Clayton Williams Energy, Inc. (the “Company”) (NYSE: CWEI) announced revised GAAP net losses for the three months and six months ended June 30, 2016 to account for a change in tax expense associated with charges related to fair value of common stock warrants.

The Company revised its estimated annualized effective income tax rate from a benefit of 35.1% to a benefit of 30.8% of pre-tax loss for the six months ended June 30, 2016. The change in estimated tax rate was made to give effect to the treatment of $31.6 million of cumulative loss on change in fair value of common stock warrants as a permanent difference.

As revised, GAAP net loss for the three months and six months ended June 30, 2016 were $80.9 million ($6.65 per basic and diluted share) and $116.2 million ($9.55 per basic and diluted share), respectively. Adjusted net loss (non-GAAP) for the three months and six months ended June 30, 2016 were revised to $37.6 million ($3.09 per basic and diluted share) and $69.2 million ($5.69 per basic and diluted share). See accompanying tables for updated consolidated statements of operations, consolidated balance sheet and consolidated statements of cash flows as of and for the periods ended June 30, 2016, along with related computations of non-GAAP measures for adjusted net loss and EBITDAX and reconciliations of such non-GAAP measures to the applicable GAAP measures.

Clayton Williams Energy, Inc. is an independent energy company located in Midland, Texas.

This release contains 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. All statements, other than statements of historical or current facts, that address activities, events, outcomes and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. The Company cautions that its future natural gas and liquids production, revenues, cash flows, liquidity, plans for future operations, expenses, outlook for oil and natural gas prices, timing of capital expenditures and other forward-looking statements are subject to all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and marketing of oil and gas.

These risks include, but are not limited to, the possibility of unsuccessful exploration and development drilling activities, our ability to replace and sustain production, commodity price volatility, domestic and worldwide economic conditions, the availability of capital on economic terms to fund our capital expenditures and acquisitions, our level of indebtedness, the impact of the current economic recession on our business operations, financial condition and ability to raise capital, declines in the value of our oil and gas properties resulting in a decrease in our borrowing base under our credit facility and impairments, the ability of financial counterparties to perform or fulfill their obligations under existing agreements, the uncertainty inherent in estimating proved oil and gas reserves and in projecting future rates of production and timing of development expenditures, drilling and other operating risks, lack of availability of goods and services, regulatory and environmental risks associated with drilling and production activities, the adverse effects of changes in applicable tax, environmental and other regulatory legislation, and other 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.

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

Three Months Ended
June 30,

Six Months Ended
June 30,

  2016       2015     2016       2015  
REVENUES
Oil and gas sales $ 41,055 $ 68,662 $ 69,881 $ 127,232
Midstream services 1,072 1,603 2,359 3,214
Drilling rig services — — — 23
Other operating revenues   68     2,966     269     6,904  
Total revenues   42,195     73,231     72,509     137,373  
 
COSTS AND EXPENSES
Production 19,230 23,093 36,384 46,523
Exploration:
Abandonments and impairments 34 2,508 1,024 4,131
Seismic and other 318 105 429 971
Midstream services 833 534 1,169 933
Drilling rig services 1,197 1,620 2,466 3,496
Depreciation, depletion and amortization 38,178 42,121 76,791 84,775
Impairment of property and equipment — — 2,347 2,531
Accretion of asset retirement obligations 1,041 977 2,070 1,935
General and administrative 13,565 11,328 17,456 20,471
Other operating expenses   1,364     2,003     2,515     2,847  
Total costs and expenses   75,760     84,289     142,651     168,613  
Operating loss   (33,565 )   (11,058 )   (70,142 )   (31,240 )
 
OTHER INCOME (EXPENSE)
Interest expense (26,557 ) (13,609 ) (43,644 ) (26,886 )
Loss on change in fair value of common stock warrants (37,910 ) — (31,605 ) —
Loss on commodity derivatives (15,953 ) (12,300 ) (15,327 ) (7,668 )
Impairment of investment and other   372     871     (7,199 )   1,564  
Total other income (expense)   (80,048 )   (25,038 )   (97,775 )   (32,990 )
Loss before income taxes (113,613 ) (36,096 ) (167,917 ) (64,230 )
Income tax benefit   32,676     12,764     51,719     22,666  
NET LOSS $ (80,937 ) $ (23,332 ) $ (116,198 ) $ (41,564 )
 
Net loss per common share:
Basic $ (6.65 ) $ (1.92 ) $ (9.55 ) $ (3.42 )
Diluted $ (6.65 ) $ (1.92 ) $ (9.55 ) $ (3.42 )
Weighted average common shares outstanding:
Basic   12,170     12,170     12,170     12,170  
Diluted   12,170     12,170     12,170     12,170  
 
CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
ASSETS
  June 30,   December 31,
  2016     2015  
CURRENT ASSETS (Unaudited)
 
Cash and cash equivalents $ 63,627 $ 7,780
Investments - certificates of deposit and commercial paper 93,951 —
Accounts receivable:
Oil and gas sales 16,804 16,660
Joint interest and other, net 3,112 3,661
Affiliates 238 260
Inventory 27,735 31,455
Deferred income taxes 9,280 6,526
Fair value of commodity derivatives 218 —
Prepaids and other   2,574     2,463  
  217,539     68,805  
PROPERTY AND EQUIPMENT
Oil and gas properties, successful efforts method 2,615,105 2,585,502
Pipelines and other midstream facilities 61,323 60,120
Contract drilling equipment 123,917 123,876
Other   19,176     19,371  
2,819,521 2,788,869
Less accumulated depreciation, depletion and amortization   (1,656,134 )   (1,587,585 )
Property and equipment, net   1,163,387     1,201,284  
 
OTHER ASSETS
Fair value of commodity derivatives 324 —
Investments and other   7,041     17,331  
  7,365     17,331  
$ 1,388,291   $ 1,287,420  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade $ 25,537 $ 29,197
Oil and gas sales 17,816 19,490
Affiliates 195 383
Fair value of commodity derivatives 13,387 —
Accrued liabilities and other   16,635     16,669  
  73,570     65,739  
NON-CURRENT LIABILITIES
Long-term debt 930,129 742,410
Deferred income taxes 60,031 108,996
Fair value of commodity derivatives 2,458 —
Fair value of common stock warrants 48,368 —
Asset retirement obligations 61,482 48,728
Accrued compensation under non-equity award plans 23,870 16,254
Deferred revenue from volumetric production payment and other   4,983     5,695  
  1,131,321     922,083  
STOCKHOLDERS’ EQUITY
Preferred stock, par value $.10 per share — —
Common stock, par value $.10 per share 1,216 1,216
Additional paid-in capital 152,686 152,686
Retained earnings   29,498     145,696  
Total stockholders' equity   183,400     299,598  
$ 1,388,291   $ 1,287,420  
 
CLAYTON WILLIAMS ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
   

Three Months Ended
June 30,

Six Months Ended
June 30,

  2016       2015     2016       2015  
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (80,937 ) $ (23,332 ) $ (116,198 ) $ (41,564 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation, depletion and amortization 38,178 42,121 76,791 84,775
Impairment of property and equipment — — 2,347 2,531
Abandonments and impairments 34 2,508 1,024 4,131
(Gain) loss on sales of assets and impairment of inventory, net 1,255 (1,178 ) 1,963 (4,249 )
Deferred income tax benefit (32,676 ) (12,764 ) (51,719 ) (22,666 )
Non-cash employee compensation 8,936 5,770 7,868 7,084
Loss on commodity derivatives 15,953 12,300 15,327 7,668
Cash settlements of commodity derivatives (2,906 ) (1,767 ) (24 ) (1,767 )
Accretion of asset retirement obligations 1,041 977 2,070 1,935
Amortization of debt issue costs and original issue discount 1,572 748 3,953 1,495
Loss on change in fair value of common stock warrants 37,910 — 31,605 —
Amortization of deferred revenue from volumetric production payment (437 ) (1,723 ) (639 ) (3,501 )
Paid in-kind interest expense 13,271 — 13,271 —
Impairment of investment and other 149 (94 ) 8,381 404
Changes in operating working capital:
Accounts receivable (4,176 ) (1,528 ) 427 21,027
Accounts payable (704 ) (33 ) (11,356 ) (26,211 )
Other   (13,091 )   (13,469 )   (1,197 )   (2,472 )
Net cash provided by (used in) operating activities   (16,628 )   8,536     (16,106 )   28,620  
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (14,734 ) (35,730 ) (28,974 ) (125,267 )
Purchase of certificates of deposit and commercial paper (93,951 ) — (93,951 ) —
Proceeds from sales of assets 3,796 27,745 5,176 32,740
Decrease (increase) in equipment inventory 263 (680 ) 477 1,027
Proceeds from volumetric production payment and other   (6 )   232     132     498  
Net cash used in investing activities   (104,632 )   (8,433 )   (117,140 )   (91,002 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt — — 343,237 42,000
Proceeds from issuance of common stock warrants — — 16,763 —
Repayments of long-term debt — — (160,000 ) —
Payment of debt issuance costs   (4 )   —     (10,907 )   —  
Net cash provided by (used in) financing activities   (4 )   —     189,093     42,000  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (121,264 ) 103 55,847 (20,382 )
CASH AND CASH EQUIVALENTS
Beginning of period   184,891     7,531     7,780     28,016  
End of period $ 63,627   $ 7,634   $ 63,627   $ 7,634  
 

CLAYTON WILLIAMS ENERGY, INC.

COMPUTATION OF ADJUSTED NET LOSS (NON-GAAP)

(Unaudited)

(In thousands, except per share)

 

Adjusted net loss is presented as a supplemental non-GAAP financial measure because of its wide acceptance by financial analysts, investors, debt holders, banks, rating agencies and other financial statement users as a tool for operating trends analysis and industry comparisons. Adjusted net loss is not an alternative to net loss presented in conformity with GAAP.

The Company defines adjusted net loss as net loss before changes in fair value of commodity derivatives and common stock warrants, abandonments and impairments, impairments of property and equipment, net (gain) loss on sales of assets and impairment of inventory, amortization of deferred revenue from volumetric production payment, impairment of investments, certain non-cash and unusual items and the impact on taxes of the adjustments for each period presented.

The following table is a reconciliation of net loss (GAAP) to adjusted net loss (non-GAAP):

 

       
Three Months Ended Six Months Ended
June 30, June 30,
  2016     2015     2016     2015  
Net loss $ (80,937 ) $ (23,332 ) $ (116,198 ) $ (41,564 )
Loss on commodity derivatives 15,953 12,300 15,327 7,668
Cash settlements of commodity derivatives (2,906 ) (1,767 ) (24 ) (1,767 )
Loss on change in fair value of common stock warrants 37,910 — 31,605 —
Abandonments and impairments 34 2,508 1,024 4,131
Impairment of property and equipment — — 2,347 2,531
Net (gain) loss on sales of assets and impairment of inventory 1,255 (1,178 ) 1,963 (4,249 )
Amortization of deferred revenue from volumetric production payment (437 ) (1,723 ) (639 ) (3,501 )
Non-cash employee compensation 8,936 5,770 7,868 7,084
Impairment of investment and other 149 (94 ) 8,381 404
Tax impact (a)   (17,537 )   (5,599 )   (20,898 )   (4,342 )
Adjusted net loss $ (37,580 ) $ (13,115 ) $ (69,244 ) $ (33,605 )
 
Adjusted earnings per share:
Diluted $ (3.09 ) $ (1.08 ) $ (5.69 ) $ (2.76 )
 
Weighted average common shares outstanding:
Diluted 12,170 12,170 12,170 12,170
 
Effective tax rates 28.8 % 35.4 % 30.8 % 35.3 %
_______
(a)   The tax impact is computed utilizing the Company’s effective tax rate on the adjustments for each period presented.
 

CLAYTON WILLIAMS ENERGY, INC.

COMPUTATION OF EBITDAX (NON-GAAP)

(Unaudited)

(In thousands)

 

EBITDAX is presented as a supplemental non-GAAP financial measure because of its wide acceptance by financial analysts, investors, debt holders, banks, rating agencies and other financial statement users as an indication of an entity's ability to meet its debt service obligations and to internally fund its exploration and development activities. EBITDAX is not an alternative to net loss or cash flow from operating activities, or any other measure of financial performance presented in conformity with GAAP.

The Company defines EBITDAX as net loss before interest expense, income taxes, exploration costs, net (gain) loss on sales of assets and impairment of inventory, and all non-cash items in the Company's statements of operations, including depreciation, depletion and amortization, impairment of property and equipment, accretion of asset retirement obligations, amortization of deferred revenue from volumetric production payment, certain employee compensation, changes in fair value of commodity derivatives and common stock warrants, impairment of investments and certain non-cash and unusual items.

The following table reconciles net loss to EBITDAX:

       
Three Months Ended Six Months Ended
June 30, June 30,
  2016     2015     2016     2015  
Net loss $ (80,937 ) $ (23,332 ) $ (116,198 ) $ (41,564 )
Interest expense 26,557 13,609 43,644 26,886
Income tax benefit (32,676 ) (12,764 ) (51,719 ) (22,666 )
Exploration:
Abandonments and impairments 34 2,508 1,024 4,131
Seismic and other 318 105 429 971
Net (gain) loss on sales of assets and impairment of inventory 1,255 (1,178 ) 1,963 (4,249 )
Depreciation, depletion and amortization 38,178 42,121 76,791 84,775
Impairment of property and equipment — — 2,347 2,531
Accretion of asset retirement obligations 1,041 977 2,070 1,935
Amortization of deferred revenue from volumetric production payment (437 ) (1,723 ) (639 ) (3,501 )
Non-cash employee compensation 8,936 5,770 7,868 7,084
Loss on commodity derivatives 15,953 12,300 15,327 7,668
Cash settlements of commodity derivatives (2,906 ) (1,767 ) (24 ) (1,767 )
Loss on change in fair value of common stock warrants 37,910 — 31,605 —
Impairment of investment and other   149     (94 )   8,381     404  
EBITDAX $ 13,375   $ 36,532   $ 22,869   $ 62,638  
 
The following table reconciles net cash provided by (used in) operating activities to EBITDAX:
 
Net cash provided by (used in) operating activities $ (16,628 ) $ 8,536 $ (16,106 ) $ 28,620
Changes in operating working capital 17,971 15,030 12,126 7,656
Seismic and other 318 105 429 971
Cash interest expense   11,714     12,861     26,420     25,391  
$ 13,375   $ 36,532   $ 22,869   $ 62,638