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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, 1997
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.
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(Exact name of Registrant as specified in its charter)
DELAWARE 75-2396863
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6 DESTA DRIVE, SUITE 6500, MIDLAND, TEXAS 79705-5510
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(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (915) 682-6324
Not applicable
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(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 2,
1997......8,881,225
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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, 1997
and December 31, 1996 ...................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 .............................. 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 .............................. 5
Notes to Consolidated Financial Statements .................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ......................... 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................ 15
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CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 1,176 $ 2,479
Accounts receivable:
Trade, net 2,521 1,876
Affiliates 98 92
Oil and gas sales 8,480 10,440
Inventory 502 518
Other 491 557
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13,268 15,962
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PROPERTY AND EQUIPMENT
Oil and gas properties, successful
efforts method 366,894 354,532
Natural gas gathering and processing
systems 7,667 7,655
Other 9,818 9,547
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384,379 371,734
Less accumulated depreciation,
depletion and amortization (290,485) (284,173)
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Property and equipment, net 93,894 87,561
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OTHER ASSETS 27 75
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$ 107,189 $ 103,598
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade $ 12,825 $ 10,233
Affiliates 822 615
Oil and gas sales 7,074 7,454
Current maturities of long-term debt 82 112
Accrued liabilities and other 919 970
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21,722 19,384
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LONG-TERM DEBT 17,000 18,000
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STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share; authorized - 3,000,000 shares;
issued and outstanding - none - -
Common stock, par value $.10 per
share; authorized - 15,000,000
shares; issued - 8,945,389 shares
in 1997 and 8,927,658 shares in
1996 895 893
Additional paid-in capital 70,383 70,248
Retained deficit (1,696) (4,927)
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69,582 66,214
Less treasury stock, at cost (70,000
shares in 1997) (1,115) -
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68,467 66,214
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$ 107,189 $ 103,598
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The accompanying notes are an integral part of
these consolidated financial statements.
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CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
---- ----
REVENUES
Oil and gas sales $16,564 $12,368
Natural gas services 1,330 964
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Total revenues 17,894 13,332
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COSTS AND EXPENSES
Lease operations 4,141 3,598
Exploration 1,804 254
Natural gas services 1,145 757
Depreciation, depletion and amortization 6,344 5,677
General and administrative 903 707
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Total costs and expenses 14,337 10,993
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Operating income 3,557 2,339
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OTHER INCOME (EXPENSE)
Interest expense (352) (982)
Other income 26 47
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Total other income (expense) (326) (935)
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INCOME BEFORE INCOME TAXES 3,231 1,404
INCOME TAX EXPENSE - -
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NET INCOME $ 3,231 $ 1,404
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Net income per common share $ .35 $ .19
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Weighted average common shares outstanding 9,104 7,478
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The accompanying notes are an integral part of these
consolidated financial statements.
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CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,231 $ 1,404
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, depletion and amortization 6,344 5,677
Exploration costs 186 198
Other 113 105
Changes in operating working capital:
Accounts receivable 1,309 (127)
Accounts payable 481 (13)
Other 213 419
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Net cash provided by operating
activities 11,877 7,663
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (11,092) (8,245)
Proceeds from sale of property and equipment 16 3,521
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Net cash used in investing activities (11,076) (4,724)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (1,000) (3,177)
Repurchase of common stock for treasury (1,115) -
Proceeds from sale of common stock 11 -
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Net cash used in financing activities (2,104) (3,177)
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,303) (238)
CASH AND CASH EQUIVALENTS
Beginning of period 2,479 1,303
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End of period $ 1,176 $ 1,065
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SUPPLEMENTAL DISCLOSURES
Cash paid for interest, net of amounts
capitalized $ 379 $ 843
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The accompanying notes are an integral part of these
consolidated financial statements.
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CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 most of the oil
and gas properties, exploration and development operations and the natural
gas gathering and marketing operations of Mr. Williams and his affiliates.
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, 1997 and for the interim periods ended
March 31, 1997 and 1996 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, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 1996 Form 10-K.
2. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31, DECEMBER 31,
1997 1996
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(IN THOUSANDS)
Secured Bank Credit Facility
(matures July 31, 1999) $ 17,000 $ 18,000
Other 82 112
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17,082 18,112
Less current maturities 82 112
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$ 17,000 $ 18,000
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The Company's secured bank credit facility ("Credit Facility") provides
for a revolving loan facility in an amount not to exceed the lesser of the
borrowing base, as established by the banks, or that portion of the borrowing
base determined by the Company to be the elected borrowing limit. At March
31, 1997, the elected borrowing limit was $35 million, and the available
credit on the Credit Facility was $18 million. The borrowing base is
scheduled to be redetermined in May 1997 and at least semi-annually
thereafter; however, either 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 Credit
Facility.
All outstanding balances on the Credit Facility may be designated, at the
Company's option, as either "Base Rate Loans" or "Eurodollar Loans" (as
defined in the loan 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 3/8%
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 1% to 1.75%
per annum. At March 31, 1997, the Company's indebtedness under the Credit
Facility consisted of $2 million of Base Rate Loans at a rate of 8.6% and $15
million of Eurodollar Loans at a rate of 6.7%.
In addition, the Company pays the banks a commitment fee equal to 1/4%
per annum on the unused portion of the revolving loan commitment. Interest
on the revolving loan and commitment fees are payable quarterly, and all
outstanding principal and interest will be due July 1, 1999.
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). The Company did not hedge any of its oil and gas production
during the first quarter of 1997, and none of the Company's future oil and
gas production was subject to hedging arrangements at March 31, 1997.
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, permitting the Company to pay all or part of selected
executives' salaries and all outside director's fees in shares of common
stock in lieu of cash. The Company reserved an aggregate of 650,000 shares
of common stock for issuance under these plans. During the three months
ended March 31, 1997, the Company issued Mr. Williams 6,436 shares of common
stock in lieu of cash compensation aggregating $99,543 and issued 690 shares
to three outside directors in lieu of cash compensation aggregating $12,000.
Subsequent to March 31, 1997, the Company issued Mr. Williams an additional
5,836 shares in lieu of cash compensation aggregating $71,502. The amounts
of such compensation are included in general and administrative expense in
the accompanying consolidated financial statements. The Company terminated
the outside directors stock compensation plan in January 1997.
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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.
6. INCOME TAXES
Although the Company recorded net income of $3.2 million for financial
reporting purposes during the three months ended March 31, 1997, no provision
for income tax expense is required since the Company has net operating loss
carryforwards of approximately $36 million available to offset any taxable
income generated by the Company during 1997. Due to the uncertainty of
realizing the related future benefits from these tax loss carryforwards,
valuation allowances were recorded at March 31, 1997 and December 31, 1996 to
the extent net deferred tax assets exceed net deferred tax liabilities.
7. STOCKHOLDERS' EQUITY
In January 1997, the Company's Board of Directors authorized the Company
to spend up to $2 million to repurchase shares of its common stock on the
open market. At March 31, 1997, the Company had purchased 70,000 shares at a
cost of $1.1 million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS: Certain statements in
this Form 10-Q constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 ( the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance, or achievements
of Clayton Williams Energy, Inc. and its subsidiaries (the "Company") to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the volatility of oil and gas prices, the
Company's drilling results, the Company's ability to replace short-lived
reserves, the availability of capital resources, the reliance upon estimates of
proved reserves, operating hazards and uninsured risks, competition, government
regulation, the ability of the Company to implement its business strategy, and
other factors referenced in this Form 10-Q.
The following discussion is intended to assist in understanding the
Company's historical consolidated financial position at March 31, 1997, and
results of operations and cash flows for the periods ended March 31, 1997 and
1996. This discussion should be read in conjunction with the Company's Form
10-K for the year ended December 31, 1996 and the consolidated financial
statements and notes thereto included elsewhere in this Form 10-Q.
OVERVIEW
Since 1988, the Company and its predecessors have concentrated their
drilling activities in the Cretaceous Trend (the "Trend") which extends from
south Texas through east Texas, Louisiana and other southern states and
includes the Austin Chalk formation. 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 its oil and gas reserve base,
production levels and cash flow from operations, the Company must maintain or
increase its level of drilling activity and achieve comparable or improved
results from such activities.
The Company is continuing to drill wells in the Austin Chalk formation in
its North Giddings Block, which is located in the updip area of the Giddings
Field in east central Texas. Most of the drilling activity during the first
quarter of 1997 has been concentrated in the northern portion of the North
Giddings Block while the Company evaluated production from the first six wells
drilled in the southern portion of the block. To assist in the evaluation, the
Company has begun drilling two wells in the southern portion of the North
Giddings Block, the results of which are expected to be available in the second
quarter of 1997.
During the first quarter of 1997, the Company entered into two separate
agreements to acquire interests in acreage north of the North Giddings Block and
is currently drilling a well in the Georgetown formation on a portion of this
acreage. The Company expects this well to be completed in the second quarter of
1997. Under the terms of each of these agreements, the Company earns its share
of the acreage by drilling a commercial well and must spud each successive well
on the applicable acreage within 90 days or 180 days, respectively, from
completion of the previous well in order to maintain its right to continue
drilling. Approximately 56,000 net acres are covered by these agreements.
The Company is actively conducting a 3-D seismic survey covering
approximately 50,000 net acres in Robertson County, Texas in connection with its
Cotton Valley Exploratory Project. The seismic survey is currently on schedule
for completion during the third quarter of 1997 at a net cost of approximately
$4 million. Any drilling on prospects delineated by the survey is expected to
begin during the latter part of the fourth quarter of 1997.
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In addition, the Company is conducting exploration activities in connection
with certain newly acquired projects in east and south Texas, Louisiana and
Mississippi, all of which are in areas outside the Trend.
The Company follows the successful efforts method of accounting for its oil
and gas properties, whereby costs of productive wells, developmental dry holes
and productive leases are capitalized and amortized using the unit-of-production
method based on estimated proved reserves. Costs of unproved properties are
initially capitalized. Those properties with significant acquisition costs are
periodically assessed and any impairment in value is charged to expense. The
amount of impairment recognized on unproved properties which are not
individually significant is determined by amortizing the costs of such
properties within appropriate groups based on the Company's historical
experience, acquisition dates and average lease terms. Exploration costs,
including geological and geophysical expenses and delay rentals, are charged to
expense as incurred. Exploratory drilling costs, including the cost of
stratigraphic test wells, are initially capitalized but charged to expense if
and when the well is determined to be unsuccessful.
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the Company
for the periods presented:
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
---- ----
OIL AND GAS PRODUCTION DATA:
Oil (MBbls) 577 482
Gas (MMcf) 1,215 1,462
MBOE (1) 780 726
AVERAGE OIL AND GAS SALES PRICES (2):
Oil ($/Bbl) $22.27 $18.71
Gas ($/Mcf) $ 2.93 $ 2.29
OIL AND GAS COSTS ($/BOE PRODUCED):
Lease operating expenses $ 5.31 $ 4.96
Oil and gas depletion $ 7.87 $ 7.56
NET WELLS DRILLED:
Horizontal Wells 10.4 7.2
Vertical Wells 1.1 1.0
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(1) Gas is converted to barrel of oil equivalents (BOE) at the ratio of six Mcf
of gas to one Bbl of oil.
(2) Includes effects of hedging transactions.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO MARCH 31, 1996
REVENUES
Oil and gas sales increased 34% from $12.4 million in 1996 to $16.6 million
in 1997 due primarily to a 20% increase in oil production, a 19% increase in oil
prices, and a 28% increase in gas prices. These benefits were offset in part by
a 17% decline in gas production since most of the wells drilled by the Company
since 1995 have been predominately oil wells. Production from wells completed
subsequent to March 31, 1996 accounted for approximately 35% of the total oil
production for the 1997 period, which more than offset the effects of steep
production declines from previously existing Trend wells.
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Revenues from natural gas services increased 35% from $964,000 in 1996 to
$1.3 million in 1997 due primarily to additional revenues generated in 1997
related to three gathering systems acquired in the second quarter of 1996.
COSTS AND EXPENSES
Lease operations expenses increased 14% from $3.6 million in 1996 to $4.1
million in 1997 while oil and gas production on a BOE basis increased 7%,
resulting in an increase on a BOE basis from $4.96 per BOE in 1996 to $5.31 per
BOE in 1997. Such increase was due to a combination of factors, including (i)
increased remedial work on older, low volume wells in order to restore
production during times of higher product prices, (ii) higher salt water
disposal costs attributable to both price and volume increases, and (iii)
increased production taxes resulting from higher oil and gas sales during the
1997 period. These factors are expected to continue to affect lease operations
expenses throughout the remainder of 1997, and may cause such costs to remain
above $5.00 per BOE.
Exploration costs increased from $254,000 in 1996 to $1.8 million in 1997
due primarily to costs incurred during the 1997 period in connection with
exploration projects initiated since the fourth quarter of 1996. To date, the
Company has committed to spend approximately $4 million to conduct and evaluate
a 3-D seismic survey covering approximately 50,000 acres in the North Giddings
Block in 1997. The Company may continue to expand the area covered by the
survey and may drill one or more exploratory wells on any prospects which result
from such survey. In addition, the Company plans to spend approximately $8
million on other exploration activities, a significant portion of which will be
classified as exploration costs. Because the Company follows the successful
efforts method of accounting, the Company's results of operations may be
adversely affected during any accounting period in which such costs are incurred
and expensed.
DD&A expense increased 11% from $5.7 million in 1996 to $6.3 million in
1997 due primarily to a 7% increase in oil and gas production on a BOE basis,
combined with a 4% increase in the Company's average depletion rate 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. The Company reduced its estimated quantities of proved
reserves from those estimated at December 31, 1996 to give effect to a reduction
in product prices during the first quarter of 1997.
G&A expenses increased 28% from $707,000 in 1996 to $903,000 in 1997 due
primarily to increased personnel costs. Due to an increase in demand, beginning
in 1996, for skilled technical and managerial personnel in the oil and gas
industry, and due to an increase in the Company's level of exploration and
development activities, the Company has hired additional personnel and increased
salaries of existing personnel since March 31, 1996.
Costs of natural gas services increased 45% from $757,000 in 1996 to $1.1
million in 1997 due primarily to additional costs incurred in 1997 related to
three gas gathering systems acquired in the second quarter of 1996.
INTEREST EXPENSE AND OTHER
Interest expense decreased 64% from $982,000 in 1996 to $352,000 in 1997
due primarily to lower average levels of indebtedness on the 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 1997
was $16.9 million compared to $40.9 million in 1996. The effective annual
interest rate on bank debt, including bank fees, during the 1997 quarter was
8.9% compared to 9.8% in 1996.
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LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company's primary financial resource is its oil and gas reserves. In
accordance with the terms of the Credit Facility, the banks establish a
borrowing base, as derived from the estimated value of the Company's oil and
gas properties, 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. Product prices, over which the Company has
very limited control, have a significant impact on such estimated value and
thereby on the Company's borrowing availability under the Credit Facility.
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 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 1997, and the expected capital resources needed to
finance such plans.
CAPITAL EXPENDITURES
During 1997, the Company plans to drill up to 36 net wells in the Trend,
most of which will be in the North Giddings Block, and some of which will be
on acreage acquired through farm-in agreements with industry participants
whereby the Company will earn acreage by drilling successful wells. The
Company anticipates spending approximately $42 million in the Trend during
1997.
The Company has also committed to spend approximately $4 million in 1997
to conduct and evaluate a proprietary 3-D seismic survey covering a portion
of its acreage in connection with the Cotton Valley Exploratory Project and
may spend additional amounts to expand the area covered by the survey to
include other portions of the North Giddings Block and to begin drilling one
or more exploratory wells on any prospects delineated by such survey.
The Company plans to spend approximately $8 million in connection with
other exploration projects in east and south Texas, Louisiana and
Mississippi, all of which are in areas outside the Trend. These activities
will be largely exploratory in nature, and will involve substantial
expenditures for seismic and leasing activities.
Substantially all of the planned 1997 activity is discretionary. This
allows the Company to make adjustments to its level of capital and
exploratory 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 expenditures
accordingly. The Company's current policy is to limit its annual Cotton
Valley Exploratory Project expenditures to not more than 25% of its planned
annual capital expenditures. However, the Company may modify this policy
depending upon certain factors, including the Company's financial position,
exploratory drilling success, technological advances, drilling activities
conducted by third parties and current and anticipated product prices.
The Company does not have any specified amounts of capital expenditures
designated for acquisitions of proven properties in 1997. However, the
Company plans to actively seek and evaluate acquisition opportunities and
will commit only to those acquisitions which the Company can adequately
finance through internal and external sources.
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CAPITAL RESOURCES
CREDIT FACILITY
The Company's Credit Facility provides for a revolving loan facility in
an amount not to exceed the lesser of the borrowing base, as established by
the banks, or that portion of the borrowing base determined by the Company to
be the elected borrowing limit. Based on its expected needs for 1997, the
Company elected a borrowing limit of $35 million, leaving $18 million of
funds available at March 31, 1997. The borrowing base is scheduled for
redetermination in May 1997, at which time the Company may elect a higher
borrowing limit, if such an increase in borrowing capacity is both needed and
available. The Company intends to use such borrowing capacity, together with
internally generated funds, to (i) finance its 1997 planned capital
expenditure program in the Trend, (ii) conduct and evaluate the proprietary
3-D seismic survey as a part of the Cotton Valley Exploratory Project, and
(iii) conduct certain other exploration projects presently under
consideration. Substantially all of the Company's oil and gas properties are
pledged to secure advances under the Credit Facility.
WORKING CAPITAL AND CASH FLOW
During the three months ended March 31, 1997, the Company generated cash
flow from operating activities of $11.9 million, spent $11.1 million on
capital expenditures and repaid $1 million on the Credit Facility. During
the same period, the Company spent $1.1 million to repurchase shares of its
common stock.
The Company's working capital deficit increased from $3.4 million at
December 31, 1996 to $8.5 million at March 31, 1997. The Company applies
most of its available cash toward the repayment of the Credit Facility.
Since all outstanding indebtedness on the Credit Facility is classified as a
noncurrent liability, the timing of receipts and disbursements can cause
reported working capital to fluctuate as it did from December 31, 1996 to
March 31, 1997. However, working capital will increase as funds are advanced
on the Credit Facility to finance the Company's capital expenditure program.
The Company believes that the funds available under the Credit Facility
and cash provided by operations will be adequate to fund the Company's
operations and projected capital and exploratory expenditures during 1997.
However, because future cash flows and the availability of borrowings are
subject to a number of variables, such as the level of production from
existing wells, the Company's success in locating and producing new reserves,
prevailing prices of oil and gas, and the uncertainty with respect to the
amount of funds which may ultimately be required to finance the Cotton Valley
Exploratory Project, there can be no assurance that the Company's capital
resources will be sufficient to sustain the Company's exploratory and
development activities. If such capital resources are insufficient, the
Company may be required to cease or delay such 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 adequate 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. In an attempt to manage this price risk, the Company from time to
time engages in hedging transactions.
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 the 1997 period.
13
<PAGE>
HEDGING TRANSACTIONS
From time to time, the Company has utilized hedging transactions with
respect to a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce its exposure to price
fluctuations. While the use of these hedging arrangements limits the downside
risk of price declines, such use may also limit any benefits which may be
derived from price increases.
The Company uses various financial instruments, such as swaps and
collars, whereby monthly settlements are based on differences between the
prices specified in the instruments and the settlement prices of certain
futures contracts quoted on the NYMEX or certain other indices. Generally,
when the applicable settlement price is less than the price specified in the
contract, the Company receives a settlement from the counterparty based on
the difference. Similarly, when the applicable settlement price is higher
than the specified price, the Company pays the counterparty based on the
difference. The instruments utilized by the Company differ from futures
contracts in that there is not a contractual obligation which requires or
allows for the future physical delivery of the hedged products.
Presently, the Company does not have any open positions in swap, collar
or other financial hedging arrangements. However, the Company may enter into
various hedging arrangements in the future in order to realize commodity
prices which it considers favorable under the circumstances.
14
<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, 1997.
15
<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 5, 1997 By: /s/ L. Paul Latham
----------------------------------
L. Paul Latham
Executive Vice President and Chief
Operating Officer
Date: May 5, 1997 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 QUARTER ENDED MARCH 31, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,176
<SECURITIES> 0
<RECEIVABLES> 11,099
<ALLOWANCES> 0
<INVENTORY> 502
<CURRENT-ASSETS> 13,268
<PP&E> 384,379
<DEPRECIATION> 290,485
<TOTAL-ASSETS> 107,189
<CURRENT-LIABILITIES> 21,722
<BONDS> 17,000
0
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<TOTAL-LIABILITY-AND-EQUITY> 107,189
<SALES> 16,564
<TOTAL-REVENUES> 17,894
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<INTEREST-EXPENSE> 352
<INCOME-PRETAX> 3,231
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