----

| (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, 2009     |   |

|  ̈ | 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 90days. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                    | 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant wasrequired 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 12,143,536 shares of Common Stock, $.10 par value, of the registrant outstanding as of August 4, 2009. |
|------------------------------------------------------------------------------------------------------------------------|

----

| PART I.  FINANCIAL INFORMATION |
|------------------------------------------|
|                                     |   | Page |
|                                     |   |   |   |
| Item 1.                                  | Financial Statements |   |   |
|                                     |   |   |   |
|                                     | Consolidated Balance Sheets as of June 30, 2009 |   |   |
|                                     | and December 31, 2008                                                                                                 | 3 |   |
|                                     |   |   |   |
|                                     | Consolidated Statements of Operations for the three months and six months |   |   |
|                                     | ended June 30, 2009 and 2008                                                                                                 | 5 |   |
|                                     |   |   |   |
|                                     | Consolidated Statement of Equity for the six months |   |   |
|                                     | ended June 30, 2009                                                                                                 | 6 |   |
|                                     |   |   |   |
|                                     | Consolidated Statements of Cash Flows for the six months |   |   |
|                                     | ended June 30, 2009 and 2008                                                                                                 | 7 |   |
|                                     |   |   |   |
|                                     | Notes to Consolidated Financial Statements | 8 |   |
|                                     |   |   |   |
| Item 2.                                  | Management’s Discussion and Analysis of Financial |   |   |
|                                     | Condition and Results of Operations                                                                                                | 25 |   |
|                                     |   |   |   |
| Item 3.                                  | Quantitative and Qualitative Disclosures About Market Risks | 44 |   |
|                                     |   |   |   |
| Item 4.                                  | Controls and Procedures | 46 |   |
|                                     |   |   |   |
|                                     |   |   |   |
| PART II.  OTHER INFORMATION    |
| Item 1A.                                 | Risk Factors | 47 |   |
|                                     |   |   |   |
| Item 4.                                  | Submission of Matters to a Vote of Security Holders | 48 |   |
|                                     |   |   |   |
| Item 6.                                  | Exhibits | 49 |   |
|                                     |   |   |   |
|                                     | Signatures | 50 |   |

----

CLAYTON WILLIAMS 

| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | June 30, |   |   | December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Unaudited) |   |   |   |   |
| CURRENT ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                              |   | $ | 15,943 |   |   | $ | 41,199 |   |
| Accounts receivable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Oil and gas sales                                                                                                                                               |   |   | 23,223 |   |   |   | 26,009 |   |
| Joint interest and other, net                                                                                                                                   |   |   | 6,229 |   |   |   | 14,349 |   |
| Affiliates                                                                                                                                                      |   |   | 554 |   |   |   | 227 |   |
| Inventory                                                                                                                              |   |   | 32,396 |   |   |   | 20,052 |   |
| Deferred income taxes                                                                                                                  |   |   | 3,637 |   |   |   | 3,637 |   |
| Assets held for sale                                                                                                                   |   |   | 18,750 |   |   |   | - |   |
| Prepaids and other                                                                                                                     |   |   | 18,386 |   |   |   | 20,011 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 119,118 |   |   |   | 125,484 |   |
| PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
| Oil and gas properties, successful efforts method                                                                                      |   |   | 1,564,547 |   |   |   | 1,526,473 |   |
| Natural gas gathering and processing systems                                                                                           |   |   | 17,816 |   |   |   | 17,816 |   |
| Contract drilling equipment                                                                                                            |   |   | 26,465 |   |   |   | 91,151 |   |
| Other                                                                                                                                  |   |   | 15,869 |   |   |   | 14,954 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 1,624,697 |   |   |   | 1,650,394 |   |
| Less accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | (890,043 | ) |   |   | (840,366 | ) |
| Property and equipment, net                                                                                                                                     |   |   | 734,654 |   |   |   | 810,028 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| OTHER ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |
| Debt issue costs, net                                                                                                                  |   |   | 5,671 |   |   |   | 6,225 |   |
| Other                                                                                                                                  |   |   | 1,830 |   |   |   | 1,672 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 7,501 |   |   |   | 7,897 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $ | 861,273 |   |   | $ | 943,409 |   |

----

| LIABILITIES AND EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | June 30, |   |   | December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | (Unaudited) |   |   |   |   |
| CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |
| Accounts payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| Trade                                                                                                                                              |   | $ | 36,603 |   |   | $ | 67,189 |   |
| Oil and gas sales                                                                                                                                  |   |   | 26,817 |   |   |   | 24,702 |   |
| Affiliates                                                                                                                                         |   |   | 1,518 |   |   |   | 1,627 |   |
| Current maturities of long-term debt                                                                                      |   |   | 18,750 |   |   |   | 18,750 |   |
| Fair value of derivatives                                                                                                 |   |   | 17,626 |   |   |   | - |   |
| Accrued liabilities and other                                                                                             |   |   | 11,264 |   |   |   | 10,609 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 112,578 |   |   |   | 122,877 |   |
| NON-CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Long-term debt                                                                                                            |   |   | 355,550 |   |   |   | 347,225 |   |
| Deferred income taxes                                                                                                     |   |   | 86,087 |   |   |   | 120,414 |   |
| Fair value of derivatives                                                                                                 |   |   | 1,281 |   |   |   | - |   |
| Other                                                                                                                     |   |   | 37,034 |   |   |   | 32,617 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 479,952 |   |   |   | 500,256 |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
| 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 – 12,143,536 shares in 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
|  and 12,115,898 shares in 2008                                                                                       |   |   | 1,214 |   |   |   | 1,212 |   |
| Additional paid-in capital                                                                                                |   |   | 152,028 |   |   |   | 137,046 |   |
| Retained earnings                                                                                                         |   |   | 115,501 |   |   |   | 176,424 |   |
| Total Clayton Williams Energy, Inc. stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 268,743 |   |   |   | 314,682 |   |
| Noncontrolling interest, net of tax                                                                                       |   |   | - |   |   |   | 5,594 |   |
| Total equity                                                                                                                                       |   |   | 268,743 |   |   |   | 320,276 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $ | 861,273 |   |   | $ | 943,409 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                       |   | Three Months Ended |    |   | Six Months Ended |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                       |   | June 30,           |    |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                                                                                       |   | 2009               |    |   | 2008             |   |   | 2009 |   |   | 2008 |   |
| REVENUES                                                                                                                                                                                                                                                                                                                                                                                   |   |               |    |   |             |   |   |   |   |   |   |   |
| Oil and gas sales                                                                                            |   | $                  | 57,206  |   |             | $      | 134,291 |   |   | $ | 108,002 |   |   | $ | 253,210 |   |
| Natural gas services                                                                                         |   |               | 1,355   |   |             |   | 3,553 |   |   |   | 2,939 |   |   |   | 6,091 |   |
| Drilling rig services                                                                                        |   |               | 1,462   |   |             |   | 12,703 |   |   |   | 6,681 |   |   |   | 27,535 |   |
| Gain on sales of assets                                                                                      |   |               | 480     |   |             |   | 40,721 |   |   |   | 663 |   |   |   | 41,290 |   |
| Total revenues                                                                                                                             |   |               | 60,503  |   |             |   | 191,268 |   |   |   | 118,285 |   |   |   | 328,126 |   |
|                                                                                                                                                                                                                                                                                                                                                                                       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| COSTS AND EXPENSES                                                                                                                                                                                                                                                                                                                                                                         |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Production                                                                                                   |   |               | 18,296  |   |             |   | 21,925 |   |   |   | 37,359 |   |   |   | 42,504 |   |
| Exploration:                                                                                                                                                                                                                                                                                                                                                                               |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Abandonments and impairments                                                                                                                                                                                                                                                                                                                                                               |   |               | 4,505   |   |             |   | 1,933 |   |   |   | 16,917 |   |   |   | 2,230 |   |
| Seismic and other                                                                                                                          |   |               | 1,388   |   |             |   | 1,562 |   |   |   | 5,658 |   |   |   | 5,237 |   |
| Natural gas services                                                                                         |   |               | 1,211   |   |             |   | 3,244 |   |   |   | 2,622 |   |   |   | 5,759 |   |
| Drilling rig services                                                                                        |   |               | 2,911   |   |             |   | 9,923 |   |   |   | 9,997 |   |   |   | 21,040 |   |
| Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                   |   |               | 26,186  |   |             |   | 24,974 |   |   |   | 62,651 |   |   |   | 55,247 |   |
| Impairment of property and equipment                                                                                                                                                                                                                                                                                                                                                       |   |               | 32,068  |   |             |   | - |   |   |   | 32,068 |   |   |   | - |   |
| Accretion of abandonment obligations                                                                                                                                                                                                                                                                                                                                                       |   |               | 748     |   |             |   | 485 |   |   |   | 1,466 |   |   |   | 1,015 |   |
| General and administrative                                                                                   |   |               | 6,256   |   |             |   | 7,944 |   |   |   | 10,784 |   |   |   | 11,392 |   |
| Loss on sales of assets and inventory                                                                                                                                                                                                                                                                                                                                                      |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| write-downs                                                                                                                 |   |               | 396     |   |             |   | 277 |   |   |   | 3,845 |   |   |   | 286 |   |
| Total costs and expenses                                                                                                                   |   |               | 93,965  |   |             |   | 72,267 |   |   |   | 183,367 |   |   |   | 144,710 |   |
|                                                                                                                                                                                                                                                                                                                                                                                       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)                                                                                                                    |   |               | (33,462 | )      |             |   | 119,001 |   |   |   | (65,082 | ) |   |   | 183,416 |   |
|                                                                                                                                                                                                                                                                                                                                                                                       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                                                                                                                                     |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                             |   |               | (5,736  | )      |             |   | (6,077 | ) |   |   | (11,174 | ) |   |   | (13,523 | ) |
| Loss on derivatives                                                                                          |   |               | (21,770 | )      |             |   | (148,587 | ) |   |   | (19,260 | ) |   |   | (194,696 | ) |
| Other                                                                                                        |   |               | 826     |   |             |   | 3,014 |   |   |   | 1,727 |   |   |   | 3,669 |   |
| Total other income (expense)                                                                                                               |   |               | (26,680 | )      |             |   | (151,650 | ) |   |   | (28,707 | ) |   |   | (204,550 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Loss before income taxes                                                            |   |               | (60,142 | )      |             |   | (32,649 | ) |   |   | (93,789 | ) |   |   | (21,134 | ) |
| Income tax benefit                                                                  |   |               | 21,943  |   |             |   | 11,642 |   |   |   | 34,321 |   |   |   | 7,420 |   |
| NET LOSS                                                                            |   |               | (38,199 | )      |             |   | (21,007 | ) |   |   | (59,468 | ) |   |   | (13,714 | ) |
| Less income attributable to                                                                                                                                                                                                                                                                                                                                                                |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| noncontrolling interest, net of tax                                                                                                                                                                                                                                                                                                                                                        |   |               | (409    | )      |             |   | (164 | ) |   |   | (1,455 | ) |   |   | (278 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| NET LOSS attributable to Clayton                                                                                                                                                                                                                                                                                                                                                           |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Williams Energy, Inc.                                                                                        |   | $                  | (38,608 | )      |             | $      | (21,171 | ) |   | $ | (60,923 | ) |   | $ | (13,992 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per common share attributable to                                                                                                                                                                                                                                                                                                                                                  |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Clayton Williams Energy, Inc. stockholders:                                                                                                                                                                                                                                                                                                                                                |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                        |   | $                  | (3.18   | )      |             | $      | (1.75 | ) |   | $ | (5.02 | ) |   | $ | (1.19 | ) |
| Diluted                                                                                                      |   | $                  | (3.18   | )      |             | $      | (1.75 | ) |   | $ | (5.02 | ) |   | $ | (1.19 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                       |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding:                                                                                                                                                                                                                                                                                                                                                |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                        |   |               | 12,142  |   |             |   | 12,111 |   |   |   | 12,132 |   |   |   | 11,749 |   |
| Diluted                                                                                                      |   |               | 12,142  |   |             |   | 12,111 |   |   |   | 12,132 |   |   |   | 11,749 |   |

----

CLAYTON 

|                          |   | Clayton Williams Energy, Inc. Stockholders’ Equity |   |   |       |   |
|-------------------------------|--------|----------------------------------------------------------|--------|--------|------------|--------|
|                          |   | Common Stock                                             |   |   | Additional |   |   |   |   |   |   |   |
|                          |   | No. of                                                   |   |   | Par        |   |   | Paid-In |   |   | Retained |   |   | Noncontrolling |   |
|                          |   | Shares                                                   |   |   | Value      |   |   | Capital |   |   | Earnings |   |   | Interest |   |
| BALANCE,                      |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |
| December 31, 2008             |   |                                                     | 12,116 |   |       | $      | 1,212 |   |   | $ | 137,046 |   |   | $ | 176,424 |   |   | $ | 5,594 |   |
| Net income (loss)             |   |                                                     | -      |   |       |   | - |   |   |   | - |   |   |   | (60,923 | ) |   |   | 1,455 |   |
| Stock options exercised       |   |                                                     | 28     |   |       |   | 2 |   |   |   | 150 |   |   |   | - |   |   |   | - |   |
| Acquisition of noncontrolling |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest                      |   |                                                     | -      |   |       |   | - |   |   |   | 14,832 |   |   |   | - |   |   |   | (7,049 | ) |
| BALANCE,                      |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| June 30, 2009                 |   |                                                     | 12,144 |   |       | $      | 1,214 |   |   | $ | 152,028 |   |   | $ | 115,501 |   |   | $ | - |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Six Months Ended |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | June 30,         |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2009             |    |   | 2008 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |
| Net loss                                                                                                                                  |   | $                | (59,468 | ) |   | $ | (13,714 | ) |
| Adjustments to reconcile net loss to cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             |    |   |   |   |   |   |
| provided by operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |             |    |   |   |   |   |   |
| Depreciation, depletion and amortization                                                                                                                                |   |             | 62,651  |   |   |   | 55,247 |   |
| Impairment of property and equipment                                                                                                                                    |   |             | 32,068  |   |   |   | - |   |
| Exploration costs                                                                                                                                                       |   |             | 16,917  |   |   |   | 2,230 |   |
| (Gain) loss on sales of assets and inventory write-downs, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |             | 3,182   |   |   |   | (41,004 | ) |
| Deferred income tax benefit                                                                                                                                             |   |             | (34,321 | ) |   |   | (7,752 | ) |
| Non-cash employee compensation                                                                                                                                          |   |             | 627     |   |   |   | 1,910 |   |
| Unrealized loss on derivatives                                                                                                                                          |   |             | 18,907  |   |   |   | 145,621 |   |
| Settlements on derivatives with financing elements                                                                                                                      |   |             | -       |   |   |   | 24,789 |   |
| Amortization of debt issue costs                                                                                                                                        |   |             | 624     |   |   |   | 785 |   |
| Accretion of abandonment obligations                                                                                                                                    |   |             | 1,466   |   |   |   | 1,015 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |   |   |
| Changes in operating working capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |             |    |   |   |   |   |   |
| Accounts receivable                                                                                                                                                     |   |             | 10,579  |   |   |   | (19,662 | ) |
| Accounts payable                                                                                                                                                        |   |             | (16,626 | ) |   |   | 398 |   |
| Other                                                                                                                                                                   |   |             | 3,264   |   |   |   | (442 | ) |
| Net cash provided by operating activities                                                                                                                                                             |   |             | 39,870  |   |   |   | 149,421 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |   |   |
| Additions to property and equipment                                                                                                       |   |             | (69,082 | ) |   |   | (118,500 | ) |
| Proceeds from sales of assets                                                                                                             |   |             | 670     |   |   |   | 114,049 |   |
| Change in equipment inventory                                                                                                             |   |             | (12,594 | ) |   |   | (6,777 | ) |
| Other                                                                                                                                     |   |             | (97     | ) |   |   | 785 |   |
| Net cash used in investing activities                                                                                                                                                                 |   |             | (81,103 | ) |   |   | (10,443 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |   |   |
| Proceeds from long-term debt                                                                                                              |   |             | 25,200  |   |   |   | 4,000 |   |
| Repayments of long-term debt                                                                                                              |   |             | (9,375  | ) |   |   | (128,925 | ) |
| Proceeds from exercise of stock options                                                                                                   |   |             | 152     |   |   |   | 15,884 |   |
| Settlements on derivatives with financing elements                                                                                        |   |             | -       |   |   |   | (24,789 | ) |
| Net cash provided by (used in) financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             | 15,977  |   |   |   | (133,830 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |   |   |
| NET INCREASE (DECREASE) IN CASH AND                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |    |   |   |   |   |   |
| CASH EQUIVALENTS                                                                                                                |   |             | (25,256 | ) |   |   | 5,148 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             |    |   |   |   |   |   |
| Beginning of period                                                                                                                       |   |             | 41,199  |   |   |   | 12,344 |   |
| End of period                                                                                                                             |   | $                | 15,943  |   |   | $ | 17,492 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |             |    |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |    |   |   |   |   |   |
| Cash paid for interest, net of amounts capitalized                                                                                        |   | $                | 11,354  |   |   | $ | 13,123 |   |

----

CLAYTON 

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

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

----

----

| 3. | Recent Accounting Pronouncements |
|----|----------------------------------|

| 4. | Long-Term Debt |
|----|----------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | June 30,       |    |   | December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 2009           |    |   | 2008         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | (In thousands) |    |
| 73⁄4% Senior Notes due 2013                                                                            |   | $              | 225,000 |   |         | $      | 225,000 |   |
| Secured bank credit facility, due May 2012                                                                                                                                                                                                                                                                                                                                                                                                          |   |           | 119,300 |   |         |   | 94,100 |   |
| Secured term loan of Desta Drilling, due June 2011                                                                                                                                                                                                                                                                                                                                                                                                  |   |           | 30,000  |   |         |   | 39,375 |   |
| Subordinated notes of Desta Drilling(a)                                                                   |   |           | -       |   |         |   | 7,500 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |           | 374,300 |   |         |   | 365,975 |   |
| Less current maturities(b)                                                                                |   |           | (18,750 | )      |         |   | (18,750 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $              | 355,550 |   |         | $      | 347,225 |   |
|                                                                                                                                                                                                                                                                                                                                                                                              |   |           |    |   |         |   |   |   |

----

----

| 5. | Other Non-Current Liabilities |
|----|-------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | June 30,       |   |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2009           |   |   | 2008         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (In thousands) |   |
| Abandonment obligations                                                                                    |   | $              | 36,320 |   |         | $      | 31,737 |   |
| Other taxes payable                                                                                        |   |           | 144    |   |         |   | 144 |   |
| Other                                                                                                      |   |           | 570    |   |         |   | 736 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $              | 37,034 |   |         | $      | 32,617 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Six Months Ended |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2009             |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (In thousands)   |   |
| Beginning of period                                                                                    |   | $                | 31,737 |   |   | $ | 30,994 |   |
| Additional abandonment obligations from new wells                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             | 945    |   |   |   | 228 |   |
| Sales of properties                                                                                                        |   |             | (47    | ) |   |   | (1,784 | ) |
| Revisions of previous estimates                                                                                            |   |             | 2,219  |   |   |   | (1,391 | ) |
| Accretion expense                                                                                                          |   |             | 1,466  |   |   |   | 1,015 |   |
| End of period                                                                                          |   | $                | 36,320 |   |   | $ | 29,062 |   |

| 6. | Compensation Plans |
|----|--------------------|

----

|                                                                              |                           |   |    |   |     |   |   | Weighted    |   |   |      |   |
|-----------------------------------------------------------------------------------|--------------------------------|--------|---------|--------|----------|--------|--------|-------------|--------|--------|-----------|--------|
|                                                                              |                           |   |    |   | Weighted |   |   | Average     |   |   |      |   |
|                                                                              |                           |   |    |   | Average  |   |   | Remaining   |   |   | Aggregate |   |
|                                                                              |                           |   |    |   | Exercise |   |   | Contractual |   |   | Intrinsic |   |
|                                                                              |                           | Shares |    |   | Price    |   |   | Term        |   |   | Value(a)  |   |
| Outstanding at January 1, 2009                                                    |                           |   | 53,638  |   |     | $      | 15.20  |        |   |   |      |   |   |   |
| Exercised (b)                                                                |                           |   | (27,638 | )      |     | $      | 5.50   |        |   |   |      |   |   |   |
| Outstanding at June 30, 2009                                                      |                           |   | 26,000  |   |     | $      | 25.52  |        |   |   | 4.7       |   |   | $ | 51,620 |   |
|                                                                              |                           |   |    |   |     |   |   |        |   |   |      |   |   |   |   |   |
| Vested at June 30, 2009                                                           |                           |   | 26,000  |   |     | $      | 25.52  |        |   |   | 4.7       |   |   | $ | 51,620 |   |
| Exercisable at June 30, 2009                                                      |                           |   | 26,000  |   |     | $      | 25.52  |        |   |   | 4.7       |   |   | $ | 51,620 |   |
|                                                |       |   |    |   |     |   |   |        |   |   |      |   |   |   |   |   |
| (a)   Based on closing price at June 30, 2009 of $18.87 per share. |                           |
| (b)   Cash received for options exercised totaled $152,000.        |                           |

|                                                                                                                                                                                                                                                                                                                                                                                                      | Outstanding and Exercisable Options        |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   |   |   | Weighted |
|                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   | Weighted |   | Average |
|                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   | Average |   | Remaining |
|                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   | Exercise |   | Life in |
|                                                                                                                                                                                                                                                                                                                                                                                                      | Shares                                     |   | Price |   | Years |
| Range of exercise prices:                                                                                                                                                                                                                                                                                                                                                                                 |                                       |   |   |   |   |
| $10.00 - $19.74                                                                |        8,000 |   | $             12.42 |   | 2.4 |
| $22.90 - $41.74                                                                |      18,000       |   | $             31.34 |   | 5.7 |
|                                                                                                                                                                                                                                                                                                                                                                                                      |      26,000       |   | $             25.52 |   | 4.7 |

|                                                                |   | Six Months Ended                 |   |
|---------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                |   | June 30,                         |   |
|                                                                |   | 2009                             |   |   | 2008 |   |
|                                                                |   | (In thousands, except per share) |   |
| Weighted average grant date fair value of options granted per share |   | $                                | -      |   |   | $ | 23.06 |   |
| Intrinsic value of options exercised                                |   | $                                | 542    |   |   | $ | 20,344 |   |
|                                                                |   |                             |   |   |   |   |   |   |
| Stock-based employee compensation expense                           |   | $                                | -      |   |   | $ | 92 |   |
| Tax benefit                                                         |   |                             | -      |   |   |   | (32 | ) |
| Net stock-based employee compensation expense                       |   | $                                | -      |   |   | $ | 60 |   |

----

| 7. | Derivatives |
|----|-------------|

----

|                                                                                                                                                                   |   | Gas       |       |   | Oil    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|--------|--------|--------|
|                                                                                                                                                                   |   | MMBtu (a) |       |   | Price  |   |   | Bbls |   |   | Price |   |
| Production Period:                                                                                                                                                     |   |      |       |   |   |   |   |   |   |   |   |   |
| 3rd Quarter 2009                                                                                                                                                       |   |      | 1,450,000  |   |   | $      | 5.47 |   |   |   | 440,000 |   |   | $ | 48.13 |   |
| 4th Quarter 2009                                                                                                                                                       |   |      | 1,850,000  |   |   | $      | 5.47 |   |   |   | 400,000 |   |   | $ | 46.15 |   |
| 2010                            |   |      | 7,540,000  |   |   | $      | 6.80 |   |   |   | 327,000 |   |   | $ | 53.30 |   |
| 2011                            |   |      | 6,420,000  |   |   | $      | 7.07 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                                                   |   |      | 17,260,000 |   |   |   |   |   |   |   | 1,167,000 |   |   |   |   |   |
|                                                                                                                                          |   |      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)   One MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                                |   |

|                          | Liability Derivatives     |   |
|-------------------------------|---------------------------|--------|
|                          |                      |   |   |   |
|                          | Balance Sheet             |   | June 30, 2009 |   |
|                          | Location                  |   | Fair Value |   |
|                          |                      |   | (In thousands) |   |
| Derivatives not designated as |                      |   |   |   |
| hedging instruments under     | Current liabilities -     |   |   |   |
| SFAS 133:                     | Fair value of derivatives |   | $ | 17,626 |   |
| Commodity contracts           | Non-current liabilities - |   |   |   |   |
|                          | Fair value of derivatives |   |   | 1,281 |   |
| Total                         |                      |   | $ | 18,907 |   |

|                                                 |   | June 30, 2009  |    |
|------------------------------------------------------|--------|----------------|---------|
|                                                 |   | Assets         |    |   | Liabilities |   |
|                                                 |   | (In thousands) |    |
| Fair value of derivatives – gross presentation |   | $              | 16,052  |   |   | $ | 34,959 |   |
| Effects of netting arrangements                      |   |           | (16,052 | ) |   |   | (16,052 | ) |
| Fair value of derivatives – net presentation   |   | $              | -       |   |   | $ | 18,907 |   |

----

|                          |   | Amount of Gain or (Loss) Recognized in Earnings |
|-------------------------------|--------|-------------------------------------------------|
|                          |   |                                            |   | Six Months Ended |
|                          |   | Location of Gain or (Loss)                      |   | June 30, |
|                          |   | Recognized in Earnings                          |   | 2009 |   | 2008 |
|                          |   |                                            |   | (In thousands) |
| Derivatives not designated as |   |                                            |   |   |   |   |
| hedging instruments under     |   |                                            |   |   |   |   |
| SFAS 133:                     |   |                                            |   |   |   |   |
| Commodity contracts           |   | Other income (expense) -                        |   |   |   |   |
|                          |   | Loss on derivatives                             |   | $       (19,260) |   | $       (194,696) |
| Total                         |   |                                            |   | $       (19,260) |   | $       (194,696) |

| 8. | 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. |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Fair Value Measurements                                                         |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | June 30, 2009                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Significant                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Other                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Observable                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Inputs                                                                          |
| Description                                                                                                                                                                                                                                                                                                                                                                                                             |   | (Level 2)                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (In thousands)                                                                  |
| Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                            |
| Fair value of commodity derivatives                                                               |   | $            18,907 |
| Total liabilities                                                                       |   | $            18,907 |

|                                                                                                                                                                                                                                                                                       |   | Fair Value Measurements |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                                                                                                                                                                       |   | June 30, 2009           |   |
|                                                                                                                                                                                                                                                                                       |   | Significant             |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                       |   | Other                   |   |   | Significant |   |   |   |   |
|                                                                                                                                                                                                                                                                                       |   | Observable              |   |   | Unobservable |   |   |   |   |
|                                                                                                                                                                                                                                                                                       |   | Inputs                  |   |   | Inputs |   |   | Total |   |
| Description                                                                                                                                                                                                                                                                                |   | (Level 2)               |   |   | (Level 3) |   |   | Losses |   |
|                                                                                                                                                                                                                                                                                       |   | (In thousands)          |   |
| Assets:                                                                                                                                                                                                                                                                                    |   |                    |   |   |   |   |   |   |   |
| Inventory                                                                     |   | $                       | 13,541 |   |   | $ | - |   |   | $ | 3,390 |   |
| Assets held for sale(a)                                                       |   |                    | -      |   |   |   | 18,750 |   |   |   | 32,068 |   |
| Long-lived assets held and used                                                                                                                                                                                                                                                            |   |                    | 14,819 |   |   |   | - |   |   |   | 12,015 |   |
| Total assets                                              |   | $                       | 28,360 |   |   | $ | 18,750 |   |   | $ | 47,473 |   |
|                                                                                                                                                                                                                                                              |   |                    |   |   |   |   |   |   |   |   |   |   |
| (a)  For information about Level 3 inputs, see Note 11.                                                                                                                                                                                                                          |   |

| 9. | Income Taxes |
|----|--------------|

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | June 30,       |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2009           |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (In thousands) |   |
| Balance at beginning of period                                                                                              |   | $              | 144    |   |
| Reductions for tax positions of prior years                                                                                 |   |           | -      |   |
| Balance at end of period                                                                                                    |   | $              | 144    |   |

| 10. | Investment in Desta Drilling |
|-----|------------------------------|

----

| 11. | Impairment of Property and Equipment |
|-----|--------------------------------------|

| 12. | Oil and Gas Properties |
|-----|------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | June 30,       |      |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-----------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 2009           |      |   | 2008         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (In thousands) |      |
| Proved properties                                                                                       |   | $              | 1,479,961 |   |         | $      | 1,435,718 |   |
| Unproved properties                                                                                     |   |           | 84,586    |   |         |   | 90,755 |   |
| Total capitalized costs                                                                                 |   |           | 1,564,547 |   |         |   | 1,526,473 |   |
| Accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |           | (851,928  | )      |         |   | (791,507 | ) |
| Net capitalized costs                                                                                                            |   | $              | 712,619   |   |         | $      | 734,966 |   |

| 13. | Sales of Assets and Inventory Write-downs |
|-----|-------------------------------------------|

----

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

| 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 |   |
|                                            |   |        |    |   |     |   |    |         |   |   |         |   |   |   |   |   |

----

| For the Three Months Ended                      |   |        |    |   |     |   |   |         |   |   |         |   |
|-------------------------------------------------|--------|-------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| June 30, 2008                                   |   |        |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                     |   |        |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In thousands)                                  |   | Oil and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |
| Revenues                                        |   | $           | 178,076 |   |     | $      | 16,874 |         |   | $      | (3,682       | )      |   | $ | 191,268 |   |
| Depreciation, depletion and amortization (a)    |   |        | 22,860  |   |     |   | 2,623  |         |   |   | (509         | )      |   |   | 24,974 |   |
| Other operating expenses (b)                    |   |        | 37,235  |   |     |   | 12,753 |         |   |   | (2,695       | )      |   |   | 47,293 |   |
| Interest expense                                |   |        | 5,136   |   |     |   | 941    |         |   |   | -            |   |   |   | 6,077 |   |
| Other (income) expense                          |   |        | 145,573 |   |     |   | -      |         |   |   | -            |   |   |   | 145,573 |   |
| Income (loss) before income taxes               |   |        | (32,728 | )      |     |   | 557    |         |   |   | (478         | )      |   |   | (32,649 | ) |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                    |   |        | 11,891  |   |     |   | (249   | )            |   |   | -            |   |   |   | 11,642 |   |
| Net income (loss)                               |   |        | (20,837 | )      |     |   | 308    |         |   |   | (478         | )      |   |   | (21,007 | ) |
| Less income attributable to                     |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   noncontrolling interest, net of tax |   |        | -       |   |     |   | (164   | )            |   |   | -            |   |   |   | (164 | ) |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to               |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc.       |   | $           | (20,837 | )      |     | $      | 144    |         |   | $      | (478         | )      |   | $ | (21,171 | ) |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total assets                                    |   | $           | 826,711 |   |     | $      | 95,304 |         |   | $      | (9,574       | )      |   | $ | 912,441 |   |
| Additions to property and equipment             |   | $           | 93,395  |   |     | $      | 608    |         |   | $      | (478         | )      |   | $ | 93,525 |   |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

| For the Six Months Ended                        |   |        |    |   |     |   |   |         |   |   |         |   |
|-------------------------------------------------|--------|-------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| June 30, 2008                                   |   |        |    |   |     |   |   |         |   |   |         |   |
| (Unaudited)                                     |   |        |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| (In thousands)                                  |   | Oil and Gas |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |
| Revenues                                        |   | $           | 300,102 |   |     | $      | 34,037 |         |   | $      | (6,013       | )      |   | $ | 328,126 |   |
| Depreciation, depletion and amortization (a)    |   |        | 50,848  |   |     |   | 5,233  |         |   |   | (834         | )      |   |   | 55,247 |   |
| Other operating expenses (b)                    |   |        | 68,050  |   |     |   | 25,761 |         |   |   | (4,348       | )      |   |   | 89,463 |   |
| Interest expense                                |   |        | 11,488  |   |     |   | 2,035  |         |   |   | -            |   |   |   | 13,523 |   |
| Other (income) expense                          |   |        | 191,027 |   |     |   | -      |         |   |   | -            |   |   |   | 191,027 |   |
| Income (loss) before income taxes               |   |        | (21,311 | )      |     |   | 1,008  |         |   |   | (831         | )      |   |   | (21,134 | ) |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income tax (expense) benefit                    |   |        | 7,927   |   |     |   | (507   | )            |   |   | -            |   |   |   | 7,420 |   |
| Net income (loss)                               |   |        | (13,384 | )      |     |   | 501    |         |   |   | (831         | )      |   |   | (13,714 | ) |
| Less income attributable to                     |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   noncontrolling interest, net of tax |   |        | -       |   |     |   | (278   | )            |   |   | -            |   |   |   | (278 | ) |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net income (loss) attributable to               |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|   Clayton Williams Energy, Inc.       |   | $           | (13,384 | )      |     | $      | 223    |         |   | $      | (831         | )      |   | $ | (13,992 | ) |
|                                            |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total assets                                    |   | $           | 826,711 |   |     | $      | 95,304 |         |   | $      | (9,574       | )      |   | $ | 912,441 |   |
| Additions to property and equipment             |   | $           | 148,826 |   |     | $      | 617    |         |   | $      | (831         | )      |   | $ | 148,612 |   |
|                   |   |        |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

----

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

| (Unaudited)                                                                                                                                                                                                                     |   |   |    |   |         |   |    | Non-      |   |   |         |   |   |         |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|-----------|--------|--------|--------------|--------|--------|--------------|----------|
| (Dollars in thousands)                                                                                                                                                                                                          |   |   |    |   | Guarantor    |   |    | Guarantor |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                            |   | Issuer |    |   | Subsidiaries |   |    | Entities  |   |   | Eliminations |   |   | Consolidated |     |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |
| Current assets                                        |   | $      | 207,538 |   |         | $      | 211,306 |      |   | $      | 28,695       |   |   | $            | (328,421 | ) |   | $ | 119,118 |   |
| Property and equipment, net                                                                                                                                                                                                     |   |   | 382,490 |   |         |   | 328,380 |      |   |   | 23,784       |   |   |         | -        |   |   |   | 734,654 |   |
| Investments in subsidiaries                                                                                                                                                                                                     |   |   | 72,082  |   |         |   | -       |      |   |   | -            |   |   |         | (72,082  | ) |   |   | - |   |
| Other assets                                          |   |   | 7,004   |   |         |   | 381     |      |   |   | 168          |   |   |         | (52      | ) |   |   | 7,501 |   |
| Total assets                                                              |   | $      | 669,114 |   |         | $      | 540,067 |      |   | $      | 52,647       |   |   | $            | (400,555 | ) |   | $ | 861,273 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Current liabilities                                   |   | $      | 152,771 |   |         | $      | 267,670 |      |   | $      | 20,559       |   |   | $            | (328,422 | ) |   | $ | 112,578 |   |
| Non-current liabilities:                                                                                                                                                                                                        |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term debt                                                            |   |   | 344,300 |   |         |   | -       |      |   |   | 11,250       |   |   |         | -        |   |   |   | 355,550 |   |
| Fair value of derivatives                                                                                                                                                                                                       |   |   | 1,281   |   |         |   | -       |      |   |   | -            |   |   |         | -        |   |   |   | 1,281 |   |
| Other                                                                     |   |   | 62,366  |   |         |   | 60,629  |      |   |   | 126          |   |   |         | -        |   |   |   | 123,121 |   |
|                                                                                                                                                                                                                            |   |   | 407,947 |   |         |   | 60,629  |      |   |   | 11,376       |   |   |         | -        |   |   |   | 479,952 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Equity                                                |   |   | 108,396 |   |         |   | 211,768 |      |   |   | 20,712       |   |   |         | (72,133  | ) |   |   | 268,743 |   |
| Total liabilities and                                                                                                                                                                                                           |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
|   equity                                                        |   | $      | 669,114 |   |         | $      | 540,067 |      |   | $      | 52,647       |   |   | $            | (400,555 | ) |   | $ | 861,273 |   |

| (Dollars in thousands)                                                                                                                                                                                                          |   |   |    |   |         |   |    | Non-      |   |   |         |   |   |         |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|-----------|--------|--------|--------------|--------|--------|--------------|----------|
|                                                                                                                                                                                                                            |   |   |    |   | Guarantor    |   |    | Guarantor |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                            |   | Issuer |    |   | Subsidiaries |   |    | Entities  |   |   | Eliminations |   |   | Consolidated |     |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |
| Current assets                                        |   | $      | 178,349 |   |         | $      | 173,636 |      |   | $      | 15,749       |   |   | $            | (242,250 | ) |   | $ | 125,484 |   |
| Property and equipment, net                                                                                                                                                                                                     |   |   | 388,189 |   |         |   | 345,327 |      |   |   | 76,512       |   |   |         | -        |   |   |   | 810,028 |   |
| Investments in subsidiaries                                                                                                                                                                                                     |   |   | 72,082  |   |         |   | -       |      |   |   | -            |   |   |         | (72,082  | ) |   |   | - |   |
| Other assets                                          |   |   | 19,629  |   |         |   | 372     |      |   |   | 211          |   |   |         | (12,315  | ) |   |   | 7,897 |   |
| Total assets                                                              |   | $      | 658,249 |   |         | $      | 519,335 |      |   | $      | 92,472       |   |   | $            | (326,647 | ) |   | $ | 943,409 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Current liabilities                                   |   | $      | 83,288  |   |         | $      | 253,627 |      |   | $      | 28,212       |   |   | $            | (242,250 | ) |   | $ | 122,877 |   |
| Non-current liabilities:                                                                                                                                                                                                        |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term debt                                                            |   |   | 319,100 |   |         |   | -       |      |   |   | 40,225       |   |   |         | (12,100  | ) |   |   | 347,225 |   |
| Other                                                                     |   |   | 95,619  |   |         |   | 57,301  |      |   |   | 114          |   |   |         | (3       | ) |   |   | 153,031 |   |
|                                                                                                                                                                                                                            |   |   | 414,719 |   |         |   | 57,301  |      |   |   | 40,339       |   |   |         | (12,103  | ) |   |   | 500,256 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Equity                                                |   |   | 160,242 |   |         |   | 208,407 |      |   |   | 23,921       |   |   |         | (72,294  | ) |   |   | 320,276 |   |
| Total liabilities and                                                                                                                                                                                                           |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
|   equity                                                        |   | $      | 658,249 |   |         | $      | 519,335 |      |   | $      | 92,472       |   |   | $            | (326,647 | ) |   | $ | 943,409 |   |

----

| (Unaudited)                                                                                                                                                                                                                        |   |   |    |   |         |   |   | Non-      |   |   |         |   |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                     |   |   |    |   | Guarantor    |   |   | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                               |   | Issuer |    |   | Subsidiaries |   |   | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                            |   | $      | 34,094  |   |         | $      | 25,054 |      |   | $      | 8,473        |   |   | $            | (7,118 | ) |   | $ | 60,503 |   |
| Costs and expenses                                       |   |   | 46,624  |   |         |   | 19,532 |      |   |   | 34,876       |   |   |         | (7,067 | ) |   |   | 93,965 |   |
| Operating income (loss)                                                                                                                                                                                                            |   |   | (12,530 | )      |         |   | 5,522  |      |   |   | (26,403      | )      |   |         | (51    | ) |   |   | (33,462 | ) |
| Other income (expense)                                                                                                                                                                                                             |   |   | (27,770 | )      |         |   | 1,400  |      |   |   | (310         | )      |   |         | -      |   |   |   | (26,680 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                       |   |   | 21,943  |   |         |   | -      |      |   |   | -            |   |   |         | -      |   |   |   | 21,943 |   |
| Noncontrolling interest,                                                                                                                                                                                                           |   |   |    |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
|   net of tax                                   |   |   | (409    | )      |         |   | -      |      |   |   | -            |   |   |         | -      |   |   |   | (409 | ) |
|                                                                                                                                                                                                                               |   |   |    |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Net income (loss)                                                            |   | $      | (18,766 | )      |         | $      | 6,922  |      |   | $      | (26,713      | )      |   | $            | (51    | ) |   | $ | (38,608 | ) |

| (Unaudited)                                                                                                                                                                                                                        |   |   |    |   |         |   |   | Non-      |   |   |         |   |   |         |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|---------|
| (In thousands)                                                                                                                                                                                                                     |   |   |    |   | Guarantor    |   |   | Guarantor |   |   | Adjustments/ |   |   |         |    |
|                                                                                                                                                                                                                               |   | Issuer |    |   | Subsidiaries |   |   | Entities  |   |   | Eliminations |   |   | Consolidated |    |
| Total revenue                                            |   | $      | 67,633  |   |         | $      | 44,233 |      |   | $      | 17,779       |   |   | $            | (11,360 | ) |   | $ | 118,285 |   |
| Costs and expenses                                       |   |   | 110,443 |   |         |   | 43,642 |      |   |   | 40,527       |   |   |         | (11,245 | ) |   |   | 183,367 |   |
| Operating income (loss)                                                                                                                                                                                                            |   |   | (42,810 | )      |         |   | 591    |      |   |   | (22,748      | )      |   |         | (115    | ) |   |   | (65,082 | ) |
| Other income (expense)                                                                                                                                                                                                             |   |   | (30,669 | )      |         |   | 2,769  |      |   |   | (807         | )      |   |         | -       |   |   |   | (28,707 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                       |   |   | 34,321  |   |         |   | -      |      |   |   | -            |   |   |         | -       |   |   |   | 34,321 |   |
| Noncontrolling interest,                                                                                                                                                                                                           |   |   |    |   |         |   |   |      |   |   |         |   |   |         |    |   |   |   |   |   |
|   net of tax                                   |   |   | (1,455  | )      |         |   | -      |      |   |   | -            |   |   |         | -       |   |   |   | (1,455 | ) |
|                                                                                                                                                                                                                               |   |   |    |   |         |   |   |      |   |   |         |   |   |         |    |   |   |   |   |   |
| Net income (loss)                                                            |   | $      | (40,613 | )      |         | $      | 3,360  |      |   | $      | (23,555      | )      |   | $            | (115    | ) |   | $ | (60,923 | ) |

| (Unaudited)                                                                                                                                                                                                                    |   |   |     |   |         |   |   | Non-      |   |   |         |   |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                 |   |   |     |   | Guarantor    |   |   | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                           |   | Issuer |     |   | Subsidiaries |   |   | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                        |   | $      | 127,281  |   |         | $      | 51,269 |      |   | $      | 17,217       |   |   | $            | (4,499 | ) |   | $ | 191,268 |   |
| Costs and expenses                                   |   |   | 39,800   |   |         |   | 20,972 |      |   |   | 15,516       |   |   |         | (4,021 | ) |   |   | 72,267 |   |
| Operating income (loss)                                                                                                                                                                                                        |   |   | 87,481   |   |         |   | 30,297 |      |   |   | 1,701        |   |   |         | (478   | ) |   |   | 119,001 |   |
| Other income (expense)                                                                                                                                                                                                         |   |   | (141,834 | )      |         |   | (8,912 | )         |   |   | (904         | )      |   |         | -      |   |   |   | (151,650 | ) |
| Income tax benefit                                   |   |   | 11,642   |   |         |   | -      |      |   |   | -            |   |   |         | -      |   |   |   | 11,642 |   |
| Noncontrolling interest,                                                                                                                                                                                                       |   |   |     |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
|   net of tax                                                                                                                                                                                                         |   |   | (164     | )      |         |   | -      |      |   |   | -            |   |   |         | -      |   |   |   | (164 | ) |
| Net income (loss)                                                        |   | $      | (42,875  | )      |         | $      | 21,385 |      |   | $      | 797          |   |   | $            | (478   | ) |   | $ | (21,171 | ) |

| (Unaudited)                                                                                                                                                                                                                    |   |   |     |   |         |   |    | Non-      |   |   |         |   |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                                 |   |   |     |   | Guarantor    |   |    | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                           |   | Issuer |     |   | Subsidiaries |   |    | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Total revenue                                        |   | $      | 207,513  |   |         | $      | 93,242  |      |   | $      | 34,580       |   |   | $            | (7,209 | ) |   | $ | 328,126 |   |
| Costs and expenses                                   |   |   | 79,671   |   |         |   | 40,100  |      |   |   | 31,317       |   |   |         | (6,378 | ) |   |   | 144,710 |   |
| Operating income (loss)                                                                                                                                                                                                        |   |   | 127,842  |   |         |   | 53,142  |      |   |   | 3,263        |   |   |         | (831   | ) |   |   | 183,416 |   |
| Other income (expense)                                                                                                                                                                                                         |   |   | (190,103 | )      |         |   | (12,490 | )         |   |   | (1,957       | )      |   |         | -      |   |   |   | (204,550 | ) |
| Income tax benefit                                   |   |   | 7,420    |   |         |   | -       |      |   |   | -            |   |   |         | -      |   |   |   | 7,420 |   |
| Noncontrolling interest,                                                                                                                                                                                                       |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
|   net of tax                                                                                                                                                                                                         |   |   | (278     | )      |         |   | -       |      |   |   | -            |   |   |         | -      |   |   |   | (278 | ) |
| Net income (loss)                                                        |   | $      | (55,119  | )      |         | $      | 40,652  |      |   | $      | 1,306        |   |   | $            | (831   | ) |   | $ | (13,992 | ) |

----

| (Unaudited)                                                                                                                                                                                                                |   |   |     |   |         |   |    | Non-      |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |    | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                       |   | Issuer |     |   | Subsidiaries |   |    | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Operating activities                                  |   | $      | 47,424   |   |         | $      | (13,800 | )         |   | $      | 4,096        |   |   | $            | 2,150  |   |   | $ | 39,870 |   |
| Investing activities                                  |   |   | (106,413 | )      |         |   | (2,357  | )         |   |   | 29,817       |   |   |         | (2,150 | ) |   |   | (81,103 | ) |
| Financing activities                                  |   |   | 33,188   |   |         |   | 15,932  |      |   |   | (33,143      | )      |   |         | -      |   |   |   | 15,977 |   |
| Net increase (decrease) in                                                                                                                                                                                                 |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                  |   |   | (25,801  | )      |         |   | (225    | )         |   |   | 770          |   |   |         | -      |   |   |   | (25,256 | ) |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at the beginning of                                                                                                                                                                                                   |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                 |   |   | 35,381   |   |         |   | 1,810   |      |   |   | 4,008        |   |   |         | -      |   |   |   | 41,199 |   |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at end of the period                                                                                                                                                                                                  |   | $      | 9,580    |   |         | $      | 1,585   |      |   | $      | 4,778        |   |   | $            | -      |   |   | $ | 15,943 |   |

| (Unaudited)                                                                                                                                                                                                                |   |   |     |   |         |   |    | Non-      |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
| (In thousands)                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |    | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                       |   | Issuer |     |   | Subsidiaries |   |    | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Operating activities                                  |   | $      | 72,828   |   |         | $      | 72,085  |      |   | $      | 3,675        |   |   | $            | 833    |   |   | $ | 149,421 |   |
| Investing activities                                  |   |   | 37,709   |   |         |   | (46,480 | )         |   |   | (839         | )      |   |         | (833   | ) |   |   | (10,443 | ) |
| Financing activities                                  |   |   | (103,553 | )      |         |   | (25,166 | )         |   |   | (5,111       | )      |   |         | -      |   |   |   | (133,830 | ) |
| Net increase (decrease) in                                                                                                                                                                                                 |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                  |   |   | 6,984    |   |         |   | 439     |      |   |   | (2,275       | )      |   |         | -      |   |   |   | 5,148 |   |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at the beginning of                                                                                                                                                                                                   |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                 |   |   | 5,325    |   |         |   | 1,288   |      |   |   | 5,731        |   |   |         | -      |   |   |   | 12,344 |   |
|                                                                                                                                                                                                                       |   |   |     |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash at end of the period                                                                                                                                                                                                  |   | $      | 12,309   |   |         | $      | 1,727   |      |   | $      | 3,456        |   |   | $            | -      |   |   | $ | 17,492 |   |

| 16. | 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, 2008. |
|--------|---------|----------------------------------------------------------------------------------|

----

| ·   | Our oil and gas sales for the second quarter decreased $77.1 million, or 57%, from 2008 due substantially to decreases in prices for both oil and gas. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our oil and gas production for the second quarter of 2009 was 2% lower on a barrel of oil equivalent (“BOE”) basis than in the comparable period in 2008.  Our oil production was 2% higher than the second quarter of 2008, while gas production dropped 8% compared to the 2008 period. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Effective April 15, 2009, we acquired the remaining 50% equity ownership in the contract drilling joint venture we formed in 2006 with Lariat Services, Inc. (“Lariat”).  We have historically referred to this joint venture as Larclay JV.  In June 2009, we changed the legal name of the operating entity in the joint ventureto Desta Drilling, LP.  Desta Drilling, LP is referred to in this Form 10-Q as “Desta Drilling”. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Concurrent with obtaining 100% control of Desta Drilling, we adopted a plan of disposition to sell eight of Desta Drilling’s 12 drilling rigs.  As a result, we recorded a $32.1 million impairment of property and equipment to write-down the rigs to their estimated fair value of $18.8 million and designated the rigs as “Assets Heldfor Sale” in the accompanying consolidated balance sheet. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We recorded a $21.8 million net loss on derivatives in the second quarter of 2009, 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 recognizethe full effect of changing prices on mark-to-market valuations as a current charge or credit to our results of operations. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | During the second quarter of 2009, we increased borrowings under our revolving credit facility by $25.2 million from $94.1 million at December 31, 2008 to $119.3 million at June 30, 2009 in order to partially finance additions to property and equipment. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | At June 30, 2009, our capitalized unproved oil and gas properties totaled $84.6 million, of which approximately $37.4 million was attributable to unproved acreage.  Therefore, our results of operations in future periods may be adversely affected by abandonments and impairments related to unproved oil and gas properties. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Three Months Ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | June 30,           |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2009               |   |   | 2008 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |   |   |
| Gas (MMcf)                                                                                                                            |   |               | 3,856  |   |   |   | 4,177 |   |
| Oil (MBbls)                                                                                                                           |   |               | 716    |   |   |   | 703 |   |
| Natural gas liquids (MBbls)                                                                                                           |   |               | 59     |   |   |   | 41 |   |
| Total (MBOE)                                                                                                                          |   |               | 1,418  |   |   |   | 1,440 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |
| Average Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               |   |   |   |   |   |   |
| Gas ($/Mcf)                                                                                                                           |   | $                  | 3.84   |   |   | $ | 11.07 |   |
| Oil ($/Bbl)                                                                                                                           |   | $                  | 56.55  |   |   | $ | 121.51 |   |
| Natural gas liquids ($/Bbl)                                                                                                           |   | $                  | 24.53  |   |   | $ | 63.63 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |
| Gain (Loss) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |               |   |   |   |   |   |   |
| ($ in thousands, except per unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |               |   |   |   |   |   |   |
| Gas:   Net realized gain (loss)                                                                                        |   | $                  | 3,088  |   |   | $ | (10,287 | ) |
|       Per unit produced ($/Mcf)                                                                                                            |   | $                  | .80    |   |   | $ | (2.46 | ) |
| Oil:    Net realized loss                                                                                         |   | $                  | (4,572 | ) |   | $ | (23,348 | ) |
|   Per unit produced ($/Bbl)                                                                                                                                    |   | $                  | (6.39  | ) |   | $ | (33.21 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |
| Average Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |               |   |   |   |   |   |   |
| Gas (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                            |   |               | 15,432 |   |   |   | 14,284 |   |
| North Louisiana                                                                                                                                                          |   |               | 11,445 |   |   |   | 15,233 |   |
| South Louisiana                                                                                                                                                          |   |               | 7,699  |   |   |   | 7,347 |   |
| Austin Chalk (Trend)                                                                                                                                                     |   |               | 2,412  |   |   |   | 2,133 |   |
| Cotton Valley Reef Complex                                                                                                                                               |   |               | 3,781  |   |   |   | 6,277 |   |
| Other                                                                                                                                                                    |   |               | 1,605  |   |   |   | 627 |   |
| Total                                                                                                                                                                                                  |   |               | 42,374 |   |   |   | 45,901 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                            |   |               | 4,058  |   |   |   | 3,568 |   |
| North Louisiana                                                                                                                                                          |   |               | 273    |   |   |   | 386 |   |
| South Louisiana                                                                                                                                                          |   |               | 701    |   |   |   | 105 |   |
| Austin Chalk (Trend)                                                                                                                                                     |   |               | 2,742  |   |   |   | 3,575 |   |
| Other                                                                                                                                                                    |   |               | 94     |   |   |   | 91 |   |
| Total                                                                                                                                                                                                  |   |               | 7,868  |   |   |   | 7,725 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |   |   |   |   |   |   |
| Natural Gas Liquids (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |               |   |   |   |   |   |   |
| Permian Basin                                                                                                                                                            |   |               | 248    |   |   |   | 153 |   |
| North Louisiana                                                                                                                                                          |   |               | 37     |   |   |   | 5 |   |
| South Louisiana                                                                                                                                                          |   |               | 60     |   |   |   | 41 |   |
| Austin Chalk (Trend)                                                                                                                                                     |   |               | 290    |   |   |   | 241 |   |
| Other                                                                                                                                                                    |   |               | 13     |   |   |   | 11 |   |
| Total                                                                                                                                                                                                  |   |               | 648    |   |   |   | 451 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Three Months Ended |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | June 30,           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2009               |   |   | 2008 |
| Exploration Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |               |   |   |   |
| Abandonment and impairment costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |               |   |   |   |
| North Louisiana                                                                                                                                           |   | $                  | 848 |   |   | $ | 1,865 |   |
| South Louisiana                                                                                                                                           |   |               | 85 |   |   |   | - |   |
| Permian Basin                                                                                                                                             |   |               | 309 |   |   |   | - |   |
| East Texas Bossier                                                                                                                                        |   |               | 1,917 |   |   |   | - |   |
| Utah                                                                                                                                                      |   |               | 558 |   |   |   | - |   |
| Other                                                                                                                                                     |   |               | 788 |   |   |   | 68 |   |
| Total                                                                                                                                                                                   |   |               | 4,505 |   |   |   | 1,933 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |   |
| Seismic and other                                                                                                      |   |               | 1,388 |   |   |   | 1,562 |   |
| Total exploration costs                                                                                                                                                                 |   | $                  | 5,893 |   |   | $ | 3,495 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |   |
| Depreciation, Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |               |   |   |   |   |   |   |   |
| Oil and gas depletion                                                                                                  |   | $                  | 25,671 |   |   | $ | 22,598 |   |   |
| Contract drilling depreciation                                                                                         |   |               | 305 |   |   |   | 2,115 |   |   |
| Other depreciation                                                                                                     |   |               | 210 |   |   |   | 261 |   |   |
| Total DD&A                                                                                                                                                                          |   | $                  | 26,186 |   |   | $ | 24,974 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |   |
| Oil and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |               |   |   |   |   |   |   |   |
| Production costs                                                                                                       |   | $                  | 12.90 |   |   | $ | 15.23 |   |   |
| Oil and gas depletion                                                                                                  |   | $                  | 18.10 |   |   | $ | 15.69 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |               |   |   |   |   |   |   |   |
| Net Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |               |   |   |   |   |   |   |   |
| Exploratory Wells                                                                                                      |   |               | 1.2 |   |   |   | 1.0 |   |   |
| Developmental Wells                                                                                                    |   |               | 5.9 |   |   |   | 22.7 |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Six Months Ended |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | June 30,         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2009             |   |   | 2008 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |
| Gas (MMcf)                                                                                                         |   |             | 8,469  |   |   |   | 9,725 |   |
| Oil (MBbls)                                                                                                        |   |             | 1,467  |   |   |   | 1,387 |   |
| Natural gas liquids (MBbls)                                                                                        |   |             | 112    |   |   |   | 99 |   |
| Total (MBOE)                                                                                                       |   |             | 2,991  |   |   |   | 3,107 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |             |   |   |   |   |   |   |
| Average Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             |   |   |   |   |   |   |
| Gas ($/Mcf)                                                                                                        |   | $                | 4.25   |   |   | $ | 9.81 |   |
| Oil ($/Bbl)                                                                                                        |   | $                | 46.55  |   |   | $ | 109.05 |   |
| Natural gas liquids ($/Bbl)                                                                                        |   | $                | 23.78  |   |   | $ | 58.47 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |             |   |   |   |   |   |   |
| Gain (Losses) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |             |   |   |   |   |   |   |
| ($ in thousands, except per unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |   |   |   |
| Gas:     Net realized gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                | 4,486  |   |   | $ | (11,171 | ) |
|   Per unit produced ($/Mcf)                                                                                                                 |   | $                | .53    |   |   | $ | (1.15 | ) |
| Oil:       Net realized loss                                                                                       |   | $                | (4,839 | ) |   | $ | (36,254 | ) |
|   Per unit produced ($/Bbl)                                                                                                                 |   | $                | (3.30  | ) |   | $ | (26.14 | ) |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Six Months Ended |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | June 30,         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2009             |   |   | 2008 |
| Average Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |             |   |   |   |
| Natural Gas (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |             |   |   |   |
| Permian Basin                                                                                                                                            |   |             | 15,553 |   |   |   | 14,665 |   |
| North Louisiana                                                                                                                                          |   |             | 12,989 |   |   |   | 14,611 |   |
| South Louisiana                                                                                                                                          |   |             | 10,132 |   |   |   | 15,405 |   |
| Austin Chalk (Trend)                                                                                                                                     |   |             | 2,718 |   |   |   | 2,333 |   |
| Cotton Valley Reef Complex                                                                                                                               |   |             | 4,026 |   |   |   | 5,857 |   |
| Other                                                                                                                                                    |   |             | 1,372 |   |   |   | 563 |   |
| Total                                                                                                                                                                                  |   |             | 46,790 |   |   |   | 53,434 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |   |   |   |   |   |   |
| Permian Basin                                                                                                                                            |   |             | 4,256 |   |   |   | 3,532 |   |
| North Louisiana                                                                                                                                          |   |             | 271 |   |   |   | 365 |   |
| South Louisiana                                                                                                                                          |   |             | 548 |   |   |   | 545 |   |
| Austin Chalk (Trend)                                                                                                                                     |   |             | 2,942 |   |   |   | 3,104 |   |
| Other                                                                                                                                                    |   |             | 88 |   |   |   | 75 |   |
| Total                                                                                                                                                                                  |   |             | 8,105 |   |   |   | 7,621 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |   |   |   |
| Natural Gas Liquids (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |             |   |   |   |   |   |   |
| Permian Basin                                                                                                                                            |   |             | 238 |   |   |   | 185 |   |
| North Louisiana                                                                                                                                          |   |             | 19 |   |   |   | 3 |   |
| South Louisiana                                                                                                                                          |   |             | 52 |   |   |   | 89 |   |
| Austin Chalk (Trend)                                                                                                                                     |   |             | 299 |   |   |   | 258 |   |
| Other                                                                                                                                                    |   |             | 11 |   |   |   | 9 |   |
| Total                                                                                                                                                                                  |   |             | 619 |   |   |   | 544 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |   |   |   |
| Exploration Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |             |   |   |   |   |   |   |
| Abandonment and impairment costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |             |   |   |   |   |   |   |
| Permian Basin                                                                                                                                            |   | $                | 764 |   |   | $ | - |   |
| North Louisiana                                                                                                                                          |   |             | 1,108 |   |   |   | 2,162 |   |
| South Louisiana                                                                                                                                          |   |             | 813 |   |   |   | - |   |
| East Texas Bossier                                                                                                                                       |   |             | 10,784 |   |   |   | - |   |
| Utah                                                                                                                                                     |   |             | 2,332 |   |   |   | - |   |
| Other                                                                                                                                                    |   |             | 1,116 |   |   |   | 68 |   |
| Total                                                                                                                                                                                       |   |             | 16,917 |   |   |   | 2,230 |   |
| Seismic and other                                                                                                     |   |             | 5,658 |   |   |   | 5,237 |   |
| Total exploration costs                                                                                                                                                                     |   | $                | 22,575 |   |   | $ | 7,467 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |   |   |   |
| Depreciation, Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |             |   |   |   |   |   |   |
| Oil and gas depletion                                                                                                 |   | $                | 60,433 |   |   | $ | 50,339 |   |
| Contract drilling depreciation                                                                                        |   |             | 1,779 |   |   |   | 4,400 |   |
| Other depreciation                                                                                                    |   |             | 439 |   |   |   | 508 |   |
| Total DD&A                                                                                                                                                                              |   | $                | 62,651 |   |   | $ | 55,247 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |   |   |   |
| Oil and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |   |   |   |   |
| Production costs                                                                                                      |   | $                | 12.49 |   |   | $ | 13.68 |   |
| Oil and gas depletion                                                                                                 |   | $                | 20.20 |   |   | $ | 16.20 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |             |   |   |   |   |   |   |
| Net Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |             |   |   |   |   |   |   |
| Exploratory Wells                                                                                                     |   |             | 1.4 |   |   |   | 2.7 |   |
| Developmental Wells                                                                                                   |   |             | 11.9 |   |   |   | 35.7 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |             |   |   |   |   |   |   |
| (a)  No derivatives were designated as cash flow hedges in 2009 or 2008. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |             |   |   |   |   |   |   |

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|                                                                                                                                                                              |   | Actual           |   |   | Planned           |   |    |       |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------|-------------------|--------|---------|------------|--------|
|                                                                                                                                                                              |   | Expenditures     |   |   | Expenditures      |   |    | Year 2009  |   |
|                                                                                                                                                                              |   | Six Months Ended |   |   | Year Ending       |   |    | Percentage |   |
|                                                                                                                                                                              |   | June 30, 2009    |   |   | December 31, 2009 |   |    | of Total   |   |
|                                                                                                                                                                              |   | (In thousands)   |   |   |              |   |
| Permian Basin                              |   | $                | 14,700 |   |              | $      | 44,000  |       |   |   | 39 | % |
| South Louisiana                            |   |             | 20,200 |   |              |   | 24,400  |       |   |   | 21 | % |
| East Texas Bossier                                                                                                                                                                |   |             | 15,000 |   |              |   | 18,700  |       |   |   | 16 | % |
| Austin Chalk (Trend)                                                                                                                                                              |   |             | 200    |   |              |   | 14,800  |       |   |   | 13 | % |
| Utah/California                            |   |             | 4,100  |   |              |   | 6,700   |       |   |   | 6 | % |
| North Louisiana                            |   |             | 3,200  |   |              |   | 4,600   |       |   |   | 4 | % |
| Other                                      |   |             | 700    |   |              |   | 600     |       |   |   | 1 | % |
|                                                                                                                                                                              |   | $                | 58,100 |   |              | $      | 113,800 |       |   |   | 100 | % |

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|                                                                                  |   | June 30,       |    |   | December 31, |   |
|---------------------------------------------------------------------------------------|--------|----------------|---------|--------|--------------|--------|
|                                                                                  |   | 2009           |    |   | 2008         |   |
|                                                                                  |   | (In thousands) |    |
| Working capital per GAAP                                                              |   | $              | 6,540   |   |         | $      | 2,607 |   |
| Add funds available under the revolving credit facility                               |   |           | 129,896 |   |         |   | 155,096 |   |
| Exclude fair value of derivatives classified as current assets or current liabilities |   |           | 17,626  |   |         |   | - |   |
| Exclude current assets and current liabilities of Desta Drilling                      |   |           | (6,950  | )      |         |   | 13,205 |   |
| Working capital per loan covenant                                                     |   | $              | 147,112 |   |         | $      | 170,908 |   |

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Item 

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|                                                                                                                                                                   |   | Gas       |       |   | Oil    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|--------|--------|--------|
|                                                                                                                                                                   |   | MMBtu (a) |       |   | Price  |   |   | Bbls |   |   | Price |   |
| Production Period:                                                                                                                                                     |   |      |       |   |   |   |   |   |   |   |   |   |
| 3rd Quarter 2009                                                                                                                                                       |   |      | 1,450,000  |   |   | $      | 5.47 |   |   |   | 440,000 |   |   | $ | 48.13 |   |
| 4th Quarter 2009                                                                                                                                                       |   |      | 1,850,000  |   |   | $      | 5.47 |   |   |   | 400,000 |   |   | $ | 46.15 |   |
| 2010                            |   |      | 7,540,000  |   |   | $      | 6.80 |   |   |   | 327,000 |   |   | $ | 53.30 |   |
| 2011                            |   |      | 6,420,000  |   |   | $      | 7.07 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                                                   |   |      | 17,260,000 |   |   |   |   |   |   |   | 1,167,000 |   |   |   |   |   |
|                                                                                                                                |   |      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)  One MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                                      |   |

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Item 

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

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

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

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Item 

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Item 

|   | Results of Voting                          |   | Votes For  |   | Withheld  |   |        |
|--------|--------------------------------------------|--------|------------|--------|-----------|--------|-------------|
| 1.     | Election of Directors                      |   |       |   |      |   |        |
|   | Ted Gray, Jr.                              |   | 8,520,791  |   | 2,931,567 |   |        |
|   | Mel G. Riggs                               |   | 9,499,548  |   | 1,952,810 |   |        |
|   |                                       |   |       |   |      |   |        |
|   |                                       |   | Votes For  |   | Against   |   | Abstentions |
| 2.     | Advisory vote on the selection of KPMG LLP |   | 11,420,759 |   | 28,575    |   | 3,024       |

----

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  |   | Sixth Amendment to Amended and Restated Credit Facility, dated May 20, 2009, filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on April 17, 2009. ††                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                    |
| **10.2  |   | Term Loan and Security Agreement, dated April 21, 2006, among Larclay, L.P., GE Business Financial Services, Inc. (successor to Merrill Lynch Capital), as Administrative Agent, and the Lenders named therein filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the Commission on April 17, 2009. †† |
|    |   |                                                                                                                                                                                                                                                                                                                                    |
| **10.3  |   | Letter Agreement regarding Term Loan and Security Agreement, dated February 28, 2007, between Larclay, L.P. and GE Business Financial Services, Inc. (successor to Merrill Lynch Capital) filed as Exhibit 10.3 to our Current Report on Form 8-K filed with the Commission on April 17, 2009. ††                      |
|    |   |                                                                                                                                                                                                                                                                                                                                    |
| **10.4  |   | Seventh Amendment to Amended and Restated Credit Facility, dated May 20, 2009, filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the Commission on May 26, 2009. ††                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                    |
| *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 |
|--------|----------------|----------------------------------------------------|

----

WILLIAMS 

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

| Date:  | August 7, 2009 | By:    | /s/ L. Paul Latham                 |
|--------|----------------|--------|------------------------------------|
|   |           |   | L. Paul Latham                     |
|   |           |   | Executive Vice President and Chief |
|   |           |   |   Operating Officer      |

| Date:  | August 7, 2009 | By:    | /s/ Mel G. Riggs                          |
|--------|----------------|--------|-------------------------------------------|
|   |           |   | Mel G. Riggs                              |
|   |           |   | Senior Vice President and Chief Financial |
|   |           |   |   Officer                       |