Clayton Williams Energy to Acquire Southwest Royalties

Clayton Williams Energy has entered into an all cash Merger Agreement to purchase the stock of Southwest Royalties Inc., a privately owned energy company based in Midland, Texas. The transaction is expected to close not later than May 21, 2004.

CWEI estimates that Southwest's assets include 177 Bcfe of proved oil and gas reserves (62% proved developed) as of March 31, 2004 (58% oil and 42% gas). Current production is approximately 29 MMcfe per day. Substantially all of Southwest's assets are located in the Permian Basin. CWEI has identified an additional 53 Bcfe of probable reserves.

The stock purchase will include working capital, and certain other assets and liabilities of Southwest and is subject to approval by Southwest shareholders. The amount of cash consideration at closing is estimated to be $187.8 million, which is $1.06 per Mcfe of proved reserves and $.82 per Mcfe for both proved and probable reserves. CWEI intends to finance the acquisition through a new financing package provided by Bank One N.A. and plans to reduce its increased leverage within 12-18 months.

Clayton W. Williams Jr., chairman, president and CEO of CWEI, stated, "We believe this acquisition represents a tremendous opportunity for our Company. Southwest's extensive inventory of low-risk exploitation opportunities complements CWEI's exploration focus providing a more balanced drilling portfolio for CWEI. This acquisition increases our opportunities in the Permian Basin and substantially increases and diversifies CWEI's reserve profile."


  • Expected to be meaningfully accretive to 2004 and 2005 earnings and cash flow per share.
  • Low-Risk Development Opportunities: This acquisition adds significant low-risk development opportunities to our program.
  • Reserve Expansion: Southwest's properties greatly expands CWEI's reserve and production profile in the Permian Basin. CWEI's proved reserves will increase from 120 Bcfe to 297 Bcfe (148% increase).
  • Increase in Production: Current daily production is expected to increase by 40%.
  • Increased Reserve Life: CWEI's reserve life is currently 3.6 years based on current production levels; Southwest's reserve life is 17.4 years. The combined property base will have a reserve life of 6.9 years (92% increase).
  • Operational Synergies: Both companies' corporate headquarters are located in Midland, Texas. CWEI has identified numerous operational and financial benefits from this transaction.

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