----

| (Mark One) |                                              |   |
|------------|---------------------------------------------------|--------|
| x          | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  |   |
|       | OF THE SECURITIES EXCHANGE ACT OF 1934            |   |
|       | For the quarterly period ended September 30, 2010 |   |

|  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)                                                                                                                                                                       |   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                  |   |
|   | For the transition period from                 to                 |   |
|   | Commission File Number 001-10924                                                                                                                                                                                        |   |

| CLAYTON WILLIAMS ENERGY, INC.                          |
|--------------------------------------------------------|
| (Exact name of registrant as specified in its charter) |

| Delaware                                                       |   | 75-2396863                           |
|----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification No.) |
| Six Desta Drive - Suite 6500                                   |   |                                 |
| Midland, Texas                                                 |   | 79705-5510                           |
| (Address of principal executive offices)                       |   | (Zip code)                           |
| Registrant’s telephone number, including area code:      |   | (432) 682-6324                       |

| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                     | x Yes |   |  ̈ No |   |

| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                        |  ̈ Yes |   |  ̈ No |   |

| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                           | Large accelerated filer   ̈ |   | Accelerated filer  x |   |
|                                                                                                                                                                                                                                                                                                                                           | Non-accelerated filer   ̈ |   | Smaller reporting company  ̈ |   |

| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
|------------------------------------------------------------------------------------------------------------------|
|                                                                                                             |  ̈ Yes |   | x No |   |

| There were 12,153,536 shares of Common Stock, $.10 par value, of the registrant outstanding as of November 4, 2010. |
|--------------------------------------------------------------------------------------------------------------------------|

----

| PART I.  FINANCIAL INFORMATION |
|------------------------------------------|
|                                     |   | Page |
|                                     |   |   |   |
| Item 1.                                  | Financial Statements |   |   |
|                                     |   |   |   |
|                                     | Consolidated Balance Sheets as of September 30, 2010 |   |   |
|                                     | and December 31, 2009                                                                                                 | 3 |
|                                     |   |   |   |
|                                     | Consolidated Statements of Operations for the three months and nine months |   |   |
|                                     | ended September 30, 2010 and 2009                                                                                                 | 5 |
|                                     |   |   |   |
|                                     | Consolidated Statement of Stockholders’ Equity for the nine months |   |   |
|                                     | ended September 30, 2010                                                                                                 | 6 |
|                                     |   |   |   |
|                                     | Consolidated Statements of Cash Flows for the nine months |   |   |
|                                     | ended September 30, 2010 and 2009                                                                                                 | 7 |
|                                     |   |   |   |
|                                     | Notes to Consolidated Financial Statements                                                                                                     | 8 |
|                                     |   |   |   |
| Item 2.                                  | Management’s Discussion and Analysis of Financial |   |   |
|                                     | Condition and Results of Operations                                                                                                 | 23 |
|                                     |   |   |   |
| Item 3.                                  | Quantitative and Qualitative Disclosures About Market Risks                                                                                                    | 38 |
|                                     |   |   |   |
| Item 4.                                  | Controls and Procedures                                                                                                     | 40 |
|                                     |   |   |   |
|                                     |   |   |   |
| PART II.  OTHER INFORMATION    |
| Item 1A.                                 | Risk Factors                                                                                                     | 41 |
|                                     |   |   |   |
| Item 6.                                  | Exhibits                                                                                                     | 41 |
|                                     |   |   |   |
|                                     | Signatures                                                                                                     | 42 |

----

Item 

CLAYTON 

| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | September 30, |   |   | December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Unaudited) |   |   |   |   |
| CURRENT ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                              |   | $ | 22,004 |   |   | $ | 14,013 |   |
| Accounts receivable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Oil and gas sales                                                                                                                                               |   |   | 28,766 |   |   |   | 28,721 |   |
| Joint interest and other, net                                                                                                                                   |   |   | 4,815 |   |   |   | 6,669 |   |
| Affiliates                                                                                                                                                      |   |   | 690 |   |   |   | 624 |   |
| Inventory                                                                                                                              |   |   | 45,080 |   |   |   | 43,068 |   |
| Deferred income taxes                                                                                                                  |   |   | 168 |   |   |   | 1,362 |   |
| Fair value of derivatives                                                                                                              |   |   | 14,239 |   |   |   | - |   |
| Assets held for sale                                                                                                                   |   |   | 7,411 |   |   |   | 7,411 |   |
| Prepaids and other                                                                                                                     |   |   | 2,724 |   |   |   | 1,729 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 125,897 |   |   |   | 103,597 |   |
| PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
| Oil and gas properties, successful efforts method                                                                                      |   |   | 1,631,453 |   |   |   | 1,579,664 |   |
| Natural gas gathering and processing systems                                                                                           |   |   | 18,401 |   |   |   | 17,816 |   |
| Contract drilling equipment                                                                                                            |   |   | 50,158 |   |   |   | 41,533 |   |
| Other                                                                                                                                  |   |   | 20,196 |   |   |   | 16,550 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 1,720,208 |   |   |   | 1,655,563 |   |
| Less accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | (1,008,119 | ) |   |   | (985,517 | ) |
| Property and equipment, net                                                                                                                                     |   |   | 712,089 |   |   |   | 670,046 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| OTHER ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |
| Debt issue costs, net                                                                                                                  |   |   | 4,210 |   |   |   | 4,874 |   |
| Fair value of derivatives                                                                                                              |   |   | 2,155 |   |   |   | 4,427 |   |
| Other                                                                                                                                  |   |   | 1,836 |   |   |   | 1,660 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 8,201 |   |   |   | 10,961 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $ | 846,187 |   |   | $ | 784,604 |   |

----

| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | September 30, |   |   | December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (Unaudited) |   |   |   |   |
| CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
| Accounts payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |
| Trade                                                                                                                                       |   | $ | 48,389 |   |   | $ | 47,211 |   |
| Oil and gas sales                                                                                                                           |   |   | 26,218 |   |   |   | 18,063 |   |
| Affiliates                                                                                                                                  |   |   | 1,015 |   |   |   | 1,097 |   |
| Fair value of derivatives                                                                                          |   |   | - |   |   |   | 5,907 |   |
| Accrued liabilities and other                                                                                      |   |   | 13,910 |   |   |   | 11,995 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 89,532 |   |   |   | 84,273 |   |
| NON-CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
| Long-term debt                                                                                                     |   |   | 385,000 |   |   |   | 395,000 |   |
| Deferred income taxes                                                                                              |   |   | 76,016 |   |   |   | 54,065 |   |
| Other                                                                                                              |   |   | 41,103 |   |   |   | 38,991 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 502,119 |   |   |   | 488,056 |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| Preferred stock, par value $.10 per share, authorized – 3,000,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
|  shares; none issued                                                                                          |   |   | - |   |   |   | - |   |
| Common stock, par value $.10 per share, authorized – 30,000,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |
|  shares; issued and outstanding – 12,145,536 shares in 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
|  and 2009                                                                                                     |   |   | 1,215 |   |   |   | 1,215 |   |
| Additional paid-in capital                                                                                         |   |   | 152,051 |   |   |   | 152,051 |   |
| Retained earnings                                                                                                  |   |   | 101,270 |   |   |   | 59,009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 254,536 |   |   |   | 212,275 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $ | 846,187 |   |   | $ | 784,604 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                |   | Three Months Ended |   |   | Nine Months Ended |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                |   | September 30,      |   |   | September 30,     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| REVENUES                                                                                                                                                                                                                                                                                                                                                                                            |   |               |   |   |              |   |   |   |   |   |   |   |
| Oil and gas sales                                                                                                     |   | $                  | 81,978 |   |              | $      | 59,436 |   |   | $ | 237,938 |   |   | $ | 167,438 |   |
| Natural gas services                                                                                                  |   |               | 397    |   |              |   | 1,639 |   |   |   | 1,352 |   |   |   | 4,578 |   |
| Drilling rig services                                                                                                 |   |               | -      |   |              |   | - |   |   |   | - |   |   |   | 6,681 |   |
| Gain on sales of assets                                                                                               |   |               | 2,857  |   |              |   | 1,351 |   |   |   | 3,256 |   |   |   | 2,014 |   |
| Total revenues                                                                                                                                      |   |               | 85,232 |   |              |   | 62,426 |   |   |   | 242,546 |   |   |   | 180,711 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| COSTS AND EXPENSES                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Production                                                                                                            |   |               | 20,518 |   |              |   | 19,258 |   |   |   | 62,012 |   |   |   | 56,617 |   |
| Exploration:                                                                                                                                                                                                                                                                                                                                                                                        |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Abandonments and impairments                                                                                                                                                                                                                                                                                                                                                                        |   |               | 364    |   |              |   | 24,149 |   |   |   | 6,133 |   |   |   | 41,066 |   |
| Seismic and other                                                                                                                                   |   |               | 1,361  |   |              |   | 898 |   |   |   | 3,995 |   |   |   | 6,556 |   |
| Natural gas services                                                                                                  |   |               | 297    |   |              |   | 1,344 |   |   |   | 951 |   |   |   | 3,966 |   |
| Drilling rig services                                                                                                 |   |               | 123    |   |              |   | 904 |   |   |   | 1,204 |   |   |   | 10,901 |   |
| Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                            |   |               | 25,223 |   |              |   | 30,053 |   |   |   | 76,272 |   |   |   | 92,704 |   |
| Impairment of property and equipment                                                                                                                                                                                                                                                                                                                                                                |   |               | 794    |   |              |   | - |   |   |   | 11,908 |   |   |   | 32,068 |   |
| Accretion of abandonment obligations                                                                                                                                                                                                                                                                                                                                                                |   |               | 659    |   |              |   | 824 |   |   |   | 1,953 |   |   |   | 2,290 |   |
| General and administrative                                                                                            |   |               | 8,730  |   |              |   | 4,012 |   |   |   | 22,786 |   |   |   | 14,796 |   |
| Loss on sales of assets and impairment                                                                                                                                                                                                                                                                                                                                                              |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| of inventory                                                                                                                         |   |               | 80     |   |              |   | 555 |   |   |   | 1,523 |   |   |   | 4,400 |   |
| Total costs and expenses                                                                                                                            |   |               | 58,149 |   |              |   | 81,997 |   |   |   | 188,737 |   |   |   | 265,364 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)                                                                                                                             |   |               | 27,083 |   |              |   | (19,571 | ) |   |   | 53,809 |   |   |   | (84,653 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                                                                                                                                              |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                      |   |               | (6,040 | )      |              |   | (6,526 | ) |   |   | (18,393 | ) |   |   | (17,700 | ) |
| Gain (loss) on derivatives                                                                                            |   |               | (3,995 | )      |              |   | 4,723 |   |   |   | 27,289 |   |   |   | (14,537 | ) |
| Other                                                                                                                 |   |               | 972    |   |              |   | (76 | ) |   |   | 2,816 |   |   |   | 1,651 |   |
| Total other income (expense)                                                                                                                        |   |               | (9,063 | )      |              |   | (1,879 | ) |   |   | 11,712 |   |   |   | (30,586 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before income taxes                                                            |   |               | 18,020 |   |              |   | (21,450 | ) |   |   | 65,521 |   |   |   | (115,239 | ) |
| Income tax (expense) benefit                                                                 |   |               | (6,397 | )      |              |   | 7,850 |   |   |   | (23,260 | ) |   |   | 42,171 |   |
| NET INCOME (LOSS)                                                                            |   |               | 11,623 |   |              |   | (13,600 | ) |   |   | 42,261 |   |   |   | (73,068 | ) |
| Less income attributable to                                                                                                                                                                                                                                                                                                                                                                         |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| noncontrolling interest, net of tax                                                                                                                                                                                                                                                                                                                                                                 |   |               | -      |   |              |   | - |   |   |   | - |   |   |   | (1,455 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| NET INCOME (LOSS) attributable to Clayton                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Williams Energy, Inc.                                                                                                 |   | $                  | 11,623 |   |              | $      | (13,600 | ) |   | $ | 42,261 |   |   | $ | (74,523 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per common share attributable to                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|   Clayton Williams Energy, Inc. stockholders:                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                 |   | $                  | .96    |   |              | $      | (1.12 | ) |   | $ | 3.48 |   |   | $ | (6.14 | ) |
| Diluted                                                                                                               |   | $                  | .96    |   |              | $      | (1.12 | ) |   | $ | 3.48 |   |   | $ | (6.14 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding:                                                                                                                                                                                                                                                                                                                                                         |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                 |   |               | 12,146 |   |              |   | 12,144 |   |   |   | 12,146 |   |   |   | 12,136 |   |
| Diluted                                                                                                               |   |               | 12,146 |   |              |   | 12,144 |   |   |   | 12,146 |   |   |   | 12,136 |   |

----

CLAYTON 

|               |   | Common Stock |   |   | Additional |   |   |    |   |
|--------------------|--------|--------------|--------|--------|------------|--------|--------|---------|--------|
|               |   | No. of       |   |   | Par        |   |   | Paid-In |   |   | Retained |   |
|               |   | Shares       |   |   | Value      |   |   | Capital |   |   | Earnings |   |
| BALANCE,           |   |         |   |   |       |   |   |    |   |   |   |   |
| December 31, 2009  |   |         | 12,146 |   |       | $      | 1,215  |    |   | $ | 152,051 |   |   | $ | 59,009 |   |
| Net income         |   |         | -      |   |       |   | -      |    |   |   | - |   |   |   | 42,261 |   |
| BALANCE,           |   |         |   |   |       |   |   |    |   |   |   |   |   |   |   |   |
| September 30, 2010 |   |         | 12,146 |   |       | $      | 1,215  |    |   | $ | 152,051 |   |   | $ | 101,270 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Nine Months Ended |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | September 30,     |     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2010              |     |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |
| Net income (loss)                                                                                                                         |   | $                 | 42,261   |   |   | $ | (73,068 | ) |
| Adjustments to reconcile net income (loss) to cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |     |   |   |   |   |   |
| provided by operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |              |     |   |   |   |   |   |
| Depreciation, depletion and amortization                                                                                                                                |   |              | 76,272   |   |   |   | 92,704 |   |
| Impairment of property and equipment                                                                                                                                    |   |              | 11,908   |   |   |   | 32,068 |   |
| Exploration costs                                                                                                                                                       |   |              | 6,133    |   |   |   | 41,066 |   |
| (Gain) loss on sales of assets and impairment of inventory, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |              | (1,733   | ) |   |   | 2,386 |   |
| Deferred income tax expense (benefit)                                                                                                                                   |   |              | 23,260   |   |   |   | (42,171 | ) |
| Non-cash employee compensation                                                                                                                                          |   |              | 8,066    |   |   |   | 953 |   |
| Unrealized (gain) loss on derivatives                                                                                                                                   |   |              | (17,874  | ) |   |   | 8,314 |   |
| Amortization of debt issue costs                                                                                                                                        |   |              | 1,174    |   |   |   | 1,163 |   |
| Accretion of abandonment obligations                                                                                                                                    |   |              | 1,953    |   |   |   | 2,290 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |   |   |
| Changes in operating working capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |              |     |   |   |   |   |   |
| Accounts receivable                                                                                                                                                     |   |              | 1,743    |   |   |   | 12,777 |   |
| Accounts payable                                                                                                                                                        |   |              | 5,247    |   |   |   | (26,075 | ) |
| Other                                                                                                                                                                   |   |              | (4,242   | ) |   |   | 15,800 |   |
| Net cash provided by operating activities                                                                                                                                                             |   |              | 154,168  |   |   |   | 68,207 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |   |   |
| Additions to property and equipment                                                                                                       |   |              | (208,641 | ) |   |   | (99,808 | ) |
| Proceeds from sales of assets                                                                                                             |   |              | 75,670   |   |   |   | 2,109 |   |
| Change in equipment inventory                                                                                                             |   |              | (3,075   | ) |   |   | (25,868 | ) |
| Other                                                                                                                                     |   |              | (131     | ) |   |   | (109 | ) |
| Net cash used in investing activities                                                                                                                                                                 |   |              | (136,177 | ) |   |   | (123,676 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |   |   |
| Proceeds from long-term debt                                                                                                              |   |              | -        |   |   |   | 75,900 |   |
| Repayments of long-term debt                                                                                                              |   |              | (10,000  | ) |   |   | (39,375 | ) |
| Proceeds from exercise of stock options                                                                                                   |   |              | -        |   |   |   | 152 |   |
| Net cash provided by (used in) financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              | (10,000  | ) |   |   | 36,677 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              | 7,991    |   |   |   | (18,792 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |              |     |   |   |   |   |   |
| Beginning of period                                                                                                                       |   |              | 14,013   |   |   |   | 41,199 |   |
| End of period                                                                                                                             |   | $                 | 22,004   |   |   | $ | 22,407 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |     |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |              |     |   |   |   |   |   |
| Cash paid for interest, net of amounts capitalized                                                                                        |   | $                 | 21,517   |   |   | $ | 21,826 |   |

----

CLAYTON 

| 1. | Nature of Operations |
|----|----------------------|

| 2. | Presentation |
|----|--------------|

----

| 3. | Long-Term Debt |
|----|----------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | September 30,  |    |   | December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2010           |    |   | 2009         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (In thousands) |    |
| 73⁄4% Senior Notes due 2013                                                                                   |   | $              | 225,000 |   |         | $      | 225,000 |   |
| Secured bank credit facility, due May 2012                                                                       |   |           | 160,000 |   |         |   | 170,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $              | 385,000 |   |         | $      | 395,000 |   |

----

| 4. | Other Non-Current Liabilities |
|----|-------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | September 30,  |   |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2010           |   |   | 2009         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (In thousands) |   |
| Abandonment obligations                                                                                    |   | $              | 40,284 |   |         | $      | 38,412 |   |
| Other                                                                                                      |   |           | 819    |   |         |   | 579 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $              | 41,103 |   |         | $      | 38,991 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Nine Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | September 30,     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010              |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (In thousands)    |   |
| Beginning of period                                                                                    |   | $                 | 38,412 |   |   | $ | 31,737 |   |
| Additional abandonment obligations from new properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |              | 1,377  |   |   |   | 1,239 |   |
| Sales or abandonments of properties                                                                                        |   |              | (1,138 | ) |   |   | (123 | ) |
| Revisions of previous estimates                                                                                            |   |              | (320   | ) |   |   | 2,194 |   |
| Accretion expense                                                                                                          |   |              | 1,953  |   |   |   | 2,290 |   |
| End of period                                                                                          |   | $                 | 40,284 |   |   | $ | 37,337 |   |

----

| 5. | Compensation Plans |
|----|--------------------|

----

| 6. | Derivatives |
|----|-------------|

|                                                                                                                                                                   |   | Oil    |      |   | Gas    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                                                                                                                   |   | Bbls   |      |   | Price  |   |   | MMBtu (a) |   |   | Price |   |
| Production Period:                                                                                                                                                     |   |   |      |   |   |   |   |   |   |   |   |   |
| 4th Quarter 2010                                                                                                                                                  |   |   | 480,000   |   |   | $      | 76.24 |   |   |   | 1,680,000 |   |   | $ | 6.80 |   |
| 2011                            |   |   | 2,376,000 |   |   | $      | 83.75 |   |   |   | 6,420,000 |   |   | $ | 7.07 |   |
| 2012                            |   |   | 570,000   |   |   | $      | 87.60 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                                                   |   |   | 3,426,000 |   |   |   |   |   |   |   | 8,100,000 |   |   |   |   |   |
|                                                                                                                                |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)    One MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                          |   |

----

|                          | Fair Value of Derivative Instruments as of September 30, 2010 |   |
|-------------------------------|---------------------------------------------------------------|--------|
|                          | Asset Derivatives                                             |   | Liability Derivatives |   |
|                          | Balance Sheet                                                 |   |   |   | Balance Sheet |   |   |   |
|                          | Location                                                      |   | Fair Value |   | Location |   | Fair Value |   |
|                          |                                                          |   | (In thousands) |   |   |   | (In thousands) |   |
| Derivatives not designated as |                                                          |   |   |   |   |   |   |
| hedging instruments:          |                                                          |   |   |   |   |   |   |   |
|                          |                                                          |   |   |   |   |   |   |   |
| Commodity derivatives         | Fair value of derivatives:                                    |   |   |   | Fair value of derivatives: |   |   |   |
|                          | Current                                                       |   | $ |     14,239 |   | Current |   | $ | - |   |
|                          | Non-current                                                   |   |   |      2,155 |   | Non-current |   |   | - |   |
| Total                         |                                                          |   | $ | 16,394 |   |   |   | $ | - |   |

|                          | Fair Value of Derivative Instruments as of December 31, 2009 |   |
|-------------------------------|--------------------------------------------------------------|--------|
|                          | Asset Derivatives                                            |   | Liability Derivatives |   |
|                          | Balance Sheet                                                |   |   |   | Balance Sheet |   |   |   |
|                          | Location                                                     |   | Fair Value |   | Location |   | Fair Value |   |
|                          |                                                         |   | (In thousands) |   |   |   | (In thousands) |   |
| Derivatives not designated as |                                                         |   |   |   |   |   |   |
| hedging instruments:          |                                                         |   |   |   |   |   |   |   |
|                          |                                                         |   |   |   |   |   |   |   |
| Commodity derivatives         | Fair value of derivatives:                                   |   |   |   | Fair value of derivatives: |   |   |   |
|                          | Current                                                      |   | $ | - |   | Current |   | $ | 5,907 |   |
|                          | Non-current                                                  |   |   | 4,427 |   | Non-current |   |   | - |   |
| Total                         |                                                         |   | $ | 4,427 |   |   |   | $ | 5,907 |   |

|                                                 |   | September 30, 2010 |   |
|------------------------------------------------------|--------|--------------------|--------|
|                                                 |   | Assets             |   |   | Liabilities |   |
|                                                 |   | (In thousands)     |   |
| Fair value of derivatives – gross presentation |   | $                  | 24,160 |   |   | $ | 7,766 |   |
| Effects of netting arrangements                      |   |               | (7,766 | ) |   |   | (7,766 | ) |
| Fair value of derivatives – net presentation   |   | $                  | 16,394 |   |   | $ | - |   |

|                                                 |   | December 31, 2009 |    |
|------------------------------------------------------|--------|-------------------|---------|
|                                                 |   | Assets            |    |   | Liabilities |   |
|                                                 |   | (In thousands)    |    |
| Fair value of derivatives – gross presentation |   | $                 | 20,105  |   |   | $ | 21,585 |   |
| Effects of netting arrangements                      |   |              | (15,678 | ) |   |   | (15,678 | ) |
| Fair value of derivatives – net presentation   |   | $                 | 4,427   |   |   | $ | 5,907 |   |

|                          |   | Amount of Gain or (Loss) Recognized in Earnings |
|-------------------------------|--------|-------------------------------------------------|
|                          |   |                                            |   | Nine Months Ended |
|                          |   | Location of Gain or (Loss)                      |   | September 30, |
|                          |   | Recognized in Earnings                          |   | 2010 |   | 2009 |
|                          |   |                                            |   | (In thousands) |
| Derivatives not designated as |   |                                            |   |   |   |   |
| hedging instruments:          |   |                                            |   |   |   |   |
|                          |   |                                            |   |   |   |   |
| Commodity derivatives         |   | Other income (expense) -                        |   |   |   |   |
|                          |   | Gain (loss) on derivatives                      |   | $                27,289 |   | $              (14,537) |
| Total                         |   |                                            |   | $                27,289 |   | $              (14,537) |

----

| 7. | Financial Instruments |
|----|-----------------------|

|     Level 1 - | Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------|

|     Level 2 - | Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. |
|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     Level 3 - | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | September 30,     |   |   | December 31,      |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 2010              |   |   | 2009              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Significant Other |   |   | Significant Other |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Observable Inputs |   |   | Observable Inputs |   |
| Description                                                                                                                                                                                                                                                                                                                                                                                                             |   | (Level 2)         |   |   | (Level 2)         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (In thousands)    |   |
| Assets:                                                                                                                                                                                                                                                                                                                                                                                                                 |   |              |   |   |              |   |
| Fair value of commodity derivatives                                                               |   | $                 | 16,394 |   |              | $      | 4,427 |   |
| Total assets                                                                            |   | $                 | 16,394 |   |              | $      | 4,427 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   |              |   |   |              |   |   |   |
| Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                            |   |              |   |   |              |   |   |   |
| Fair value of commodity derivatives                                                               |   | $                 | -      |   |              | $      | 5,907 |   |
| Total liabilities                                                                       |   | $                 | -      |   |              | $      | 5,907 |   |

----

| 8. | Income Taxes |
|----|--------------|

| 9. | Desta Drilling |
|----|----------------|

----

| 10. | Purchases and Sales of Assets and Impairments of Inventory |
|-----|------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                    |   | Nine Months Ended |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                    |   | September 30,     |   |
|                                                                                                                                                                                                                                                                                                                    |   | 2010              |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                    |   | (In thousands)    |   |
|                                                                                                                                                                                                                                                                                                                    |   |              |   |   |   |   |
| Gain on sales of assets                                                 |   | $                 | 3,256  |   |   | $ | 2,014 |   |
|                                                                                                                                                                                                                                                                                                                    |   |              |   |   |   |   |   |   |
| Loss on sales of assets and impairment                                                                                                                                                                                                                                                                                  |   |              |   |   |   |   |   |   |
| of inventory:                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |
| Loss on sales of assets                                                                     |   |              | (1,523 | ) |   |   | (261 | ) |
| Impairment of inventory                                                                     |   |              | -      |   |   |   | (4,139 | ) |
|                                                                                                                                                                                                                                                                                                                    |   |              | (1,523 | ) |   |   | (4,400 | ) |
|                                                                                                                                                                                                                                                                                                                    |   |              |   |   |   |   |   |   |
| Net gain (loss)                                                         |   | $                 | 1,733  |   |   | $ | (2,386 | ) |

----

| 11. | Oil and Gas Properties |
|-----|------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | September 30,  |      |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-----------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 2010           |      |   | 2009         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (In thousands) |      |
| Proved properties                                                                                       |   | $              | 1,590,906 |   |         | $      | 1,532,508 |   |
| Unproved properties                                                                                     |   |           | 40,547    |   |         |   | 47,156 |   |
| Total capitalized costs                                                                                 |   |           | 1,631,453 |   |         |   | 1,579,664 |   |
| Accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |           | (959,773  | )      |         |   | (945,047 | ) |
| Net capitalized costs                                                                                                            |   | $              | 671,680   |   |         | $      | 634,617 |   |

| 12. | Impairment of Property and Equipment |
|-----|--------------------------------------|

| 13. | Contingency |
|-----|-------------|

----

| 14. | Segment Information |
|-----|---------------------|

| For the Three Months Ended                   |   |        |    |   |     |   |   |         |   |   |         |   |
|----------------------------------------------|--------|-------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| September 30, 2010                           |   |        |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                  |   |        |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In thousands)                               |   | Oil and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |
| Revenues                                     |   | $           | 85,232  |   |     | $      | 9,285  |         |   | $      | (9,285       | )      |   | $ | 85,232 |   |
| Depreciation, depletion and amortization (a) |   |        | 25,622  |   |     |   | 2,569  |         |   |   | (2,174       | )      |   |   | 26,017 |   |
| Other operating expenses (b)                 |   |        | 31,966  |   |     |   | 7,052  |         |   |   | (6,886       | )      |   |   | 32,132 |   |
| Interest expense                             |   |        | 6,039   |   |     |   | 1      |         |   |   | -            |   |   |   | 6,040 |   |
| Other (income) expense                       |   |        | 3,023   |   |     |   | -      |         |   |   | -            |   |   |   | 3,023 |   |
| Income (loss) before income taxes            |   |        | 18,582  |   |     |   | (337   | )            |   |   | (225         | )      |   |   | 18,020 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                 |   |        | (6,515  | )      |     |   | 118    |         |   |   | -            |   |   |   | (6,397 | ) |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss)                            |   |        | 12,067  |   |     |   | (219   | )            |   |   | (225         | )      |   |   | 11,623 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc     |   | $           | 12,067  |   |     | $      | (219   | )            |   | $      | (225         | )      |   | $ | 11,623 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total assets                                 |   | $           | 808,843 |   |     | $      | 37,071 |         |   | $      | 273          |   |   | $ | 846,187 |   |
| Additions to property and equipment          |   | $           | 66,605  |   |     | $      | 4,063  |         |   | $      | -            |   |   | $ | 70,668 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

| For the Nine Months Ended                    |   |        |    |   |     |   |   |         |   |   |         |   |
|----------------------------------------------|--------|-------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| September 30, 2010                           |   |        |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                  |   |        |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In thousands)                               |   | Oil and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |
| Revenues                                     |   | $           | 242,546 |   |     | $      | 23,668 |         |   | $      | (23,668      | )      |   | $ | 242,546 |   |
| Depreciation, depletion and amortization (a) |   |        | 86,479  |   |     |   | 7,402  |         |   |   | (5,701       | )      |   |   | 88,180 |   |
| Other operating expenses (b)                 |   |        | 99,201  |   |     |   | 18,300 |         |   |   | (16,944      | )      |   |   | 100,557 |   |
| Interest expense                             |   |        | 18,389  |   |     |   | 4      |         |   |   | -            |   |   |   | 18,393 |   |
| Other (income) expense                       |   |        | (30,105 | )      |     |   | -      |         |   |   | -            |   |   |   | (30,105 | ) |
| Income (loss) before income taxes            |   |        | 68,582  |   |     |   | (2,038 | )            |   |   | (1,023       | )      |   |   | 65,521 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                 |   |        | (23,973 | )      |     |   | 713    |         |   |   | -            |   |   |   | (23,260 | ) |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss)                            |   |        | 44,609  |   |     |   | (1,325 | )            |   |   | (1,023       | )      |   |   | 42,261 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc     |   | $           | 44,609  |   |     | $      | (1,325 | )            |   | $      | (1,023       | )      |   | $ | 42,261 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total assets                                 |   | $           | 808,843 |   |     | $      | 37,071 |         |   | $      | 273          |   |   | $ | 846,187 |   |
| Additions to property and equipment          |   | $           | 204,605 |   |     | $      | 11,642 |         |   | $      | -            |   |   | $ | 216,247 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

----

| For the Three Months Ended                   |   |        |    |   |     |   |   |         |   |   |         |   |
|----------------------------------------------|--------|-------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| September 30, 2009                           |   |        |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                  |   |        |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In thousands)                               |   | Oil and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |
| Revenues                                     |   | $           | 62,426  |   |     | $      | 4,596  |         |   | $      | (4,596       | )      |   | $ | 62,426 |   |
| Depreciation, depletion and amortization (a) |   |        | 29,661  |   |     |   | 982    |         |   |   | (590         | )      |   |   | 30,053 |   |
| Other operating expenses (b)                 |   |        | 52,988  |   |     |   | 3,214  |         |   |   | (4,258       | )      |   |   | 51,944 |   |
| Interest expense                             |   |        | 5,917   |   |     |   | 609    |         |   |   | -            |   |   |   | 6,526 |   |
| Other (income) expense                       |   |        | (4,647  | )      |     |   | -      |         |   |   | -            |   |   |   | (4,647 | ) |
| Income (loss) before income taxes            |   |        | (21,493 | )      |     |   | (209   | )            |   |   | 252          |   |   |   | (21,450 | ) |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                 |   |        | 7,777   |   |     |   | 73     |         |   |   | -            |   |   |   | 7,850 |   |
| Net income (loss)                            |   |        | (13,716 | )      |     |   | (136   | )            |   |   | 252          |   |   |   | (13,600 | ) |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc     |   | $           | (13,716 | )      |     | $      | (136   | )            |   | $      | 252          |   |   | $ | (13,600 | ) |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total assets                                 |   | $           | 792,143 |   |     | $      | 42,950 |         |   | $      | (450         | )      |   | $ | 834,643 |   |
| Additions to property and equipment          |   | $           | 31,323  |   |     | $      | 122    |         |   | $      | -            |   |   | $ | 31,445 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

| For the Nine Months Ended                        |   |        |    |   |     |   |    |         |   |   |         |   |
|--------------------------------------------------|--------|-------------|---------|--------|----------|--------|---------|--------------|--------|--------|--------------|--------|
| September 30, 2009                               |   |        |    |   |     |   |    |         |   |   |         |   |
| (Unaudited)                                      |   |        |    |   | Contract |   |    | Intercompany |   |   | Consolidated |   |
| (In thousands)                                   |   | Oil and Gas |    |   | Drilling |   |    | Eliminations |   |   | Total        |   |
|                                             |   |        |    |   |     |   |    |         |   |   |         |   |
| Revenues                                         |   | $           | 174,030 |   |     | $      | 22,109  |         |   | $      | (15,428      | )      |   | $ | 180,711 |   |
| Depreciation, depletion and amortization (a)     |   |        | 90,533  |   |     |   | 37,004  |         |   |   | (2,765       | )      |   |   | 124,772 |   |
| Other operating expenses (b)                     |   |        | 146,287 |   |     |   | 7,104   |         |   |   | (12,799      | )      |   |   | 140,592 |   |
| Interest expense                                 |   |        | 16,210  |   |     |   | 1,490   |         |   |   | -            |   |   |   | 17,700 |   |
| Other (income) expense                           |   |        | 12,886  |   |     |   | -       |         |   |   | -            |   |   |   | 12,886 |   |
| Income (loss) before income taxes                |   |        | (91,886 | )      |     |   | (23,489 | )            |   |   | 136          |   |   |   | (115,239 | ) |
|                                             |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                     |   |        | 33,956  |   |     |   | 8,215   |         |   |   | -            |   |   |   | 42,171 |   |
| Net income (loss)                                |   |        | (57,930 | )      |     |   | (15,274 | )            |   |   | 136          |   |   |   | (73,068 | ) |
| Less income attributable to                      |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
|   noncontrolling interest, net of tax  |   |        | (2,910  | )      |     |   | 1,455   |         |   |   | -            |   |   |   | (1,455 | ) |
|                                             |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to                |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc         |   | $           | (60,840 | )      |     | $      | (13,819 | )            |   | $      | 136          |   |   | $ | (74,523 | ) |
|                                             |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Total assets                                     |   | $           | 792,143 |   |     | $      | 42,950  |         |   | $      | (450         | )      |   | $ | 834,643 |   |
| Additions to property and equipment              |   | $           | 86,370  |   |     | $      | 2,312   |         |   | $      | -            |   |   | $ | 88,682 |   |
|          |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |

|   | (b) | Includes the following expenses:  production, exploration, natural gas services, drilling rig services, accretion of abandonment obligations, general and administrative and loss on sales of assets and impairment of inventory. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 15. | Guarantor Financial Information |
|-----|---------------------------------|

| (Unaudited)                                                                                                                                                                                                                            |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|----------|
| (Dollars in thousands)                                                                                                                                                                                                                 |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                                   |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |     |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |
| Current assets                                               |   | $      | 183,346 |   |         | $      | 145,785 |       |   | $      | 1,195        |   |   | $            | (204,429 | ) |   | $ | 125,897 |   |
| Property and equipment, net                                                                                                                                                                                                            |   |   | 376,274 |   |         |   | 329,669 |       |   |   | 6,146        |   |   |         | -        |   |   |   | 712,089 |   |
| Investments in subsidiaries                                                                                                                                                                                                            |   |   | 113,612 |   |         |   | -       |       |   |   | -            |   |   |         | (113,612 | ) |   |   | - |   |
| Other assets                                                 |   |   | 8,047   |   |         |   | 154     |       |   |   | -            |   |   |         | -        |   |   |   | 8,201 |   |
| Total assets                                                                     |   | $      | 681,279 |   |         | $      | 475,608 |       |   | $      | 7,341        |   |   | $            | (318,041 | ) |   | $ | 846,187 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Current liabilities                                          |   | $      | 155,233 |   |         | $      | 138,609 |       |   | $      | 119          |   |   | $            | (204,429 | ) |   | $ | 89,532 |   |
| Non-current liabilities:                                                                                                                                                                                                               |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term debt                                                                   |   |   | 385,000 |   |         |   | -       |       |   |   | -            |   |   |         | -        |   |   |   | 385,000 |   |
| Other                                                                            |   |   | 54,147  |   |         |   | 62,832  |       |   |   | 143          |   |   |         | (3       | ) |   |   | 117,119 |   |
|                                                                                                                                                                                                                                   |   |   | 439,147 |   |         |   | 62,832  |       |   |   | 143          |   |   |         | (3       | ) |   |   | 502,119 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Stockholders’ equity                                   |   |   | 86,899  |   |         |   | 274,167 |       |   |   | 7,079        |   |   |         | (113,609 | ) |   |   | 254,536 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Total liabilities and                                                                                                                                                                                                                  |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
|   stockholders’ equity                                                                                                                                                                                                 |   | $      | 681,279 |   |         | $      | 475,608 |       |   | $      | 7,341        |   |   | $            | (318,041 | ) |   | $ | 846,187 |   |

| (Dollars in thousands)                                                                                                                                                                                                                 |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|----------|
|                                                                                                                                                                                                                                   |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                                   |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |     |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |
| Current assets                                               |   | $      | 205,950 |   |         | $      | 146,443 |       |   | $      | 920          |   |   | $            | (249,716 | ) |   | $ | 103,597 |   |
| Property and equipment, net                                                                                                                                                                                                            |   |   | 326,149 |   |         |   | 337,566 |       |   |   | 6,331        |   |   |         | -        |   |   |   | 670,046 |   |
| Investments in subsidiaries                                                                                                                                                                                                            |   |   | 112,018 |   |         |   | -       |       |   |   | -            |   |   |         | (112,018 | ) |   |   | - |   |
| Other assets                                                 |   |   | 10,348  |   |         |   | 613     |       |   |   | -            |   |   |         | -        |   |   |   | 10,961 |   |
| Total assets                                                                     |   | $      | 654,465 |   |         | $      | 484,622 |       |   | $      | 7,251        |   |   | $            | (361,734 | ) |   | $ | 784,604 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Current liabilities                                          |   | $      | 153,505 |   |         | $      | 180,357 |       |   | $      | 127          |   |   | $            | (249,716 | ) |   | $ | 84,273 |   |
| Non-current liabilities:                                                                                                                                                                                                               |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term debt                                                                   |   |   | 395,000 |   |         |   | -       |       |   |   | -            |   |   |         | -        |   |   |   | 395,000 |   |
| Other                                                                            |   |   | 31,039  |   |         |   | 61,883  |       |   |   | 136          |   |   |         | (2       | ) |   |   | 93,056 |   |
|                                                                                                                                                                                                                                   |   |   | 426,039 |   |         |   | 61,883  |       |   |   | 136          |   |   |         | (2       | ) |   |   | 488,056 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Stockholders’ equity                                   |   |   | 74,921  |   |         |   | 242,382 |       |   |   | 6,988        |   |   |         | (112,016 | ) |   |   | 212,275 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Total liabilities and                                                                                                                                                                                                                  |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
|   stockholders' equity                                                                                                                                                                                                       |   | $      | 654,465 |   |         | $      | 484,622 |       |   | $      | 7,251        |   |   | $            | (361,734 | ) |   | $ | 784,604 |   |

----

| (Unaudited)                                                                                                                                                                                                                    |   |   |    |   |         |   |   | Non-       |   |   |         |   |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                 |   |   |    |   | Guarantor    |   |   | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                           |   | Issuer |    |   | Subsidiaries |   |   | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                        |   | $      | 56,490  |   |         | $      | 28,768 |       |   | $      | 173          |   |   | $            | (199   | ) |   | $ | 85,232 |   |
| Costs and expenses                                   |   |   | 38,746  |   |         |   | 19,422 |       |   |   | 180          |   |   |         | (199   | ) |   |   | 58,149 |   |
| Operating income (loss)                                                                                                                                                                                                        |   |   | 17,744  |   |         |   | 9,346  |       |   |   | (7           | )      |   |         | -      |   |   |   | 27,083 |   |
| Other income (expense)                                                                                                                                                                                                         |   |   | (10,749 | )      |         |   | 1,648  |       |   |   | 38           |   |   |         | -      |   |   |   | (9,063 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                   |   |   | (6,397  | )      |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | (6,397 | ) |
|                                                                                                                                                                                                                           |   |   |    |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net income (loss)                                                        |   | $      | 598     |   |         | $      | 10,994 |       |   | $      | 31           |   |   | $            | -      |   |   | $ | 11,623 |   |

| (Unaudited)                                                                                                                                                                                                                    |   |   |    |   |         |   |   | Non-       |   |   |         |   |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                 |   |   |    |   | Guarantor    |   |   | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                           |   | Issuer |    |   | Subsidiaries |   |   | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                        |   | $      | 151,479 |   |         | $      | 91,084 |       |   | $      | 526          |   |   | $            | (543   | ) |   | $ | 242,546 |   |
| Costs and expenses                                   |   |   | 126,865 |   |         |   | 61,909 |       |   |   | 506          |   |   |         | (543   | ) |   |   | 188,737 |   |
| Operating income (loss)                                                                                                                                                                                                        |   |   | 24,614  |   |         |   | 29,175 |       |   |   | 20           |   |   |         | -      |   |   |   | 53,809 |   |
| Other income (expense)                                                                                                                                                                                                         |   |   | 6,962   |   |         |   | 4,642  |       |   |   | 108          |   |   |         | -      |   |   |   | 11,712 |   |
| Income tax (expense) benefit                                                                                                                                                                                                   |   |   | (23,260 | )      |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | (23,260 | ) |
|                                                                                                                                                                                                                           |   |   |    |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net income (loss)                                                        |   | $      | 8,316   |   |         | $      | 33,817 |       |   | $      | 128          |   |   | $            | -      |   |   | $ | 42,261 |   |

| (Unaudited)                                                                                                                                                                                                                        |   |   |    |   |         |   |   | Non-       |   |   |         |   |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                     |   |   |    |   | Guarantor    |   |   | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                               |   | Issuer |    |   | Subsidiaries |   |   | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                            |   | $      | 38,094  |   |         | $      | 24,549 |       |   | $      | 173          |   |   | $            | (390   | ) |   | $ | 62,426 |   |
| Costs and expenses                                       |   |   | 61,527  |   |         |   | 20,676 |       |   |   | 184          |   |   |         | (390   | ) |   |   | 81,997 |   |
| Operating income (loss)                                                                                                                                                                                                            |   |   | (23,433 | )      |         |   | 3,873  |       |   |   | (11          | )      |   |         | -      |   |   |   | (19,571 | ) |
| Other income (expense)                                                                                                                                                                                                             |   |   | (2,618  | )      |         |   | 704    |       |   |   | 35           |   |   |         | -      |   |   |   | (1,879 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                       |   |   | 7,850   |   |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | 7,850 |   |
| Noncontrolling interest,                                                                                                                                                                                                           |   |   |    |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
|   net of tax                                   |   |   | -       |   |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | - |   |
|                                                                                                                                                                                                                               |   |   |    |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net income (loss)                                                            |   | $      | (18,201 | )      |         | $      | 4,577  |       |   | $      | 24           |   |   | $            | -      |   |   | $ | (13,600 | ) |

| (Unaudited)                                                                                                                                                                                                                        |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                     |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                               |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                            |   | $      | 105,727 |   |         | $      | 75,463  |       |   | $      | 440          |   |   | $            | (919   | ) |   | $ | 180,711 |   |
| Costs and expenses                                       |   |   | 171,970 |   |         |   | 93,514  |       |   |   | 799          |   |   |         | (919   | ) |   |   | 265,364 |   |
| Operating income (loss)                                                                                                                                                                                                            |   |   | (66,243 | )      |         |   | (18,051 | )          |   |   | (359         | )      |   |         | -      |   |   |   | (84,653 | ) |
| Other income (expense)                                                                                                                                                                                                             |   |   | (33,287 | )      |         |   | 2,592   |       |   |   | 109          |   |   |         | -      |   |   |   | (30,586 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                       |   |   | 42,171  |   |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | 42,171 |   |
| Noncontrolling interest,                                                                                                                                                                                                           |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
|   net of tax                                   |   |   | (1,455  | )      |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | (1,455 | ) |
|                                                                                                                                                                                                                               |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net income (loss)                                                            |   | $      | (58,814 | )      |         | $      | (15,459 | )          |   | $      | (250         | )      |   | $            | -      |   |   | $ | (74,523 | ) |

----

| (Unaudited)                                                                                                                                                                                                                |   |   |     |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                       |   | Issuer |     |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Operating activities                                  |   | $      | 82,871   |   |         | $      | 65,255  |       |   | $      | 340          |   |   | $            | 5,702  |   |   | $ | 154,168 |   |
| Investing activities                                  |   |   | (108,458 | )      |         |   | (21,962 | )          |   |   | (55          | )      |   |         | (5,702 | ) |   |   | (136,177 | ) |
| Financing activities                                  |   |   | 32,440   |   |         |   | (42,426 | )          |   |   | (14          | )      |   |         | -      |   |   |   | (10,000 | ) |
| Net increase (decrease) in                                                                                                                                                                                                 |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                  |   |   | 6,853    |   |         |   | 867     |       |   |   | 271          |   |   |         | -      |   |   |   | 7,991 |   |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at the beginning of                                                                                                                                                                                                   |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                 |   |   | 11,839   |   |         |   | 1,344   |       |   |   | 830          |   |   |         | -      |   |   |   | 14,013 |   |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at end of the period                                                                                                                                                                                                  |   | $      | 18,692   |   |         | $      | 2,211   |       |   | $      | 1,101        |   |   | $            | -      |   |   | $ | 22,004 |   |

| (Unaudited)                                                                                                                                                                                                                |   |   |     |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                       |   | Issuer |     |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Operating activities                                  |   | $      | 51,471   |   |         | $      | 14,569  |       |   | $      | 17           |   |   | $            | 2,150  |   |   | $ | 68,207 |   |
| Investing activities                                  |   |   | (145,698 | )      |         |   | 24,228  |       |   |   | (56          | )      |   |         | (2,150 | ) |   |   | (123,676 | ) |
| Financing activities                                  |   |   | 76,819   |   |         |   | (40,138 | )          |   |   | (4           | )      |   |         | -      |   |   |   | 36,677 |   |
| Net increase (decrease) in                                                                                                                                                                                                 |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                  |   |   | (17,408  | )      |         |   | (1,341  | )          |   |   | (43          | )      |   |         | -      |   |   |   | (18,792 | ) |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at the beginning of                                                                                                                                                                                                   |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                 |   |   | 35,381   |   |         |   | 5,054   |       |   |   | 764          |   |   |         | -      |   |   |   | 41,199 |   |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at end of the period                                                                                                                                                                                                  |   | $      | 17,973   |   |         | $      | 3,713   |       |   | $      | 721          |   |   | $            | -      |   |   | $ | 22,407 |   |

| 16. | Subsequent Events |
|-----|-------------------|

----

Item 

----

|   | • | domestic and worldwide economic conditions; |
|--------|---------|---------------------------------------------|

|   | • | the availability of capital on economic terms to fund our capital expenditures and acquisitions; |
|--------|---------|--------------------------------------------------------------------------------------------------|

|   | • | our level of indebtedness; |
|--------|---------|----------------------------|

|   | • | the impact of the current economic recession on our business operations, financial condition and ability to raise capital; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------|

|   | • | declines in the value of our oil and gas properties resulting in a decrease in our borrowing base under our credit facility and impairments; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the ability of financial counterparties to perform or fulfill their obligations under existing agreements; |
|--------|---------|------------------------------------------------------------------------------------------------------------|

|   | • | the uncertainty inherent in estimating proved oil and gas reserves and in projecting future rates of production and timing of development expenditures; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | drilling and other operating risks; |
|--------|---------|-------------------------------------|

|   | • | hurricanes and other weather conditions; |
|--------|---------|------------------------------------------|

|   | • | lack of availability of goods and services; |
|--------|---------|---------------------------------------------|

|   | • | regulatory and environmental risks associated with drilling and production activities; |
|--------|---------|----------------------------------------------------------------------------------------|

|   | • | the adverse effects of changes in applicable tax, environmental and other regulatory legislation; and |
|--------|---------|-------------------------------------------------------------------------------------------------------|

|   | • | the other risks described in our Form 10-K for the year ended December 31, 2009 and in this Form 10-Q. |
|--------|---------|--------------------------------------------------------------------------------------------------------|

----

| •   | Entered into agreements with selected service providers to fix unit costs covering approximately 90% of the drilling and completion services provided by third parties through the second quarter of 2011; |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Improved drilling efficiencies by acquiring the noncontrolling interest in Desta Drilling, giving us full control over the management and operation of drilling services; |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Purchased casing and tubing for more than 175 wells at discounts to then-current market prices; and |
|---------------------|-----------------------------------------------------------------------------------------------------|

| •   | Entered into derivative contracts for a significant portion of our estimated proved developed oil production for 2010 and 2011 at average prices of $76.24 and $83.75 per barrel, respectively. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Our oil and gas sales for the third quarter increased $22.5 million, or 38%, from 2009 due to a $12.3 million increase due to higher production and a $10.2 million increase derived from higher oil and gas prices. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Our combined oil and gas production for the third quarter of 2010 was 4% higher on a barrel of oil equivalent (“BOE”) basis than in the comparable period in 2009.  Our oil production increased 38% compared to the third quarter of 2009 while gas production declined 35%.  On a comparable basis, after giving effect to the sale of properties in North Louisiana in June 2010, oil and gas production in 2010 (on a BOE basis) was 19% higher than 2009. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | We recorded a $4 million net loss on derivatives in the third quarter of 2010, consisting of an $8 million non-cash loss for changes in mark-to-market valuations and a $4 million realized gain on settled contracts.  For the same period in 2009, we reported a $4.7 million net gain on derivatives in the third quarter of 2009, consisting of a $10.6 million non-cash gain for changes in mark-to-market valuations and a $5.9 million realized loss on settled contracts.  Since we do not presently designate our derivatives as cash flow hedges under applicable accounting standards, we recognize the full effect of changing prices on mark-to-market valuations as a current charge or credit to our results of operations. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | We recorded a net gain of $2.8 million on sales of assets and impairment of inventory related primarily to the sale of our interest in a non-operated well and related leasehold interests in North Louisiana. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| •   | During the third quarter of 2010, we increased borrowings under our revolving credit facility by $29 million from $131 million at June 30, 2010 to $160 million at September 30, 2010 to fund our on-going developmental drilling program. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Three Months Ended |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | September 30,      |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010               |   |   | 2009 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |
| Oil (MBbls)                                                                                                        |   |               | 915    |   |   |   | 662 |   |
| Gas (MMcf)                                                                                                         |   |               | 2,530  |   |   |   | 3,900 |   |
| Natural gas liquids (MBbls)                                                                                        |   |               | 90     |   |   |   | 63 |   |
| Total (MBOE)                                                                                                       |   |               | 1,427  |   |   |   | 1,375 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Average Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |
| Oil ($/Bbl)                                                                                                        |   | $                  | 73.18  |   |   | $ | 64.60 |   |
| Gas ($/Mcf)                                                                                                        |   | $                  | 4.56   |   |   | $ | 3.79 |   |
| Natural gas liquids ($/Bbl)                                                                                        |   | $                  | 36.88  |   |   | $ | 31.89 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Gain (Loss) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |   |   |   |   |   |   |
| ($ in thousands, except per unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |
| Oil:    Net realized loss                                                                                                         |   | $                  | (227   | ) |   | $ | (8,861 | ) |
| Per unit produced ($/Bbl)                                                                                                                             |   | $                  | (.25   | ) |   | $ | (13.39 | ) |
| Gas:   Net realized gain                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                  | 4,230  |   |   | $ | 2,992 |   |
| Per unit produced ($/Mcf)                                                                                                                             |   | $                  | 1.67   |   |   | $ | .77 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Average Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |   |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                         |   |               | 6,092  |   |   |   | 3,526 |   |
| Austin Chalk (Trend)                                                                                                                                  |   |               | 3,044  |   |   |   | 2,585 |   |
| North Louisiana                                                                                                                                       |   |               | -      |   |   |   | 230 |   |
| South Louisiana                                                                                                                                       |   |               | 727    |   |   |   | 773 |   |
| Other                                                                                                                                                 |   |               | 83     |   |   |   | 82 |   |
| Total                                                                                                                                                                               |   |               | 9,946  |   |   |   | 7,196 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Gas (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                         |   |               | 13,931 |   |   |   | 14,374 |   |
| Austin Chalk (Trend)                                                                                                                                  |   |               | 2,325  |   |   |   | 2,306 |   |
| North Louisiana                                                                                                                                       |   |               | -      |   |   |   | 10,076 |   |
| South Louisiana                                                                                                                                       |   |               | 5,650  |   |   |   | 10,755 |   |
| Cotton Valley Reef Complex                                                                                                                            |   |               | 3,708  |   |   |   | 3,916 |   |
| Other                                                                                                                                                 |   |               | 1,886  |   |   |   | 964 |   |
| Total                                                                                                                                                                               |   |               | 27,500 |   |   |   | 42,391 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Natural Gas Liquids (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                         |   |               | 535    |   |   |   | 246 |   |
| Austin Chalk (Trend)                                                                                                                                  |   |               | 258    |   |   |   | 288 |   |
| North Louisiana                                                                                                                                       |   |               | -      |   |   |   | 26 |   |
| South Louisiana                                                                                                                                       |   |               | 119    |   |   |   | 116 |   |
| Other                                                                                                                                                 |   |               | 66     |   |   |   | 9 |   |
| Total                                                                                                                                                                               |   |               | 978    |   |   |   | 685 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Three Months Ended |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | September 30,      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010               |   |   | 2009 |
| Exploration Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |   |
| Abandonment and impairment costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |   |
| North Louisiana                                                                                                                                                          |   | $                  | - |   |   | $ | 3,172 |   |
| South Louisiana                                                                                                                                                          |   |               | 85 |   |   |   | 18,955 |   |
| Permian Basin                                                                                                                                                            |   |               | 5 |   |   |   | 4 |   |
| East Texas Bossier                                                                                                                                                       |   |               | 274 |   |   |   | 958 |   |
| Utah                                                                                                                                                                     |   |               | - |   |   |   | 750 |   |
| Other                                                                                                                                                                    |   |               | - |   |   |   | 310 |   |
| Total                                                                                                                                                                                                  |   |               | 364 |   |   |   | 24,149 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |   |
| Seismic and other                                                                                                                     |   |               | 1,361 |   |   |   | 898 |   |
| Total exploration costs                                                                                                                                                                                |   | $                  | 1,725 |   |   | $ | 25,047 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |   |
| Depreciation, Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |   |   |   |   |   |   |   |
| Oil and gas depletion                                                                                                                 |   | $                  | 24,647 |   |   | $ | 29,481 |   |   |
| Contract drilling depreciation                                                                                                        |   |               | 393 |   |   |   | 392 |   |   |
| Other depreciation                                                                                                                    |   |               | 183 |   |   |   | 180 |   |   |
| Total DD&A                                                                                                                                                                                         |   | $                  | 25,223 |   |   | $ | 30,053 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |   |
| Oil and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |   |
| Production costs                                                                                                                      |   | $                  | 14.38 |   |   | $ | 14.01 |   |   |
| Production costs (excluding production taxes)                                                                                         |   | $                  | 11.29 |   |   | $ | 11.46 |   |   |
| Oil and gas depletion                                                                                                                 |   | $                  | 17.27 |   |   | $ | 21.44 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |   |
| Net Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |               |   |   |   |   |   |   |   |
| Exploratory Wells                                                                                                                     |   |               | - |   |   |   | 1.1 |   |   |
| Developmental Wells                                                                                                                   |   |               | 24.0 |   |   |   | 16.6 |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Nine Months Ended |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | September 30,     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010              |   |   | 2009 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |
| Oil (MBbls)                                                                                                        |   |              | 2,475  |   |   |   | 2,129 |   |
| Gas (MMcf)                                                                                                         |   |              | 8,665  |   |   |   | 12,369 |   |
| Natural gas liquids (MBbls)                                                                                        |   |              | 207    |   |   |   | 175 |   |
| Total (MBOE)                                                                                                       |   |              | 4,126  |   |   |   | 4,366 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |              |   |   |   |   |   |   |
| Average Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |   |   |
| Oil ($/Bbl)                                                                                                        |   | $                 | 74.39  |   |   | $ | 52.10 |   |
| Gas ($/Mcf)                                                                                                        |   | $                 | 5.21   |   |   | $ | 4.11 |   |
| Natural gas liquids ($/Bbl)                                                                                        |   | $                 | 40.38  |   |   | $ | 26.70 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |              |   |   |   |   |   |   |
| Gain (Loss) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |              |   |   |   |   |   |   |
| ($ in thousands, except per unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |              |   |   |   |   |   |   |
| Oil:      Net realized loss                                                                                             |   | $                 | (3,098 | ) |   | $ | (13,701 | ) |
|   Per unit produced ($/Bbl)                                                                                                                      |   | $                 | (1.25  | ) |   | $ | (6.44 | ) |
| Gas:    Net realized gain                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                 | 12,514 |   |   | $ | 7,478 |   |
|   Per unit produced ($/Mcf)                                                                                                                      |   | $                 | 1.44   |   |   | $ | .60 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Nine Months Ended |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | September 30,     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010              |   |   | 2009 |
| Average Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |              |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |              |   |   |   |
| Permian Basin                                                                                                                                                                 |   |              | 5,469 |   |   |   | 4,010 |   |
| Austin Chalk (Trend)                                                                                                                                                          |   |              | 2,827 |   |   |   | 2,821 |   |
| North Louisiana                                                                                                                                                               |   |              | 94 |   |   |   | 257 |   |
| South Louisiana                                                                                                                                                               |   |              | 596 |   |   |   | 624 |   |
| Other                                                                                                                                                                         |   |              | 80 |   |   |   | 87 |   |
| Total                                                                                                                                                                                                       |   |              | 9,066 |   |   |   | 7,799 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |   |   |   |
| Gas (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |              |   |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                                 |   |              | 13,702 |   |   |   | 15,157 |   |
| Austin Chalk (Trend)                                                                                                                                                          |   |              | 2,222 |   |   |   | 2,580 |   |
| North Louisiana                                                                                                                                                               |   |              | 4,790 |   |   |   | 12,007 |   |
| South Louisiana                                                                                                                                                               |   |              | 6,024 |   |   |   | 10,342 |   |
| Cotton Valley Reef Complex                                                                                                                                                    |   |              | 3,770 |   |   |   | 3,989 |   |
| Other                                                                                                                                                                         |   |              | 1,232 |   |   |   | 1,233 |   |
| Total                                                                                                                                                                                                       |   |              | 31,740 |   |   |   | 45,308 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |   |   |   |
| Natural Gas Liquids (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |              |   |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                                 |   |              | 388 |   |   |   | 241 |   |
| Austin Chalk (Trend)                                                                                                                                                          |   |              | 238 |   |   |   | 296 |   |
| North Louisiana                                                                                                                                                               |   |              | 10 |   |   |   | 21 |   |
| South Louisiana                                                                                                                                                               |   |              | 95 |   |   |   | 73 |   |
| Other                                                                                                                                                                         |   |              | 27 |   |   |   | 10 |   |
| Total                                                                                                                                                                                                       |   |              | 758 |   |   |   | 641 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |   |   |   |
| Exploration Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |              |   |   |   |   |   |   |   |
| Abandonment and impairment costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |              |   |   |   |   |   |   |   |
| North Louisiana                                                                                                                                                          |   | $                 | 1,748 |   |   | $ | 4,280 |   |
| South Louisiana                                                                                                                                                          |   |              | 1,233 |   |   |   | 19,768 |   |
| Permian Basin                                                                                                                                                            |   |              | 18 |   |   |   | 768 |   |
| East Texas Bossier                                                                                                                                                       |   |              | 2,522 |   |   |   | 11,742 |   |
| Utah                                                                                                                                                                     |   |              | 64 |   |   |   | 3,082 |   |
| Mississippi                                                                                                                                                              |   |              | 327 |   |   |   | 311 |   |
| Other                                                                                                                                                                    |   |              | 221 |   |   |   | 1,115 |   |
| Total                                                                                                                                                                                                  |   |              | 6,133 |   |   |   | 41,066 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |   |   |   |
| Seismic and other                                                                                                                     |   |              | 3,995 |   |   |   | 6,556 |   |
| Total exploration costs                                                                                                                                                                                |   | $                 | 10,128 |   |   | $ | 47,622 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |   |   |   |
| Depreciation, Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |              |   |   |   |   |   |   |   |
| Oil and gas depletion                                                                                                                 |   | $                 | 74,048 |   |   | $ | 89,914 |   |   |
| Contract drilling depreciation                                                                                                        |   |              | 1,700 |   |   |   | 2,171 |   |   |
| Other depreciation                                                                                                                    |   |              | 524 |   |   |   | 619 |   |   |
| Total DD&A                                                                                                                                                                                         |   | $                 | 76,272 |   |   | $ | 92,704 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |   |   |   |
| Oil and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |   |   |   |   |   |   |   |
| Production costs                                                                                                                      |   | $                 | 15.03 |   |   | $ | 12.97 |   |   |
| Production costs (excluding production taxes)                                                                                         |   | $                 | 11.90 |   |   | $ | 10.76 |   |   |
| Oil and gas depletion                                                                                                                 |   | $                 | 17.95 |   |   | $ | 20.59 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |              |   |   |   |   |   |   |   |
| Net Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |              |   |   |   |   |   |   |   |
| Exploratory Wells                                                                                                                     |   |              | 2.2 |   |   |   | 2.5 |   |   |
| Developmental Wells                                                                                                                   |   |              | 76.6 |   |   |   | 28.5 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |              |   |   |   |   |   |   |   |
| (a)   No derivatives were designated as cash flow hedges in 2010 or 2009. All gains or losses on settled derivatives were included in other income (expense) - gain (loss) on derivatives.                                                                                                                                                                                                                                                                                                                                                                                |   |              |
| (b)   Excludes wells being drilled or completed at the end of each period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |              |

----

----

----

----

----

|                                                                                                                                                                                                                                                                                                            |   | Actual             |    |   | Planned           |   |    |       |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|---------|------------|--------|
|                                                                                                                                                                                                                                                                                                            |   | Expenditures       |    |   | Expenditures      |   |    | 2010       |   |
|                                                                                                                                                                                                                                                                                                            |   | Nine Months Ended  |    |   | Year Ended        |   |    | Percentage |   |
|                                                                                                                                                                                                                                                                                                            |   | September 30, 2010 |    |   | December 31, 2010 |   |    | of Total   |   |
|                                                                                                                                                                                                                                                                                                            |   | (In thousands)     |    |   |              |   |
| Permian Basin                                                   |   | $                  | 143,400 |   |              | $      | 213,100 |       |   |   | 70 | % |
| Austin Chalk (Trend)/ Eagle Ford Shale                                                                                                                                                                                                                                                                          |   |               | 53,300  |   |              |   | 77,100  |       |   |   | 25 | % |
| South Louisiana                                                 |   |               | 6,400   |   |              |   | 7,000   |       |   |   | 3 | % |
| Other                                                           |   |               | 5,900   |   |              |   | 6,900   |       |   |   | 2 | % |
|                                                                                                                                                                                                                                                                                                            |   | $                  | 209,000 |   |              | $      | 304,100 |       |   |   | 100 | % |

----

----

|                                                                                  |   | September 30,  |    |   | December 31, |   |
|---------------------------------------------------------------------------------------|--------|----------------|---------|--------|--------------|--------|
|                                                                                  |   | 2010           |    |   | 2009         |   |
|                                                                                  |   | (In thousands) |    |
| Working capital per GAAP                                                              |   | $              | 36,365  |   |         | $      | 19,324 |   |
| Add funds available under the revolving credit facility                               |   |           | 139,975 |   |         |   | 79,196 |   |
| Exclude fair value of derivatives classified as current assets or current liabilities |   |           | (14,239 | )      |         |   | 5,907 |   |
| Working capital per loan covenant                                                     |   | $              | 162,101 |   |         | $      | 104,427 |   |
|                                                                                  |   |           |    |   |         |   |   |   |

----

Item 

----

|                                                                                                                                                                   |   | Oil    |      |   | Gas    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                                                                                                                   |   | Bbls   |      |   | Price  |   |   | MMBtu (a) |   |   | Price |   |
| Production Period:                                                                                                                                                     |   |   |      |   |   |   |   |   |   |   |   |   |
| 4th Quarter 2010                                                                                                                                                  |   |   | 480,000   |   |   | $      | 76.24 |   |   |   | 1,680,000 |   |   | $ | 6.80 |   |
| 2011                            |   |   | 2,376,000 |   |   | $      | 83.75 |   |   |   | 6,420,000 |   |   | $ | 7.07 |   |
| 2012                            |   |   | 570,000   |   |   | $      | 87.60 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                                                   |   |   | 3,426,000 |   |   |   |   |   |   |   | 8,100,000 |   |   |   |   |   |
|                                                                                                                                          |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)   One MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                                |   |

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Item 

| •   | Management has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report; |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| •   | This evaluation was conducted under the supervision and with the participation of our management, including our chief executive and chief financial officers; and |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | It is the conclusion of our chief executive officer and our chief financial officer that these disclosure controls and procedures are effective in ensuring that information that is required to be disclosed by the Company in reports filed or submitted with the SEC is recorded, processed, summarized and reported within the time periods specified in the rules and forms established by the SEC. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Item 

Item 

| **3.1   |   | Second Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to our Form S-2 Registration Statement, Commission File No. 333-13441                                                                                                                          |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                             |
| **3.2   |   | Certificate of Amendment of Second Restated Certificate of Incorporation of Clayton Williams Energy, Inc., filed as Exhibit 3.1 to our Form 10-Q for the period ended September 30, 2000††                                                                           |
|    |   |                                                                                                                                                                                                                                                                             |
| **3.3   |   | Corporate Bylaws of Clayton Williams Energy, Inc., as amended, filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the Commission on March 14, 2008††                                                                                        |
|    |   |                                                                                                                                                                                                                                                                             |
| **4.1   |   | Indenture, dated July 20, 2005, among Clayton Williams Energy, Inc., the Subsidiary Guarantors and Wells Fargo Bank, National Association, as Trustee, filed as Exhibit 4.1 to our Current Report on Form 8-K filed with the Commission on July 22, 2005†† |
|    |   |                                                                                                                                                                                                                                                                             |
| **10.1  |   | CWEI Andrews Fee Reward Plan dated October 19, 2010, filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                             |
| **10.2  |   | CWEI Andrews Samson Reward Plan dated October 19, 2010, filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                             |
| **10.3  |   | CWEI Austin Chalk Reward Plan dated October 19, 2010, filed as Exhibit 10.3 to our Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                             |
| *31.1   |   | Certification by the President and Chief Executive Officer of the Company pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934                                                                                                                          |
|    |   |                                                                                                                                                                                                                                                                             |
| *31.2   |   | Certification by the Chief Financial Officer of the Company pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                             |
| ***32.1 |   | Certifications by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C. § 1350                                                                                                                                        |

|   | * | Filed herewith |
|--------|---|----------------|

|   | ** | Incorporated by reference to the filing indicated |
|--------|----|---------------------------------------------------|

|   | *** | Furnished herewith |
|--------|-----|--------------------|

|   | † | Identifies an Exhibit that consists of or includes a management contract or compensatory plan or arrangement |
|--------|---------|--------------------------------------------------------------------------------------------------------------|

|   | †† | Filed under our Commission File No. 001-10924 |
|--------|----------------|----------------------------------------------------|

----

CLAYTON 

|   |   | CLAYTON WILLIAMS ENERGY, INC. |
|--------|--------|-------------------------------|

| Date:  | November 5, 2010 | By:    | /s/ L. Paul Latham                 |
|--------|------------------|--------|------------------------------------|
|   |             |   | L. Paul Latham                     |
|   |             |   | Executive Vice President and Chief |
|   |             |   |   Operating Officer      |

| Date:  | November 5, 2010 | By:    | /s/ Mel G. Riggs                          |
|--------|------------------|--------|-------------------------------------------|
|   |             |   | Mel G. Riggs                              |
|   |             |   | Senior Vice President and Chief Financial |
|   |             |   |   Officer                       |

----

| Exhibits No. |   | Description                                                                                                                                                                                                                                                                      |
|--------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **3.1        |   | Second Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to our Form S-2 Registration Statement, Commission File No. 333-13441                                                                                                                          |
|         |   |                                                                                                                                                                                                                                                                             |
| **3.2        |   | Certificate of Amendment of Second Restated Certificate of Incorporation of Clayton Williams Energy, Inc., filed as Exhibit 3.1 to our Form 10-Q for the period ended September 30, 2000††                                                                           |
|         |   |                                                                                                                                                                                                                                                                             |
| **3.3        |   | Corporate Bylaws of Clayton Williams Energy, Inc., as amended, filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the Commission on March 14, 2008††                                                                                        |
|         |   |                                                                                                                                                                                                                                                                             |
| **4.1        |   | Indenture, dated July 20, 2005, among Clayton Williams Energy, Inc., the Subsidiary Guarantors and Wells Fargo Bank, National Association, as Trustee, filed as Exhibit 4.1 to our Current Report on Form 8-K filed with the Commission on July 22, 2005†† |
|         |   |                                                                                                                                                                                                                                                                             |
| **10.1       |   | CWEI Andrews Fee Reward Plan dated October 19, 2010, filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                                                                         |
|         |   |                                                                                                                                                                                                                                                                             |
| **10.2       |   | CWEI Andrews Samson Reward Plan dated October 19, 2010, filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                                                                      |
|         |   |                                                                                                                                                                                                                                                                             |
| **10.3       |   | CWEI Austin Chalk Reward Plan dated October 19, 2010, filed as Exhibit 10.3 to our Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                                                                        |
|         |   |                                                                                                                                                                                                                                                                             |
| *31.1        |   | Certification by the President and Chief Executive Officer of the Company pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934                                                                                                                          |
|         |   |                                                                                                                                                                                                                                                                             |
| *31.2        |   | Certification by the Chief Financial Officer of the Company pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934                                                                                                                                        |
|         |   |                                                                                                                                                                                                                                                                             |
| ***32.1      |   | Certifications by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C. § 1350                                                                                                                                        |

|   | * | Filed herewith |
|--------|---|----------------|

|   | ** | Incorporated by reference to the filing indicated |
|--------|----|---------------------------------------------------|

|   | *** | Furnished herewith |
|--------|-----|--------------------|

|   | † | Identifies an Exhibit that consists of or includes a management contract or compensatory plan or arrangement |
|--------|---------|--------------------------------------------------------------------------------------------------------------|

|   | †† | Filed under our Commission File No. 001-10924 |
|--------|----------------|----------------------------------------------------|

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