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Clayton Williams Weighing Potential Asset Sale, Merger

Clayton Williams Energy Inc. (CWEI) is considering options to boost shareholder value, including selling some of its core assets, a corporate reorganization or a merger.

On Wednesday the Midland, TX-based independent said its board of directors "has initiated a review of strategic alternatives" and retained Goldman, Sachs & Co. as an adviser.

"There can be no assurance that this review process will result in any transaction in the future, and no decision has been made to enter into any transaction at this time," CWEI said. The company added that it "does not intend to make any additional comments on this matter other than as required by applicable law."

In a note Thursday, Irene O. Haas, an analyst with Wunderlich Securities Inc., said the firm was reviewing its $41/share price target for CWEI. She said the company's cost structure and lack of liquidity hurt the firm's outlook for CWEI's future rig count plans.

"While the company has not given more detail for legal purposes, they have in the past discussed these three possible alternatives," Haas said. "A potential bidder could bring more efficient operations and an acceleration of the development program."

Haas said CWEI management believes a sale of its Eagle Ford assets would be enough to eliminate the company's debt of approximately $750 million. Last June, the company sold 3,700 net acres in Burleson County, TX, to an undisclosed buyer for $22.1 million, which equates to about $6,000/acre (see Shale DailyJune 18). According to Haas, CWEI would need to get about $3,400/acre to reach the goal of $750 million.

Potential buyers in the Delaware Basin, according to Haas, include CWEI's immediate neighbors, namely Concho Resources Inc., Occidental Petroleum Corp., Energen Corp. and Noble Energy Inc. In the Eagle Ford, she said, Apache Corp., Anadarko Petroleum Corp. and private producers were potential buyers.

Haas added that CWEI reported receiving "several stock deals" during the collapse in commodity prices and the current downturn. "However, CWEI turned down the deals while noting that one or two were tempting," she said. "If the assets were to change hands, things could change overnight.

"A better capitalized producer could put two to three rigs each in the Eagle Ford and the Permian with likely shorter drilling time. At $70,000/per flowing bbl and a five to six rig program, we believe that CWEI could be worth up to $113/share in an acquisition."

CWEI was at $64.03/share (up $3.25/share, a 5.35% increase) during midday trading Thursday on the New York Stock Exchange.

According to the company's website, CWEI holds positions in the Giddings Field area in East Texas, and in the Permian Basin. The company said its estimated proved reserves totaled 75.4 million boe, of which 56% were proved developed, at the end of 2014. Also on that date, its portfolio of proved reserves was 83% weighted toward oil and natural gas liquids, while the remaining 17% was natural gas. The company said it added 23.3 million boe to its proved reserves through the drill bit in 2014.

CWEI said it has been drilling horizontal wells in the Giddings Field -- where it holds 175,000 net acres, most of it held by production -- since the early 1990s. It is currently drilling wells targeting the Eagle Ford Shale, but the area is also prospective to the Austin Chalk, Buda and Georgetown formations. The company said its position in the play held 22.2 million boe of proved reserves in 2014.

In the Permian, CWEI holds 170,000 net acres overlying the Central, Delaware and Midland basins, and it is currently drilling into the Wolfcamp A and C intervals. The company's position held 50.3 million boe of proved reserves in 2014.

CWEI reported total oil and gas production of 16,601 boe/d during 2Q2015, a 6.7% increase from the preceding second quarter (15,559 boe/d). The most recent production figure included 4,738 boe/d in the Delaware Basin; 3,451 boe/d in the Eagle Ford; and 2,390 boe/d in the Austin Chalk.

The company also reported an adjusted net loss of $12.8 million (minus $1.05/share) during 2Q2015, compared to adjusted net income of $18.2 million ($1.50/share) in 2Q2014.

Last June, CWEI said it would spend an additional $35 million to resume drilling and deploy two drilling rigs -- one in the Permian, the other in the Upper Eagle Ford Shale -- during 3Q2015.

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