain) loss on sales of assets and impairment of inventory, amortization of deferred revenue from volumetric production payment, impairment of investments, certain non-cash and unusual items and the impact on taxes of the adjustments for each period presented.

The following table is a reconciliation of net loss (GAAP) to adjusted net loss (non-GAAP):

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. EBITDAX is not an alternative to net loss or cash flow from operating activities, or any other measure of financial performance presented in conformity with GAAP.

The Company defines EBITDAX as net loss before interest expense, income taxes, exploration costs, net (gain) loss on sales of assets and impairment of inventory, and all non-cash items in the Company's statements of operations, including depreciation, depletion and amortization, impairment of property and equipment, accretion of asset retirement obligations, amortization of deferred revenue from volumetric production payment, certain employee compensation, changes in fair value of commodity derivatives and common stock warrants, impairment of investments and certain non-cash and unusual items.

The following table reconciles net loss to EBITDAX:

The following summarizes information concerning the Company’s net positions in open commodity derivatives applicable to periods subsequent to June 30, 2016. In May 2016, the Company entered into costless collars covering 287 MBbls of oil production for the period from January 2017 through December 2017 at a floor price of $45.00 and a ceiling price of $55.00. In August 2016, the Company entered into a swap agreement covering 153 MBbls of oil production for the period from August 2016 through December 2016 at a price of $42.05. Settlement prices of commodity derivatives are based on NYMEX futures prices.

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