Clayton Williams Energy Announces 2004 Financial Results

    Business Editors/Energy Editors

    MIDLAND, Texas--(BUSINESS WIRE)--March 2, 2005--Clayton Williams Energy, Inc. (NASDAQ:CWEI) reported a net loss for the fourth quarter of 2004 of $12.5 million, or $1.16 per share, as compared to a net loss of $7.3 million, or $.78 per share, for the fourth quarter of 2003. Much of the net loss was attributable to non-cash charges. The Company also reported record high cash flow from operations for the quarter of $43.8 million, as compared to $20.9 million during the same period in 2003.
    For the year ended December 31, 2004, the Company reported a net loss of $14 million, or $1.37 per share, compared to net income of $22.9 million, or $2.40 per share for the year ended December 31, 2003. Cash flow from operations for the year 2004 was $127 million compared to $119.8 million for 2003.
    The Company's operating results for the fourth quarter of 2004 were negatively impacted by high exploration costs and a net loss on sales of property and equipment. Exploration costs for the fourth quarter of 2004 were $40.7 million, as compared to $21.1 million for the same period in 2003. In previous announcements, the Company had reported that three significant exploratory wells in Mississippi and south Louisiana were unsuccessful and would result in substantial pre-tax abandonment and impairment charges during the fourth quarter of 2004. Sales of property and equipment during the quarter resulted in a previously announced pre-tax net loss of $10.2 million.
    Oil and gas sales for the fourth quarter of 2004 increased 90% to $63.2 million as compared to $33.2 million in the 2003 quarter due primarily to higher product prices and the May 2004 acquisition of Southwest Royalties, Inc. Average realized oil prices in the fourth quarter of 2004 increased 62% from $28.58 to $46.19 per Bbl, while gas prices increased 39% from $4.42 to $6.14 per Mcf. The 2003 prices include realized losses on hedging transactions totaling $1.7 million. Realized losses of $7.9 million on commodity hedging transactions for the 2004 period are included in other income/expense since these hedges were not designated as cash flow hedges under applicable accounting standards. Production expenses for the fourth quarter of 2004 increased 102% from the 2003 quarter due mostly to the acquisition of Southwest Royalties, Inc.
    Oil production for the fourth quarter of 2004 increased 79% to 630,000 barrels, or 6,848 barrels per day, from 352,000 barrels, or 3,826 barrels per day, primarily as a result of the acquisition of Southwest Royalties, Inc. in May 2004, coupled with a significant increase in oil production from new wells in south Louisiana. Gas production increased 4% to 5.1 Bcf, or 55,717 Mcf per day, from 5 Bcf, or 53,826 Mcf per day in 2003.
    The Company will host a conference call to discuss these results and other forward-looking items today, March 2nd at 1:30 pm CT (2:30 pm ET). The dial-in conference number is: 800-901-5213, passcode 87623650. The replay will be available for one week at 888-286-8010, passcode 13417978.
    To access the 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.

    Except for historical information, statements made in this release are 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. 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 from expectations, volatility or 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.

    TABLES AND SUPPLEMENTAL INFORMATION FOLLOW . . .

CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share)

Three Months Ended Year Ended December 31, December 31, ------------------ ------------------- 2004 2003 2004 2003 --------- -------- --------- --------- REVENUES Oil and gas sales $63,159 $33,247 $193,127 $163,032 Natural gas services 2,110 2,254 9,083 8,758 Gain on sales of property and equipment 3,966 14 4,120 258 --------- -------- --------- --------- Total revenues 69,235 35,515 206,330 172,048 --------- -------- --------- ---------

COSTS AND EXPENSES Production 13,661 6,762 41,163 28,239 Exploration: Abandonments and impairments 38,660 17,773 67,956 35,120 Seismic and other 2,037 3,310 7,124 8,755 Natural gas services 2,009 2,215 8,538 8,279 Depreciation, depletion and amortization 14,686 9,005 44,040 40,284 Impairment of property and equipment - - - 170 Accretion of abandonment obligations 191 174 1,044 651 General and administrative 3,609 3,965 11,689 10,934 Loss on sales of property and equipment 14,181 16 14,337 59 --------- -------- --------- --------- Total costs and expenses 89,034 43,220 195,891 132,491 --------- -------- --------- --------- Operating income (19,799) (7,705) 10,439 39,557 --------- -------- --------- ---------

OTHER INCOME (EXPENSE) Interest expense (3,162) (588) (7,877) (3,138) Change in fair value of derivatives 2,653 (2,747) (25,329) (1,593) Other 627 (306) 1,354 (1,662) --------- -------- --------- --------- Total other income (expense) 118 (3,641) (31,852) (6,393) --------- -------- --------- --------- Income (loss) before income taxes (19,681) (11,346) (21,413) 33,164

Income tax expense (benefit) (7,159) (4,009) (7,385) 10,515 --------- -------- --------- --------- Income (loss) before effect of accounting change (12,522) (7,337) (14,028) 22,649

Cumulative effect of accounting change, net of tax - - - 207 --------- -------- --------- --------- NET INCOME (LOSS) $(12,522) $(7,337) $(14,028) $22,856 ========= ======== ========= ========= Net income (loss) per common share: Basic: Income (loss) before effect of accounting change $(1.16) $(0.78) $(1.37) $2.43 ========= ======== ========= ========= Net income (loss) $(1.16) $(0.78) $(1.37) $2.45 ========= ======== ========= ========= Diluted: Income (loss) before effect of accounting change $(1.16) $(0.78) $(1.37) $2.38 ========= ======== ========= ========= Net income (loss) $(1.16) $(0.78) $(1.37) $2.40 ========= ======== ========= ========= Weighted average common shares outstanding: Basic 10,780 9,364 10,213 9,329 ========= ======== ========= ========= Diluted 10,780 9,364 10,213 9,509 ========= ======== ========= ========= Total comprehensive income (loss) $(12,522) $(5,938) $(14,028) $30,806 ========= ======== ========= =========

CLAYTON WILLIAMS ENERGY, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)

ASSETS December 31, December 31, 2004 2003 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $16,359 $15,454 Accounts receivable: Oil and gas sales, net 25,573 16,725 Joint interest and other, net 4,653 2,972 Affiliates 553 453 Inventory 5,202 787 Deferred income taxes 625 1,241 Fair value of derivatives 2,333 - Prepaids and other 1,401 1,518 ------------ ------------ 56,699 39,150 ------------ ------------ PROPERTY AND EQUIPMENT Oil and gas properties, successful efforts method 909,095 656,531 Natural gas gathering and processing systems 17,286 16,829 Other 11,839 12,300 ------------ ------------ 938,220 685,660 Less accumulated depreciation, depletion and amortization (539,860) (504,101) ------------ ------------ Property and equipment, net 398,360 181,559 ------------ ------------

OTHER ASSETS 7,176 3,724 ------------ ------------

$462,235 $224,433 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES Accounts payable: Trade $51,014 $33,523 Oil and gas sales 11,223 10,086 Affiliates 2,954 1,254 Current maturities of long-term debt 31 2,453 Fair value of derivatives 16,026 2,233 Accrued liabilities and other 3,017 2,720 ------------ ------------ 84,265 52,269 ------------ ------------ NON-CURRENT LIABILITIES Long-term debt 177,519 53,295 Deferred income taxes 36,897 8,504 Fair value of derivatives 28,958 - Other 17,000 9,584 ------------ ------------ 260,374 71,383 ------------ ------------ STOCKHOLDERS' EQUITY: Preferred stock, par value $.10 per share - - Common stock, par value $.10 per share 1,078 937 Additional paid-in capital 104,674 73,972 Retained earnings 11,844 25,872 ------------ ------------ 117,596 100,781 ------------ ------------

$462,235 $224,433 ============ ============

CLAYTON WILLIAMS ENERGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)

Three Months Ended Year Ended December 31, December 31, ------------------ ------------------ 2004 2003 2004 2003 --------- -------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(12,522) $(7,337) $(14,028) $22,856 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation, depletion and amortization 14,686 9,005 44,040 40,284 Impairment of property and equipment - - - 170 Exploration costs 38,660 17,773 67,956 35,120 (Gain) loss on sales of property and equipment 10,215 2 10,217 (199) Deferred income taxes (6,720) (3,817) (7,645) 10,172 Non-cash employee compensation 264 574 536 1,312 Change in fair value of derivatives (10,523) 2,527 7,104 1,546 Settlements on derivatives with financing elements 5,244 - 9,890 - Accretion of abandonment obligations 191 174 1,044 651 Cumulative effect of accounting change, net of tax - - - (207)

Changes in operating working capital, net of the effects of a business acquisition in 2004: Accounts receivable (5,662) (930) 581 (1,787) Accounts payable 8,345 3,004 8,881 8,655 Other 1,643 (70) (1,596) 1,177 --------- -------- --------- -------- Net cash provided by operating activities 43,821 20,905 126,980 119,750 --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (30,398) (12,958) (123,991) (62,889) Acquisition of a business - - (168,204) - Proceeds from sales of property and equipment 34,579 3 35,020 239 Other (85) (1,713) 269 (2,120) --------- -------- --------- -------- Net cash provided by (used in) investing activities 4,096 (14,668) (256,906) (64,770) --------- -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt - - 172,500 - Repayments of long-term debt (44,572) (1,527) (60,530) (45,483) Proceeds from sale of common stock 10 38 30,018 281 Payment of debt issue costs - - (4,156) - Settlements on derivatives with financing elements (5,244) - (9,890) - Other 2,889 - 2,889 - --------- -------- --------- -------- Net cash provided by (used in) financing activities (46,917) (1,489) 130,831 (45,202) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,000 4,748 905 9,778

CASH AND CASH EQUIVALENTS Beginning of period 15,359 10,706 15,454 5,676

--------- -------- --------- -------- End of period $16,359 $15,454 $16,359 $15,454 ========= ======== ========= ========

Clayton Williams Energy, Inc. Summary Production and Price Data (Unaudited)

Three Months Ended Year Ended December 31, December 31, ------------------- ------------------- 2004 2003 2004 2003 ------- ------- ------- -------

Average Daily Production: Natural Gas (Mcf): Austin Chalk (Trend) 2,806 3,490 3,155 3,667 Cotton Valley Reef Complex 19,337 31,844 23,131 42,493 Louisiana 18,805 15,065 12,089 17,570 New Mexico / West Texas 1,656 1,364 1,728 1,668 SWR 12,068 - 7,730 - Other 1,045 2,063 1,312 2,265 ------- ------- ------- ------- Total 55,717 53,826 49,145 67,663 ======= ======= ======= =======

Oil (Bbls): Austin Chalk (Trend) 2,096 2,398 2,215 2,715 Louisiana 1,472 635 1,055 608 New Mexico / West Texas 760 731 813 723 SWR 2,461 - 1,597 - Other 59 62 57 77 ------- ------- ------- ------- Total 6,848 3,826 5,737 4,123 ======= ======= ======= =======

Natural gas liquids (Bbls): Austin Chalk (Trend) 326 347 284 299 New Mexico / West Texas 260 137 213 171 Other 153 179 185 171 ------- ------- ------- ------- Total 739 663 682 641 ======= ======= ======= =======

Total Production: Natural Gas (MMcf) 5,126 4,952 17,938 24,697 Oil (MBbls) 630 352 2,094 1,505 Natural gas liquids (MBbls) 68 61 249 234 ------- ------- ------- ------- Gas Equivalents (MMcfe) 9,314 7,430 31,996 35,131

Average Realized Prices: Gas ($/Mcf): Before hedging $6.14 $4.66 $5.60 $5.35 Hedging gain (loss) - (a) (0.24) - (a) (0.66) ------- ------- ------- ------- Combined $6.14 $4.42 $5.60 $4.69 ======= ======= ======= =======

Oil ($/Bbl): Before hedging $46.19 $29.97 $40.65 $29.94 Hedging gain (loss) - (a) (1.39) - (a) (2.20) ------- ------- ------- ------- Combined $46.19 $28.58 $40.65 $27.74 ======= ======= ======= =======

Natural gas liquids ($/Bbl) $33.13 $21.20 $27.90 $21.09 ======= ======= ======= =======

CLAYTON WILLIAMS ENERGY, INC. Notes to tables and supplemental information

(a) The Company did not designate any of its 2004 derivatives as cash flow hedges under Statement of Financial Accounting Standards No. 133, as amended. All changes in the fair value of these contracts prior to maturity, plus any realized gains or losses at maturity, are recorded as other income (expense) in the Company's statements of operations and are excluded from the computation of average realized prices from oil and gas sales. Actual losses on settled commodity contracts totaled $8 million in the fourth quarter of 2004 and $12.9 million for the year 2004.

Certain reclassifications in 2003 have been made to conform to current period presentations.

--30--SG/sa*

CONTACT: Clayton Williams Energy, Inc., Midland Patti Hollums, 432-688-3419 or Mel G. Riggs, 432-688-3431 cwei@claytonwilliams.com www.claytonwilliams.com

KEYWORD: MISSISSIPPI TEXAS LOUISIANA INDUSTRY KEYWORD: OIL/GAS ENERGY EARNINGS CONFERENCE CALLS SOURCE: Clayton Williams Energy, Inc.

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