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Clayton Williams Energy, Inc. (NYSE:CWEI)

Q1 2014 Earnings Conference Call

April 24, 2014 11:00 AM ET

Executives

Patti Hollums – Director-Investor Relations

Mel G. Riggs – Executive Vice President and Chief Operating Officer

Clayton W. Williams – Chairman, President and Chief Executive Officer

Michael L. Pollard – Senior Vice President-Finance, Treasurer and Chief Financial Officer

Ron Gasser – Vice President-Engineering

Analysts

Irene O. Haas – Wunderlich Securities, Inc.

Welles W. Fitzpatrick – Johnson Rice & Co. LLC

Ryan Oatman – SunTrust Robinson Humphrey

Adam Michael – Miller Tabak + Co. LLC

Ravi S. Kamath – Sea Port Group Securities LLC

Mike D. Kelly – Global Hunter Securities LLC

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Operator

Good day, ladies and gentlemen, and welcome to the Clayton Williams Energy First Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host Ms. Patti Hollums, Director of Investor Relations. Ms. Hollums, you may begin.

Patti Hollums

Good morning and thank you for joining the Clayton Williams Energy first quarter 2014 results conference call. Participating on our call today is Clayton Williams, President and CEO; and Mel Riggs, Executive Vice President and COO. Also joining us today is Mike Pollard, Senior Vice President and CFO; and Ron Gasser, Vice President of Engineering.

During this call, we will discuss our first quarter results that were issued this morning. This call will be recorded and available for replay on our website at claytonwilliams.com.

Our call today will consist of a brief overview given by Mr. Riggs and then an operations update presented by Mr. Williams. We will then entertain a question-and-answer session for as long as time permits.

Before we begin, please be advised that our remarks and answers to your questions include statements that we believe to be forward-looking statements. All statements that relate to future results are forward-looking statements that are based on our current expectations. Actual results may differ materially from those expressed or implied by these forward-looking statements because of the number of risks and uncertainties affecting our business, including those discussed in our quarterly and annual SEC filings and in the cautionary statements contained in our press release and on our website.

With that being said, I will turn the call over to Mr. Riggs. Mel?

Mel G. Riggs

Thanks Patti and I appreciate everyone joining us this morning. I am kind of looking out of the window here in Midland right now, we have this Web.com golf that’s being going on and – looking at the weather right now, we’ve got 40 mile per hour winds on lot of dusts. I am glad I didn’t have a lot of golf talent – yes, it’s tough day out there for those guys.

We had a good solid quarter. We had earnings of $11.4 million and $0.94 per share compared to a loss last year of $41 million, loss per share of 33.39, $3.39. Cash flow was very strong in the quarter, $79.3 million versus $44.3 million in the earlier year.

Looking at the before adjusting for the asset sales, Andrews sale in April 2013 and then more recent Austin Chalk and Eagle Ford non-core areas which result in March 2014. Production was up about 3% year-to-year, but when you give effect for those sales were [25%] (ph) compared to last year, we’ve had a really strong increase in production overall.

We will get into more on the wells results obviously in a minute, but these sales were important in improving our liquidity, which we will recap in a moment, but production as continue to increase about 4% from the fourth quarter of last year.

So the other thing as we have – our average realized oil prices were $93.60 per barrel. So we feel like after we undertook to insulates ourselves in the Midland-Cushing differential has been successful and our oil prices are strong, got good realizations in both the Permian and also in our Eagle Ford and Chalk area and Giddings.

Looking at operations we have now 14 Wolfcamp A wells that have been producing for at least 30 days or more those wells have averaged 756 BOE to peak rates, so that program is continuing to work. We are very happy about it. We just completed our - first of all we completed our first Wolfcamp C well it’s been producing now it’s been – if its not produced 30 days yet, it’s getting very close. So we are not going to, we don’t really want to put that – put the average out until we hit that number 30 day rate, that now looks very comparable to the Wolfcamp A. So the implication is that if that works and we’ve got – it adds to our inventory and it’s going to add to reserve down the road.

So we are pretty excited about that. That well is about actually about 3 or 4 miles south of well drill sometime ago by Atlantic here in Midland Wolfcamp C. So we are not the only data point that well has been – from information we have successful well and they were also looking at Atlantic is also up to the North is drilled a triple lateral A, B and C sounds three different wells back on top of each other. We’re watching the results there, because that’s again you got a B test there, and from what we are hearing that wells is performing.

So the whole area is starting to really shape up, I think we feel like we are going to be drilling it for long time. And got a lot of good companies, who are very technically strong in the area with Rosetta, Atlantic Roof, Concho, OXY and so. That’s helps us a lot to get a further down the learning curve.

We just currently have three rigs over in the Reeves and Ward County areas. We just drilled our first well in Ward County on the Cochise area, it’s a Wolfcamp A I believe and we will be fracking that well pretty soon. So we’ll get some results there.

So, moving over to the Giddings area the Eagle Ford, we are just focused there. And again, we are focused on Robertson, Burleson and Lee Counties. We did the best our interest in Burleson County we had a little production there and some acreage that we are focused on our core area, which is continuous for the most part pretty large position. If the (indiscernible) is going to explode, there are permits all over the place. There is drilling in Burleson and Robertson and all around us. So we are in a competitive situation there to avoid having some possible drainage on our plans. So we are tracking that.

We now have nine wells in our core area horizontal wells that have been over – been produced in over 30 days and those wells average 574 barrels per day 96% oil. Very good economics considering the $5.5 million to $6 million well cost. We have two rigs running there and we hope to have a third rig there pretty quick up and running for the second half of the year. And to help save us some of the competition on our plans and to further delineate that acreage and by now our plans are to just to keep drilling until in something didn’t work, but right now it’s all working. So, we are very excited about it.

Another thing we did in the quarter although just subsequent to the quarter, we have just renewed our – we have a brand copy of credit facility to face value – face amount of $1 billion, with related to $415 million at a borrowing base, we also lowered our interest costs about by 25 basis points and improved some of the other covenants. At the end of the first quarter, we had roughly all of that available, with some letters of credits were net down to $410 million available, we had nothing drawn advanced on the line.

So at the end of the quarter with liquidity, total liquidity with cash on hand, we had about $450 million liquidity, so we now have sufficient liquidity we believe to fund our drilling program for the next couple of years at the current pace. That being said, we do intend to increase the pace.

So, with that, I think what we are showing is that we are on track with a strategy that we have set forth last year not only to divest some assets, improve liquidity but also figure out these resource plays and first quarter says we are headed in the right direction with that I’ll turnover to Clay.

Clayton W. Williams

Well, I was listening, in fact that all looks pretty good. We have a lot to look forward to we have potential 800 to maybe as much as 1,200 wells in the Eagle Ford they will be horizontal one zone and as Mel said, two rigs running and add one in June, it appears to be commercial.

In the Delaware Basin the Reeves County, we have 112 miles, and we’ve drilled 100 wells, we have three and the somewhere is four zone, we are running three rigs there, we have 400 more potential locations there. You may recall we completed five plants together all our oil plants and water, we still formal financer last year but we are seeing pay that this year of course. We have very limited sales probably on our acreage.

And we can tell you we are happy with those areas. And one thing that we are choosing or we are becoming more efficient, we didn’t expect in each of that in drilling in completion. So by and large we are on track. We are growing our company sell attractively and we’ve got a many more wells to drill which we have bright future. And if our histories when you judge we will continue to add other places to drill as we go forward.

So with that, I will take your questions Mike, Mel and I we have Gasser. If you engineering question he is available for that. We will now take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Irene Haas with Wunderlich Securities. Your line is open. Please proceed.

Irene O. Haas – Wunderlich Securities, Inc.

Yes. Hi, everybody.

Clayton W. Williams

Good morning.

Irene O. Haas – Wunderlich Securities, Inc.

Good morning, on Reeves County, so you guys have done a lot of hard work and the wells keep looking better and better. You are surrounded by good wells drilled by your competitors. And my question has to do with your inventory. The 400 count seems a little light and also I remember those are vertical wells and you kind of look at the acreage, just slap 160-acre spacing, you should at least have 500 locations roughly in times three zones. So a little color on what we really should expect at this point from Reeves County inventory.

Clayton W. Williams

Well, what am I tell you is that, it is confusing. Early on we drilled vertical wells the whole acreage. And we have a large amount and our format and just take you may remember, so this will remains have lower acreage but they are not as commercial or profitable as horizontal. So we shifted to horizontal, I think 100% and the horizontal well really is total 480 acres, and we got a lot of wells to finished holding those wells spot but now we really want to process and developing acreage not only bulk but we have by vertical so just down to business there. Yes I get the question there.

Irene O. Haas – Wunderlich Securities, Inc.

What well count?

Michael L. Pollard

Irene, where the 400 well count comes from is basically in Reeves County we’ve got 66,000 acreage and you divide that by 150 and you get a little over 400 wells that you could drill there. With the success that we’re seeing in the Wolfcamp C that doubles it. So basically that’s how we got to that number.

There is other ways we look at it. We are also drilling wells in different areas to expand what we know – what we considered to be proven and that number just can get bigger from where we are here. Basically, though the 400 comes from taken the 66,000 and divided by 160 acres basins.

Mel G. Riggs

So we’ve got – Irene, this is Mel. We need some more time on the Wolfcamp C. We think it’s look good right now. Give us more time. And I think we do have a fairly conservative Wolfcamp, I mean inventory there but time will tell.

Clayton W. Williams

One think we may have not correctly you heard it. We’ve not take the potentially correctly number of well case and we’ll have as much four potential plays. So there is two to three, so there is additional layers of production with each of those locations, and you’ll have a little different reserves in engineering on each location, I would add that we are there that we all – we can tell you today that there maybe 160 or 200 acres where two or three are present in the world. There is only two-thirds and another section of turn might be all. So the strong variability and the development of prosper and profitability and we’re still in the process of one and well they earn which I don’t know that totally drilled.

Irene O. Haas – Wunderlich Securities, Inc.

Great. Thank you.

Mel G. Riggs

Thank you.

Clayton W. Williams

I would mention again that we built pipelines to gather the gas, oil and water from most of these locations we are drilling. So some of the money we’re – we spend last year we costing now in this year because the pipeline there ready to hooked up and start seven the cost to truck and loaded pipeline and gas and trucking all you know they are in pipe.

Operator

Thank you. And our next question is from Welles Fitzpatrick from Johnson Rice. Your line is open.

Welles W. Fitzpatrick – Johnson Rice & Co. LLC

Good morning.

Clayton W. Williams

Good morning.

Welles W. Fitzpatrick – Johnson Rice & Co. LLC

It looks like some of the more – sorry, in the Eagle Ford, it looks like some of the more recent permits are stepping pretty fall into Lee County, obviously that the Balcar and then I think (indiscernible) wells were pretty strong. Can you talk a little bit about what you guys are seeing there and what geologic changes might be happening in as you move from Burleson down in to Lee.

Clayton W. Williams

Let me take this with a broad brush and then I’ll hand to Gasser for specific. We have acreage that basically our old Chalk acreage that covers over 140 miles well in 8 miles deep. Somewhere built and that biggest spread acreage. By and large, it appears to us wells we’ve drilled that we have Eagle Ford production. We believe there is a good chance, but we can’t tell you, there is a good chance at the bulk of that will produce the most recent Eagle Ford.

And so we feel like it’s going to be a great potential, which we will tell you there is a potential for 800 wells and there might be more for some expansion happens. So we are happy with Eagle Ford. And I wish as far as give us the Chalk as you run a mile a pipe and you have 20 different stages and you frac the hell out of each stage where you tell about lot more costs and completion, but they are economic and we are happy with them.

Ron Gasser

Good morning, Welles. This is Ron. As we go from Burleson down the Lee, we see the Eagle Ford spin somewhat. We still have it mapped, we have about the same ratio of pay for fitness, but we are around 300 feet I think that’s in Burleson and maybe we get down to 100 feet thick when we get down to Lee. And you all seeing us starting to test the edges and we are really drilling to protect ourselves from all the permits we see being thrown out there and we want to get starts in the ground before our competitors do.

Welles W. Fitzpatrick – Johnson Rice & Co. LLC

Okay. And you said the same amount of pace, so that I think it’s a 20 or 30 foot zone that you guys are drilling with the lower clay content that is there in Lee?

Mel G. Riggs

Well it ranges from like yes, 52 to 100 feet I think.

Ron Gasser

50 to 100.

Welles W. Fitzpatrick – Johnson Rice & Co. LLC

Okay. And then just one more if I could follow up. Some other folks have talked about needing an extra string of casing when you are going through a depleted Austin Chalk zone. If I remember correctly, you guys don't use that extra string. Have you had any issues going through that zone? Is that a problem? Is it just something that you guys have been able to overcome given your experience in the area?

Mel G. Riggs

We have had issues with that. What we have found is especially when we get next to our truckload of refract two or three times. We’ll see depletion in some raveling happening and we may actually – we actually lost a lateral on one well and we have corrected and we figured about how close we can get before we have problems. So we really don’t require to change the way we are drilling at this point in time. But every time – that’s one Clayton referred to as we are way early on in this game. So every time we have a problem we corrected and we move forward.

I am not saying that we are doing at the best we can. We are learning as we go on and we are working get better wells and better completion as we move forward.

Clayton W. Williams

Any questions on that – that’s an important question and as well as lot of future in the Eagle Ford.

Welles W. Fitzpatrick – Johnson Rice & Co. LLC

That’s great. Thank you so much and congrats on the successes especially with the..

Mel G. Riggs

Thank you, Welles.

Operator

Thank you. And our next question is from Ryan Oatman with SunTrust. Your line is open.

Ryan Oatman – SunTrust Robinson Humphrey

Good morning, folks. Great quarter.

Clayton W. Williams

Good morning.

Ryan Oatman – SunTrust Robinson Humphrey

I want to talk about this production ramp real quick. First, on this 400 barrels a day of deferred production from the drilling and completion issues in the Delaware Basin and Eagle Ford, can you elaborate on those issues and kind of whether they’ve been since remediated?

Ron Gasser

Yes, every problem we’ve had – this is Ron. Hi, Ryan. We’ve corrected every problem that we’ve had and changed moving forward. Like I alluded to in the chart, we had a well that we had to re-drill and when we have collapsed like that we have to go up, re-drill the curve and then re-drill the lateral and re-run the liner and do all that. And basically, in Reeves County the problem we had was with cementing some wells and we do have a liner that would lock up with cement, but we’d have to come up and sidetrack and re-drill the lateral and the curve and those slow us down in time. We really haven’t built any of those slowdowns into our projections, which is maybe we should, but what we’ve done is every time that happens we figure out why we’ve had the problem and we correct it. So we know that there are operational problems when you do this kind of stuff, but we’re working to minimize those.

Clayton W. Williams

This is a little bit historical in a way. We’ve drilled very few relatively – Eagle Ford wells relative to Chalk well. And so we’re 140 miles. So we’re in the process of holding acreage, learning and we’re just in the start of Eagle Ford. So we still have a little bit of learning curve, we’re ahead on that, but we are completing wells. We’ve made the improvement in cost a little bit. We’re becoming more efficient and we are highly comfortable as these commercial wells. Not as profitable as a Chalk or with the net to frac here and for the Eagle, 20 stages of fracs. You’re pumping lot of sand, but it bears commercial and we are going with big enough speed.

Ron Gasser

Yes, wells, like – I mean Ryan, I’m sorry. I think we’re running. We’re not looking at changing guidance, production guidance could be basically here. So I’m mean, we’re correcting our problems as we go. These are technical wells we’re going to have, and there’s a learning curve on how to get, how to drill them and everybody experiencing these problems I’m sure out there. So like it’s still – our guidance is still good.

Ryan Oatman – SunTrust Robinson Humphrey

Okay, perfect. You already answered my next question. So, that guidance of approximately 16.4 to 17.4 for the year, that’s still good following these sales and these issues. But the capital budget as well, I take it?

Mel G. Riggs

Capital budget will increase a little bit. We’ll have guidance that within a couple of weeks, but capital budget will creep up a little when we add another rig down in the Eagle Ford.

Ron Gasser

That will obviously change guidance.

Mel G. Riggs

And that will change the guidance.

Ryan Oatman – SunTrust Robinson Humphrey

Okay, very fair. And then finally I wanted to take a step back and talk a little on the drilling complete cost. Are you seeing pressure there and can you remind us generally speaking how you’re contracted for rigs and pressure pumping and any upcoming negotiations on either? Thank you.

Mel G. Riggs

Yes, we’re pretty happy with our cost right now. We’ve seen it pretty much, I guess, bottom out and be level for the last quarter. Rig-wise we own 14 rigs and we charge ourselves the going rate and that’s been pretty flat here lately. Pressure pumping-wise, I would imagine we’ve pretty well bottomed out. This is very competitive situation in the Permian Basin. And we are talking to some companies about maybe locking into a long-term type of program. It’s just in the talking phase at this point in time and we’re going to bounce it around within the people, the workforce and our management group to see if that’s something that we do want to do. We are always concerned about rising cost.

Clayton W. Williams

Yes, that’s a good point because we’ve got a lot of competition here in the Permian on the pumping, for example, and there’s going to be a shake out there. These companies are discounting this, trying to get the business. And so it might be good time to start thinking about locking in like Ron said, before there is a shakeout and there is less competition out there.

Ryan Oatman – SunTrust Robinson Humphrey

Perfect. That’s it for me. I’ll hop back in the queue.

Mel G. Riggs

Thanks, Ryan.

Operator

Thank you. And our next question is from Miller Tabak.

Adam Michael – Miller Tabak + Co. LLC

Hey, guys, this is Adam.

Mel G. Riggs

Hi, Adam.

Adam Michael – Miller Tabak + Co. LLC

I wanted to ask a question about the Wolfcamp A. Exactly how thick is it across your acreage and can you effectively stimulate the whole thickness of that formation with one horizontal or would it possibly take two?

Mel G. Riggs

Adam, generally across our acreage is 300 feet and we are drilling in the top part of the Wolfcamp A. Yes, we don’t think that we are effectively stimulating the entire Wolfcamp A section. As you recall, we had done earlier some limestones, the Gomez and the Maralo and we were pretty well confined to those. So we think that there is potential for additional lower Wolfcamp development.

We have done some [travelers] (ph) wells early on, but we did lower backup into upper bed. Our best success to date has been in the Wolfcamp A upper part of that shale and that’s just kind of as we are going through and still drilling wells to earn on the farm out and to hold acreage, that’s kind of our target and we’re going to drill a couple of more sea wells to prove up our acreage.

Clayton W. Williams

On the logistics – excuse me, I would add this. One of the difficulties of horizontal drilling and that well you’re doing in one zone, and you are leaving behind maybe later you could perforate the vertical section, but you are leaving behind the horizontal of one, two, three and maybe completing in the fourth. So later on we’ve got additional drilling in each of those other zones, but it is somewhat historical.

Generally over the years the prices goes up in those less profitable zones as they become held by production and then will come back hopefully later and there will be a whole round of maybe two, more rounds of drilling to complete withdrawing the area. So there’s a lot of work yet to be done up the whole and mostly we’re drilling towards the bottom. Some area we got one bottom zone, but we are not getting things. So there’s a lot of work to be done in the future and it’s going to take separate, single wells or more wells to completely drain it.

Adam Michael – Miller Tabak + Co. LLC

Okay. That’s helpful.

Clayton W. Williams

That’s what we do.

Adam Michael – Miller Tabak + Co. LLC

And then, if I could follow-up with a question on the mix of wells in Reeves County like for the rest of the year. It sounds like you’re going to drill a couple more Wolfcamp C wells. Are you going to try a Bone Springs well or are you going to stay mostly in the C and A?

Clayton W. Williams

Well, I can say at the Bone Springs, as we drill more horizontal wells we’ll have more vertical penetration. In Bone Springs we don’t believe it’s going to be productive over the area. So as we drill horizontal wells that penetrate the Bone Spring we’ll have a better idea of the areas that are productive and those that are not productive. So we’re not able to tell you how much Bone Spring. It’s going to be less than the Wolfcamp on a horizontal basin.

In the meantime, I’m not going to tell you that all three Wolfcamp horizontal, but so far, at least two and sometimes three out of the Wolfcamp have turned productive. So we have a lot of learning to do. We can’t buy the 100 square miles area like we’re working on. So while we are happy with it we see a lot of future. There is still some things we do not know yet.

Adam Michael – Miller Tabak + Co. LLC

Okay. Thanks guys.

Mel G. Riggs

Okay. Thank you.

Operator

Thank you. And our next question is from Ravi Kamath with Sea Port Group. Your line is open.

Ravi S. Kamath – Sea Port Group Securities LLC

Hey guys. Great quarter.

Mel G. Riggs

Thank you, Ravi.

Ravi S. Kamath – Sea Port Group Securities LLC

Couple of questions. One, about $6.8 million escrow for the asset sale. When will you expect that to be released?

Michael L. Pollard

Hey, Ravi, this is Mike. We’re working on it. A lot of it is consents to assign is what we are waiting on. It may take a while. In some – and we’re not going to tell you all of that. That’s going to be completely recoverable. We’re not sure yet. That’s why we chose not to report any gain or loss on that $6.8 million. We’ve deferred it and as we get the consents and collect from the buyer, we will be recognizing potentially additional gains in the future.

Ravi S. Kamath – Sea Port Group Securities LLC

Got it. And then in the Eagle Ford/Austin Chalk sale that you did in March of 2014? How much acreage was sold, and were there any horizontal Eagle Ford wells that were sold with that package?

Michael L. Pollard

In that the second part of that I can tell you we did sell seven Eagle Ford wells. We sold three in Brazos and the four in Wilson. Otherwise it’s an acreage play. I don’t have a good count on the acreage.

Clayton W. Williams

The seven wells were escalated tracks. We did not sell in our main block.

Mel G. Riggs

I don’t think there is some of the areas we sell. It was just Chalk production may not have been Eagle Ford rise even available. It’s so – entering the end. The acreage question is sort of – it’s just hard really, different rides and so forth. So raw material – as far as our, we’ve always talked that what our position it’s primarily this position that we have in.

Clayton W. Williams

I’m not asked what Mel says. We have 140,000 acres in that trend over 140 miles. So we were going to cleaning up proficiencies taken in every case those wells are escalated below our main trend and scattered in. It was easiest to sell and we got good price. So we sold to people who have maybe a fairly good position where we have one or two well we’re actually sold.

Ravi S. Kamath – Sea Port Group Securities LLC

Understood. And so what does that – do you still think in terms of your Eagle Ford acreage, it is over 100,000 and what is the current good number for the Eagle Ford

Clayton W. Williams

Actually I don’t understand.

Mel G. Riggs

Well, I think the total position if you add everything, we had some around of 180,000 across several counties.

Ravi S. Kamath – Sea Port Group Securities LLC

Okay. And then on the Delaware Basin, I think you talked about 66,000 in Reeves County. What is there in the rest of the Delaware Basin and are you still looking to add some more acreage from your Chesapeake deal?

Mel G. Riggs

Yes, we still have some acreage. I think last count about 5,000 acres. So we put add – we probably earned some of that now and we’ve got some acreage over in Ward County in the Cochise prospect. I believe that was 67,000 acres.

Ron Gasser

Total 80,000.

Mel G. Riggs

Ron saying we got a total of about 80 in the Delaware basin in all of our acreage.

Ravi S. Kamath – Sea Port Group Securities LLC

Okay. Right. Thanks guys.

Mel G. Riggs

Thank you.

Operator

Thank you. (Operator Instructions) Our next question is from Mike Kelly with Global Hunter Securities. Your line is open.

Mike D. Kelly – Global Hunter Securities LLC

Thank you. Good morning, guys.

Mel G. Riggs

Good morning.

Clayton W. Williams

Good morning. Thanks for tuning in.

Mike D. Kelly – Global Hunter Securities LLC

It’s my pleasure. You’ve mentioned a few times in the call that you still have a bit of a learning curve ahead of you in East Texas and in Reeves. But if we assume that the positive trajectory continues here, really interested in what the strategy you shift toward as you enter 2015 as it pertains to acceleration. And with that in mind, was hoping to hear what you think the value of assets you consider non-core sitting in your portfolio right now non-Reeves, non-East Texas, and if you wanted to potentially use those to monetize for monetization purposes to fuel the growth in those two core assets. How should we think about that value? Thank you.

Clayton W. Williams

That’s a very good question. I believe and I’m not – state that ahead of time, but I believe most of the remaining acreage in the Eagle Ford and most of that in West Texas in the Reeves County, we think has a high potential for being productive. I’ll say that because we’ve got wells now scattered in the Eagle Ford, but inside of the play like we have 10 or 12 wells drilled, it’s based around the world. We think that the bulk of the Eagle Ford play is going to be productive and the Wolfcamp, there is still some areas we’ve not tested.

The positive thing about the Wolfcamp and Reevecamp though, they are 3,100 feet away that they all shows in a level there. So there is a lot of potential and disadvantage of horizontal well (indiscernible), but it only evaluates that zone that could be positive or negative information is those other three or four zones shallow and it would be some years before we will approach it to deep horizontal wells as possible, then from information we’re getting some (indiscernible). So we’ve got a lot of learning, but the learning will be positive because we will be completing deep wells while we’re going to value add the shallow zones.

Mel G. Riggs

And, Mike, let me add one thing to that. We have pretty substantial conventional central basin platform assets that require mostly an acreage about 10 years ago and I don’t want to probably say what we think is worth because there is possibility, we’ve got some assets at some point, it’s worth a lot and I don’t want to – we’re not going to get out there and talk about what we would expect right now. But we do have some assets that we could – that we could say now core another great ore producing properties were cash flown out them, but limited upside and many have fund obviously in our two main areas. We are going to focus on Eagle Ford in…

Clayton W. Williams

I’m glad you brought, and we main two main areas. We’ve been Reeves County, we’re drilling Eagle Ford and the East Texas, the acquisition is staff was rolling in and this case (indiscernible) Permian and while somewhat work be done and with that there is not any other work that we’ve another potential in the two main areas.

Mel G. Riggs

Anyway – yeah, we have I mean, we’re – we’ve shown I think over the – you see the last year or so, we have done what we had to do create liquidity and Clayton is now issuing, we get some long-term debt. We’re going to – we will be looking at our debt situation and while we did refinance our debt and bonds is outstanding in the future. We don’t leave one AC shares. So I think share price is way undervalued and so we’re going to – we’ll come other ways (indiscernible) right now. And that will continue to do that. I think we have the tax rate.

Mike D. Kelly – Global Hunter Securities LLC

Maybe I could ask you how much production you have associated with what you consider that non-core conventional asset and maybe the value of the pipeline, and would you ever think about monetizing that, too?

Clayton W. Williams

Well, the production in other Permian, I think there is 3,000 to 4,000 BOE a day other assets. And currently – and there is upside in those assets. And as far as the pipeline, right now the pipeline is an integral part of our operations. We’re saving a lot of money. We’re not trucking liquids at all and to -- we want to fill the pipeline of our product, that’s our game plan. And that is worth a lot and Clayton will decide, what he wants to be with down the road, but he built big, he’s built the company in the past based on the combination of drilling -- company drilling upstream and midstream in Permian Alberta and the Giddings area and so our job right now is to drill good wells till that pipeline.

Mike D. Kelly – Global Hunter Securities LLC

Well said.

Mel G. Riggs

It just gets more valuable as we do that.

Mike D. Kelly – Global Hunter Securities LLC

Thanks. It could help if I am going to throw in a value for the pipeline and an NAV model here, what is a good number you guys are using?

Clayton W. Williams

Let me address pipeline because we saw a lot of drilling to be done. We build the pipeline in Reeves County to the developing acreage there and another areas to build pipelines to the Giddings production. So we were essential to build pipeline to get our product. We also build pipelines to disclosure water and pipelines to carry the gas to market. And so now the money have to get last year now we’re benefiting from that investment and we’re seeing a positive return from building the pipeline. As far as more pipelines, I don’t see it, what’s coming down the pipe next month or so.

Mel G. Riggs

Yes I think Mike, I don’t know if we can guide you on that, but I can tell you that we have properly have been called by every midstream or one of the midstream company out there willing to borrow that pipeline. So it’s got a lot of value and it’s – yes I really don’t know – I mean don’t know if we can put in the market, the market will tell us what’s worth and I don’t know we haven’t really tested the market for it. So, by now we are considering it as basic.

Clayton W. Williams

Well let me add to that too, we have better acreage and in part other areas that’s in the pipeline they have been let’s say to get that product out so, not my status quo we are just didn’t own it.

Mel G. Riggs

I mean also the potential for maybe other company’s product base. So, it’s – anyway.

Mike D. Kelly – Global Hunter Securities LLC

Okay. Thanks a lot guys.

Operator

Thank you. And our last question is from Andrew Gundlach. Thank you sir, your line is open.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Greetings, thank you for taking the question.

Clayton W. Williams

Sure.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Can I follow up – I just have a couple of questions. Can I follow up on your comment that the pipeline is an integral part of operations? Does that also mean that instead of selling oil at the wellhead to whatever trucking company is doing a Genesys or Buckeye or whatever, you can actually sell the oil at the plains takeoff point at a higher rate of – or higher price rather? Is that (multiple speakers) is that true?

Mel G. Riggs

That’s what we did.

Clayton W. Williams

That’s why we did for pipeline and that was eight to 10 months ago. So we are just selling oil and gas and disposing the water from all the wells in one disposals water well, and drilling without gas going to oil, we carry all those up around the gulf coast. So, we built those extra pipelines the market our product and dispose of the water.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Okay. Thanks, Clayton, for explaining that. What exactly is the dollar price per barrel difference between the truck at the wellhead versus the hub that you are selling into, out of curiosity?

Clayton W. Williams

Well I am not sure.

Mel G. Riggs

The trucking cost would be probably $5 to $6 bucks because it’s pretty rough drained and long way from the wells, but when we pay a tariff, obviously to the pipeline but that support, so. But easily $4 barrel savings I would think and then we also have marketing arrangements which protect us, more importantly protect us from the blow asset happen sometimes between mid-cush – that mid-cush differential and we got that locked in at below $2, so that’s our marketing advantage.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

So that’s being saved in a service made for $4, $5, $6?

Mel G. Riggs

So you see we are getting a pretty….

Clayton W. Williams

We made a general marketing deal that they mentioned barely a year ago, looking ahead, that there we’re seeing – we were seeing a lot of production from an area - maybe West part of the basin was up, we need the market as soon as possible. But at some time there might be show the other progressions of some areas that we made apart that make good selling contracts, with good people to market and deliver our product.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Well that was very intelligent. Is there a cap on the volume of that number of barrels that have that marketing cushion?

Mel G. Riggs

I don’t think really...

Clayton W. Williams

We really can’t....

Mel G. Riggs

We really can’t give the details with this agreement.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Got it.

Mel G. Riggs

So filed that agreement.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Yes, understand.

Mel G. Riggs

Okay.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Yes, understand. Okay. Let me focus on two other quick areas. If you exclude the asset sales, the cash flow operations less CapEx was about negative $20 million. So can one guesstimate that the remaining of the year will be three times 20 – $60 million – plus the additional two rigs that you have been talking about? Is that the draw on your revolver that one should expect?

Mel G. Riggs

Generally, Yeah. It should be about right.

Clayton W. Williams

I would – they, but I can’t believe plenty of venues as that much on undrawn credit, so we got get of rise we get.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Let me ask you one other question on the – on Reeves County. You have done 14 wells. The first four were 400, the last five were 886 and now you are saying that the last 10 is 889. So it looks like those last 10 wells you have really cracked the code. Have you done anything differently in terms of stage lengths or proppant or do you felt these last 10 wells are the model for the next 100?

Clayton W. Williams

We are continually changing fracing what we are doing as far as fracing goes and how we are completing them. We’ve not done in the last 10 wells any major changes, what we are doing is, we’re just doing one small change at a time especially in areas where we can compare to offset wells to see what difference it makes in our completion.

As far as the next 100 wells, I can only see it getting better. We’re way early on the learning curve. We paid a lot of big price to get to where we are today and we are going to capitalize on it. We’re modeling it and we are working on it continually, but we are only trying to change one thing at a time, unless we see a big game changer hit us in the face, we’re just continuing to try to increase over time. I think the next 100 wells are only going to be better though.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

So even though we haven't seen increases in production right, you are saying that all of your tinkering has lowered costs. Is that in effect what you are saying?

Clayton W. Williams

No. We’ll improve production as well.

Mel G. Riggs

Yes both, yes, one thing we are working on is the long-term decline. And we think if we get better connectivity, we’ll have better long-term decline and increase for reserves. Of course, right now we are just looking at rate and in payout, but we are also concerned with long-term recovery.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Understood. Okay and then last question in Gittings. Wells kind of four through 10, if you will, were drilled on I guess it is the southeast side of Burleson and you hadn’t drilled the Milam side of your Burleson acreage. Do you expect to change and to start drilling that?

Mel G. Riggs

Anadarko is going to drill for us I think, they will get permits there, and we always give. Then we are going to have to go out – we are going to follow – the company is permitting we are going have respond and protect our flanks and our permits all over all around now.

Clayton W. Williams

We think that we have build wells up and down the trend that is not totally proved but we drilled up and down 80 feet wells over the 140 mile and we drilled sand whole lease but lot very, very differ the area that laid down at the same time geologically. So we are seeing consistent continuity of a deposition of the wells and developed permeability. So it seems to us at this point there the entire block has pretty much the same and up and down has not made a much difference. A lot of time you get on the self down we guess and in this case we’ve not seen much change. So it seems to be fairly much same over the whole block as it pertains in Eagle Ford.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

It’s interesting. And is there actual Anadarko data available confirming that as well?

Mel G. Riggs

No there is only this permits entitled.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

The only permits. Okay.

Mel G. Riggs

Permits – and it’s a public drill commission there is permits by various companies in our area.

Andrew Gundlach – Arnhold and S. Bleichroeder Advisers

Mel and Clay thanks for taking the questions.

Mel G. Riggs

Thank you, Andrew, we appreciate it.

Clayton W. Williams

Thank you, (indiscernible) drive that sometime happened now.

Mel G. Riggs

I think that’s last question.

Operator

Thank you. And I am not showing any further questions Mr. Williams please proceed with any further remarks.

Clayton W. Williams

Thank you very much, turning in. We are happy where we are, we’ve got a lot of work to do. For next year pretty descent stage, we’ve got – we had last year 92 employees been with the company for 30 years more so we done well we got the lot of people have lot of experience and we are happy on that category. At last we are happy so that’s important too. Let’s see team gave me a bad dirty look. So I guess I ended some of there. Thank you all for tuning in. We are having fun.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

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Source: Clayton Williams Energy's CEO Discusses Q1 2014 Results - Earnings Call Transcript

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