CLAYTON WILLIAMS ENERGY, INC. ANNUAL REPORT 2004 Layton Williams Energy, Inc

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CLAYTON WILLIAMS ENERGY, INC. ANNUAL REPORT 2004 Layton Williams Energy, Inc CLAYTON WILLIAMS ENERGY, INC. ANNUAL REPORT 2004 layton Williams Energy, Inc. C(stock symbol CWEI) is an Company independent exploration and production company that develops Profile and produces oil and natural gas. Clayton W. Williams, who has over 40 years of experience in the energy industry, founded the Company. CWEI focuses and operates primarily in Areas of Texas, Louisiana, West Texas/ Operation New Mexico Mississippi and New • Permian Basin • Empire/Loco Hills Mexico. The Company East Texas • Cotton Valley has extensive expertise • Austin Chalk # Midland with the use of 3-D seismic. At December 31, 2004, Southern Louisiana the Company had total proved reserves of 299 billion cubic feet of # Corporate natural gas equivalents with a Office present value of $705.3 million. CORPORATE HIGHLIGHTS Selected Financial & Operating Data (Dollars in thousands, except per unit information) 2004 2003 2002 2001 2000 Financial Data: Total revenue $ 206,330 $ 172,057 $ 94,111 $ 124,924 $ 109,948 Net income (loss) from continuing operations $(14,028) $ 22,649 $ (5,338) $ (5,546) $ 27,441 Net income (loss) $(14,028) $ 22,856 $ (4,003) $ (5,304) $ 27,813 Per diluted share: Net income (loss) from continuing operations $ (1.37) $ 2.38 $ (0.58) $ (0.60) $ 2.88 Net income (loss) $ (1.37) $ 2.40 $ (0.43) $ (0.58) $ 2.91 Diluted shares outstanding (000’s) 10,213 9,509 9,241 9,219 9,543 Net cash provided by operating activities $ 126,980 $ 119,750 $ 34,514 $ 67,059 $ 72,471 Total assets $ 462,235 $ 224,433 $218,992 $ 183,279 $ 164,864 Long-term debt $ 177,519 $ 53,295 $ 94,949 $ 62,000 $ 30,000 Stockholders’ equity $ 117,596 $ 100,781 $ 68,781 $ 82,280 $ 85,777 Operating Data: Production: Gas (MMcf) 17,938 24,697 15,972 10,995 7,460 Oil (MBbls) 2,094 1,505 1,585 2,129 2,375 Natural gas liquids (MBbls) 249 234 227 249 220 Total (MMcfe)(1) 31,996 35,131 26,844 25,223 23,030 Average realized prices:(2) Gas ($/Mcf) $ 5.60 $ 4.69 $ 3.01 $ 4.25 $ 3.69 Oil ($/Bbl) $ 40.65 $ 27.74 $ 22.00 $ 25.47 $ 29.44 Natural gas liquids ($/Bbl) $ 27.90 $ 21.09 $ 14.16 $ 16.05 $ 20.54 Reserve Information: Proved reserves: Gas (MMcf) 138,278 62,916 86,912 74,974 28,308 Oil & natural gas liquids (MBbls) 26,793 10,335 11,884 9,291 12,911 Total (MMcfe) 299,036 124,926 158,216 130,720 105,774 Present value of proved reserves $ 705,314 $ 335,097 $382,518 $ 186,868 $ 307,456 (1) Oil is converted to gas equivalents (Mcfe) at the ratio of six Mcf of gas to one Bbl of oil. (2) Includes effects of hedging transactions. LETTER TO SHAREHOLDERS Dear Shareholders, Looking back at 2004, we is a certain amount of risk that program going forward. involved in finding these reser- have again reached several mile- Our acquisition of Southwest voirs, the potential reward is great stones within our company for Royalties in 2004 has brought not enough to merit the risk. During which we are very proud and only long-lived, stable production, 2004 our efforts to find these grateful. Total revenue, cash flow, but also a good inventory of devel- reservoirs were met with both and reserves are at all time highs. opment drilling locations. We success and disappointment, but In particular, our oil and gas believe that this acquisition has the result contributed significantly reserves more than doubled from given us a substantial position in to our reserve replacement for the 125 Bcfe in 2003 to 299 Bcfe at the Permian Basin and will com- year. the end of 2004. Reserve replace- plement our New Mexico drilling ment during 2004 was 732% of Our exploration program tar- program. After this acquisition, production, due primarily to the geting the Stones River formation our long-term debt increased to long-lived properties acquired in Mississippi has been a disap- $240 million, but with selective through the Southwest Royalties pointment for us. After two dry asset sales, cash flow and an equity acquisition; however, a significant holes, we are now limiting our offering, we reduced our debt to portion of the production replace- focus to the Pennsylvanian forma- $177.5 million. ment, 146%, came through the tion where we plan to conduct Looking forward to 2005, we drill bit. additional exploration activity will pursue a broader, more diver- during 2005. Obviously, one of the primary sified drilling program. We are reasons for our record cash flow is Our activities in south enjoying some developmental due to strong product prices. Louisiana last year were much drilling in the Permian Basin, but During 2004, while gas prices have more favorable. The majority of our primary focus will remain on been unquestionably strong, oil the reserves recorded from our exploration. We plan to spend prices have reached record highs exploration activities there came $124 million on already identified and continue to set new highs as I as the result of drilling two pro- exploratory and development proj- write to you in 2005. For the first ductive wells in the Tiger Pass ects this year. Sixty-six percent of time in history, in my opinion, the area, two productive wells in the planned expenditures are world’s rising demand for crude Fleur area, two non-operated exploratory in nature with the may exceed our collective capaci- drilling wells in the area and the majority of those expenditures ties to meet that demand with recently completed Orleans Levee being in south Louisiana. additional supplies. Gone may be District No. 1 (American Bay). Ladies and gentlemen, we are the day when OPEC could control The 2004 discoveries in south living in exciting times, where that balance by opening and Louisiana were actually responsi- opportunities and preparedness closing the production valve itself. ble for replacing roughly 81% of have met. Our technical and Future demand must now be met our total company production for scientific staffs are in place, we with new drilling, which is what the year. We are planning to have an excellent inventory of we do. Our passion is exploring spend another $52 million in 2005 prospects to drill and product for new, undiscovered reservoirs of in new drilling, leasing and seismic prices are at unprecedented levels. oil and gas. We believe that there in south Louisiana, one of the top We are looking forward to a are still reservoirs of oil and gas to gas producing areas in the country. prosperous 2005! be found that would be significant We are excited about our success to our company. Although there there and we are optimistic about PROVED RESERVES TOTALPRODUCTION (Bcfe) (Bcfe) As I have often said before, I 299 35.1 am honored to be your CEO, and 32.0 I feel blessed to live in the greatest country in the world. PUD PDNP PDP 26.8 25.2 23.0 Clayton W. Williams Chairman of the Board, 158.2 President and Chief Executive 130.7 Officer 124.9 105.8 March 23, 2005 2004 2003 2002 2001 2000 2004 2003 2002 2001 2000 CASH FLOW FROM TOTAL REVENUE CAPITAL EXPENDITURES OPERATIONS $ in Millions $ in Millions $ in Millions 206.3 372.0 127.0 172.1 119.8 124.9 72.5 109.9 67.1 94.1 111.2 34.5 74.0 79.9 69.7 2004 2003 2002 2001 2000 2004 2003 2002 2001 2000 2004 2003 2002 2001 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-20838 CLAYTON WILLIAMS ENERGY, INC. (Exact name of registrant as specified in its charter) Delaware 75-2396863 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Six Desta Drive - Suite 6500 Midland, Texas 79705-5510 (Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: (432) 682-6324 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock - $.10 Par Value (Title of Class) 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 [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ X ] No [ ] State the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter. $147,894,730.
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