Clayton Williams Energy Announces Third Quarter 2016 Financial Results

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

Summary
  • Oil and Gas Production of 14 MBOE/d
  • Cash Flow from Operations of $24.1 million; EBITDAX 2 (non-GAAP) of $18.4 million
  • Liquidity of $321.1 million, including cash and short-term investments
  • Sold Glasscock County, Texas assets for $19.4 million
  • Announced sale of Giddings Area assets for $400 million
  • Recent Actions to Improve Balance Sheet

Financial Results for the Third Quarter of 2016

The Company reported a net loss for the third quarter of 2016 ("3Q16") of $148.8 million, or $10.62 per share, as compared to a net loss of $9.4 million, or $0.77 per share, for the third quarter of 2015 ("3Q15"). Adjusted net loss 1 (non-GAAP) for 3Q16 was $35.1 million, or $2.50 per share, as compared to adjusted net loss 1 (non-GAAP) of $14.9 million, or $1.23 per share, for 3Q15. Cash flow from operations for 3Q16 was $24.1 million as compared to $26.4 million for 3Q15. EBITDAX 2 (non-GAAP) for 3Q16 was $18.4 million as compared to $28.7 million for 3Q15.

For the nine months ended September 30, 2016, net loss attributable to Company stockholders was $265 million, or $20.72 per share, as compared to net loss of $51 million, or $4.19 per share, for the same period in 2015. Adjusted net loss 1 (non-GAAP) for the nine-month period in 2016 was $96.1 million, or $7.52 per share, as compared to adjusted net loss 1 (non-GAAP) of $48.5 million, or $3.99 per share, for the same period in 2015. Cash flow from operations for the nine-month period in 2016 was $8 million as compared to $55 million during the same period in 2015. EBITDAX 2 (non-GAAP) for the nine-month period in 2016 was $41.3 million as compared to $91.4 million for the same period in 2015.

The key factors affecting the comparability of financial results for 3Q16 versus 3Q15 were:
  • Oil and gas sales for 3Q16, excluding amortized deferred revenues, decreased $7.5 million compared to 3Q15. Production variances accounted for a $5.7 million decrease and price variances accounted for a $1.8 million decrease. Average realized oil prices were $40.62 per barrel in 3Q16 versus $43.26 per barrel in 3Q15, average realized gas prices were $2.94 per Mcf in 3Q16 versus $2.71 per Mcf in 3Q15, and average realized natural gas liquids ("NGL") prices were $13.14 per barrel in 3Q16 versus $11.01 per barrel in 3Q15. Amortized deferred revenue in 3Q16 totaled $0.4 million as compared to $0.8 million in 3Q15.
  • Oil, gas and NGL production per barrel of oil equivalent ("BOE") decreased 10% in 3Q16 as compared to 3Q15, with oil production decreasing 11% to 9,935 barrels per day, gas production decreasing 19% to 13,989 Mcf per day, and NGL production increasing 9% to 1,685 barrels per day. Oil and NGL production accounted for approximately 83% of the Company's total BOE production in 3Q16 versus 82% in 3Q15. After giving effect to the sale of interests in certain wells in Glasscock County, Texas in July 2016 and the sale of selected leases and wells in South Louisiana in September 2015, oil, gas and NGL production per BOE decreased 7% in 3Q16 as compared to 3Q15. See accompanying tables for additional information about the Company's oil and gas production.
  • Production costs in 3Q16 were $17.8 million versus $20.7 million in 3Q15 due to lower oilfield service costs. Production costs on a BOE basis, excluding production taxes, decreased 3% to $12.25 per BOE in 3Q16 versus $12.68 per BOE in 3Q15.
  • Interest expense for 3Q16 was $26.6 million versus $13.6 million for 3Q15. The increase was due primarily to $13.9 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"). For 3Q16, 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 $377.2 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 $123.4 million loss on change in fair value in 3Q16 due primarily to the impact on the valuation model of a 211% increase in the market price of the Company's common stock from $27.46 at June 30, 2016 to $85.44 at September 30, 2016.
  • Gain on commodity derivatives for 3Q16 was $1.3 million (net of a $2.4 million loss on settled contracts) versus a gain on commodity derivatives in 3Q15 of $18.1 million (including a $6.4 million gain on settled contracts). See accompanying tables for additional information about the Company's accounting for derivatives.
  • Lower commodity prices negatively impacted our results of operations due to asset impairments. We recorded an impairment of proved properties of $1.1 million in 3Q16 related primarily to non-core prospects in California and the Cotton Valley area of Texas versus $3.1 million in 3Q15 related to non-core prospects in the Permian Basin and California.
  • General and administrative expenses for 3Q16 were $5.6 million versus $4.6 million for 3Q15. Changes in compensation expense related to the Company's APO reward plans accounted for $0.9 million of the increase ($1.1 million credit in 3Q16 versus $2 million credit in 3Q15), and additional expense related to issuances of restricted stock and stock options under the Company's recent long-term incentive plan accounted for a $0.8 million increase. These increases were partially offset by reductions in salary and personnel expense.
  • The Company redeemed $100 million of 7.75% Senior Notes due 2019 in a tender offer in August 2016 and recorded a gain on early extinguishment of long-term debt during 3Q16 of $4 million.
 

1
See "Computation of Adjusted Net Loss (non-GAAP)" below for an explanation of how the Company calculates and uses adjusted net loss (non-GAAP) and for a reconciliation of net loss (GAAP) to adjusted net loss (non-GAAP).
 
2 See "Computation of EBITDAX (non-GAAP)" below for an explanation of how the Company calculates and uses EBITDAX (non-GAAP) and for a reconciliation of net loss (GAAP) to EBITDAX (non-GAAP).
 

Balance Sheet and Liquidity

As of September 30, 2016, total long-term debt was $846.5 million, consisting of $351.5 million (net of $25.7 million of original issue discount and debt issuance costs) under the second lien term loan credit facility and $495 million, net of costs, of 7.75% Senior Notes due 2019 (the "Notes"). The borrowing base established by the banks under the revolving credit facility and the aggregate lender commitment was $100 million at September 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, short-term investments and funds available on the revolving credit facility, totaled $321.1 million.

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