----

| (Mark One) |                                             |   |
|------------|--------------------------------------------------|--------|
| x          | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) |   |
|       | OF THE SECURITIES EXCHANGE ACT OF 1934           |   |
|       | For the quarterly period ended June 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 12,145,536 shares of Common Stock, $.10 par value, of the registrant outstanding as of August 9, 2010. |
|------------------------------------------------------------------------------------------------------------------------|

----

| PART I.  FINANCIAL INFORMATION |
|------------------------------------------|
|                                     |   | Page |
|                                     |   |   |   |
| Item 1.                                  | Financial Statements |   |   |
|                                     |   |   |   |
|                                     | Consolidated Balance Sheets as of June 30, 2010 |   |   |
|                                     | and December 31, 2009                                                                                                 | 3 |
|                                     |   |   |   |
|                                     | Consolidated Statements of Operations for the three months and six months |   |   |
|                                     | ended June 30, 2010 and 2009                                                                                                 | 5 |
|                                     |   |   |   |
|                                     | Consolidated Statement of Stockholders’ Equity for the six months |   |   |
|                                     | ended June 30, 2010                                                                                                 | 6 |
|                                     |   |   |   |
|                                     | Consolidated Statements of Cash Flows for the six months |   |   |
|                                     | ended June 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 | 42 |
|                                     |   |   |   |
|                                     | Signatures | 43 |

----

FINANCIAL 

WILLIAMS 

| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | June 30, |   |   | December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Unaudited) |   |   |   |   |
| CURRENT ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                              |   | $ | 10,375 |   |   | $ | 14,013 |   |
| Accounts receivable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Oil and gas sales                                                                                                                                               |   |   | 25,861 |   |   |   | 28,721 |   |
| Joint interest and other, net                                                                                                                                   |   |   | 4,281 |   |   |   | 6,669 |   |
| Affiliates                                                                                                                                                      |   |   | 638 |   |   |   | 624 |   |
| Inventory                                                                                                                              |   |   | 40,488 |   |   |   | 43,068 |   |
| Deferred income taxes                                                                                                                  |   |   | 817 |   |   |   | 1,362 |   |
| Fair value of derivatives                                                                                                              |   |   | 16,264 |   |   |   | - |   |
| Assets held for sale                                                                                                                   |   |   | 7,411 |   |   |   | 7,411 |   |
| Prepaids and other                                                                                                                     |   |   | 4,555 |   |   |   | 1,729 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 110,690 |   |   |   | 103,597 |   |
| PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
| Oil and gas properties, successful efforts method                                                                                      |   |   | 1,565,365 |   |   |   | 1,579,664 |   |
| Natural gas gathering and processing systems                                                                                           |   |   | 18,399 |   |   |   | 17,816 |   |
| Contract drilling equipment                                                                                                            |   |   | 48,348 |   |   |   | 41,533 |   |
| Other                                                                                                                                  |   |   | 17,761 |   |   |   | 16,550 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 1,649,873 |   |   |   | 1,655,563 |   |
| Less accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | (979,985 | ) |   |   | (985,517 | ) |
| Property and equipment, net                                                                                                                                     |   |   | 669,888 |   |   |   | 670,046 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| OTHER ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |
| Debt issue costs, net                                                                                                                  |   |   | 4,592 |   |   |   | 4,874 |   |
| Fair value of derivatives                                                                                                              |   |   | 8,128 |   |   |   | 4,427 |   |
| Other                                                                                                                                  |   |   | 1,768 |   |   |   | 1,660 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 14,488 |   |   |   | 10,961 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $ | 795,066 |   |   | $ | 784,604 |   |

----

| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | June 30, |   |   | December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (Unaudited) |   |   |   |   |
| CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
| Accounts payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |
| Trade                                                                                                                                       |   | $ | 53,415 |   |   | $ | 47,211 |   |
| Oil and gas sales                                                                                                                           |   |   | 15,746 |   |   |   | 18,063 |   |
| Affiliates                                                                                                                                  |   |   | 1,055 |   |   |   | 1,097 |   |
| Fair value of derivatives                                                                                          |   |   | - |   |   |   | 5,907 |   |
| Accrued liabilities and other                                                                                      |   |   | 15,629 |   |   |   | 11,995 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 85,845 |   |   |   | 84,273 |   |
| NON-CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
| Long-term debt                                                                                                     |   |   | 356,000 |   |   |   | 395,000 |   |
| Deferred income taxes                                                                                              |   |   | 70,306 |   |   |   | 54,065 |   |
| Other                                                                                                              |   |   | 40,002 |   |   |   | 38,991 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 466,308 |   |   |   | 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                                                                                                  |   |   | 89,647 |   |   |   | 59,009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 242,913 |   |   |   | 212,275 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $ | 795,066 |   |   | $ | 784,604 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                |   | Three Months Ended |   |   | Six Months Ended |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                |   | June 30,           |   |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                |   | 2010               |   |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| REVENUES                                                                                                                                                                                                                                                                                                                                                                                            |   |               |   |   |             |   |   |   |   |   |   |   |
| Oil and gas sales                                                                                                     |   | $                  | 76,918 |   |             | $      | 57,206 |   |   | $ | 155,960 |   |   | $ | 108,002 |   |
| Natural gas services                                                                                                  |   |               | 452    |   |             |   | 1,355 |   |   |   | 955 |   |   |   | 2,939 |   |
| Drilling rig services                                                                                                 |   |               | -      |   |             |   | 1,462 |   |   |   | - |   |   |   | 6,681 |   |
| Gain on sales of assets                                                                                               |   |               | 113    |   |             |   | 480 |   |   |   | 399 |   |   |   | 663 |   |
| Total revenues                                                                                                                                      |   |               | 77,483 |   |             |   | 60,503 |   |   |   | 157,314 |   |   |   | 118,285 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| COSTS AND EXPENSES                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Production                                                                                                            |   |               | 20,567 |   |             |   | 18,296 |   |   |   | 41,494 |   |   |   | 37,359 |   |
| Exploration:                                                                                                                                                                                                                                                                                                                                                                                        |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Abandonments and impairments                                                                                                                                                                                                                                                                                                                                                                        |   |               | 2,891  |   |             |   | 4,505 |   |   |   | 5,769 |   |   |   | 16,917 |   |
| Seismic and other                                                                                                                                   |   |               | 974    |   |             |   | 1,388 |   |   |   | 2,634 |   |   |   | 5,658 |   |
| Natural gas services                                                                                                  |   |               | 306    |   |             |   | 1,211 |   |   |   | 654 |   |   |   | 2,622 |   |
| Drilling rig services                                                                                                 |   |               | 419    |   |             |   | 2,911 |   |   |   | 1,081 |   |   |   | 9,997 |   |
| Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                            |   |               | 25,437 |   |             |   | 26,186 |   |   |   | 51,049 |   |   |   | 62,651 |   |
| Impairment of property and equipment                                                                                                                                                                                                                                                                                                                                                                |   |               | 11,114 |   |             |   | 32,068 |   |   |   | 11,114 |   |   |   | 32,068 |   |
| Accretion of abandonment obligations                                                                                                                                                                                                                                                                                                                                                                |   |               | 647    |   |             |   | 748 |   |   |   | 1,294 |   |   |   | 1,466 |   |
| General and administrative                                                                                            |   |               | 7,832  |   |             |   | 6,256 |   |   |   | 14,056 |   |   |   | 10,784 |   |
| Loss on sales of assets and impairment                                                                                                                                                                                                                                                                                                                                                              |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| of inventory                                                                                                                         |   |               | 1,443  |   |             |   | 396 |   |   |   | 1,443 |   |   |   | 3,845 |   |
| Total costs and expenses                                                                                                                            |   |               | 71,630 |   |             |   | 93,965 |   |   |   | 130,588 |   |   |   | 183,367 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)                                                                                                                             |   |               | 5,853  |   |             |   | (33,462 | ) |   |   | 26,726 |   |   |   | (65,082 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                                                                                                                                              |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                      |   |               | (6,244 | )      |             |   | (5,736 | ) |   |   | (12,353 | ) |   |   | (11,174 | ) |
| Gain (loss) on derivatives                                                                                            |   |               | 20,983 |   |             |   | (21,770 | ) |   |   | 31,284 |   |   |   | (19,260 | ) |
| Other                                                                                                                 |   |               | 1,016  |   |             |   | 826 |   |   |   | 1,844 |   |   |   | 1,727 |   |
| Total other income (expense)                                                                                                                        |   |               | 15,755 |   |             |   | (26,680 | ) |   |   | 20,775 |   |   |   | (28,707 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before income taxes                                                            |   |               | 21,608 |   |             |   | (60,142 | ) |   |   | 47,501 |   |   |   | (93,789 | ) |
| Income tax (expense) benefit                                                                 |   |               | (7,645 | )      |             |   | 21,943 |   |   |   | (16,863 | ) |   |   | 34,321 |   |
| NET INCOME (LOSS)                                                                            |   |               | 13,963 |   |             |   | (38,199 | ) |   |   | 30,638 |   |   |   | (59,468 | ) |
| Less income attributable to                                                                                                                                                                                                                                                                                                                                                                         |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| noncontrolling interest, net of tax                                                                                                                                                                                                                                                                                                                                                                 |   |               | -      |   |             |   | (409 | ) |   |   | - |   |   |   | (1,455 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| NET INCOME (LOSS) attributable to Clayton                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Williams Energy, Inc.                                                                                                 |   | $                  | 13,963 |   |             | $      | (38,608 | ) |   | $ | 30,638 |   |   | $ | (60,923 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per common share attributable to                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
|   Clayton Williams Energy, Inc. stockholders:                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                 |   | $                  | 1.15   |   |             | $      | (3.18 | ) |   | $ | 2.52 |   |   | $ | (5.02 | ) |
| Diluted                                                                                                               |   | $                  | 1.15   |   |             | $      | (3.18 | ) |   | $ | 2.52 |   |   | $ | (5.02 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding:                                                                                                                                                                                                                                                                                                                                                         |   |               |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                 |   |               | 12,146 |   |             |   | 12,142 |   |   |   | 12,146 |   |   |   | 12,132 |   |
| Diluted                                                                                                               |   |               | 12,146 |   |             |   | 12,142 |   |   |   | 12,146 |   |   |   | 12,132 |   |

----

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        |   |         | -      |   |       |   | -      |    |   |   | - |   |   |   | 30,638 |   |
| BALANCE,          |   |         |   |   |       |   |   |    |   |   |   |   |   |   |   |   |
| June 30, 2010     |   |         | 12,146 |   |       | $      | 1,215  |    |   | $ | 152,051 |   |   | $ | 89,647 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Six Months Ended |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | June 30,         |     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2010             |     |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |
| Net income (loss)                                                                                                                         |   | $                | 30,638   |   |   | $ | (59,468 | ) |
| Adjustments to reconcile net income (loss) to cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |             |     |   |   |   |   |   |
| provided by operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |             |     |   |   |   |   |   |
| Depreciation, depletion and amortization                                                                                                                                |   |             | 51,049   |   |   |   | 62,651 |   |
| Impairment of property and equipment                                                                                                                                    |   |             | 11,114   |   |   |   | 32,068 |   |
| Exploration costs                                                                                                                                                       |   |             | 5,769    |   |   |   | 16,917 |   |
| Loss on sales of assets and impairment of inventory, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             | 1,044    |   |   |   | 3,182 |   |
| Deferred income tax expense (benefit)                                                                                                                                   |   |             | 16,863   |   |   |   | (34,321 | ) |
| Non-cash employee compensation                                                                                                                                          |   |             | 5,079    |   |   |   | 627 |   |
| Unrealized (gain) loss on derivatives                                                                                                                                   |   |             | (25,871  | ) |   |   | 18,907 |   |
| Amortization of debt issue costs                                                                                                                                        |   |             | 774      |   |   |   | 624 |   |
| Accretion of abandonment obligations                                                                                                                                    |   |             | 1,294    |   |   |   | 1,466 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |   |   |
| Changes in operating working capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |             |     |   |   |   |   |   |
| Accounts receivable                                                                                                                                                     |   |             | 5,234    |   |   |   | 10,579 |   |
| Accounts payable                                                                                                                                                        |   |             | (3,403   | ) |   |   | (16,626 | ) |
| Other                                                                                                                                                                   |   |             | (2,907   | ) |   |   | 3,264 |   |
| Net cash provided by operating activities                                                                                                                                                             |   |             | 96,677   |   |   |   | 39,870 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |   |   |
| Additions to property and equipment                                                                                                       |   |             | (135,528 | ) |   |   | (69,082 | ) |
| Proceeds from sales of assets                                                                                                             |   |             | 73,011   |   |   |   | 670 |   |
| Change in equipment inventory                                                                                                             |   |             | 1,300    |   |   |   | (12,594 | ) |
| Other                                                                                                                                     |   |             | (98      | ) |   |   | (97 | ) |
| Net cash used in investing activities                                                                                                                                                                 |   |             | (61,315  | ) |   |   | (81,103 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |   |   |
| Proceeds from long-term debt                                                                                                              |   |             | -        |   |   |   | 25,200 |   |
| Repayments of long-term debt                                                                                                              |   |             | (39,000  | ) |   |   | (9,375 | ) |
| Proceeds from exercise of stock options                                                                                                   |   |             | -        |   |   |   | 152 |   |
| Net cash provided by (used in) financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             | (39,000  | ) |   |   | 15,977 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |   |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             | (3,638   | ) |   |   | (25,256 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             |     |   |   |   |   |   |
| Beginning of period                                                                                                                       |   |             | 14,013   |   |   |   | 41,199 |   |
| End of period                                                                                                                             |   | $                | 10,375   |   |   | $ | 15,943 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |     |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |     |   |   |   |   |   |
| Cash paid for interest, net of amounts capitalized                                                                                        |   | $                | 11,735   |   |   | $ | 11,354 |   |

----

WILLIAMS 

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

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

----

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | June 30,       |    |   | December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2010           |    |   | 2009         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (In thousands) |    |
| 73⁄4% Senior Notes due 2013                                                                                   |   | $              | 225,000 |   |         | $      | 225,000 |   |
| Secured bank credit facility, due May 2012                                                                       |   |           | 131,000 |   |         |   | 170,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $              | 356,000 |   |         | $      | 395,000 |   |

----

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | June 30,       |   |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2010           |   |   | 2009         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (In thousands) |   |
| Abandonment obligations                                                                                    |   | $              | 39,266 |   |         | $      | 38,412 |   |
| Other                                                                                                      |   |           | 736    |   |         |   | 579 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $              | 40,002 |   |         | $      | 38,991 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Six Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010             |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (In thousands)   |   |
| Beginning of period                                                                                    |   | $                | 38,412 |   |   | $ | 31,737 |   |
| Additional abandonment obligations from new properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |             | 993    |   |   |   | 945 |   |
| Sales or abandonments of properties                                                                                        |   |             | (1,113 | ) |   |   | (47 | ) |
| Revisions of previous estimates                                                                                            |   |             | (320   | ) |   |   | 2,219 |   |
| Accretion expense                                                                                                          |   |             | 1,294  |   |   |   | 1,466 |   |
| End of period                                                                                          |   | $                | 39,266 |   |   | $ | 36,320 |   |

----

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

----

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

|                                                                                                                                                                   |   | Oil    |      |   | Gas    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                                                                                                                   |   | Bbls   |      |   | Price  |   |   | MMBtu (a) |   |   | Price |   |
| Production Period:                                                                                                                                                     |   |   |      |   |   |   |   |   |   |   |   |   |
| 3rd Quarter 2010                                                                                                                                                  |   |   | 522,000   |   |   | $      | 76.40 |   |   |   | 1,750,000 |   |   | $ | 6.80 |   |
| 4th Quarter 2010                                                                                                                                                  |   |   | 480,000   |   |   | $      | 76.24 |   |   |   | 1,680,000 |   |   | $ | 6.80 |   |
| 2011                            |   |   | 1,656,000 |   |   | $      | 84.38 |   |   |   | 6,420,000 |   |   | $ | 7.07 |   |
|                                                                                                                                                                   |   |   | 2,658,000 |   |   |   |   |   |   |   | 9,850,000 |   |   |   |   |   |
|                                                                                             |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)     One MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                    |   |

|                          | Fair Value of Derivative Instruments as of June 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                                                  |   | $                         16,264 |   | Current |   | $                              - |
|                          | Non-current                                              |   |                          8,128 |   | Non-current |   |                                - |
| Total                         |                                                     |   | $                         24,392 |   |   |   | $                              - |

----

|                          | 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 |

|                                                 |   | June 30, 2010  |   |
|------------------------------------------------------|--------|----------------|--------|
|                                                 |   | Assets         |   |   | Liabilities |   |
|                                                 |   | (In thousands) |   |
| Fair value of derivatives – gross presentation |   | $              | 31,703 |   |   | $ | 7,311 |   |
| Effects of netting arrangements                      |   |           | (7,311 | ) |   |   | (7,311 | ) |
| Fair value of derivatives – net presentation   |   | $              | 24,392 |   |   | $ | - |   |

|                                                 |   | 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 |
|-------------------------------|--------|-------------------------------------------------|
|                          |   |                                            |   | Six Months Ended |
|                          |   | Location of Gain or (Loss)                      |   | June 30, |
|                          |   | Recognized in Earnings                          |   | 2010 |   | 2009 |
|                          |   |                                            |   | (In thousands) |
| Derivatives not designated as |   |                                            |   |   |   |   |
| hedging instruments:          |   |                                            |   |   |   |   |
|                          |   |                                            |   |   |   |   |
| Commodity derivatives         |   | Other income (expense) -                        |   |   |   |   |
|                          |   | Gain (loss) on derivatives                      |   | $                               31,284 |   | $                             (19,260) |
| Total                         |   |                                            |   | $                               31,284 |   | $                            (19,260) |

| 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. |
|-----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | June 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                                                               |   | $                 | 24,392 |   |              | $      | 4,427 |   |
| Total assets                                                                            |   | $                 | 24,392 |   |              | $      | 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 |
|-----|------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                    |   | Six Months Ended |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                    |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                    |   | 2010             |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                    |   | (In thousands)   |   |
|                                                                                                                                                                                                                                                                                                                    |   |             |   |   |   |   |
| Gain on sales of assets                                                 |   | $                | 399    |   |   | $ | 663 |   |
|                                                                                                                                                                                                                                                                                                                    |   |             |   |   |   |   |   |   |
| Loss on sales of assets and impairment                                                                                                                                                                                                                                                                                  |   |             |   |   |   |   |   |   |
| of inventory:                                                                                                                                                                                                                                                                                                           |   |             |   |   |   |   |   |   |
| Loss on sales of assets                                                                     |   |             | (1,443 | ) |   |   | (455 | ) |
| Impairment of inventory                                                                     |   |             | -      |   |   |   | (3,390 | ) |
|                                                                                                                                                                                                                                                                                                                    |   |             | (1,443 | ) |   |   | (3,845 | ) |
|                                                                                                                                                                                                                                                                                                                    |   |             |   |   |   |   |   |   |
| Net loss                                                                |   | $                | (1,044 | ) |   | $ | (3,182 | ) |

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | June 30,       |      |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-----------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 2010           |      |   | 2009         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (In thousands) |      |
| Proved properties                                                                                       |   | $              | 1,531,514 |   |         | $      | 1,532,508 |   |
| Unproved properties                                                                                     |   |           | 33,851    |   |         |   | 47,156 |   |
| Total capitalized costs                                                                                 |   |           | 1,565,365 |   |         |   | 1,579,664 |   |
| Accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |           | (934,343  | )      |         |   | (945,047 | ) |
|     Net capitalized costs                                                                                    |   | $              | 631,022   |   |         | $      | 634,617 |   |

----

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

| 13. | Segment Information |
|-----|---------------------|

| For the Three Months Ended                   |   |        |    |   |     |   |   |         |   |   |         |   |
|----------------------------------------------|--------|-------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| June 30, 2010                                |   |        |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                  |   |        |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In thousands)                               |   | Oil and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |
| Revenues                                     |   | $           | 77,483  |   |     | $      | 8,410  |         |   | $      | (8,410       | )      |   | $ | 77,483 |   |
| Depreciation, depletion and amortization (a) |   |        | 36,097  |   |     |   | 2,495  |         |   |   | (2,041       | )      |   |   | 36,551 |   |
| Other operating expenses (b)                 |   |        | 34,373  |   |     |   | 6,642  |         |   |   | (5,936       | )      |   |   | 35,079 |   |
| Interest expense                             |   |        | 6,241   |   |     |   | 3      |         |   |   | -            |   |   |   | 6,244 |   |
| Other (income) expense                       |   |        | (21,999 | )      |     |   | -      |         |   |   | -            |   |   |   | (21,999 | ) |
| Income (loss) before income taxes            |   |        | 22,771  |   |     |   | (730   | )            |   |   | (433         | )      |   |   | 21,608 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                 |   |        | (7,900  | )      |     |   | 255    |         |   |   | -            |   |   |   | (7,645 | ) |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss)                            |   |        | 14,871  |   |     |   | (475   | )            |   |   | (433         | )      |   |   | 13,963 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc     |   | $           | 14,871  |   |     | $      | (475   | )            |   | $      | (433         | )      |   | $ | 13,963 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total assets                                 |   | $           | 757,998 |   |     | $      | 37,078 |         |   | $      | (10          | )      |   | $ | 795,066 |   |
| Additions to property and equipment          |   | $           | 82,906  |   |     | $      | 4,021  |         |   | $      | -            |   |   | $ | 86,927 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

----

| For the Six Months Ended                     |   |        |    |   |     |   |   |         |   |   |         |   |
|----------------------------------------------|--------|-------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| June 30, 2010                                |   |        |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                  |   |        |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In thousands)                               |   | Oil and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |
| Revenues                                     |   | $           | 157,314 |   |     | $      | 14,383 |         |   | $      | (14,383      | )      |   | $ | 157,314 |   |
| Depreciation, depletion and amortization (a) |   |        | 60,857  |   |     |   | 4,833  |         |   |   | (3,527       | )      |   |   | 62,163 |   |
| Other operating expenses (b)                 |   |        | 67,236  |   |     |   | 11,248 |         |   |   | (10,059      | )      |   |   | 68,425 |   |
| Interest expense                             |   |        | 12,350  |   |     |   | 3      |         |   |   | -            |   |   |   | 12,353 |   |
| Other (income) expense                       |   |        | (33,128 | )      |     |   | -      |         |   |   | -            |   |   |   | (33,128 | ) |
| Income (loss) before income taxes            |   |        | 49,999  |   |     |   | (1,701 | )            |   |   | (797         | )      |   |   | 47,501 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                 |   |        | (17,458 | )      |     |   | 595    |         |   |   | -            |   |   |   | (16,863 | ) |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss)                            |   |        | 32,541  |   |     |   | (1,106 | )            |   |   | (797         | )      |   |   | 30,638 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc     |   | $           | 32,541  |   |     | $      | (1,106 | )            |   | $      | (797         | )      |   | $ | 30,638 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total assets                                 |   | $           | 757,998 |   |     | $      | 37,078 |         |   | $      | (10          | )      |   | $ | 795,066 |   |
| Additions to property and equipment          |   | $           | 138,000 |   |     | $      | 7,579  |         |   | $      | -            |   |   | $ | 145,579 |   |
|                                         |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

| For the Three Months Ended                      |   |        |    |   |     |   |    |         |   |   |         |   |
|-------------------------------------------------|--------|-------------|---------|--------|----------|--------|---------|--------------|--------|--------|--------------|--------|
| June 30, 2009                                   |   |        |    |   |     |   |    |         |   |   |         |   |
| (Unaudited)                                     |   |        |    |   | Contract |   |    | Intercompany |   |   | Consolidated |   |
| (In thousands)                                  |   | Oil and Gas |    |   | Drilling |   |    | Eliminations |   |   | Total        |   |
|                                            |   |        |    |   |     |   |    |         |   |   |         |   |
| Revenues                                        |   | $           | 59,042  |   |     | $      | 8,327   |         |   | $      | (6,866       | )      |   | $ | 60,503 |   |
| Depreciation, depletion and amortization (a)    |   |        | 25,881  |   |     |   | 33,284  |         |   |   | (911         | )      |   |   | 58,254 |   |
| Other operating expenses (b)                    |   |        | 40,417  |   |     |   | 1,197   |         |   |   | (5,903       | )      |   |   | 35,711 |   |
| Interest expense                                |   |        | 5,388   |   |     |   | 348     |         |   |   | -            |   |   |   | 5,736 |   |
| Other (income) expense                          |   |        | 20,944  |   |     |   | -       |         |   |   | -            |   |   |   | 20,944 |   |
| Income (loss) before income taxes               |   |        | (33,588 | )      |     |   | (26,502 | )            |   |   | (52          | )      |   |   | (60,142 | ) |
|                                            |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                    |   |        | 12,669  |   |     |   | 9,274   |         |   |   | -            |   |   |   | 21,943 |   |
| Net income (loss)                               |   |        | (20,919 | )      |     |   | (17,228 | )            |   |   | (52          | )      |   |   | (38,199 | ) |
| Less income attributable to                     |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
|   noncontrolling interest, net of tax |   |        | -       |   |     |   | (409    | )            |   |   | -            |   |   |   | (409 | ) |
|                                            |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to               |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc        |   | $           | (20,919 | )      |     | $      | (17,637 | )            |   | $      | (52          | )      |   | $ | (38,608 | ) |
|                                            |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Total assets                                    |   | $           | 816,564 |   |     | $      | 44,709  |         |   | $      | -            |   |   | $ | 861,273 |   |
| Additions to property and equipment             |   | $           | 20,358  |   |     | $      | 2,190   |         |   | $      | -            |   |   | $ | 22,548 |   |
|                                            |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |

----

| For the Six Months Ended                                           |   |        |    |   |     |   |    |         |   |   |         |   |
|--------------------------------------------------------------------|--------|-------------|---------|--------|----------|--------|---------|--------------|--------|--------|--------------|--------|
| June 30, 2009                                                      |   |        |    |   |     |   |    |         |   |   |         |   |
| (Unaudited)                                                        |   |        |    |   | Contract |   |    | Intercompany |   |   | Consolidated |   |
| (In thousands)                                                     |   | Oil and Gas |    |   | Drilling |   |    | Eliminations |   |   | Total        |   |
|                                                               |   |        |    |   |     |   |    |         |   |   |         |   |
| Revenues                                                           |   | $           | 111,604 |   |     | $      | 17,513  |         |   | $      | (10,832      | )      |   | $ | 118,285 |   |
| Depreciation, depletion and amortization (a)                       |   |        | 60,872  |   |     |   | 36,022  |         |   |   | (2,175       | )      |   |   | 94,719 |   |
| Other operating expenses (b)                                       |   |        | 93,300  |   |     |   | 3,890   |         |   |   | (8,542       | )      |   |   | 88,648 |   |
| Interest expense                                                   |   |        | 10,293  |   |     |   | 881     |         |   |   | -            |   |   |   | 11,174 |   |
| Other (income) expense                                             |   |        | 17,533  |   |     |   | -       |         |   |   | -            |   |   |   | 17,533 |   |
| Income (loss) before income taxes                                  |   |        | (70,394 | )      |     |   | (23,280 | )            |   |   | (115         | )      |   |   | (93,789 | ) |
|                                                               |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                                       |   |        | 26,179  |   |     |   | 8,142   |         |   |   | -            |   |   |   | 34,321 |   |
| Net income (loss)                                                  |   |        | (44,215 | )      |     |   | (15,138 | )            |   |   | (115         | )      |   |   | (59,468 | ) |
| Less income attributable to                                        |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
|   noncontrolling interest, net of tax                    |   |        | -       |   |     |   | (1,455  | )            |   |   | -            |   |   |   | (1,455 | ) |
|                                                               |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to                                  |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc                           |   | $           | (44,215 | )      |     | $      | (16,593 | )            |   | $      | (115         | )      |   | $ | (60,923 | ) |
|                                                               |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Total assets                                                       |   | $           | 816,564 |   |     | $      | 44,709  |         |   | $      | -            |   |   | $ | 861,273 |   |
| Additions to property and equipment                                |   | $           | 55,047  |   |     | $      | 2,190   |         |   | $      | -            |   |   | $ | 57,237 |   |
|             |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |

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

----

| 14. | Guarantor Financial Information |
|-----|---------------------------------|

| (Unaudited)                                                                                                                                                                                                                            |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|----------|
| (Dollars in thousands)                                                                                                                                                                                                                 |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                                   |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |     |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |
| Current assets                                               |   | $      | 188,916 |   |         | $      | 143,566 |       |   | $      | 1,161        |   |   | $            | (222,953 | ) |   | $ | 110,690 |   |
| Property and equipment, net                                                                                                                                                                                                            |   |   | 329,526 |   |         |   | 334,144 |       |   |   | 6,218        |   |   |         | -        |   |   |   | 669,888 |   |
| Investments in subsidiaries                                                                                                                                                                                                            |   |   | 113,235 |   |         |   | -       |       |   |   | -            |   |   |         | (113,235 | ) |   |   | - |   |
| Other assets                                                 |   |   | 14,353  |   |         |   | 135     |       |   |   | -            |   |   |         | -        |   |   |   | 14,488 |   |
| Total assets                                                                     |   | $      | 646,030 |   |         | $      | 477,845 |       |   | $      | 7,379        |   |   | $            | (336,188 | ) |   | $ | 795,066 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Current liabilities                                          |   | $      | 155,912 |   |         | $      | 152,713 |       |   | $      | 173          |   |   | $            | (222,953 | ) |   | $ | 85,845 |   |
| Non-current liabilities:                                                                                                                                                                                                               |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term debt                                                                   |   |   | 356,000 |   |         |   | -       |       |   |   | -            |   |   |         | -        |   |   |   | 356,000 |   |
| Other                                                                            |   |   | 47,817  |   |         |   | 62,353  |       |   |   | 141          |   |   |         | (3       | ) |   |   | 110,308 |   |
|                                                                                                                                                                                                                                   |   |   | 403,817 |   |         |   | 62,353  |       |   |   | 141          |   |   |         | (3       | ) |   |   | 466,308 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Stockholders’ equity                                   |   |   | 86,301  |   |         |   | 262,779 |       |   |   | 7,065        |   |   |         | (113,232 | ) |   |   | 242,913 |   |
|                                                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Total liabilities and                                                                                                                                                                                                                  |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
|   stockholders’ equity                                                                                                                                                                                                 |   | $      | 646,030 |   |         | $      | 477,845 |       |   | $      | 7,379        |   |   | $            | (336,188 | ) |   | $ | 795,066 |   |

| (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                                        |   | $      | 46,973 |   |         | $      | 30,516 |       |   | $      | 174          |   |   | $            | (180   | ) |   | $ | 77,483 |   |
| Costs and expenses                                   |   |   | 50,062 |   |         |   | 21,604 |       |   |   | 144          |   |   |         | (180   | ) |   |   | 71,630 |   |
| Operating income (loss)                                                                                                                                                                                                        |   |   | (3,089 | )      |         |   | 8,912  |       |   |   | 30           |   |   |         | -      |   |   |   | 5,853 |   |
| Other income (expense)                                                                                                                                                                                                         |   |   | 14,148 |   |         |   | 1,573  |       |   |   | 34           |   |   |         | -      |   |   |   | 15,755 |   |
| Income tax (expense) benefit                                                                                                                                                                                                   |   |   | (7,645 | )      |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | (7,645 | ) |
|                                                                                                                                                                                                                           |   |   |   |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net income (loss)                                                        |   | $      | 3,414  |   |         | $      | 10,485 |       |   | $      | 64           |   |   | $            | -      |   |   | $ | 13,963 |   |

| (Unaudited)                                                                                                                                                                                                                    |   |   |    |   |         |   |   | Non-       |   |   |         |   |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                 |   |   |    |   | Guarantor    |   |   | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                           |   | Issuer |    |   | Subsidiaries |   |   | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                        |   | $      | 94,989  |   |         | $      | 62,316 |       |   | $      | 353          |   |   | $            | (344   | ) |   | $ | 157,314 |   |
| Costs and expenses                                   |   |   | 88,119  |   |         |   | 42,487 |       |   |   | 326          |   |   |         | (344   | ) |   |   | 130,588 |   |
| Operating income (loss)                                                                                                                                                                                                        |   |   | 6,870   |   |         |   | 19,829 |       |   |   | 27           |   |   |         | -      |   |   |   | 26,726 |   |
| Other income (expense)                                                                                                                                                                                                         |   |   | 17,711  |   |         |   | 2,994  |       |   |   | 70           |   |   |         | -      |   |   |   | 20,775 |   |
| Income tax (expense) benefit                                                                                                                                                                                                   |   |   | (16,863 | )      |         |   | -      |       |   |   | -            |   |   |         | -      |   |   |   | (16,863 | ) |
|                                                                                                                                                                                                                           |   |   |    |   |         |   |   |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net income (loss)                                                        |   | $      | 7,718   |   |         | $      | 22,823 |       |   | $      | 97           |   |   | $            | -      |   |   | $ | 30,638 |   |

| (Unaudited)                                                                                                                                                                                                                        |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                     |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                               |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                            |   | $      | 34,094  |   |         | $      | 33,380  |       |   | $      | 147          |   |   | $            | (7,118 | ) |   | $ | 60,503 |   |
| Costs and expenses                                       |   |   | 46,624  |   |         |   | 54,011  |       |   |   | 397          |   |   |         | (7,067 | ) |   |   | 93,965 |   |
| Operating income (loss)                                                                                                                                                                                                            |   |   | (12,530 | )      |         |   | (20,631 | )          |   |   | (250         | )      |   |         | (51    | ) |   |   | (33,462 | ) |
| Other income (expense)                                                                                                                                                                                                             |   |   | (27,770 | )      |         |   | 1,052   |       |   |   | 38           |   |   |         | -      |   |   |   | (26,680 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                       |   |   | 21,943  |   |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | 21,943 |   |
| Noncontrolling interest,                                                                                                                                                                                                           |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
|   net of tax                                   |   |   | (409    | )      |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | (409 | ) |
|                                                                                                                                                                                                                               |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Net income (loss)                                                            |   | $      | (18,766 | )      |         | $      | (19,579 | )          |   | $      | (212         | )      |   | $            | (51    | ) |   | $ | (38,608 | ) |

| (Unaudited)                                                                                                                                                                                                                        |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|---------|
| (In thousands)                                                                                                                                                                                                                     |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |    |
|                                                                                                                                                                                                                               |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |    |
| Total revenue                                            |   | $      | 67,633  |   |         | $      | 61,745  |       |   | $      | 267          |   |   | $            | (11,360 | ) |   | $ | 118,285 |   |
| Costs and expenses                                       |   |   | 110,443 |   |         |   | 83,554  |       |   |   | 615          |   |   |         | (11,245 | ) |   |   | 183,367 |   |
| Operating income (loss)                                                                                                                                                                                                            |   |   | (42,810 | )      |         |   | (21,809 | )          |   |   | (348         | )      |   |         | (115    | ) |   |   | (65,082 | ) |
| Other income (expense)                                                                                                                                                                                                             |   |   | (30,669 | )      |         |   | 1,888   |       |   |   | 74           |   |   |         | -       |   |   |   | (28,707 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                       |   |   | 34,321  |   |         |   | -       |       |   |   | -            |   |   |         | -       |   |   |   | 34,321 |   |
| Noncontrolling interest,                                                                                                                                                                                                           |   |   |    |   |         |   |    |       |   |   |         |   |   |         |    |   |   |   |   |   |
|   net of tax                                   |   |   | (1,455  | )      |         |   | -       |       |   |   | -            |   |   |         | -       |   |   |   | (1,455 | ) |
|                                                                                                                                                                                                                               |   |   |    |   |         |   |    |       |   |   |         |   |   |         |    |   |   |   |   |   |
| Net income (loss)                                                            |   | $      | (40,613 | )      |         | $      | (19,921 | )          |   | $      | (274         | )      |   | $            | (115    | ) |   | $ | (60,923 | ) |

----

| (Unaudited)                                                                                                                                                                                                                |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                             |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                       |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Operating activities                                  |   | $      | 47,044  |   |         | $      | 45,919  |       |   | $      | 187          |   |   | $            | 3,527  |   |   | $ | 96,677 |   |
| Investing activities                                  |   |   | (40,269 | )      |         |   | (17,471 | )          |   |   | (48          | )      |   |         | (3,527 | ) |   |   | (61,315 | ) |
| Financing activities                                  |   |   | (10,491 | )      |         |   | (28,554 | )          |   |   | 45           |   |   |         | -      |   |   |   | (39,000 | ) |
| Net increase (decrease) in                                                                                                                                                                                                 |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                  |   |   | (3,716  | )      |         |   | (106    | )          |   |   | 184          |   |   |         | -      |   |   |   | (3,638 | ) |
|                                                                                                                                                                                                                       |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at the beginning of                                                                                                                                                                                                   |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                 |   |   | 11,839  |   |         |   | 1,344   |       |   |   | 830          |   |   |         | -      |   |   |   | 14,013 |   |
|                                                                                                                                                                                                                       |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at end of the period                                                                                                                                                                                                  |   | $      | 8,123   |   |         | $      | 1,238   |       |   | $      | 1,014        |   |   | $            | -      |   |   | $ | 10,375 |   |

| (Unaudited)                                                                                                                                                                                                                |   |   |     |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                       |   | Issuer |     |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
| Operating activities                                  |   | $      | 47,424   |   |         | $      | (9,871  | )          |   | $      | 167          |   |   | $            | 2,150  |   |   | $ | 39,870 |   |
| Investing activities                                  |   |   | (106,413 | )      |         |   | 27,505  |       |   |   | (45          | )      |   |         | (2,150 | ) |   |   | (81,103 | ) |
| Financing activities                                  |   |   | 33,188   |   |         |   | (17,211 | )          |   |   | -            |   |   |         | -      |   |   |   | 15,977 |   |
| Net increase (decrease) in                                                                                                                                                                                                 |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                  |   |   | (25,801  | )      |         |   | 423     |       |   |   | 122          |   |   |         | -      |   |   |   | (25,256 | ) |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at the beginning of                                                                                                                                                                                                   |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                 |   |   | 35,381   |   |         |   | 5,054   |       |   |   | 764          |   |   |         | -      |   |   |   | 41,199 |   |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at end of the period                                                                                                                                                                                                  |   | $      | 9,580    |   |         | $      | 5,477   |       |   | $      | 886          |   |   | $            | -      |   |   | $ | 15,943 |   |

| 15. | Subsequent Events |
|-----|-------------------|

----

Item 

|   | • | commodity price volatility; |
|--------|---------|-----------------------------|

----

|   | • | 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 most of our estimated proved developed oil production for 2010 and 2011 at average prices of $76.50 and $84.38 per barrel, respectively. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Our oil and gas sales for the second quarter increased $19.7 million, or 34%, from 2009 due substantially to increases in prices for both oil and gas. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Our oil and gas production for the second quarter of 2010 was 6% lower on a barrel of oil equivalent (“BOE”) basis than in the comparable period in 2009.  Our oil production increased 13% compared to the second quarter of 2009 while gas production declined 27%. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | We recorded a $21 million net gain on derivatives in the second quarter of 2010, consisting of a $17.3 million non-cash gain for changes in mark-to-market valuations and a $3.7 million realized gain on settled contracts.  For the same period in 2009, we reported a $21.8 million net loss on derivatives consisting of a $20.3 million loss for changes in mark-to-market valuations and a $1.5 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 non-cash charge of $11.1 million for impairment of property and equipment to reduce the carrying value of certain non-core oil and gas properties in the Permian Basin to their estimated fair market value at June 30, 2010. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | During the second quarter of 2010, we decreased borrowings under our revolving credit facility by $39 million from $170 million at December 31, 2009 to $131 million at June 30, 2010 due primarily to proceeds received from the sale of properties in North Louisiana. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Three Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | June 30,           |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010               |   |   | 2009 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |
| Oil (MBbls)                                                                                                                        |   |               | 808    |   |   |   | 716 |   |
| Gas (MMcf)                                                                                                                         |   |               | 2,807  |   |   |   | 3,856 |   |
| Natural gas liquids (MBbls)                                                                                                        |   |               | 60     |   |   |   | 59 |   |
| Total (MBOE)                                                                                                                       |   |               | 1,336  |   |   |   | 1,418 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Average Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |
| Oil ($/Bbl)                                                                                                                        |   | $                  | 74.27  |   |   | $ | 56.55 |   |
| Gas ($/Mcf)                                                                                                                        |   | $                  | 5.14   |   |   | $ | 3.84 |   |
| Natural gas liquids ($/Bbl)                                                                                                        |   | $                  | 40.13  |   |   | $ | 24.53 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Gain (Loss) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |   |   |   |   |   |   |
| ($ in thousands, except per unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |
| Oil:    Net realized loss                                                                                                                         |   | $                  | (1,249 | ) |   | $ | (4,572 | ) |
|           Per unit produced ($/Bbl)                                                                                 |   | $                  | (1.55  | ) |   | $ | (6.39 | ) |
| Gas:   Net realized gain                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                  | 4,964  |   |   | $ | 3,088 |   |
|           Per unit produced ($/Mcf)                                                                                 |   | $                  | 1.77   |   |   | $ | .80 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Average Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |   |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                         |   |               | 5,390  |   |   |   | 4,058 |   |
| Austin Chalk (Trend)                                                                                                                                                  |   |               | 2,835  |   |   |   | 2,742 |   |
| North Louisiana                                                                                                                                                       |   |               | 137    |   |   |   | 273 |   |
| South Louisiana                                                                                                                                                       |   |               | 435    |   |   |   | 701 |   |
| Other                                                                                                                                                                 |   |               | 82     |   |   |   | 94 |   |
| Total                                                                                                                                                                                               |   |               | 8,879  |   |   |   | 7,868 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Gas (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                         |   |               | 13,263 |   |   |   | 15,432 |   |
| Austin Chalk (Trend)                                                                                                                                                  |   |               | 1,810  |   |   |   | 2,412 |   |
| North Louisiana                                                                                                                                                       |   |               | 5,747  |   |   |   | 11,445 |   |
| South Louisiana                                                                                                                                                       |   |               | 4,930  |   |   |   | 7,699 |   |
| Cotton Valley Reef Complex                                                                                                                                            |   |               | 4,072  |   |   |   | 3,781 |   |
| Other                                                                                                                                                                 |   |               | 1,024  |   |   |   | 1,605 |   |
| Total                                                                                                                                                                                               |   |               | 30,846 |   |   |   | 42,374 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |   |   |   |   |   |   |
| Natural Gas Liquids (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                         |   |               | 356    |   |   |   | 248 |   |
| Austin Chalk (Trend)                                                                                                                                                  |   |               | 185    |   |   |   | 290 |   |
| North Louisiana                                                                                                                                                       |   |               | 26     |   |   |   | 37 |   |
| South Louisiana                                                                                                                                                       |   |               | 86     |   |   |   | 60 |   |
| Other                                                                                                                                                                 |   |               | 6      |   |   |   | 13 |   |
| Total                                                                                                                                                                                               |   |               | 659    |   |   |   | 648 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Three Months Ended |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | June 30,           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010               |   |   | 2009 |
| Exploration Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |   |
| Abandonment and impairment costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |   |
| North Louisiana                                                                                                                                                          |   | $                  | 739 |   |   | $ | 848 |   |
| South Louisiana                                                                                                                                                          |   |               | 1,148 |   |   |   | 85 |   |
| Permian Basin                                                                                                                                                            |   |               | - |   |   |   | 309 |   |
| East Texas Bossier                                                                                                                                                       |   |               | 735 |   |   |   | 1,917 |   |
| Utah                                                                                                                                                                     |   |               | 44 |   |   |   | 558 |   |
| Mississippi                                                                                                                                                              |   |               | 4 |   |   |   | - |   |
| Other                                                                                                                                                                    |   |               | 221 |   |   |   | 788 |   |
| Total                                                                                                                                                                                                  |   |               | 2,891 |   |   |   | 4,505 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |   |
| Seismic and other                                                                                                                     |   |               | 974 |   |   |   | 1,388 |   |
| Total exploration costs                                                                                                                                                                                |   | $                  | 3,865 |   |   | $ | 5,893 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |   |
| Depreciation, Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |               |   |   |   |   |   |   |   |
| Oil and gas depletion                                                                                                                 |   | $                  | 24,813 |   |   | $ | 25,671 |   |   |
| Contract drilling depreciation                                                                                                        |   |               | 454 |   |   |   | 305 |   |   |
| Other depreciation                                                                                                                    |   |               | 170 |   |   |   | 210 |   |   |
| Total DD&A                                                                                                                                                                                         |   | $                  | 25,437 |   |   | $ | 26,186 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |   |
| Oil and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |   |
| Production costs                                                                                                                      |   | $                  | 15.39 |   |   | $ | 12.90 |   |   |
| Production costs (excluding production taxes)                                                                                         |   | $                  | 12.25 |   |   | $ | 10.16 |   |   |
| Oil and gas depletion                                                                                                                 |   | $                  | 18.57 |   |   | $ | 18.10 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |               |   |   |   |   |   |   |   |
| Net Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |               |   |   |   |   |   |   |   |
| Exploratory Wells                                                                                                                     |   |               | 1.1 |   |   |   | 1.2 |   |   |
| Developmental Wells                                                                                                                   |   |               | 26.3 |   |   |   | 5.9 |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Six Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010             |   |   | 2009 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |
| Oil (MBbls)                                                                                                                        |   |             | 1,560  |   |   |   | 1,467 |   |
| Gas (MMcf)                                                                                                                         |   |             | 6,135  |   |   |   | 8,469 |   |
| Natural gas liquids (MBbls)                                                                                                        |   |             | 117    |   |   |   | 112 |   |
| Total (MBOE)                                                                                                                       |   |             | 2,700  |   |   |   | 2,991 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |             |   |   |   |   |   |   |
| Average Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |
| Oil ($/Bbl)                                                                                                                        |   | $                | 75.10  |   |   | $ | 46.55 |   |
| Gas ($/Mcf)                                                                                                                        |   | $                | 5.48   |   |   | $ | 4.25 |   |
| Natural gas liquids ($/Bbl)                                                                                                        |   | $                | 43.08  |   |   | $ | 23.78 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |             |   |   |   |   |   |   |
| Gain (Loss) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |   |   |   |   |
| ($ in thousands, except per unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |   |   |   |
| Oil:    Net realized loss                                                                                                                         |   | $                | (2,871 | ) |   | $ | (4,839 | ) |
|           Per unit produced ($/Bbl)                                                                                 |   | $                | (1.84  | ) |   | $ | (3.30 | ) |
| Gas:   Net realized gain                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                | 8,283  |   |   | $ | 4,486 |   |
|           Per unit produced ($/Mcf)                                                                                 |   | $                | 1.35   |   |   | $ | .53 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Six Months Ended |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | June 30,         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010             |   |   | 2009 |
| Average Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |             |   |   |   |
| Permian Basin                                                                                                                                                                 |   |             | 5,151 |   |   |   | 4,256 |   |
| Austin Chalk (Trend)                                                                                                                                                          |   |             | 2,717 |   |   |   | 2,942 |   |
| North Louisiana                                                                                                                                                               |   |             | 142 |   |   |   | 271 |   |
| South Louisiana                                                                                                                                                               |   |             | 530 |   |   |   | 548 |   |
| Other                                                                                                                                                                         |   |             | 79 |   |   |   | 88 |   |
| Total                                                                                                                                                                                                       |   |             | 8,619 |   |   |   | 8,105 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |   |
| Gas (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             |   |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                                 |   |             | 13,586 |   |   |   | 15,553 |   |
| Austin Chalk (Trend)                                                                                                                                                          |   |             | 2,169 |   |   |   | 2,718 |   |
| North Louisiana                                                                                                                                                               |   |             | 7,225 |   |   |   | 12,989 |   |
| South Louisiana                                                                                                                                                               |   |             | 6,213 |   |   |   | 10,132 |   |
| Cotton Valley Reef Complex                                                                                                                                                    |   |             | 3,802 |   |   |   | 4,026 |   |
| Other                                                                                                                                                                         |   |             | 900 |   |   |   | 1,372 |   |
| Total                                                                                                                                                                                                       |   |             | 33,895 |   |   |   | 46,790 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |   |
| Natural Gas Liquids (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |             |   |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                                 |   |             | 314 |   |   |   | 238 |   |
| Austin Chalk (Trend)                                                                                                                                                          |   |             | 228 |   |   |   | 299 |   |
| North Louisiana                                                                                                                                                               |   |             | 15 |   |   |   | 19 |   |
| South Louisiana                                                                                                                                                               |   |             | 83 |   |   |   | 52 |   |
| Other                                                                                                                                                                         |   |             | 6 |   |   |   | 11 |   |
| Total                                                                                                                                                                                                       |   |             | 646 |   |   |   | 619 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |   |
| Exploration Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |             |   |   |   |   |   |   |   |
| Abandonment and impairment costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |             |   |   |   |   |   |   |   |
| North Louisiana                                                                                                                                                          |   | $                | 1,748 |   |   | $ | 1,108 |   |
| South Louisiana                                                                                                                                                          |   |             | 1,148 |   |   |   | 813 |   |
| Permian Basin                                                                                                                                                            |   |             | 13 |   |   |   | 764 |   |
| East Texas Bossier                                                                                                                                                       |   |             | 2,248 |   |   |   | 10,784 |   |
| Utah                                                                                                                                                                     |   |             | 64 |   |   |   | 2,332 |   |
| Mississippi                                                                                                                                                              |   |             | 327 |   |   |   | 311 |   |
| Other                                                                                                                                                                    |   |             | 221 |   |   |   | 805 |   |
| Total                                                                                                                                                                                                  |   |             | 5,769 |   |   |   | 16,917 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |   |
| Seismic and other                                                                                                                     |   |             | 2,634 |   |   |   | 5,658 |   |
| Total exploration costs                                                                                                                                                                                |   | $                | 8,403 |   |   | $ | 22,575 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |   |
| Depreciation, Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |   |   |   |   |   |
| Oil and gas depletion                                                                                                                 |   | $                | 49,401 |   |   | $ | 60,433 |   |   |
| Contract drilling depreciation                                                                                                        |   |             | 1,307 |   |   |   | 1,779 |   |   |
| Other depreciation                                                                                                                    |   |             | 341 |   |   |   | 439 |   |   |
| Total DD&A                                                                                                                                                                                         |   | $                | 51,049 |   |   | $ | 62,651 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |   |
| Oil and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |             |   |   |   |   |   |   |   |
| Production costs                                                                                                                      |   | $                | 15.37 |   |   | $ | 12.49 |   |   |
| Production costs (excluding production taxes)                                                                                         |   | $                | 12.22 |   |   | $ | 10.44 |   |   |
| Oil and gas depletion                                                                                                                 |   | $                | 18.30 |   |   | $ | 20.20 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |   |
| Net Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |             |   |   |   |   |   |   |   |
| Exploratory Wells                                                                                                                     |   |             | 2.2 |   |   |   | 1.4 |   |   |
| Developmental Wells                                                                                                                   |   |             | 52.6 |   |   |   | 11.9 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |   |   |   |   |   |   |   |
| (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       |   |
|                                                                                                                                                                                                                                                                                                            |   | Six Months Ended |    |   | Year Ended        |   |    | Percentage |   |
|                                                                                                                                                                                                                                                                                                            |   | June 30, 2010    |    |   | December 31, 2010 |   |    | of Total   |   |
|                                                                                                                                                                                                                                                                                                            |   | (In thousands)   |    |   |              |   |
| Permian Basin                                                   |   | $                | 98,800  |   |              | $      | 224,900 |       |   |   | 71 | % |
| Austin Chalk (Trend)/ Eagle Ford Shale                                                                                                                                                                                                                                                                          |   |             | 32,100  |   |              |   | 74,200  |       |   |   | 24 | % |
| South Louisiana                                                 |   |             | 5,000   |   |              |   | 8,700   |       |   |   | 3 | % |
| California                                                      |   |             | 700     |   |              |   | 2,000   |       |   |   | 1 | % |
| Other                                                           |   |             | 3,800   |   |              |   | 5,600   |       |   |   | 1 | % |
|                                                                                                                                                                                                                                                                                                            |   | $                | 140,400 |   |              | $      | 315,400 |       |   |   | 100 | % |

----

----

|                                                                                  |   | June 30,       |    |   | December 31, |   |
|---------------------------------------------------------------------------------------|--------|----------------|---------|--------|--------------|--------|
|                                                                                  |   | 2010           |    |   | 2009         |   |
|                                                                                  |   | (In thousands) |    |
| Working capital per GAAP                                                              |   | $              | 24,845  |   |         | $      | 19,324 |   |
| Add funds available under the revolving credit facility                               |   |           | 168,975 |   |         |   | 79,196 |   |
| Exclude fair value of derivatives classified as current assets or current liabilities |   |           | (16,264 | )      |         |   | 5,907 |   |
| Working capital per loan covenant                                                     |   | $              | 177,556 |   |         | $      | 104,427 |   |
|                                                                                  |   |           |    |   |         |   |   |   |

----

Item 

----

|                                                                                                                                                                   |   | Oil    |      |   | Gas    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                                                                                                                   |   | Bbls   |      |   | Price  |   |   | MMBtu (a) |   |   | Price |   |
| Production Period:                                                                                                                                                     |   |   |      |   |   |   |   |   |   |   |   |   |
| 3rd Quarter 2010                                                                                                                                                  |   |   | 522,000   |   |   | $      | 76.40 |   |   |   | 1,750,000 |   |   | $ | 6.80 |   |
| 4th Quarter 2010                                                                                                                                                  |   |   | 480,000   |   |   | $      | 76.24 |   |   |   | 1,680,000 |   |   | $ | 6.80 |   |
| 2011                            |   |   | 1,656,000 |   |   | $      | 84.38 |   |   |   | 6,420,000 |   |   | $ | 7.07 |   |
|                                                                                                                                                                   |   |   | 2,658,000 |   |   |   |   |   |   |   | 9,850,000 |   |   |   |   |   |
|                                                                                                       |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)     One MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                    |   |

----

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. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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  |   | Eighth Amendment to Amended and Restated Credit Agreement dated April 29, 2010, filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on May 5, 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:  | August 9, 2010 | By:    | /s/ L. Paul Latham                 |
|--------|----------------|--------|------------------------------------|
|   |           |   | L. Paul Latham                     |
|   |           |   | Executive Vice President and Chief |
|   |           |   |   Operating Officer      |

| Date:  | August 9, 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       |   | Eighth Amendment to Amended and Restated Credit Agreement dated April 29, 2010, filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on May 5, 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 |
|--------|----------------|----------------------------------------------------|