<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/XX/
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
or
/ /
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
COMMISSION FILE NO. 0-20838
CLAYTON WILLIAMS ENERGY, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2396863
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6 DESTA DRIVE, SUITE 3000, MIDLAND, TEXAS 79705
----------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (915) 682-6324
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /XX/ NO / /
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 8, 1996...... 7,463,473
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CLAYTON WILLIAMS ENERGY, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995..................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995............................. 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995............................. 5
Notes to Consolidated Financial Statements................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 14
2
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CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,065 $ 1,303
Accounts receivable:
Trade, net 1,240 1,184
Affiliates 219 738
Oil and gas sales 7,205 6,615
Inventory 471 505
Other 315 565
--------- ---------
10,515 10,910
--------- ---------
PROPERTY AND EQUIPMENT
Oil and gas properties, successful
efforts method 330,223 325,268
Natural gas gathering and processing
systems 7,093 6,951
Other 9,511 9,460
--------- ---------
346,827 341,679
Less accumulated depreciation, depletion
and amortization (265,154) (259,533)
--------- ---------
Property and equipment, net 81,673 82,146
--------- ---------
OTHER ASSETS 61 105
--------- ---------
$ 92,249 $ 93,161
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade $ 7,140 $ 6,911
Affiliates 491 346
Oil and gas sales 4,718 4,813
Current maturities of long-term debt 11,512 11,509
Accrued liabilities and other 1,513 1,048
--------- ---------
25,374 24,627
--------- ---------
LONG-TERM DEBT 30,358 33,538
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share;
authorized - 10,000,000 shares; issued
and outstanding - 7,444,928 shares in
1996 and 7,409,664 shares in 1995 745 741
Additional paid-in capital 53,025 52,912
Retained deficit (17,253) (18,657)
--------- ---------
36,517 34,996
--------- ---------
$ 92,249 $ 93,161
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
------- ------
<S> <C> <C>
REVENUES
Oil and gas sales $12,368 $11,431
Natural gas services 964 1,859
------- -------
Total revenues 13,332 13,290
------- -------
COSTS AND EXPENSES
Lease operations 3,598 3,496
Exploration 254 193
Natural gas services 757 1,156
Depreciation, depletion and amortization 5,677 6,923
General and administrative 707 922
------- -------
Total costs and expenses 10,993 12,690
------- -------
Operating income 2,339 600
Interest expense 982 1,458
Other income 47 164
------- -------
INCOME (LOSS) BEFORE INCOME TAXES 1,404 (694)
INCOME TAX EXPENSE - -
------- -------
NET INCOME (LOSS) $ 1,404 $ (694)
------- -------
------- -------
Net income (loss) per common share $ .19 $ (.12)
------- -------
------- -------
Weighted average common shares outstanding 7,478 5,700
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,404 $ (694)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation, depletion and amortization 5,677 6,923
Exploration costs 198 169
Other 105 (3)
Changes in operating working capital:
Accounts receivable (127) (915)
Accounts payable (13) 1,194
Other 419 352
------- -------
Net cash provided by operating
activities 7,663 7,026
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (8,245) (6,622)
Proceeds from sale of property and equipment 3,521 196
------- -------
Net cash used in investing activities (4,724) (6,426)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt - 2,000
Repayments of long-term debt (3,177) (2,926)
------- -------
Net cash used in financing activities (3,177) (926)
------- -------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (238) (326)
CASH AND CASH EQUIVALENTS
Beginning of period 1,303 1,431
------- -------
End of period $ 1,065 $ 1,105
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES
Cash paid for interest, net of amounts
capitalized $ 843 $ 1,442
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. ORGANIZATION AND PRESENTATION
Clayton Williams Energy, Inc. (the "Company"), a Delaware
corporation, was incorporated in September 1991 for the purpose of
consolidating and continuing certain operations previously conducted by
affiliates of Clayton W. Williams, Jr. ("Mr. Williams"). Concurrent with the
completion of the initial public offering of the Company's common stock on
May 26, 1993, these operations were consolidated, and the Company succeeded
to the oil and gas properties, exploration and development operations and the
natural gas gathering and marketing operations of Mr. Williams and his
affiliates, except for minor interests in certain producing wells, certain
undeveloped acreage and mineral interests located outside of the Company's
primary areas of operations and the stock of a company owned by affiliates of
Mr. Williams. The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions
and balances associated with the consolidated operations have been eliminated.
The Company is primarily engaged in the exploration for and
development and production of oil and natural gas in South and East Texas,
Southeastern New Mexico and the Texas Gulf Coast.
In the opinion of management, the Company's unaudited consolidated
financial statements as of March 31, 1996 and for the interim periods ended
March 31, 1996 and 1995 include all adjustments, consisting only of normal
recurring accruals, which are necessary for a fair presentation in accordance
with generally accepted accounting principles. These interim results are not
necessarily indicative of the results to be expected for the year ending
December 31, 1996.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1995 Form 10-K.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Secured Bank Credit Facility (matures July 31, 1998):
Revolving loan $16,700 $17,000
Term loan 24,975 27,825
Subordinated Debt Facility - -
Other 195 222
------- -------
41,870 45,047
Less current maturities 11,512 11,509
------- -------
$30,358 $33,538
------- -------
------- -------
</TABLE>
6
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CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
SECURED BANK CREDIT FACILITY
The Company's secured bank credit facility provides for a revolving loan
facility and a term loan facility, the limits of which are determined by a
borrowing base established by the banks. At March 31, 1996, the borrowing base
was $46.7 million, of which $21.7 million was attributable to the revolving loan
facility and $25.0 million was attributable to the term loan facility. The
amount of funds available on the revolving loan facility at March 31, 1996 was
$5.0 million. The borrowing base is scheduled to be redetermined in May 1996
and at least semi-annually thereafter; however, the Company or the banks may
request a borrowing base redetermination at any other time during the year. Any
redetermination will be made at the discretion of the banks. If, at any time,
outstanding advances plus letters of credit exceed the borrowing base, the
Company will be required to (i) pledge additional collateral, (ii) prepay the
excess in not more than five equal monthly installments or (iii) elect to
convert the entire amount of the facility to a term obligation based on
amortization formulas set forth in the loan agreement. Substantially all of the
Company's oil and gas properties are pledged to secure advances under the
secured bank credit facility.
The term loan facility presently requires monthly principal prepayments of
$950,000. The amount of monthly prepayments is subject to change at the time of
each borrowing base redetermination. No additional advances are permitted
against the term loan facility.
All outstanding balances on the secured bank credit facility may be
designated, at the Company's option, as either "Base Rate Loans" or "Eurodollar
Loans" (as defined in the agreement), provided that not more than two Eurodollar
traunches may be outstanding at any time. Base Rate Loans will bear interest at
the fluctuating Base Rate plus a Base Rate Margin ranging from 0% to 1/2% per
annum, depending on levels of outstanding advances and letters of credit.
Eurodollar Loans will bear interest at the LIBOR rate for a fixed period of time
elected by the Company plus a Eurodollar Margin ranging from 2% to 2.75% per
annum. At March 31, 1996, the Company's indebtedness under these facilities
consisted of $3.9 million of Base Rate Loans at a rate of 8.75% and $37.8
million of Eurodollar Loans at an average rate of 8.1%.
In addition, the Company pays the banks a commitment fee equal to 1/2% per
annum on the unused portion of the revolving loan commitment. Interest and fees
are payable quarterly, and all outstanding principal and interest will be due
July 31, 1998.
SUBORDINATED DEBT FACILITY
In June 1995, the Company obtained a commitment from the Agent bank in its
secured bank credit facility to loan the Company up to $5.5 million under a
subordinated debt facility which provides for interest at a minimum rate of
14.25% per year, plus certain commitment fees, with interest payable monthly and
principal payable at maturity on July 31, 1998. The commitment originally
expired on December 31, 1995, but was extended to December 31, 1996. The entire
amount of the facility may be prepaid without penalty or premium at any time
prior to maturity, but only if the Company obtains the approval of the lenders
in the secured bank credit facility. The Company does not plan to utilize this
subordinated debt facility unless the funds available on the secured bank credit
facility are inadequate to finance the Company's planned capital expenditure
program in 1996. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
7
<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
3. FORWARD SALE TRANSACTIONS
The Company accounts for forward sale and put option arrangements as
hedging activities and, accordingly, gains and losses are included in oil and
gas revenues in the period the hedged production is sold. Included in oil and
gas revenues during the quarter ended March 31, 1996 are net losses totaling
$45,000 (comprised of losses of $188,000, partially offset by gains of
$143,000). In addition, the Company has hedged approximately 40% of its
expected oil production from April 1996 through August 1996 utilizing certain
financial swap arrangements as summarized below:
<TABLE>
<CAPTION>
FIXED PRICE PER BBL
DATE PRODUCTION VOLUMES ---------------------------
ENTERED MONTHS (BBLS) HIGH LOW AVERAGE
------- ------ ------ ---- --- -------
<S> <C> <C> <C> <C> <C>
12/95 4/96 29,000 $18.00 $18.00 $18.00
1/96 4/96 29,000 18.67 18.67 18.67
2/96 4/96 - 8/96 185,000 19.55 17.75 18.26
3/96 4/96 - 6/96 60,000 19.02 17.99 18.46
4/96 4/96 - 5/96 63,000 23.13 21.15 22.09
</TABLE>
4. STOCK COMPENSATION PLANS
In May 1995, the Company's Board of Directors adopted two stock
compensation plans, one for selected officers and one for outside directors of
the Company. These plans permit the Company to pay all or part of selected
executives' salaries and all outside director's fees in Common Stock in lieu of
cash. During the three months ended March 31, 1996, the Company issued Mr.
Williams 30,650 shares of Common Stock in lieu of cash compensation aggregating
$101,792, and issued 4,614 shares to three outside directors in lieu of cash
compensation aggregating $15,000. Subsequent to March 31, 1996, the Company
issued Mr. Williams an additional 14,675 shares and issued an aggregate of 3,870
shares to three outside directors in lieu of cash compensation aggregating
$78,000.
5. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted average number
of common and common equivalent shares, if dilutive, outstanding during each
period. Common stock equivalents were not included in the computation of net
loss per share in the 1995 period since the effect was anti-dilutive.
6. SALE OF ASSETS
In January 1996, the Company sold its rights to the Buda and Georgetown
formations under approximately 28,000 net acres in Robertson County, Texas for
$3.5 million. Certain leases covered by the sale must be extended during 1996
and the Company estimates that it will be required to spend, in the aggregate,
approximately $550,000 in this effort. The Company also granted the purchaser
the option to acquire additional Buda and Georgetown rights under approximately
36,000 net acres in Burleson County, Texas. The net proceeds were used to repay
indebtedness on the secured bank credit facility, resulting in an increase in
funds then available for borrowing of $2.9 million. No gain or loss was
recognized on the sale.
8
<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
7. INCOME TAXES
Although the Company recorded net income of $1.4 million for financial
reporting purposes during the quarter ended March 31, 1996, no provision for
income tax expense is required since a valuation allowance in excess of this
amount was recorded at December 31, 1995.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company's primary focus has historically been its horizontal drilling
program in the Cretaceous Trend (the "Trend") which extends from South Texas
through East Texas, Louisiana and other southern states and includes the Austin
Chalk, Buda and Georgetown formations. Oil and gas production in the Trend is
generally characterized by a high initial production rate, followed by a steep
rate of decline. In order to maintain or expand its oil and gas reserve base,
the Company must find and develop or acquire proven reserves sufficient to
replace those being depleted through current production.
The following table sets forth certain operating information of the Company
for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
OIL AND GAS PRODUCTION DATA:
Oil (MBbls) 482 480
Gas (MMcf) 1,462 1,832
MBOE (a) 726 785
AVERAGE OIL AND GAS SALES PRICES:
Oil ($/Bbl) $18.71 $17.34
Gas ($/Mcf) $ 2.29 $ 1.65
OIL AND GAS COSTS ($/BOE PRODUCED):
Lease operating expenses $ 4.96 $ 4.45
Oil and gas depletion $ 7.56 $ 8.51
NET WELLS DRILLED:
Horizontal Wells 7.2 12.5
Vertical Wells 1.0 -
</TABLE>
___________
(a) Gas is converted to barrel of oil equivalents (BOE) at the ratio of six Mcf
of gas to one Bbl of oil.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO MARCH 31, 1995
REVENUES
Oil and gas sales increased 9% from $11.4 million in 1995 to $12.4 million
in 1996 due to higher oil and gas prices, offset in part by lower gas
production. Although newly drilled or acquired wells contributed approximately
30% of the Company's 1996 production on a BOE basis these additions were not
sufficient to offset the characteristically steep production declines from
previously existing Trend wells. Prices received for oil production increased
8% in 1996 and gas prices increased 39%. Revenues from natural gas services
decreased 47% to $964,000 due primarily to the sale of the Company's two
principal gas gathering and processing systems in August 1995.
10
<PAGE>
COSTS AND EXPENSES
Lease operations expenses increased 3% in 1996 as compared to 1995 despite
an 8% decline in BOE production. On a BOE basis, lease operations expenses
increased from $4.45 per BOE in the 1995 quarter to $4.96 per BOE in 1996.
Operating expenses of Trend wells are generally lower on a BOE basis in the
early stages of production since a large portion of the operating expense are
fixed in nature and do not vary with production volume. As production volumes
decline, operating expense per BOE typically increase. In addition, since 1994,
the Company has conducted most of its drilling activity in the updip area of the
Trend where the reservoir pressures are lower. Generally, this requires wells
to be converted from flowing wells to electric-powered pumping units at an
earlier stage of production, which increases the lifting costs associated with
the updip wells.
DD&A expense decreased 17% from $6.9 million in 1995 to $5.7 million in
1996 due to a combination of lower production levels and lower amortization
rates per BOE. Under the successful efforts method of accounting, costs of oil
and gas properties are amortized on a unit-of-production method based on
estimated proved reserves. Effective October 1, 1995, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets" and recorded a $10.3 million non-cash provision for
impairment of certain producing assets, most of which was attributable to assets
located in the Pearsall Field in South Texas. As a result, the average
depletion rate declined from $8.51 per BOE in 1995 to $7.56 per BOE in 1996.
G&A expenses decreased 23% from $922,000 in 1995 to $707,000 in 1996.
Beginning in March 1994, the Company reduced its overhead by implementing
certain cost reduction measures, including the closing of its San Antonio
office, the elimination or reduction of certain professional services, and the
control of personnel costs through staff and wage reductions and employee
benefit cost controls. The full impact of these measures was not realized until
the third quarter of 1995.
Costs of natural gas services decreased 33% to $757,000 due primarily to
the sale of the Company's two principal gas gathering and processing systems in
August 1995.
INTEREST EXPENSE AND OTHER
Interest expense decreased 33% from $1.5 million in 1995 to $1.0 million in
1996 due primarily to lower average levels of indebtedness on the Company's
secured bank credit facility and, to a much lesser extent, lower average
interest rates. The average daily principal balance outstanding on such
facility during the first quarter of 1996 was $40.9 million compared to $58.8
million in 1995. The effective annual interest rate on bank debt during the
1996 quarter was 9.6% compared to 10.0% in 1995. Proceeds from the sales of
assets in August 1995 and January 1996 and the sale of Common Stock through a
shareholder rights offering in September 1995 aggregating approximately $15
million were used to reduce bank indebtedness.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company's primary financial resource is its oil and gas reserves. In
accordance with the terms of the current bank credit facility, the banks
establish a borrowing base against which the Company may borrow funds as needed
to supplement its internally generated cash flow as a source of financing for
its capital expenditure program and debt amortization. Product prices, over
which the Company has very limited control, have a significant impact on the
Company's ability to maintain or expand the spread between the borrowing base
and the level of outstanding indebtedness. Within the confines of product
pricing, the Company must be able to find and develop or acquire oil and gas
reserves in a cost effective
11
<PAGE>
manner in order to generate sufficient financial resources through internal
means to complete the financing of its capital expenditure program.
The following discussion sets forth the Company's current plans for capital
expenditures in 1996 and the expected capital resources needed to finance such
plans.
CAPITAL EXPENDITURES
During 1996, the Company plans to focus its efforts on Trend drilling.
Presently, the Company plans to drill approximately 24 net wells in the updip
area of the Trend in 1996, of which seven were completed during the first
quarter. The Company is also actively acquiring additional acreage and
extending existing leases in this area. In addition, the Company is currently
acquiring and interpreting seismic data to explore for potential gas reserves in
formations below the Austin Chalk. Early geophysical studies seem to indicate
that some of the Company's acreage in this area could be on trend with the
prolific Cotton Valley Lime Reef gas play. The Company plans to spend
approximately $250,000 during the initial phase of this exploration effort;
however, the ultimate level of capital expenditures cannot be predicted at the
present time.
At the present level of planned activity, the Company's capital
expenditures will be approximately $27 million in 1996; however, substantially
all of this activity is discretionary. This allows the Company to make
adjustments to its level of capital expenditures based upon such factors as the
availability of capital resources, product prices and drilling results. Thus,
if the Company's ability or desire to conduct the planned activities is
diminished or enhanced by any of these factors, the Company can modify its
capital expenditures accordingly (see "- CAPITAL RESOURCES").
The Company does not have any specified amounts of capital expenditures
designated for acquisitions of proven properties in 1996. However, the Company
plans to actively seek and evaluate acquisition opportunities during the year
and will commit only to those acquisitions which the Company can adequately
finance through internal or external sources.
CAPITAL RESOURCES
SECURED BANK CREDIT FACILITY. The Company's secured bank credit facility
provides for a revolving loan facility and a term loan facility, the limits of
which are determined by a borrowing base established by the banks. At March 31,
1996, the borrowing base was $46.7 million, of which $21.7 million was
attributable to the revolving loan facility and $25.0 million was attributable
to the term loan facility. The amount of funds available on the revolving loan
facility at December 31, 1995 was $5.0 million. The borrowing base is scheduled
to be redetermined in May 1996 and at least semi-annually thereafter; however,
the Company or the banks may request a borrowing base redetermination at any
other time during the year. Any redetermination will be made at the discretion
of the banks. If, at any time, outstanding advances plus letters of credit
exceed the borrowing base, the Company will be required to (i) pledge additional
collateral, (ii) prepay the excess in not more than five equal monthly
installments or (iii) elect to convert the entire amount of the facility to a
term obligation based on amortization formulas set forth in the loan agreement.
Substantially all of the Company's oil and gas properties are pledged to secure
advances under the secured bank credit facility.
The term loan facility presently requires monthly principal prepayments of
$950,000. The amount of monthly prepayments is subject to change at the time of
each borrowing base redetermination. No additional advances are permitted
against the term loan facility.
All outstanding balances on the secured bank credit facility may be
designated, at the Company's option, as either "Base Rate Loans" or "Eurodollar
Loans" (as defined in the agreement), provided that
12
<PAGE>
not more than two Eurodollar traunches may be outstanding at any time. Base
Rate Loans will bear interest at the fluctuating Base Rate plus a Base Rate
Margin ranging from 0% to 1/2% per annum, depending on levels of outstanding
advances and letters of credit. Eurodollar Loans will bear interest at the
LIBOR rate for a fixed period of time elected by the Company plus a
Eurodollar Margin ranging from 2% to 2.75% per annum. At March 31, 1996, the
Company's indebtedness under these facilities consisted of $3.9 million of
Base Rate Loans at a rate of 8.75% and $37.8 million of Eurodollar Loans at
an average rate of 8.1%.
In addition, the Company pays the banks a commitment fee equal to 1/2% per
annum on the unused portion of the revolving loan commitment. Interest and fees
are payable quarterly, and all outstanding principal and interest will be due
July 31, 1998.
SUBORDINATED DEBT FACILITY. In June 1995, the Company obtained a
commitment from the Agent bank in its secured bank credit facility to loan the
Company up to $5.5 million under a subordinated debt facility which provides for
interest at a minimum rate of 14.25% per year, plus certain commitment fees,
with interest payable monthly and principal payable at maturity on July 31,
1998. The commitment originally expired on December 31, 1995, but was extended
to December 31, 1996. The entire amount of the facility may be prepaid without
penalty or premium at any time prior to maturity, but only if the Company
obtains the approval of the lenders in the secured bank credit facility. The
Company does not plan to utilize this subordinated debt facility unless the
funds available on the secured bank credit facility are inadequate to finance
the Company's planned capital expenditure program in 1996.
WORKING CAPITAL AND CASH FLOW. During the three months ended March 31,
1996, the Company generated cash flow from operating activities of $7.7 million
and received proceeds from the sale of assets of $3.5 million. During the same
period, the Company spent $8.2 million on capital expenditures and repaid $2.9
million on the term loan facility. At March 31, 1996, the Company had $5.0
million of availability on the revolving loan facility.
Unless drilling results or product pricing dictates an escalation in the
present level of proposed drilling activity, the Company believes that the funds
available on the secured bank credit facility and cash provided by operations
will be adequate to avoid borrowing on the subordinated debt facility during the
remainder of 1996. However, since the amount of the borrowing base is subject
to factors such as drilling results, product prices and discount rates and may
be redetermined by the banks at any time, it is possible that the Company will
be required to borrow some or all of the funds available on the subordinated
debt facility. In any event, there can be no assurance that all of these
combined sources of funds will be adequate to meet the Company's capital
expenditure program, in which case the Company may be required to cease or delay
its drilling activities.
INFLATION AND CHANGES IN PRICES
The Company's revenues and the value of its oil and gas properties have
been and will continue to be affected by changes in oil and gas prices. The
Company's ability to maintain current borrowing capacity and to obtain
additional capital on attractive terms is also substantially dependent on oil
and gas prices. Oil and gas prices are subject to significant seasonal and
other fluctuations that are beyond the Company's ability to control or predict.
Therefore, the Company has entered into certain financial swap arrangements as
described in Note 3 to the accompanying consolidated financial statements.
Although certain of the Company's costs and expenses are affected by the
level of inflation, inflation did not have a significant effect on the Company's
results of operations during 1996.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27 Financial Data Schedule
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1996.
14
<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
CLAYTON WILLIAMS ENERGY, INC.
Date: May 8, 1996 By: /s/ L. Paul Latham
----------------------------
L. Paul Latham
Executive Vice President and
Chief Operating Officer
Date: May 8, 1996 By: /s/ Mel G. Riggs
-----------------------------
Mel G. Riggs
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,065
<SECURITIES> 0
<RECEIVABLES> 8,664
<ALLOWANCES> 0
<INVENTORY> 471
<CURRENT-ASSETS> 10,515
<PP&E> 346,827
<DEPRECIATION> 265,154
<TOTAL-ASSETS> 92,249
<CURRENT-LIABILITIES> 25,374
<BONDS> 30,358
0
0
<COMMON> 745
<OTHER-SE> 35,772
<TOTAL-LIABILITY-AND-EQUITY> 92,249
<SALES> 12,368
<TOTAL-REVENUES> 13,332
<CGS> 3,598
<TOTAL-COSTS> 10,993
<OTHER-EXPENSES> (47)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 982
<INCOME-PRETAX> 1,404
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,404
<EPS-PRIMARY> .19
<EPS-DILUTED> 0.00
</TABLE>
