Clayton Williams Energy's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Clayton Williams Energy, Inc. (CWEI)

Q2 2012 Earnings Call

July 26, 2012 2:30 PM ET

Executives

Patti Hollums – Director, IR

Mel Riggs – EVP and COO

Michael Pollard – SVP- Finance, Treasurer and CFO

Clayton Williams – Chairman, President and CEO

Greg Welborn – VP, Land

John Kennedy – Manager, Drilling

Analysts

Welles Fitzpatrick – Johnson Rice

Neal Dingmann – SunTrust Robinson Humphrey

Irene Haas – Wunderlich

Andrew Coleman – Raymond James

Mike Kelly – Global Hunter

Sean Sneeden – Oppenheimer

Irene Hass – Wunderlich

Ravi Kamath – Global Hunter

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Clayton Williams Energy Incorporated Second Quarter 2012 Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce our host for today, Ms. Patti Hollums, Director of Investor Relations. Ma’am, please go ahead.

Patti Hollums

Thank you. Good afternoon and thank you for joining the Clayton Williams Energy Second Quarter 2012 Results Conference Call. Participating on our call today is Clayton Williams, President and CEO; Mel Riggs, Executive Vice President and COO; Mike Pollard, Senior Vice President and CFO, and Ron Gasser, our Engineering Manager.

This call will be recorded and will be available for replay on our website at claytonwilliams.com. You can access this replay through the Investor Relations tab and by clicking on the Conference Call link on the top right hand corner of the screen.

During this call, we will discuss our second quarter results and our operations update release that were issued this morning and then, we will entertain a question-and-answer session for as long as time permits. Please be advised that our remarks and answers to your questions includes statements that we believe to be forward-looking statements.

All statements that relate to future results are forward-looking statements that are based on current expectations. Actual results may defer materially from those expressed or implied by these forward-looking statements, because of the number of risks and uncertainties affecting our business, including those discussed in our quarterly and annual SEC filings, and in the cautionary statements contained in our press release and on our website.

With that being said, I will turn the call over to Mr. Mel Riggs. Mel?

Mel Riggs

Thanks, Patty and thanks to everyone for dialing into this call. Format for today is going to be first of all Mike Pollard, our CFO will give us an insight for kind of recap of our financial results. And then after that, Mr. Williams will talk about kind of what has been happening operationally and what he sees into the future and then, we will have questions. We have got a several members of our – to provide the script named. We’ve got several other key members of our management team here today to help answer questions if necessary. So, with that I’ll turn it over to Mike.

Michael Pollard

Thank you, Mel. For the second quarter of 2012, we reported consolidated net income of $32.8 million or $2.70 per share versus net income of $42.7 million or $3.51 per share for the second quarter of 2011. Cash flow from operations net of changes in working capital was $44.9 million versus $86.4 million in 2011. For the six months ended June 30, 2012, we reported consolidated net income of $40.6 million or $3.34 per share versus net income of $34.8 million or $2.86 per share for the same period in 2011. Cash flow from operations was $97.3 million versus a $119.7 million for 2011.

Oil and gas sales for the second quarter of 2012 decreased to $6.4 million with price variances accounting for a $17.8 million decrease and production variances accounting for an $8.9 million increase. Our average realized oil price decreased to $88.06 per barrel versus a $100.07 in 2011, and our average realized gas price dropped to $3.25 per Mcf versus $5.56 Mcf in 2011.

Oil and gas sales this quarter also includes $2.5 million of non-cash amortized deferred revenue attributable to a volumetric production payment.

Our combined oil and gas production for the second quarter of 2012 was 1,411,000 BOE, which is roughly 15,500 BOE per day. That is up 6% as compared to the 2011 quarter. Oil production averaged 10,626 barrels per day up 9% and gas production averaged 23.4 million cubic feet down 6%.

Oil and NGLs make up about 75% of our total production. Our growth rate in oil production is improving as we work through some of our startup drilling and completion issues in the Delaware Basin, Wolfbone play. New production from our vertical drilling program is improving as we are better able to greater target locations in intervals and we’re also very encouraged with the early results from a horizontal drilling program.

Production cost rose 24% to $32.3 million in the second quarter of 2012 from $26.1 million in the 2011 quarter. Most of the increase resulted from higher lifting costs associated with more producing wells and rising cost of field services.

Due largely to the lack of infrastructure in Reeves County we’re experiencing higher than normal lifting cost, particularly costs associated with saltwater disposal. We’re nearing completion of an SWD system, which should significantly reduce our costs in Reeves County as we go forward.

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