Clayton Williams' Third Quarter Results Soar
Clayton Williams reported net income for the third quarter of 2008 of $94.6 million, or $7.79 per share, as compared to net income of $986,000, or $.09 per share, for the third quarter of 2007.
Cash flow from operations for the third quarter of 2008 was $73.6 million, as compared to $72.4 million during the same period in 2007.
For the nine months ended September 30, 2008, the Company reported net income of $80.6 million, or $6.48 per share, as compared to a net loss of $2.5 million, or $.22 per share, for the same period in 2007. Cash flow from operations for the nine-month period in 2008 was $223.1 million, as compared to $162.3 million during the same period in 2007.
Oil and gas sales increased 52% from $84.6 million for the third quarter of 2007 to $128.3 million for the same quarter in 2008. Oil production for the third quarter of 2008 increased 30% to 755,000 barrels, or 8,207 barrels per day, compared to 582,000 barrels, or 6,326 barrels per day, in the third quarter of 2007. Gas production for the third quarter 2008 decreased 32% to 3.9 Bcf, or 42,609 Mcf per day, from 5.8 Bcf, or 62,500 Mcf per day, in the 2007 quarter.
The comparability of production between the third quarter of 2007 and the third quarter of 2008 was affected by two primary factors. Certain South Louisiana properties that were sold during the second quarter of 2008 produced a daily average of 750 barrels of oil and 12,000 Mcf of gas in 2007. In addition, South Louisiana production was curtailed during the third quarter of 2008 due to Hurricanes Gustav and Ike.
For the third quarter of 2008, average realized oil prices increased 61% to $116.01 per barrel from $72.10 per barrel in the 2007 period, while gas prices increased 46% to $9.88 per Mcf from $6.77 per Mcf in the same quarter of 2007. Average realized prices for 2008 and 2007 exclude the effects of any gains or losses realized on commodity hedging transactions since those derivatives were not designated as cash flow hedges and have been reported in the Company's statements of operations as gain/loss on derivatives under applicable accounting standards.
For the third quarter of 2008, the Company reported a $132.7 million net gain on derivatives, consisting of a $169.5 million non-cash gain to mark the Company's derivative positions to their fair value on September 30, 2008 and a $36.8 million realized loss on settled contracts. For the same period in 2007, the Company reported a $2.3 million net loss on derivatives, consisting of a $1.6 million realized gain on settled contracts and a $3.9 million non-cash loss due to changes in mark-to-market valuations.
The Company recorded abandonment and impairment costs during the third quarter of 2008 of $43 million compared to $18.8 million for the third quarter of 2007. The 2008 quarter included a pre-tax charge of $12.5 million of drilling costs for the abandonment of the Big Bill Simpson #1 and $27.6 million for leasehold impairments on the Company’s East Texas Bossier prospect.
The Company also recorded a non-cash charge during the third quarter of 2008 of $10 million for impairments pursuant to Statement of Financial Accounting Standards No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets," related to the Margarita #1 on the Company’s East Texas Bossier prospect to reduce the carrying value of this well to its estimated fair market value at September 30, 2008.
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