Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Clayton W. Williams Energy Inc. (NYSE:CWEI)

Q4 2007 Earnings Call

March 12, 2008 2:30 pm ET

Executives

Clayton W. Williams – President, Chief Executive Officer

Mel G. Riggs - Chief Financial Officer

Analysts

Greg Brody – JP Morgan

Brad Evans - Heartland Advisors

Bill Nasgovitz – Heartland Fund

Steve Orr – Orr Investors

Dan Rice - BlackRock

Operator

Good afternoon and welcome to the Clayton W. Williams Energy Incorporated year end and fourth quarter 2007 results conference call. My name is Eric; I will be your coordinator for today. (Operator Instructions) I would now like to turn your presentation over to your host for today’s call, Mr. Clayton W. Williams. Please proceed, sir.

Clayton W. Williams

Thank you very much and thank you for joining. We have got a good report for you today. We are going to show you some of the plans that we started six to nine months ago, we were into production and less than our expression is fully underway and satisfactorily underway. We will have Mel as normal who will go over the financials, when he finishes, he can take the questions, then I will give you the overview of where we have been, where we are going and then we will take questions both Mel and I, Paul Latham is also here. So, we look forward to answering your questions, it’s a good day.

And, with that here is Mel G. Riggs, our Chief Financial Officer.

Mel G. Riggs

Thank you, Clayton. We are very pleased with both our fourth quarter operating performance, fourth quarter ’07 and really our performance for the entire year. For the quarter we reported net income of $8.5 million, $0.74 per share compared to a loss last year of $8.9 million or $0.81 per share.

For the 2007 annual period we reported net income of $6 million or $0.52 per share compared to net income of the previous year about $1.58 per share.

Our fourth quarter oil and gas production on an Mcfe basis averaged a 103 million cubic feet per day, which was I think, you all believe it exceeded the upper range of our guidance for the quarter, it also kind of falls pretty much into the mid point of our guidance for the first quarter guidance for 2008. So, we are off to a good start I believe coming into’08.

Compared to the fourth quarter oil production rose, compared to the fourth quarter of 2006 oil production rose 16%, while gas production increased 36%, most of these increases specially the gas add was attributable to production from new wells in North and South Louisiana and that’s obvious because that’s where we have been spending most of our drillings dollars for the last couple of years.

Our cash flow from operations for the fourth quarter more than doubled to $72.6 million translating into $6.31 per share that was led by the 67% increase in oil and gas sales. For the year our cash flow from operations was the total of $234.9 million or $20.44 per share as compared to $12.98 per share last year of ’06. We had a $38.5 million increase in oil and gas sales from fourth quarter of ’07 to fall short of ’06, about a third of that was attributable to our production, and about a third due to our product prices. On average, our average realized oil price for the fourth quarter was up 56% to $89.55 per barrel and our average realized gas price increased slightly to $7.06 per Mcfe those are process with excluding effects of hedging.

The benefit from rising prior process was offset somewhat by fourth quarter net loss of $18.9 million on derivatives which is primarily, over hedge we have in place as compared to a gain of $11.9 back in same quarter of ’06. Actual settlements for the current quarter, fourth quarter result in a net loss of $9.8 million and we had about a $9.1 million mark-to-market adjustment that was factored into the quarter. Most of this is due to the Southwest royalty hedges that we acquired back in May of 2004 when we acquired the company and I’m happy to say that this Southwest royalty legacy hedges, had been good legacy will expire in September this year, so they will behind us. And hopefully our numbers will be a lot clearer.

Our metrics for operating cost and also include G&A per Mcfe declined again in the current quarter as compared to same quarter last year, due primarily to an increase in production. DD&A per Mcfe increased 20% above and is above our guidance the number we expected we were at 268 per Mcfe in the fourth quarter, we had some download revisions in forward prospect area that’s had an impact but overall angle DD&A was about $2.12 per Mcfe, pretty much on track what we had planned for the year.

Exploration cost led to abandonments and impairments for $15.4 million for the current quarter, and that’s compared to 29.4% for the same period last year. Most of the current quarter charge of about 12 million overcame from two wells, we abandoned two wells in North Louisiana, one was in the Sarepta prospect in Benoit, and the other well was the Dugdale in the Choudrant prospect. And we wrote off also some impaired some un-developed acreage later to those wells.

We recorded an additional impairment during the current quarter of 3.1 million, and that’s related to the two write down on two drilling rigs that run at symbols (ph) currently and the pulling unit, all of which was been offering per sale but have not been in sales, we have written down the value those assets at this point. All the other rigs, I will say in final touch on this, some interactive, are actively drawing of the rigs, that are not part of this, these two rigs.

Also during the current quarter, we sold all of our production and some non producing acreage in one area in Pecos County for approximately 21 million; we recorded again at $12.5 million. Our financial condition at the end of the year was strong, we had a $165.8 million outstanding in our secured credit facility, our borrowing basis is $275 million that gives us about $180 million of the liquidity, if we needed it, and our liquidity also improves about 23 million from the third quarter, and that was again due to the sale of Pecos County assets that I just mentioned.

We are also continuing to consider potential asset sales to reduce bank debt, we still are working on the potential of selling some of the South Louisiana properties. The plan will be to sell some assets, we were talk about this last time within the third quarter of we’re still trying to reduce our bank debt by selling some assets and hope to have something positive report in next couple months.

Reserves for the year, total petrol and gas reserves at the end of the ’07 were 290.8 Bcfe, about 7% increase over the previous year. Pre-tax present value discounted at 10% total 1.3 billion compare to 712 million last year, and we clearly benefit from all process at the end of ’07, that was the biggest factor impact in the valuation. Our reserve by in to our slowly move the mode of oil and we are talking about that in more detail, we are 58% oil and this was reserve by at the end of ’07, and 68% of reserves in our 290 Bcfe for PDP. For 2007, we spent $230.7 million on exploration and development, about half of that was related to exploratory and other half development.

We have recently increased our estimates for capital spending for 2008 by 36 million by increasing our spending level 256.5 mainly or most of this increase relates to drilling we’re going to do in the Permian Basin, which is more or less development and we’re trying to capitalize on our prices. And we believe, we have had a great opportunity to do that now. Permian Basin and the Austin Chalk combined represent 70% of our capital budget for 2008 that’s about $170 million going into areas of primarily targeting oil. And again our development during 2008 would be a, will be about 81% of incremental compared to 51%, say 49% in 2006. So, with that I would like to conclude by saying, we are pleased with our 2007 operating results, we believe we are on the right track and we think we have good plan for 2008.

Let’s take questions and then I will do the wrap up.

Question-and-Answer Session

Operator

(Operator instructions)

Clayton W. Williams

If there are no…

Operator

First question comes from the line of Greg Brody with JP Morgan, please proceed.

Greg Brody – JP Morgan

Good Afternoon, guys.

Mel G. Riggs

Hi, Greg

Greg Brody – JP Morgan

Hi, how are you? I’m just going to run through a few questions, get along until somebody gets to the line. Just in terms of reducing leverage, do you have actual number that you are targeting?

Mel G. Riggs

I don’t know what to say, we really have a target our plans or to, we have been actively trying to market some properties that the level that would reduce significantly our bank debt, and we actually, we sold some assets last year, well over $21 million or so and we are continuing to look at that. But that’s not our target; our plans are to try to deliver the company as far as that from the bank (inaudible) 2008.

Greg Brody – JP Morgan

Okay. Do you have in terms of your price tax for your assumptions, what delay on natural gas prices are you currently using?

Mel G. Riggs

We have been, we can run in our internal projections on about gas prices which have moved dramatically here recently we are running them for ’08 its $7.50. Obviously, we are going to re look at that but that’s for run in our numbers and we are running them over about 90 million.

Greg Brody – JP Morgan

Now with the CapEx increase, do you expect any associated production?

Mel G. Riggs

Okay. We would and we will be updating our guidance, we will not, well we will update guidance after the first quarter and we will incorporate production increases, the rate of development drilling at that point of time. Currently our guidance, it’s in out in the public domain it was probably backed in January and that guidance did include, include production from development activities. And but it will be updated, we are increasing our CapEx budget. Of course, we have had, we have got higher product prices that helping us to do that too at this point.

Greg Brody – JP Morgan

Okay. And then you mentioned that the assets sales in South Louisiana are you selling another package besides the initial in that was, or you?

Mel G. Riggs

The initial package that was offered of back in the summer of last year, did not happen, but we are continuing to talk to some companies about potentially selling parts of their package.

Greg Brody – JP Morgan

Part of that, that’s a pretty (inaudible) right now, plus the rigs, Is there, would there be a time of those rigs will become useful?

Mel G. Riggs

Yes, and I think Clayton can address that here in a moment, he will talk about some of our drilling, future drilling plans.

Greg Brody – JP Morgan

And then switching to, I guess may be, I should, may be, I have some questions on future drilling plans, and it make sense for Clayton to address them or…

Mel G. Riggs

Clayton is going to give you kind of an overview of our future drilling plans here in a just moment.

Greg Brody – JP Morgan

Alright when I make it back in queue, and I will come back later.

Mel G. Riggs

Right.

Operator

Your next question comes from the line of Brad Evans with Heartland. Please proceed.

Brad Evans - Heartland Advisors

Mel and Clayton, good afternoon.

Mel G. Riggs

Hi, Brad.

Brad Evans - Heartland Advisors

Hi Clayton, congrats on a great year.

Clayton W. Williams

Thank you.

Brad Evans - Heartland Advisors

It looks like you guys have really kicked up the company for a great ’08 too. Mel, I wanted to ask you just about price protection. Have you put any additional hedges of significance in place since the last 10-Q that was filed?

Mel G. Riggs

Yeah, we have added some hedges; we put on some gas hedges for 2008 at around 970 an Mcfe.

Clayton W. Williams

Two weeks ago, it looked real good.

Mel G. Riggs

Yeah, we run about 8 Bcfe of gas and then we also hedged about 4, about 3.6 in 2009 and 932.5, we should have a lot of hedge in doing the gas side and then we had some, we have a quite bit of oil hedge in ’09 and also at about $85 a barrel, so with market move beyond as that we do have, we have some security in those hedges that it will solidify that cash flow stream and pretty much for ’08 and good part of ’09.

Brad Evans - Heartland Advisors

In this price environment Clayton where do you think you will end up in terms of you know, what’s your, give us strategy in mind is to how much of production you might hedges as we go over the next say you know month or two?

Clayton W. Williams

Well, we are pretty well hedged at this point, we hedged a bulk of our oil 92, 94, in ’08, we hedged now all of our gas and it’s all above 9, ’09 we have hedged all of our oil production and so our gas, so we don’t a have a lot of open at this point. One part of it and of course we did a lot of these two weeks going to larger mergers have happened since, so behind sight, you know what that gets for you but basically its been a higher object base basically to hedge and basically all of our oil and gas production as this move in good process but we are saying it, we have got now 7 rigs drilling mostly productive drilling and we are adding production every month and that a reserved hedge so we like say that is our upside that move production we bring on, which is going to be nearly all is not hedged and as it comes on we may or may not decide to hedge it from time to time. Right now, our mouth is dropped open with the oil prices and so we are just going to relax and enjoy what’s coming to us in form of oil prices.

Brad Evans - Heartland Advisors

Okay, that’s really helpful. And now just one question regards to the production. Was the exit rate production level higher than the average rate for the quarter?

Mel G. Riggs

Yeah, its hard to predict our production rate, right now we are bringing on you know with this own program we got a lot of wells that we are completing and so its bouncing around quite a bit, and I was thinking it has been you know close to 103 or may be than little bit better but I am not sure because again we have a lot of new wells, we got fresh production coming also, I mean the production unit is kind of is going to bounce around a little bit but we are you know the fourth quarter was, it would be round in the middle of what we predicted or kind of guided quarter for the first quarter of ’08, so I think we’re been in a good shape going forward.

Brad Evans - Heartland Advisors

And, I am sorry just one last question. What is the current rate on the revolver Mel?

Mel G. Riggs

It’s a LIBOR based, it’s a facility and it depends on what we have drawn, it depends on the outstanding, it’s LIBOR plus save 200 basis points are something like that. And I think with all cost in faculty and there are some interest rate swaps instead in play I think it was about 7% or our cost of funds from that facility last year or fourth quarter.

Brad Evans - Heartland Advisors

Okay, thank you.

Operator

Your next question comes from the line of Bill Nasgovitz with Heartland Fund. Please proceed.

Bill Nasgovitz – Heartland Fund

Yes, good afternoon guys.

Mel G. Riggs

Hi, Bill.

Clayton W. Williams

Hi.

Bill Nasgovitz – Heartland Fund

Hey, Clayton you mentioned your mouth or your jaw dropped open here with prices of oil and natural gas?

Clayton W. Williams

Yes, isn’t yours?

Bill Nasgovitz – Heartland Fund

So, what do you think?

Mel G. Riggs

Well, I am going to [inaudible] call me at 7, I may know.

Bill Nasgovitz – Heartland Fund

Well, it’s great, you are doing some hedging. I just, you know, in these, I guess never, never land in terms of prices but it’s great that you are hedging but the balance sheet is still levered and I know you talked about that but I would just urge you to get debt down at a reasonable level because I think that’s really retarding the evaluation for the common (multiple speakers)

Mel G. Riggs

We’ve heard what you said.

Bill Nasgovitz – Heartland Fund

Okay, well any progress you make there would be I think appreciated by all shareholders, thank you.

Mel G. Riggs

Alright, thank you.

Clayton W. Williams

Thank you

Operator

Your next question comes from the line of Steve Orr with Orr Investors. Please proceed.

Steve Orr – Orr Investors

Thank you ladies and gentlemen. Just wondered if you could give us any highlights on the Permian Basin prospects for production, further production in the increased development effort there?

Clayton W. Williams

I think it’s probably time for me to go it and give you the whole review and then any questions after that you know we take it, let’s go back let’s talk about the Bossier. That was our main play we have over 300,000 acres (multiple speakers)

Mel G. Riggs

Do you have any other questions to add to that? He got off. Go ahead.

Clayton W. Williams

Well, I think because that's -- I'll cover that as I go in the general presentation. Let me go ahead and we’re talking about the overview of the whole company, we are on the track there. Okay, the Bossier major position 300,000 acres multimillion dollars we’ve drilled three wells. One didn't reach the objective. Acreage is unevaluated. That's Louisiana. Nearly half of our total acreage. We drilled two other wells, big Bill Simpson, substantial area and the Margarita. Both were non-commercial flow roughly half a million a day. That won’t pay up well most likely. We were disappointed in both wells of the lack of flow in the Big Bill where we had a lot of sand, Margarita we didn’t have the sand at the middle and lower Bossier. In both cases and we are doing additional 3-D shoot, the Big Bill is over 100 square miles to look at the bulk of acreage, which is north of the original well. We are optimistic about that from what we see in 3-D, we will be doing more drilling there until we finish and interpreted the 3-D. Come with me Southwest and the Margarita was a disappointment but other things have happened, and so we had two 3-D issues that we did back in the days of the pinnacle reef.

We see prospective in the area between the two so we’re now shooting a 3-D to tie our two older shifts together where we will have one block of 3-D that covers a bulk of our help our production stores. We are still optimistic about that from our postponing drilling of the Bossier until we get our financial house in stronger shape. That brings me then to our overall plan that we promised you guys we would start drilling safe, productive wells and we will start drilling, safe and productive wells and put wildcatting into the future. We've done that. We’ve strong presence in the Permian Basin. We’ve four rigs drilling here, and we expect to have at least two more. We’ve a lot of wells to drill there basically commercial at $80, so if it’s above the, that there will be additional profitability. We’ve planned we have been able to incorporate organization that's handling those where we have basically no drilling out here before, now we have an ongoing successful operation that we're just now getting it fine-tuned, and we are just moving ahead. Areas of the (inaudible) that we bought with such royalties, we also have a horizontal (inaudible) Florida, we’ve added to it. We’ve got some other things to drill out here and we see a good, steady ongoing program.

I'm going to take then, and we were very happy with Permian and we are building a real presence here and I'm happy with it. Go with me now to the Austin Chalk, our old stand by. We’ve been drilling infill wells and we are very happy with the result. We're water fracking some of the old wells and the second time, very good results very profitable. Then move in to the North Louisiana Houston Cotton Valley, we have one rig drilled in and we’re very happy over there.

Having said that what happened to your 6000 miles of 3-D in South Louisiana, we’ve made a deal with industry partner where they pay 85%, we pay 15% for half interest. These are exploration project. Then we’ve a couple of development wells that we have on a drilling schedule and like 15 feet of water. That's an ongoing program there although we moved away from the well cast, as we told you in some exploration and so we formed out some of our exploration there. By and large, we’ve the drilling rig, we have 9 out of the 12 that work, and paying down debt every month we are happy with it. We are not happy, we have three not at work and that we can’t sell them hopefully, they have could be put to work when we start back in our Bossier drilling, which I hope to do within about a year. We are very optimistic about our Bossier and we just had to be able to stay of course.

So, here we have got a diversification, we have not had before. We have the old standby of Austin Chalk for infill drilling, we have steady standby in our Louisiana drilling and the main new addition has been the Permian Basin, which is going to take a little over half of our budget for going to Permian or driven. I would remind you to that merely all of this drilling except Louisiana is all related and we have a made a point to shift to oil everywhere we could. BTU is substantially better than natural gas. What did I miss?

Mel G. Riggs

You want to talk about North Louisiana?

Clayton W. Williams

I mentioned that, that we have about half of our acreage is in the Cotton Valley ditch as I know them, you’re talking about the Bossier?

Mel G. Riggs

No, not at all. Shallower?

Clayton W. Williams

Shallower, we got one rig drilled in their city completing the well over the weeks, more economic, good stuff, this was the production when we were talking to the bond holders about we were drilling around the hedge of these fields and that has worked and it has been very successful. I think that’s a pretty good overview, but we have shifted from exploration and the risks there into drilling production, type wells, and one way we’re showing up our balance sheet, which you are concerned is legitimate as we’re adding more reserves on the top half for that balance sheet, so we’re creating more equity in the company, more assets, and more cash flow in the future. I can tell you that all the wells that we have on the drilling schedule looked to be very low risk and nice rate of return in that field. With that I think I will open it to questions again.

Operator:

Your next question comes from the line of Brad Evans with Heartland.

Brad Evans – Heartland

And quickly on the Bossier, I am just curious as to whether you thinking you might over time you are brining an additional partner to help you know differs some on the cost of those wells?

Clayton W. Williams

I would, I would not really there as we’ve done, you look at the fields that’s the well of, [inaudible] fill up in Canyon, in all cases they never ever yet drilled the best wells first and nearly every case if you study those three fields, they drilled three or four non commercial wells until I forget to have what they were doing, so I am very optimistic about the Bossier. I wouldn’t rule out our partner and do have one, but I am not there on it all but I realize that they explore what we have and it’s a major position, we have to get our finances in order for we can do it and you heard our plans.

Brad Evans – Heartland

Yeah just like theoretically speaking if you were to go down that route where you would look for an additional partner, do you think the, your acreage position would that, would you have multiple parties that would be interested, do you think?

Clayton W. Williams

I mean, there are a number of people that’s the area where we cannot pay 2.4 billion for position a lot smaller than ours and I think that now what impacts right now that the club prime with financial crisis work into our country I can tell as we are making our plans, it’s worthy, we got nice, lot of (inaudible) production long term leases so we are running our Bossier like a business, could have a huge potential for government. At some point, we might have an offer that we would like but mostly we are planning to go ahead and when we finish adding these reserves, we are adding currently then we will take another look at what we do.

Brad Evans – Heartland

I just have two other quick questions; in North Louisiana you mentioned five more development wells in (inaudible) area. How many acres do you have that are prospective for the Cotton Valley in that play at this point?

Clayton W. Williams

I don’t have an exact like what happens there but we continue to pick up additional acres as we go forward as a player and the competition is tasty (ph) and for example in Ruston, we drilled the downside of the fault, we worked there but encountered different sands on the downside of the fault. So, I can’t represent to you and I don’t know how much more drilling we have but it seem like we are able to continue going forward pretty solidly.

Brad Evans – Heartland

So that’s five additional wells wouldn’t necessarily be your, your total opportunities expect that would be?

Clayton W. Williams

(Inaudible) but I can’t tell you, we have more than this.

Mel G. Riggs

Let me also add there that, that’s probably true, Brad. We’ve also got we will plan on drilling 3 more wells. I think now in my comparison of Russian area but sooner it’s an evolving play, Brad, we’ve been able to pick up acreage here and there and basically keep the rig going for almost three years.

Brad Evans - Heartland

And then, just my last question was on the Permian, and I will see the fort, do you think you have a multi year drilling program or inventory of locations when you look at both the bone spring and the wolf area opportunities in front of you?

Mel G. Riggs

That’s difficult, what fairly what’s price is going to be. Is the price drops to $50 after way we wouldn’t be drilling. It’s simple answer would be more likely what we gave you in North Louisiana, it’s a day or do not have multi layer’s drilling. But if we do a good job I expect to have drill in some form as we go forward.

Clayton W. Williams

It’s a dynamic We are all in the Permian as potential or there is many potential sands and limestone or potential bay where you are come England all loads which they were never commercial one at a time, now makes them commercial particularly when you can multiply reserved by $100.

Brad Evans - Heartland

Alright, thank you.

Clayton W. Williams

Yeah.

Operator

Your next question comes from the line of Dan Rice with BlackRock. Please proceed.

Dan Rice - BlackRock

Hi, Clayton.

Clayton W. Williams

Hi, Dan.

Dan Rice - BlackRock

The posterior play that you are going after was for the Deep Bossier sands, which appeared pretty sized and clean intensive, in order to define these sweets parts of these (inaudible) play starting on the Bossier shale part which I imagine you have extensively half a year acreage said as lank shale. Have you been looking out that at all our listening to watch some of the industry things are happening on that side?

Clayton W. Williams

We learned about the hard zone well drilled and up to trends in that shale. And it’s very exciting to us it but, it well that’s going to be real play or not we don’t know, but we have acreage, we have position, and it would be one of the fast break, we, Margarita has a shale if it done do really well we may try that in. We have a couple of other oil wells we may try them. But, I think anytime you say the shale or sands really manning but it 16,000, 1700, or 18 thousand 18,0000 feet you have to worry that the cost of if you go horizontal then you 20,000 foot well, you're talking about serious dollars to do that. Sure its dollar to do there. So it must be buy aloud as much as anything else, but I have to say I don’t know, but we are familiar with it, it’s nice to have another potential bailer or reading my profits sooner and we do have a lot of equity on this trend and then expert will have pretty much the same shale of it, as in Canon the others of it.

Dan Rice - BlackRock

And then the second question, you didn’t really talk much about the hinch line well how far away is the proposed location from the recent rumored over in arsenal discovery?

Clayton W. Williams

I think that these days very rumors that way we have is that they do have a potential commercial discovery. And this north of covenant field and on trend of what we have. I think the first well we are going to drill is probably and more work in towards that yet, is probably 25 or 30 miles north but on trend we have another prospect closer than that and I can’t tell you exactly that is probably 18 or 20 miles north, where we are hopeful that.

Dan Rice - BlackRock

And last question, then I will turn it over is, how many potential locations do you have on your Austin Chalk acreage?

Clayton W. Williams

I wish we have a lot more than we do. I think we have probably 10 more at this current rate but we have a large area that wells have not been commercial. We are going to do some other experimentation like drilling to do a pole slow down and put laterals and do frac to sea if we could make commercial some of that chalk that has been marginal. That's been a little bit to history the chalk you’ve got new ways to get the oil out of the same sorry rock.

Dan Rice - BlackRock

Great. Thanks.

Clayton W. Williams

Yeah, good question.

Operator

Your next question comes from the line of Greg Brody with JP Morgan. Please proceed.

Greg Brody – JP Morgan

Hey, just picking up. In terms of increasing your exploration down the line…

Clayton W. Williams

I just barely hear if you just speak a little louder.

Greg Brody – JP Morgan

Okay, can you hear me now?

Clayton W. Williams

Yes.

Greg Brody – JP Morgan

When going down the line, when you do kind of picking up your exploration outside of bringing you debts on to a certain levels, what else do you need to see and to increase production or to increase exploration, your exploration budget?

Clayton W. Williams

I mean just a solid question. I think would we see is do our bread and butter, do our business, see if we do make a sale of property sale of property, see how our development drilling goes. Does it drill. Does it drill as we think, and so far it hat. We show our balance sheet not cut in there as much and also maybe want it but, and reserves to cover and reserves in cash flow to recover that there. Our Bossier is a major position I feel like that we have not even come close to fully exploiting what we have there. So, when we are financially able, we will start drilling program there again and we might take 10% of our budget, we might take more but, I can’t forecast that yet till I will see how we do with ’08 drilling and basically I can tell you as very unlikely we were drilling in Bossier wells till ’09. I think we’ve got 12 months of drilling that show up our position and show up our finances and so we are focused on doing a good job over there. In meantime 3D takes a good while so won’t have the two 3D shoot still late fall or early year. So that covers itself, when we have those new shoes we'll evaluate what we have and what we need to do in. We are not discouraged, we were disappointed but not discouraged if that’s a reasonable statement.

Greg Brody – JP Morgan

And things went as planned a reasonable year…?

Clayton W. Williams

Sorry, I don’t hear you.

Greg Brody – JP Morgan

Sorry, if things go as planned and you have reasonable year at what point you feel that your current inventory of up joy opportunities is running but run out?

Clayton W. Williams

I couldn’t hear what you are saying can you repeat?

Mel G. Riggs

If things going to as planned at what point how we think we are going to, let me and kind of replace your question great all time hearing are you saying when do we think we will running or we can be running out of...

Greg Brody – JP Morgan

Your current showing inventory in terms of…?

Clayton W. Williams

We always worried about running out, that’s the people has knew all for years and knew prospects it’s very difficult to plan that’s why it’s a that -- we've got a pretty good record of success, but you have but you have cycles. You have cycles where seems lake a lot of things you do work and a lot of periods where nothing works. And I don't know what the lord's cycle he is going to give us next but, we have got a profession group of people we’ve been around a good well, and we know what would we do and we are aggressive but we now have taken, we are going to drill our development wells first. Frequently one leads, to another and we are hopeful but I can’t give that to you, I am not able to tell you that I have three four years of development drilling. We do not. We have enough to exploit we have read these locations right been on the shale for a long time, we just made decision now is the time to drill them. We would have been done to burn them up at $50 a barrel

Greg Brody – JP Morgan

I think would you're doing makes a lot of sense right now?

Clayton W. Williams

Yes we can.

Greg Broad – JP Morgan

So, and then just my final question, in terms of acquisitions, I know that something you think about small scale what’s the current environment look like since opportunities, as well as competitiveness?

Mel G. Riggs

Nothing, it was still that was market and we look, with constant looking but there had to be the strategic we have to pay and again we don’t want our client to become major balance sheet. There will be acquisitions possibly not in part

Clayton W. Williams

We would drew out a small from that fifth things that we are doing. But when it comes to think in that aim that drilling good wells and given our cash flows and when that happens as we’ve done before that was rolling. We paid our debt down to 25 million and then we were able to, our net was swollen, we look around what next. With that I would very clearly cut out and that’s where we headed as to drill upon we got to do good job it’s been a efficiently what we have and doing a good job and then we get these things done and we are safe where we are. And our next focus will be evaluating our (inaudible) some form of another.

Greg Broad – JP Morgan

Thank you very much.

Clayton W. Williams

You are welcomed Greg.

Operator

The next question comes from line of Steve Orr with Orr Investments, please proceed.

Steve Orr – Orr Investments

Yeah thank you again, I just wanted to know what you fellow said might be the increase potential for production from Permian Basin on this looks like you’ve identified ten from one area and 15 opportunities from another area, what typically is increase potential in that Permian Basin?

Clayton W. Williams

I can tell you that we have bought substantial acreage. We are acquiring some acreage and as we tell, this course had been our home from day one, but we’ve just starting to replay the Permian, because it’s mostly oil. So as long as, we are in business. Once you are in business opportunities come, I’m very hopeful about the Permian Basin, but it is very totally related to prices of FOI. You drop back to $30, it wouldn’t be drilled that you’d drill today.

So its very price related as well as some concept related as I mentioned earlier about the commingling. Commingling is going to be commingling is going to be a word that you're going to hear more V. when you have a modern frac, after you commercial well. Not a hallelujah, but a two-year payout which then you have some long-lived reserves after. That just kind of vanilla bread and butter business.

Mel G. Riggs

Hi Steve, I would like to add in our guidance we tried to be conservative and we do forecast production by area less on development and so you really got guidance which we update after end of the first quarter with some at least of one thing it really. We are doing some horizontal wells and already it is current it’s new and we are not sure, you know what the impact that’s going to be. So, but we will clarify our guidance and we will be trying to guide that but it’s hard to say volume study what is going to be. You know, above in a year, but that was never going itself.

Steve Orr – Orr Investments

Very good. Thank you for the input fellows.

Operator

The next question comes from Brad Evans of Heartland. Please proceed.

Brad Evans – Heartland

I want to thank you as well for sending a team up to the IPAA show in New York this April. Great to raise the exposure of the company. So, thanks for that.

Clayton W. Williams

We’re glad to do that and it’s time to do it.

Brad Evans – Heartland

Now I want to ask you about the 81% of the budget that’s developmental?

Mel G. Riggs

Yes.

Brad Evans – Heartland

How much of that drilling would be pud conversion, pud to PDP versus reserve additive drilling, if at all?

Mel G. Riggs

That’s a good question. I will say about it, its, think its quite about 50 feet. It’s going to be reclassifying or converting in the other 50, we call it developmental but these are not necessarily puds, but that’s going to be new oil that will add. That’s how I think we make our oil; we are in growth of our reserves this year.

Clayton W. Williams

I think virtually none of the chalk location work for us and we have a more (inaudible) I am critics probably head more funds than, we got latest varied by our area. That’s probably 50%, and the gears are there we are out now.

Brad Evans – Heartland

Alright, that’s all I had. Thanks and good luck in ’08.

Operator

We have no more questions in queue at this time; I would like to turn the call over to Mr. Clayton W. Williams.

Clayton W. Williams

Well, we thank you for standing in and you can tell we are optimistic; we have made progress in the company these last seven, eight years. Some years back, a drilling man joined me, he said, when I came, we only had Austin Chalk, so now we have a broader diversity of our prospects and interests. While we have down played exploration, and we will drill our development, but if somebody is not drilling exploration we're rung out of oil and gas pretty quick. So that’s a factor that places us all you look at the majors, none of them are replacing the reserves. It's a tough business, and that's why you're seeing the prices happen like they are. Thanks for tuning in. We will look forward talking to you next time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Clayton W. Williams Energy Inc. Q4 2007 Earnings Call Transcript
This Transcript
All Transcripts