Clayton Williams Energy, Inc. (the Company) provided an update on its strategic plans for 2013 and the status of its Permian Basin and Eagle Ford Shale operations.
As previously announced, the Company plans to take steps during 2013 to reduce debt and balance future drilling commitments with expected financial resources. Actions to be taken this year include:
Sell Wolfberry Assets
The Company is offering for sale its Andrews County Wolfberry assets and has retained RBC Richardson Barr as its exclusive financial and technical advisor to assist with this transaction. If acceptable terms of sale are achieved through this process, the Company anticipates closing the transaction during the second quarter of 2013.
Joint Venture Reeves County Wolfbone Assets
The Company plans to seek a joint venture partner for a portion of its net interest in Reeves County Wolfbone assets through a joint venture arrangement that would be expected to include a combination of upfront cash and a drilling carry. If acceptable terms to a joint venture arrangement are achieved, the Company anticipates closing the transaction during the fourth quarter of 2013.
Reduce Bank Debt
The Company plans to use all cash proceeds from asset sales to reduce bank debt. Although most of the Company's Wolfberry and Wolfbone assets are pledged to secure borrowings on its revolving credit facility, the Company expects to receive cash proceeds in excess of the loan value assigned to the sold assets, thereby providing the Company with additional liquidity under the credit facility.
Balance Future Drilling Commitments
Through asset sales and joint venture arrangements, the Company expects to achieve a sustainable balance between its future drilling commitments and its expected financial resources.
Throughout the year, the Company will also consider other asset sales and/or monetization transactions that enhance shareholder value and meet strategic operating and financial objectives, including the possible sale of its East Permian Basin Cline Shale/Wolfberry assets in Glasscock and Sterling Counties.
The Company currently plans to run four rigs in 2013 – two rigs drilling vertical and horizontal wells in the Delaware Basin Wolfbone play, one rig drilling vertical Wolfberry wells in Andrews County, and one rig drilling horizontal Eagle Ford wells in southeast Texas. Even if none of the asset sales or joint venture arrangements discussed above is consummated in 2013, the Company expects to have adequate liquidity to permit continued drilling at this level throughout the year.
The Company currently holds approximately 85,000 net acres in the active Wolfbone resource play in Reeves, Loving, Ward and Winkler Counties, and may earn up to 25,000 additional acres through future drilling commitments under an existing farmout arrangement. Geology in the Delaware Basin consists of multiple stacked pay zones with both over-pressured and normal-pressured intervals. To date, the Company has focused on the over-pressured intervals, having drilled 82 wells in the area: 69 vertical Wolfbone wells and 13 horizontal wells targeting multiple Bone Springs/Wolfcamp intervals. Net daily production for the fourth quarter of 2012 averaged 2,432 BOE (1,897 barrels of oil, 319 barrels of NGL and 1,297 Mcf of natural gas), up 382% from 636 BOE for the fourth quarter of 2011. Current pre-drill economics are based on gross estimated ultimate reserves (EURs) of 170 to 200 MBO for vertical completions and 300 to 350 MBOE for horizontal completions. Gross well costs are currently expected to be approximately $3.3 million for vertical completions and $6.5 million for horizontal completions.
The Company has completed construction on 84 miles of oil, gas and water disposal pipelines in Reeves County. These pipelines are capable of transporting up to 20,000 barrels of oil and 25,000 Mcf of natural gas per day to the applicable sales points and up to 20,000 barrels per day of produced water to the Company's salt water disposal system.
Andrews County Wolfberry
The Company currently holds approximately 17,000 net acres in its Wolfberry play in Andrews County. To date, the Company has drilled 185 vertical Wolfberry wells in Andrews County. Net daily production for the fourth quarter of 2012 averaged 2,497 BOE (1,769 barrels of oil, 429 barrels of NGL and 1,794 Mcf of natural gas), down 14% from 2,888 BOE for the fourth quarter of 2011.
ast Permian Basin Cline Shale/Wolfberry
The Company has approximately 37,000 net acres in the emerging Cline Shale play in Glasscock and Sterling Counties. Originally leased as a Wolfberry prospect, the Company has drilled or participated in 22 vertical Wolfberry wells in this area. In 2012, the Company drilled a horizontal Cline Shale well. Although results from this well were disappointing, the Company believes that intervening operational factors may have contributed to the lower than anticipated production performance to date.
Eagle Ford Shale
The Eagle Ford Shale formation lies immediately beneath the Austin Chalk formation where the Company has approximately 177,000 net acres in production. The Company believes that more than 100,000 net acres in this area may also be prospective for economic Eagle Ford Shale production. Since July 2011, the Company has drilled six horizontal Eagle Ford Shale wells: the Hosek Unit #1, the Ortmann Unit #1 and the Kutac Unit #1 in Wilson County, the Balcar Unit #1 in Lee County, the Scasta Unit #2 in Brazos County and the Sarah Ferrara E Unit #1 in Robertson County. Each of these wells has been or will be completed utilizing large, multi-stage hydraulic frac jobs using about five million pounds of proppant and 100,000 barrels of water. The Company is encouraged by the production results achieved to date, but additional drilling and production data is needed to determine if an Eagle Ford Shale drilling program in this area could be economically viable.
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