Clayton Williams Energy(CWEI), another good gas/oil play

**jianyunli** Thu Jan 12, 2006 8:58 pm

Clayton Williams Energy(CWEI), another good gas/oil play
Listening to the Iran nuclear news from NPR on my way home today, I noticed it was said that the OPEC countries has reached its peak oil production rate and hard to squeeze any more, any disruption of Iran's export, the fourth largest crude oil exporter, will have significant percussions on the world oil market. That further confirmed Blast's belief that oil/gas bull market is not over yet..

CWEI, similar to WLL is a gas/oil explorer and producer that operates primarily in Texas, Louisiana, New Mexico, and Mississippi. This stock caught my attention through its massive insider buying. According to the SEC filing.
http://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=cwei&filenum=&State=&SIC=&owner=include&action=getcompany

the CEO/Director and other hedge funds bought stocks directly from market since last October like crazy. Corresponding, the CEO bought $11,517,000 value of stock and the Clajon Holding CORP bought $34,552,000 value since last November.

Further analysis revealed that CWEI roughly has 50% of revenue of WLL but has only 28% of Enterprise value, it also has lowest enterprise value/EBITA among blast's pick WLL and CHK. CWEI also has a better balance sheet in terms of debt/equity.

A quick comparison among three (from Yahoo Finance, B-Billion,M-Million).

CWEI CHK WLL

Revenue: 263.51M 3.86B 489.48M
EV/Revenue: 2.45 4.19 4.72
EV/EBITDA : 6.346 7.238 7.042
EBITDA: 101.56M 2.23B 327.91M
Total Cash: 50.51M 127.10M 7.54M
Total Debt: 225.03M 4.25B 738.90M
Oper Cash Flow: 170.45M 2.05B 250.68M

http://www.claytonwilliams.com/ir.html
CWEI has a bad third quarter due to decreased production, increasing costs and CapEx . The Katrina hit its Louisiana sites hard and it recorded higher than expected production decrease from Cotton Valley Reef Complex. According to its last conference call, Cotton Valley has reached two thirds of its capacity. However with Louisiana back on track and other wells increasing production, it will see roughly the same productions as 2004. In addition the CEO seems very confident about future exploration when answering analyst's questions which can be further proved by his continuous huge buying.

In summary, I am not elaborating buying reasons here, you can reference blast's newsletter regarding CHK and WLL. As long as the gas price stays strong, CWEI should keep posting strong gains and cash flow ahead. I am trying to point its relative attractiveness by my own analysis.

Buying Reason: Relative cheapness + strong earning potential
Catalysts: Crazy Insider Buying
Concerns: It has the lowest reserve compared to CHK and WLL. Further performance will depend on its successful exploration efforts.

CWEI CHK WLL(Proved Gas Reserve: in billion cubic feet)
299 4900 865.4

**zhao_xing** Fri Jan 13, 2006 2:20 am

Hi jianyunli,
I am most concerned about CWEI's present value or NAV value.

Do you have its most recent PV-10 value per share at hand?

**alex_li_98** Sat Jan 14, 2006 4:56 pm

Good pick! Insider buying always means something...

**alex_li_98** Sat Jan 14, 2006 6:01 pm

Well, another thing we want to compare is the reserve.

WLL:
oil 87,587 MBbl NG 339,856 MMCF total: 865.4 BCFE reserve/market cap (1,590M): 0.544
CWEI:
oil 26,793 MBbl NG 138,278 MMCF total: 299.0 BCFE reserve/market cap (516M): 0.579
CHK:
87,960 MBbl NG 4,373,989 MMCF total: 4901 BCFE reserve/market cap (11,220M): 0.437

(all reserve from last 10-K, early 2005)

Therefore, the reserve/market cap looks even better thank CHK/WLL.

**blast_investor** Sun Jan 15, 2006 7:51 pm

Just a correction on below red number. That number was 1 year ago number , no longer correct right now.

WLL purchased a huge property in summer of 2005 and its reserve almost doubled.

The purchased reserve was 734 BEFE, it also purchased smaller properties in 2005. Therefore, WLL reserve is around 1600 BCFE to 1700 BCFE as of right now.

alex_li_98 wrote: Well, another thing we want to compare is the reserve.

WLL:
oil 87,587 MBbl NG 339,856 MMCF total: 865.4 BCFE reserve/market cap (1,590M): 0.544

(all reserve from last 10-K, early 2005)

Therefore, the reserve/market cap looks even better thank CHK/WLL.

**jianyunli** Sun Jan 15, 2006 9:00 pm

NAV
zhao_xing wrote: Hi jianyunli,
I am most concerned about CWEI's present value or NAV value.

Do you have its most recent PV-10 value per share at hand?

Zhao_xing, sorry for late reply, according to it's latest 10-Q
http://www.sec.gov/Archives/edgar/data/880115/000110465905053606/a05-18034_110q.htm

Total Assets: $581,999,000
Total LIABILITIES: $464,805,000
Total shares: 10,813,552
NAV/Share=($581,999,000-464,805,000)/10,813,552=10.8377 $/share

**jianyunli** Mon Jan 16, 2006 4:29 am

NAV
zhao_xing wrote: Hi jianyunli,
I am most concerned about CWEI's present value or NAV value.

Do you have its most recent PV-10 value per share at hand?

I am also a little concerned with recent run up, maybe due to some speculation or shorts covering. I watched it for quite some time and went in around 42 level with which I am very comfortable. Anyway long term I think it is a buy

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