----

| (Mark      One) |                                                  |   |
|-----------------|-------------------------------------------------------|--------|
| x               | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) |   |
|            | OF      THE SECURITIES EXCHANGE ACT OF 1934           |   |
|            | For      the quarterly period ended March 31, 2008    |   |

|  ̈ | 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 itscharter) |

| 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                       |

|  Not      applicable |
|---------------------------|

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

| Indicate      by check mark whether the registrant is a large accelerated filer, an      accelerated filer, a non-accelerated filer, or a smaller reporting      company.  See definition 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 |   | xNo |   |

| There      were 12,104,051 shares of Common Stock, $.10 par value, of the registrant      outstanding as of May 6, 2008. |
|-------------------------------------------------------------------------------------------------------------------------------|

----

| PART      I.  FINANCIAL INFORMATION |
|-----------------------------------------------|
|                                          |   | Page |
|                                          |   |   |   |
| Item      1.                                  | Financial      Statements |   |   |
|                                          |   |   |   |
|                                          | Consolidated Balance Sheets as of March 31,      2008 |   |   |
|                                          | and December 31,      2007                                                                                                 | 3 |   |
|                                          |   |   |   |
|                                          | Consolidated Statements of Operations for the three      months |   |   |
|                                          | ended March 31, 2008 and      2007                                                                                                 | 5 |   |
|                                          |   |   |   |
|                                          | Consolidated Statements of Stockholders’ Equity for the      three months |   |   |
|                                          | ended March 31,      2008                                                                                                 | 6 |   |
|                                          |   |   |   |
|                                          | Consolidated Statements of Cash Flows for the three      months |   |   |
|                                          | ended March 31, 2008 and      2007                                                                                                 | 7 |   |
|                                          |   |   |   |
|                                          | Notes to Consolidated Financial Statements | 8 |   |
|                                          |   |   |   |
| Item      2.                                  | Management’s Discussion and Analysis of      Financial |   |   |
|                                          | Conditions and Results of      Operations                                                                                                 | 22 |   |
|                                          |   |   |   |
| Item      3.                                  | Quantitative and Qualitative Disclosure About Market      Risks | 33 |   |
|                                          |   |   |   |
| Item      4.                                  | Controls and Procedures | 35 |   |
|                                          |   |   |   |
|                                          |   |   |   |
| PART      II.  OTHER INFORMATION    |
| Item      1A.                                 | Risk      Factors | 36 |   |
|                                          |   |   |   |
| Item      6.                                  | Exhibits | 36 |   |
|                                          |   |   |   |
|                                          | Signatures | 37 |   |

----

CLAYTON WILLIAMS 

| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | March      31, |   |   | December      31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Unaudited) |   |   |   |   |
| CURRENT      ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |
| Cash and cash      equivalents                                                                                                                   |   | $ | 18,523 |   |   | $ | 12,344 |   |
| Accounts      receivable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Oil and gas sales,      net                                                                                                                                               |   |   | 48,991 |   |   |   | 36,698 |   |
| Joint interest and other,      net                                                                                                                                        |   |   | 18,241 |   |   |   | 16,666 |   |
| Affiliates                                                                                                                                                                |   |   | 9,608 |   |   |   | 308 |   |
| Inventory                                                                                                                                        |   |   | 14,896 |   |   |   | 14,348 |   |
| Deferred income      taxes                                                                                                                       |   |   | 3,581 |   |   |   | 3,581 |   |
| Fair value of      derivatives                                                                                                                   |   |   | - |   |   |   | 7,191 |   |
| Assets held for      sale                                                                                                                        |   |   | 72,135 |   |   |   | 17,281 |   |
| Prepaids and      other                                                                                                                          |   |   | 3,583 |   |   |   | 3,962 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 189,558 |   |   |   | 112,379 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
| PROPERTY      AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
| Oil and gas properties,      successful efforts      method                                                                                      |   |   | 1,313,786 |   |   |   | 1,374,090 |   |
| Natural gas gathering and      processing      systems                                                                                           |   |   | 18,604 |   |   |   | 18,404 |   |
| Contract drilling      equipment                                                                                                                 |   |   | 89,965 |   |   |   | 89,956 |   |
| Other                                                                                                                                            |   |   | 14,536 |   |   |   | 14,505 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 1,436,891 |   |   |   | 1,496,955 |   |
| Less accumulated depreciation,      depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | (736,153 | ) |   |   | (765,877 | ) |
| Property and equipment,      net                                                                                                                                          |   |   | 700,738 |   |   |   | 731,078 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
| OTHER      ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Debt issue costs,      net                                                                                                                       |   |   | 6,615 |   |   |   | 6,963 |   |
| Fair value of      derivatives                                                                                                                   |   |   | 72 |   |   |   | - |   |
| Other                                                                                                                                            |   |   | 11,059 |   |   |   | 10,676 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 17,746 |   |   |   | 17,639 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $ | 908,042 |   |   | $ | 861,096 |   |

----

| LIABILITIES      AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | March      31, |   |   | December      31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (Unaudited) |   |   |   |   |
| CURRENT      LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |
| Accounts    payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
| Trade                                                                                                                                                        |   | $ | 84,602 |   |   | $ | 72,477 |   |
| Oil and gas      sales                                                                                                                                       |   |   | 27,954 |   |   |   | 24,806 |   |
| Affiliates                                                                                                                                                   |   |   | 2,190 |   |   |   | 1,747 |   |
| Current maturities of      long-term      debt                                                                                      |   |   | 20,625 |   |   |   | 22,500 |   |
| Fair value of      derivatives                                                                                                      |   |   | 71,646 |   |   |   | 56,929 |   |
| Accrued liabilities and      other                                                                                                  |   |   | 5,884 |   |   |   | 10,308 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 212,901 |   |   |   | 188,767 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| NON-CURRENT      LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Long-term      debt                                                                                                                 |   |   | 414,688 |   |   |   | 430,175 |   |
| Deferred income      taxes                                                                                                          |   |   | 48,633 |   |   |   | 44,302 |   |
| Fair value of      derivatives                                                                                                      |   |   | 10,192 |   |   |   | - |   |
| Other                                                                                                                               |   |   | 37,371 |   |   |   | 37,046 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 510,884 |   |   |   | 511,523 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| COMMITMENTS      AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| STOCKHOLDERS’      EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
| Preferred stock, par value      $.10 per share, authorized – 3,000,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|  shares; none      issued                                                                                                      |   |   | - |   |   |   | - |   |
| Common stock, par value $.10      per share, authorized – 30,000,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
|  shares; issued and      outstanding – 12,104,051 shares in 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
|  and 11,354,051 shares in      2007                                                                                            |   |   | 1,210 |   |   |   | 1,135 |   |
| Additional paid-in      capital                                                                                                     |   |   | 136,831 |   |   |   | 121,063 |   |
| Retained      earnings                                                                                                              |   |   | 43,069 |   |   |   | 35,890 |   |
| Accumulated other      comprehensive income, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 3,147 |   |   |   | 2,718 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 184,257 |   |   |   | 160,806 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $ | 908,042 |   |   | $ | 861,096 |   |

----

CLAYTON WILLIAMS 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Three      Months Ended |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | March      31,          |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 2008                    |    |   | 2007 |   |
| REVENUES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                    |    |   |   |   |
| Oil and gas      sales                                                                                                                                     |   | $                       | 118,919 |   |   | $ | 61,180 |   |
| Natural gas      services                                                                                                                                  |   |                    | 2,538   |   |   |   | 2,654 |   |
| Drilling rig      services                                                                                                                                 |   |                    | 14,832  |   |   |   | 8,417 |   |
| Gain on sales of property and      equipment                                                                                                               |   |                    | 569     |   |   |   | 259 |   |
| Total      revenues                                                                                                                                                                 |   |                    | 136,858 |   |   |   | 72,510 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| COSTS      AND EXPENSES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                    |    |   |   |   |   |   |
| Production                                                                                                                                                 |   |                    | 20,579  |   |   |   | 17,278 |   |
| Exploration:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                    |    |   |   |   |   |   |
| Abandonments and      impairments                                                                                                                                                   |   |                    | 297     |   |   |   | 11,105 |   |
| Seismic and      other                                                                                                                                                              |   |                    | 3,675   |   |   |   | 890 |   |
| Natural gas      services                                                                                                                                  |   |                    | 2,515   |   |   |   | 2,413 |   |
| Drilling rig      services                                                                                                                                 |   |                    | 11,117  |   |   |   | 4,933 |   |
| Depreciation, depletion and      amortization                                                                                                              |   |                    | 30,273  |   |   |   | 15,231 |   |
| Impairment of property and      equipment                                                                                                                  |   |                    | -       |   |   |   | 565 |   |
| Accretion of abandonment      obligations                                                                                                                  |   |                    | 530     |   |   |   | 618 |   |
| General and      administrative                                                                                                                            |   |                    | 3,448   |   |   |   | 3,903 |   |
| Loss on sales of property and      equipment                                                                                                               |   |                    | 9       |   |   |   | 9,332 |   |
| Total costs and      expenses                                                                                                                                                       |   |                    | 72,443  |   |   |   | 66,268 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| Operating      income                                                                                                                                                               |   |                    | 64,415  |   |   |   | 6,242 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| OTHER      INCOME (EXPENSE)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |    |   |   |   |   |   |
| Interest      expense                                                                                                                                      |   |                    | (7,446  | ) |   |   | (7,629 | ) |
| Loss on      derivatives                                                                                                                                   |   |                    | (46,109 | ) |   |   | (16,849 | ) |
| Other                                                                                                                                                      |   |                    | 655     |   |   |   | 713 |   |
| Total other income      (expense)                                                                                                                                                   |   |                    | (52,900 | ) |   |   | (23,765 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| Income      (loss) before income taxes and minority interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                    | 11,515  |   |   |   | (17,523 | ) |
| Income      tax (expense)      benefit                                                                                            |   |                    | (4,222  | ) |   |   | 6,080 |   |
| Minority      interest, net of      tax                                                                                           |   |                    | (114    | ) |   |   | (867 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| NET      INCOME      (LOSS)                                                                                                       |   | $                       | 7,179   |   |   | $ | (12,310 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| Net      income (loss) per common share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                    |    |   |   |   |   |   |
| Basic                                                                                                                                                      |   | $                       | 0.63    |   |   | $ | (1.09 | ) |
| Diluted                                                                                                                                                    |   | $                       | 0.62    |   |   | $ | (1.09 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| Weighted      average common shares outstanding:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                    |    |   |   |   |   |   |
| Basic                                                                                                                                                      |   |                    | 11,387  |   |   |   | 11,290 |   |
| Diluted                                                                                                                                                    |   |                    | 11,643  |   |   |   | 11,290 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |

----

WILLIAMS ENERGY

|                                                                                                                                                                                                                                                                         |   |              |   |   |       |   |   |    |   |   |     |   |   | Accumulated |   |   |    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|------------|--------|--------|---------|--------|--------|----------|--------|--------|-------------|--------|--------|---------|--------|
|                                                                                                                                                                                                                                                                         |   |              |   |   |       |   |   |    |   |   |     |   |   | Other       |   |   | Total   |   |
|                                                                                                                                                                                                                                                                         |   | Common      Stock |   |   | Additional |   |   |    |   |   | Compre-  |   |   | Compre-     |   |
|                                                                                                                                                                                                                                                                         |   | No.      of       |   |   | Par        |   |   | Paid-In |   |   | Retained |   |   | hensive     |   |   | hensive |   |
|                                                                                                                                                                                                                                                                         |   | Shares            |   |   | Value      |   |   | Capital |   |   | Earnings |   |   | Income      |   |   | Income  |   |
| BALANCE,                                                                                                                                                                                                                                                                     |   |              |   |   |       |   |   |    |   |   |     |   |   |        |   |   |    |   |
| December 31,      2007                                          |   |              | 11,354 |   |       | $      | 1,135  |    |   | $      | 121,063  |   |   | $           | 35,890 |   |    | $      | 2,718 |   |   |   |   |
| Net      income                                                                |   |              | -      |   |       |   | -      |    |   |   | -        |   |   |        | 7,179  |   |    |   | - |   |   | $ | 7,179 |   |
| Unrealized gain    on                                                                                                                                                                                                                                                        |   |              |   |   |       |   |   |    |   |   |     |   |   |        |   |   |    |   |   |   |   |   |   |   |
|   marketable      securities,                                                                                                                                                                                                                                      |   |              |   |   |       |   |   |    |   |   |     |   |   |        |   |   |    |   |   |   |   |   |   |   |
|   net of tax of      $231                                            |   |              | -      |   |       |   | -      |    |   |   | -        |   |   |        | -      |   |    |   | 429 |   |   |   | 429 |   |
| Total    comprehensive                                                                                                                                                                                                                                                       |   |              |   |   |       |   |   |    |   |   |     |   |   |        |   |   |    |   |   |   |   |   |   |   |
|   income                                                             |   |              |   |   |       |   |   |    |   |   |     |   |   |        |   |   |    |   |   |   |   | $ | 7,608 |   |
| Issuance of stock      through                                                                                                                                                                                                                                               |   |              |   |   |       |   |   |    |   |   |     |   |   |        |   |   |    |   |   |   |   |   |   |   |
|   compensation      plans                                            |   |              | 750    |   |       |   | 75     |    |   |   | 15,768   |   |   |        | -      |   |    |   | - |   |   |   |   |   |
| BALANCE,                                                                                                                                                                                                                                                                     |   |              |   |   |       |   |   |    |   |   |     |   |   |        |   |   |    |   |   |   |   |   |   |   |
| March 31,      2008                                             |   |              | 12,104 |   |       | $      | 1,210  |    |   | $      | 136,831  |   |   | $           | 43,069 |   |    | $      | 3,147 |   |   |   |   |   |

----

CLAYTON WILLIAMS 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Three      Months Ended |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | March      31,          |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2008                    |    |   | 2007 |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |    |   |   |   |
| Net income      (loss)                                                                                                                              |   | $                       | 7,179   |   |   | $ | (12,310 | ) |
| Adjustments to reconcile net      income (loss) to cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| provided by operating      activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                    |    |   |   |   |   |   |
| Depreciation, depletion and      amortization                                                                                                                                     |   |                    | 30,273  |   |   |   | 15,231 |   |
| Impairment of property and      equipment                                                                                                                                         |   |                    | -       |   |   |   | 565 |   |
| Exploration      costs                                                                                                                                                            |   |                    | 297     |   |   |   | 11,105 |   |
| Gain on sales of property and      equipment,      net                                                                                                                            |   |                    | (560    | ) |   |   | (128 | ) |
| Deferred income      taxes                                                                                                                                                        |   |                    | 4,100   |   |   |   | (6,080 | ) |
| Non-cash employee      compensation                                                                                                                                               |   |                    | 342     |   |   |   | 610 |   |
| Unrealized loss on      derivatives                                                                                                                                               |   |                    | 32,028  |   |   |   | 18,822 |   |
| Settlements on derivatives with      financing elements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    | 10,415  |   |   |   | 5,593 |   |
| Amortization of debt issue      costs                                                                                                                                             |   |                    | 346     |   |   |   | 309 |   |
| Accretion of abandonment      obligations                                                                                                                                         |   |                    | 530     |   |   |   | 618 |   |
| Minority interest, net of      tax                                                                                                                                                |   |                    | 114     |   |   |   | 867 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                    |    |   |   |   |   |   |
| Changes in operating working      capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                    |    |   |   |   |   |   |
| Accounts      receivable                                                                                                                                                          |   |                    | (13,869 | ) |   |   | (286 | ) |
| Accounts      payable                                                                                                                                                             |   |                    | 11,985  |   |   |   | (3,703 | ) |
| Other                                                                                                                                                                             |   |                    | (5,130  | ) |   |   | 5,016 |   |
| Net cash provided by operating      activities                                                                                                                                                                  |   |                    | 78,050  |   |   |   | 36,229 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                    |    |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |    |   |   |   |   |   |
| Additions to property and      equipment                                                                                                            |   |                    | (49,610 | ) |   |   | (55,749 | ) |
| Additions to equipment of      Larclay      JV.                                                                                                     |   |                    | (9      | ) |   |   | (19,316 | ) |
| Proceeds from sales of property      and      equipment                                                                                             |   |                    | 624     |   |   |   | 645 |   |
| Change in equipment      inventory                                                                                                                  |   |                    | (1,620  | ) |   |   | 3,896 |   |
| Other                                                                                                                                               |   |                    | 69      |   |   |   | (2,970 | ) |
| Net cash used in investing      activities                                                                                                                                                                      |   |                    | (50,546 | ) |   |   | (73,494 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                    |    |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |    |   |   |   |   |   |
| Proceeds from long-term      debt                                                                                                                   |   |                    | -       |   |   |   | 25,000 |   |
| Proceeds from long-term debt of      Larclay      JV                                                                                                |   |                    | -       |   |   |   | 8,727 |   |
| Repayments of long-term      debt                                                                                                                   |   |                    | (10,800 | ) |   |   | - |   |
| Repayments of long-term debt of      Larclay      JV                                                                                                |   |                    | (6,562  | ) |   |   | - |   |
| Proceeds from exercise of stock      options                                                                                                        |   |                    | 6,452   |   |   |   | 5,962 |   |
| Settlements on derivatives with      financing      elements                                                                                        |   |                    | (10,415 | ) |   |   | (5,593 | ) |
| Net cash provided by (used in)      financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                    | (21,325 | ) |   |   | 34,096 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                    |    |   |   |   |   |   |
| NET      INCREASE (DECREASE) IN CASH AND                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                    |    |   |   |   |   |   |
| CASH      EQUIVALENTS                                                                                                                     |   |                    | 6,179   |   |   |   | (3,169 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                    |    |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |    |   |   |   |   |   |
| Beginning of      period                                                                                                                            |   |                    | 12,344  |   |   |   | 13,840 |   |
| End of      period                                                                                                                                  |   | $                       | 18,523  |   |   | $ | 10,671 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                    |    |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |   |   |   |   |
| Cash paid for interest, net of      amounts      capitalized                                                                                        |   | $                       | 11,628  |   |   | $ | 11,739 |   |

----

CLAYTON WILLIAMS 

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | March      31,      |    |   | December      31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 2008                |    |   | 2007              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | (In      thousands) |    |
| 73⁄4%      Senior Notes, due      2013                                                                                                    |   | $                   | 225,000 |   |              | $      | 225,000 |   |
| Secured      bank credit facility, due May      2009                                                                                         |   |                | 155,000 |   |              |   | 165,800 |   |
| Secured      term loan of Larclay JV, due June      2011                                                                                     |   |                | 55,313  |   |              |   | 61,875 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                | 435,313 |   |              |   | 452,675 |   |
| Less      current maturities(a)                                                                                                              |   |                | (20,625 | )      |              |   | (22,500 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $                   | 414,688 |   |              | $      | 430,175 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                |    |   |              |   |   |   |
| (a)      Consists      of current portion of term loan of Larclay JV.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                |    |   |              |   |   |   |

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | March      31,      |   |   | December      31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2008                |   |   | 2007              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (In      thousands) |   |
| Abandonment      obligations                                                                                          |   | $                   | 31,237 |   |              | $      | 30,994 |   |
| Minority interest, net of      tax                                                                                    |   |                | 5,000  |   |              |   | 4,886 |   |
| Other taxes      payable                                                                                              |   |                | 358    |   |              |   | 358 |   |
| Other                                                                                                                 |   |                | 776    |   |              |   | 808 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                   | 37,371 |   |              | $      | 37,046 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Three      Months Ended |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | March      31,          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2008                    |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (In      thousands)     |   |
| Beginning of      period                                                                                               |   | $                       | 30,994 |   |   | $ | 27,846 |   |
| Additional abandonment      obligations from new      wells                                                                                |   |                    | 68     |   |   |   | 145 |   |
| Sales of      properties                                                                                                                   |   |                    | (355   | ) |   |   | (181 | ) |
| Accretion      expense                                                                                                                     |   |                    | 530    |   |   |   | 618 |   |
| End of      period                                                                                                     |   | $                       | 31,237 |   |   | $ | 28,428 |   |

----

|                                                                                                                                                          |   |   |     |   |     |   |   | Weighted    |   |   |           |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|----------|--------|--------|-------------|--------|--------|----------------|--------|
|                                                                                                                                                          |   |   |     |   | Weighted |   |   | Average     |   |   |           |   |
|                                                                                                                                                          |   |   |     |   | Average  |   |   | Remaining   |   |   | Aggregate      |   |
|                                                                                                                                                          |   |   |     |   | Exercise |   |   | Contractual |   |   | Intrinsic      |   |
|                                                                                                                                                          |   | Shares |     |   | Price    |   |   | Term        |   |   | Value      (a) |   |
| Outstanding      at January 1, 2008                                                                                                                           |   |   | 811,485  |   |     | $      | 20.49  |        |   |   |           |   |   |   |
| Granted                                                                                                                                                       |   |   | 4,000    |   |     | $      | 31.16  |        |   |   |           |   |   |   |
| Exercised (b)                                                                                                                                                 |   |   | (750,000 | )      |     | $      | 21.00  |        |   |   |           |   |   |   |
| Outstanding      at March 31, 2008                                                                                                                            |   |   | 65,485   |   |     | $      | 15.27  |        |   |   | 3.45           |   |   | $ | 2,437,566 |   |
|                                                                                                                                                          |   |   |     |   |     |   |   |        |   |   |           |   |   |   |   |   |
| Vested      at March 31, 2008                                                                                                                                 |   |   | 65,485   |   |     | $      | 15.27  |        |   |   | 3.45           |   |   | $ | 2,437,566 |   |
| Exercisable      at March 31, 2008                                                                                                                            |   |   | 65,485   |   |     | $      | 15.27  |        |   |   | 3.45           |   |   | $ | 2,437,566 |   |
|                                                                                                   |   |   |     |   |     |   |   |        |   |   |           |   |   |   |   |   |
| (a)   Based on closing      price at March 31, 2008 of $52.49 per share.                                                                       |   |
| (b)           Cash received for options exercised totaled $15.8 million, of which      $9.3 million was received in April 2008. |   |

|                                                                                                                                                                                                                                                                                                                                                                                                           | Outstanding      and Exercisable Options |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                           |                                     |   |   |   | Weighted |
|                                                                                                                                                                                                                                                                                                                                                                                                           |                                     |   | Weighted |   | Average |
|                                                                                                                                                                                                                                                                                                                                                                                                           |                                     |   | Average |   | Remaining |
|                                                                                                                                                                                                                                                                                                                                                                                                           |                                     |   | Exercise |   | Life      in |
|                                                                                                                                                                                                                                                                                                                                                                                                           | Shares                                   |   | Price |   | Years |
| Range      of exercise prices:                                                                                                                                                                                                                                                                                                                                                                                 |                                     |   |   |   |   |
| $5.50                                                                               | 33,485                                   |   | $                           5.50 |   | 1.1 |
| $10.00 -      $19.74                                                                | 10,000                                   |   | $            11.93 |   | 3.1 |
| $22.90 -      $41.74                                                                | 22,000                                   |   | $            31.65 |   | 7.2 |
|                                                                                                                                                                                                                                                                                                                                                                                                           | 65,485                                   |   | $            15.27 |   | 3.5 |

|                                                                     |   | Three      Months Ended               |   |
|--------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                     |   | March      31,                        |   |
|                                                                     |   | 2008                                  |   |   | 2007 |   |
|                                                                     |   | (In      thousands, except per share) |   |
| Weighted      average grant date fair value of options granted per share |   | $                                     | 23.06  |   |   | $ | 27.56 |   |
| Intrinsic      value of options exercised                                |   | $                                     | 19,650 |   |   | $ | 228 |   |
| Stock-based      employee compensation expense                           |   | $                                     | 92     |   |   | $ | 110 |   |
| Tax      benefit                                                         |   | $                                     | (32    | ) |   | $ | (39 | ) |
| Net      stock-based employee compensation expense                       |   | $                                     | 60     |   |   | $ | 71 |   |

----

----

|                    |   | Gas            |    |   | Oil    |   |
|-------------------------|--------|----------------|---------|--------|--------|--------|
|                    |   | MMBtu      (a) |    |   | Floor  |   |   | Ceiling |   |   | Bbls |   |   | Floor |   |   | Ceiling |   |
| Production      Period: |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2nd      Quarter 2008   |   |           | 426,000 |   |   | $      | 4.00 |   |   | $ | 5.15 |   |   |   | 132,000 |   |   | $ | 23.00 |   |   | $ | 25.07 |   |
| 3rd      Quarter 2008   |   |           | 419,000 |   |   | $      | 4.00 |   |   | $ | 5.15 |   |   |   | 128,000 |   |   | $ | 23.00 |   |   | $ | 25.07 |   |
|                    |   |           | 845,000 |   |   |   |   |   |   |   |   |   |   |   | 260,000 |   |   |   |   |   |   |   |   |   |

|                                                                                                                                                                                         |   | Gas            |       |   | Oil    |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------|--------|--------|--------|
|                                                                                                                                                                                         |   | MMBtu      (a) |       |   | Price  |   |   | Bbls |   |   | Price |   |
| Production      Period:                                                                                                                                                                      |   |           |       |   |   |   |   |   |   |   |   |   |
| 2nd      Quarter 2008                                                                                                                                                                        |   |           | 4,650,000  |   |   | $      | 9.20 |   |   |   | 330,000 |   |   | $ | 79.84 |   |
| 3rd      Quarter 2008                                                                                                                                                                        |   |           | 4,200,000  |   |   | $      | 9.15 |   |   |   | 310,000 |   |   | $ | 78.96 |   |
| 4th      Quarter      2008                            |   |           | 4,200,000  |   |   | $      | 9.15 |   |   |   | 400,000 |   |   | $ | 82.21 |   |
| 2009                                                  |   |           | 3,600,000  |   |   | $      | 9.33 |   |   |   | 1,440,000 |   |   | $ | 85.30 |   |
|                                                                                                                                                                                         |   |           | 16,650,000 |   |   |   |   |   |   |   | 2,480,000 |   |   |   |   |   |
|                                                                                                                                                 |   |           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)     One      MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                                     |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |      |        |   | Fixed  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|-------------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Principal |        |   | Libor  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Balance   |        |   | Rates  |   |
| Period:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |      |        |   |   |   |
| April 1, 2008 to September 24,      2008(a)                                                                                     |   | $         | 100,000,000 |   |   |   | 4.73 | % |
| April 1, 2008 to November 3,      2008                                                                                          |   | $         | 45,000,000  |   |   |   | 5.73 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |      |        |   |   |   |   |   |
| (a)     In      April 2008, the Company terminated this $100 million interest rate swap      for a cash payment of $899,000.                                                                                                                                                                                                                                                                                                                                                                                                                    |   |

----

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

|                       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 themodel. |
|-----------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                           |   | Fair      Value Measurements |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                                                                                                                                                                           |   | March      31, 2008          |   |   | December 31,      2007 |   |
|                                                                                                                                                                                                                                           |   | Quoted      Prices In        |   |   | Significant |   |   | Quoted      Prices In |   |   | Significant |   |
|                                                                                                                                                                                                                                           |   | Active      Markets For      |   |   | Other |   |   | Active      Markets For |   |   | Other |   |
|                                                                                                                                                                                                                                           |   | Identical                    |   |   | Observable |   |   | Identical |   |   | Observable |   |
|                                                                                                                                                                                                                                           |   | Assets/Liabilities           |   |   | Inputs |   |   | Assets/Liabilities |   |   | Inputs |   |
| Description                                                                                                                                                                                                                                    |   | Level      1                 |   |   | Level      2 |   |   | Level      1 |   |   | Level      2 |   |
|                                                                                                                                                                                                                                           |   | (In      thousands)          |   |
| Assets:                                                                                                                                                                                                                                        |   |                         |   |   |   |   |   |   |   |   |   |   |
| Investment      securities                                                |   | $                            | 7,848  |   |   | $ | - |   |   | $ | 7,188 |   |   | $ | - |   |
| Total      assets                                          |   | $                            | 7,848  |   |   | $ | - |   |   | $ | 7,188 |   |   | $ | - |   |
| Liabilities:                                                                                                                                                                                                                                   |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair      value of derivatives:                                                                                                                                                                                                                |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commodity derivatives,      net                                                                                                                                                                                                                |   | $                            | -      |   |   | $ | 79,550 |   |   | $ | - |   |   | $ | 48,696 |   |
| Interest derivatives,      net                                                                                                                                                                                                                 |   |                         | -      |   |   |   | 2,216 |   |   |   | - |   |   |   | 1,044 |   |
| Total      liabilities                                     |   | $                            | -      |   |   | $ | 81,766 |   |   | $ | - |   |   | $ | 49,740 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | March      31,      |   |   | December      31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2008                |   |   | 2007              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | (In      thousands) |   |
| Balance      at beginning of      period                                                                                    |   | $                   | 358    |   |              | $      | - |   |
| Adoption of FIN 48 on January 1,      2007                                                                                                 |   |                | -      |   |              |   | 1,585 |   |
| Reductions for tax positions of      prior      years                                                                                      |   |                | -      |   |              |   | (1,227 | ) |
| Balance      at end of      period                                                                                          |   | $                   | 358    |   |              | $      | 358 |   |

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | March      31,      |      |   | December      31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2008                |      |   | 2007              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (In      thousands) |      |
| Proved      properties                                                                                       |   | $                   | 1,179,636 |   |              | $      | 1,258,166 |   |
| Unproved      properties                                                                                     |   |                | 134,150   |   |              |   | 115,924 |   |
| Total capitalized      costs                                                                                 |   |                | 1,313,786 |   |              |   | 1,374,090 |   |
| Accumulated depreciation,      depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                | (695,162  | )      |              |   | (727,739 | ) |
| Net capitalized      costs                                                                                                            |   | $                   | 618,624   |   |              | $      | 646,351 |   |

| For      the Three Months Ended                   |   |                |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
|---------------------------------------------------|--------|---------------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| March      31, 2008                               |   | Oil      and Gas    |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                              |   | (In      thousands) |    |
| Revenues                                          |   | $                   | 122,026 |   |     | $      | 17,163 |         |   | $      | (2,331       | )      |   | $ | 136,858 |   |
| Depreciation,      depletion and amortization (a) |   |                | 27,988  |   |     |   | 2,610  |         |   |   | (325         | )      |   |   | 30,273 |   |
| Other      operating expenses (b)                 |   |                | 30,815  |   |     |   | 13,008 |         |   |   | (1,653       | )      |   |   | 42,170 |   |
| Interest      expense                             |   |                | 6,352   |   |     |   | 1,094  |         |   |   | -            |   |   |   | 7,446 |   |
| Other      (income) expense                       |   |                | 45,454  |   |     |   | -      |         |   |   | -            |   |   |   | 45,454 |   |
| Income      before income taxes and               |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| minorityinterest                                  |   |                | 11,417  |   |     |   | 451    |         |   |   | (353         | )      |   |   | 11,515 |   |
|                                              |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income      tax (expense) benefit                 |   |                | (3,964  | )      |     |   | (258   | )            |   |   | -            |   |   |   | (4,222 | ) |
| Minority      interest, net of tax                |   |                | 62      |   |     |   | (176   | )            |   |   | -            |   |   |   | (114 | ) |
|                                              |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net      income (loss)                            |   | $                   | 7,515   |   |     | $      | 17     |         |   | $      | (353         | )      |   | $ | 7,179 |   |
|                                              |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total      assets                                 |   | $                   | 816,632 |   |     | $      | 96,197 |         |   | $      | (4,787       | )      |   | $ | 908,042 |   |
| Additions      to property and equipment          |   | $                   | 55,431  |   |     | $      | 9      |         |   | $      | (353         | )      |   | $ | 55,087 |   |
|                                              |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

----

| For      the Three Months Ended                                                                                                                                                                                                                                                                                     |   |                |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| March      31, 2007                                                                                                                                                                                                                                                                                                 |   | Oil      and Gas    |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                                                                                                                                                                                                                                                                                                |   | (In      thousands) |    |
| Revenues                                                                                                                                                                                                                                                                                                            |   | $                   | 64,093  |   |     | $      | 10,936 |         |   | $      | (2,519       | )      |   | $ | 72,510 |   |
| Depreciation,      depletion and amortization (a)                                                                                                                                                                                                                                                                   |   |                | 14,413  |   |     |   | 1,607  |         |   |   | (224         | )      |   |   | 15,796 |   |
| Other      operating expenses (b)                                                                                                                                                                                                                                                                                   |   |                | 45,507  |   |     |   | 5,827  |         |   |   | (862         | )      |   |   | 50,472 |   |
| Interest      expense                                                                                                                                                                                                                                                                                               |   |                | 6,795   |   |     |   | 834    |         |   |   | -            |   |   |   | 7,629 |   |
| Other      (income) expense                                                                                                                                                                                                                                                                                         |   |                | 16,136  |   |     |   | -      |         |   |   | -            |   |   |   | 16,136 |   |
| Income      before income taxes and                                                                                                                                                                                                                                                                                 |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| minorityinterest                                                                                                                                                                                                                                                                                                    |   |                | (18,758 | )      |     |   | 2,668  |         |   |   | (1,433       | )      |   |   | (17,523 | ) |
|                                                                                                                                                                                                                                                                                                                |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Income      tax (expense) benefit                                                                                                                                                                                                                                                                                   |   |                | 7,014   |   |     |   | (934   | )            |   |   | -            |   |   |   | 6,080 |   |
| Minority      interest, net of tax                                                                                                                                                                                                                                                                                  |   |                | -       |   |     |   | (867   | )            |   |   | -            |   |   |   | (867 | ) |
|                                                                                                                                                                                                                                                                                                                |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Net      income (loss)                                                                                                                                                                                                                                                                                              |   | $                   | (11,744 | )      |     | $      | 867    |         |   | $      | (1,433       | )      |   | $ | (12,310 | ) |
|                                                                                                                                                                                                                                                                                                                |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Total      assets                                                                                                                                                                                                                                                                                                   |   | $                   | 730,651 |   |     | $      | 92,350 |         |   | $      | (3,931       | )      |   | $ | 819,070 |   |
| Additions      to property and equipment                                                                                                                                                                                                                                                                            |   | $                   | 72,776  |   |     | $      | 5,765  |         |   | $      | (1,433       | )      |   | $ | 77,108 |   |
|                                                                                                                                                                                                                                                                        |   |                |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| (a)    Includes impairment of property and    equipment.                                                                                                                                                                                                                                        |   |
| (b)                 Includes the following expenses: production, exploration,      natural gas services, drilling rig services, accretion of abandonment      obligations, general and administrative and loss on sales of property and      equipment. |   |

| (Dollars      in thousands)                                                                                                                                                                                                                 |   |   |    |   |         |   |    | Non-      |   |   |         |   |   |         |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|-----------|--------|--------|--------------|--------|--------|--------------|----------|
|                                                                                                                                                                                                                                        |   |   |    |   | Guarantor    |   |    | Guarantor |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                                        |   | Issuer |    |   | Subsidiaries |   |    | Entities  |   |   | Eliminations |   |   | Consolidated |     |
| Current      assets                                               |   | $      | 195,784 |   |         | $      | 114,244 |      |   | $      | 19,463       |   |   | $            | (139,933 | ) |   | $ | 189,558 |   |
| Property      and equipment, net                                                                                                                                                                                                            |   |   | 335,417 |   |         |   | 281,811 |      |   |   | 83,510       |   |   |         | -        |   |   |   | 700,738 |   |
| Investments      in subsidiaries                                                                                                                                                                                                            |   |   | 81,954  |   |         |   | -       |      |   |   | -            |   |   |         | (81,954  | ) |   |   | - |   |
| Other      assets                                                 |   |   | 21,733  |   |         |   | 336     |      |   |   | 277          |   |   |         | (4,600   | ) |   |   | 17,746 |   |
| Total      assets                                                                     |   | $      | 634,888 |   |         | $      | 396,391 |      |   | $      | 103,250      |   |   | $            | (226,487 | ) |   | $ | 908,042 |   |
|                                                                                                                                                                                                                                        |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Current      liabilities                                          |   | $      | 139,145 |   |         | $      | 171,469 |      |   | $      | 42,220       |   |   | $            | (139,933 | ) |   | $ | 212,901 |   |
| Non-current      liabilities:                                                                                                                                                                                                               |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term      debt                                                                   |   |   | 380,000 |   |         |   | -       |      |   |   | 39,288       |   |   |         | (4,600   | ) |   |   | 414,688 |   |
| Fair      value of derivatives                                                                                                                                                                                                              |   |   | 10,192  |   |         |   | -       |      |   |   | -            |   |   |         | -        |   |   |   | 10,192 |   |
| Other                                                                                 |   |   | 29,368  |   |         |   | 56,523  |      |   |   | 113          |   |   |         | -        |   |   |   | 86,004 |   |
|                                                                                                                                                                                                                                        |   |   | 419,560 |   |         |   | 56,523  |      |   |   | 39,401       |   |   |         | (4,600   | ) |   |   | 510,884 |   |
|                                                                                                                                                                                                                                        |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Stockholders’      equity                                   |   |   | 76,183  |   |         |   | 168,399 |      |   |   | 21,629       |   |   |         | (81,954  | ) |   |   | 184,257 |   |
| Total      liabilities and                                                                                                                                                                                                                  |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
|   stockholders’      equity                                                                                                                                                                                                 |   | $      | 634,888 |   |         | $      | 396,391 |      |   | $      | 103,250      |   |   | $            | (226,487 | ) |   | $ | 908,042 |   |

----

| (Dollars      in thousands)                                                                                                                                                                                                                 |   |   |    |   |         |   |    | Non-      |   |   |         |   |   |         |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|-----------|--------|--------|--------------|--------|--------|--------------|----------|
|                                                                                                                                                                                                                                        |   |   |    |   | Guarantor    |   |    | Guarantor |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                                        |   | Issuer |    |   | Subsidiaries |   |    | Entities  |   |   | Eliminations |   |   | Consolidated |     |
| Current      assets                                               |   | $      | 134,991 |   |         | $      | 97,845  |      |   | $      | 12,603       |   |   | $            | (146,335 | ) |   | $ | 99,104 |   |
| Property      and equipment, net                                                                                                                                                                                                            |   |   | 329,066 |   |         |   | 279,449 |      |   |   | 85,760       |   |   |         | -        |   |   |   | 694,275 |   |
| Investments      in subsidiaries                                                                                                                                                                                                            |   |   | 71,445  |   |         |   | -       |      |   |   | -            |   |   |         | (71,445  | ) |   |   | - |   |
| Other      assets                                                 |   |   | 24,756  |   |         |   | 326     |      |   |   | 609          |   |   |         | -        |   |   |   | 25,691 |   |
| Total      assets                                                                     |   | $      | 560,258 |   |         | $      | 377,620 |      |   | $      | 98,972       |   |   | $            | (217,780 | ) |   | $ | 819,070 |   |
|                                                                                                                                                                                                                                        |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Current      liabilities                                          |   | $      | 90,857  |   |         | $      | 178,423 |      |   | $      | 31,772       |   |   | $            | (146,335 | ) |   | $ | 154,717 |   |
| Non-current      liabilities:                                                                                                                                                                                                               |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term      debt                                                                   |   |   | 390,000 |   |         |   | -       |      |   |   | 55,313       |   |   |         | -        |   |   |   | 445,313 |   |
| Fair      value of derivatives                                                                                                                                                                                                              |   |   | 3,423   |   |         |   | 15,290  |      |   |   | -            |   |   |         | -        |   |   |   | 18,713 |   |
| Other                                                                                 |   |   | 5,142   |   |         |   | 56,337  |      |   |   | 106          |   |   |         | -        |   |   |   | 61,585 |   |
|                                                                                                                                                                                                                                        |   |   | 398,565 |   |         |   | 71,627  |      |   |   | 55,419       |   |   |         | -        |   |   |   | 525,611 |   |
|                                                                                                                                                                                                                                        |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
| Stockholders’      equity                                   |   |   | 70,836  |   |         |   | 127,570 |      |   |   | 11,781       |   |   |         | (71,445  | ) |   |   | 138,742 |   |
| Total      liabilities and                                                                                                                                                                                                                  |   |   |    |   |         |   |    |      |   |   |         |   |   |         |     |   |   |   |   |   |
|   stockholders’      equity                                                                                                                                                                                                 |   | $      | 560,258 |   |         | $      | 377,620 |      |   | $      | 98,972       |   |   | $            | (217,780 | ) |   | $ | 819,070 |   |

| (Dollars      in thousands)                                                                                                                                                                                                              |   |   |    |   |         |   |   | Non-      |   |   |         |   |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                     |   |   |    |   | Guarantor    |   |   | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                                     |   | Issuer |    |   | Subsidiaries |   |   | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Total      revenue                                             |   | $      | 80,232  |   |         | $      | 41,973 |      |   | $      | 17,363       |   |   | $            | (2,710 | ) |   | $ | 136,858 |   |
| Costs      and      expenses                                   |   |   | 39,871  |   |         |   | 19,128 |      |   |   | 15,801       |   |   |         | (2,357 | ) |   |   | 72,443 |   |
| Operating      income (loss)                                                                                                                                                                                                             |   |   | 40,361  |   |         |   | 22,845 |      |   |   | 1,562        |   |   |         | (353   | ) |   |   | 64,415 |   |
| Other      income (expense)                                                                                                                                                                                                              |   |   | (48,269 | )      |         |   | (3,578 | )         |   |   | (1,053       | )      |   |         | -      |   |   |   | (52,900 | ) |
| Income      tax      benefit                                   |   |   | (4,222  | )      |         |   | -      |      |   |   | -            |   |   |         | -      |   |   |   | (4,222 | ) |
| Minority      interest, net of tax                                                                                                                                                                                                       |   |   | (114    | )      |         |   | -      |      |   |   | -            |   |   |         | -      |   |   |   | (114 | ) |
|                                                                                                                                                                                                                                     |   |   |    |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Net      income      (loss)                                                        |   | $      | (12,244 | )      |         | $      | 19,267 |      |   | $      | 509          |   |   | $            | (353   | ) |   | $ | 7,179 |   |

| (Dollars      in thousands)                                                                                                                                                                                                              |   |   |    |   |         |   |   | Non-      |   |   |         |   |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                     |   |   |    |   | Guarantor    |   |   | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                                     |   | Issuer |    |   | Subsidiaries |   |   | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Total      revenue                                             |   | $      | 40,136  |   |         | $      | 24,169 |      |   | $      | 11,038       |   |   | $            | (2,833 | ) |   | $ | 72,510 |   |
| Costs      and      expenses                                   |   |   | 44,902  |   |         |   | 16,139 |      |   |   | 7,575        |   |   |         | (2,348 | ) |   |   | 66,268 |   |
| Operating      income (loss)                                                                                                                                                                                                             |   |   | (4,766  | )      |         |   | 8,030  |      |   |   | 3,463        |   |   |         | (485   | ) |   |   | 6,242 |   |
| Other      income (expense)                                                                                                                                                                                                              |   |   | (19,557 | )      |         |   | (3,402 | )         |   |   | (806         | )      |   |         | -      |   |   |   | (23,765 | ) |
| Income      tax      benefit                                   |   |   | 6,080   |   |         |   | -      |      |   |   | -            |   |   |         | -      |   |   |   | 6,080 |   |
| Minority      interest, net of tax                                                                                                                                                                                                       |   |   | (867    | )      |         |   | -      |      |   |   | -            |   |   |         | -      |   |   |   | (867 | ) |
|                                                                                                                                                                                                                                     |   |   |    |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Net      income      (loss)                                                        |   | $      | (19,110 | )      |         | $      | 4,628  |      |   | $      | 2,657        |   |   | $            | (485   | ) |   | $ | (12,310 | ) |

----

| (Dollars      in thousands)                                                                                                                                                                                                     |   |   |    |   |         |   |    | Non-      |   |   |         |   |   |         |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                            |   |   |    |   | Guarantor    |   |    | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                            |   | Issuer |    |   | Subsidiaries |   |    | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Operating      activities                                  |   | $      | 41,156  |   |         | $      | 31,955  |      |   | $      | 4,614        |   |   | $            | 325    |   |   | $ | 78,050 |   |
| Investing      activities                                  |   |   | (36,008 | )      |         |   | (14,032 | )         |   |   | (181         | )      |   |         | (325   | ) |   |   | (50,546 | ) |
| Financing      activities                                  |   |   | 3,172   |   |         |   | (17,923 | )         |   |   | (6,574       | )      |   |         | -      |   |   |   | (21,325 | ) |
| Net      increase (decrease) in                                                                                                                                                                                                 |   |   |    |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| cash      and cash equivalents                                                                                                                                                                                                  |   |   | 8,320   |   |         |   | -       |      |   |   | (2,141       | )      |   |         | -      |   |   |   | 6,179 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash      at the beginning of                                                                                                                                                                                                   |   |   |    |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| the      period                                                 |   |   | 5,325   |   |         |   | 1,288   |      |   |   | 5,731        |   |   |         | -      |   |   |   | 12,344 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash      at end of the period                                                                                                                                                                                                  |   | $      | 13,645  |   |         | $      | 1,288   |      |   | $      | 3,590        |   |   | $            | -      |   |   | $ | 18,523 |   |

| (Dollars      in thousands)                                                                                                                                                                                                     |   |   |    |   |         |   |   | Non-      |   |   |         |   |   |         |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|--------|-----------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                            |   |   |    |   | Guarantor    |   |   | Guarantor |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                            |   | Issuer |    |   | Subsidiaries |   |   | Entities  |   |   | Eliminations |   |   | Consolidated |   |
| Operating      activities                                  |   | $      | 8,042   |   |         | $      | 13,657 |      |   | $      | 14,306       |   |   | $            | 224    |   |   | $ | 36,229 |   |
| Investing      activities                                  |   |   | 19,114  |   |         |   | (5,460 | )         |   |   | (87,424      | )      |   |         | 276    |   |   |   | (73,494 | ) |
| Financing      activities                                  |   |   | (32,185 | )      |         |   | (8,346 | )         |   |   | 75,127       |   |   |         | (500   | ) |   |   | 34,096 |   |
| Net      increase (decrease) in                                                                                                                                                                                                 |   |   |    |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
| cash      and cash equivalents                                                                                                                                                                                                  |   |   | (5,029  | )      |         |   | (149   | )         |   |   | 2,009        |   |   |         | -      |   |   |   | (3,169 | ) |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash      at the beginning of                                                                                                                                                                                                   |   |   |    |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
| the      period                                                 |   |   | 12,542  |   |         |   | 1,298  |      |   |   | -            |   |   |         | -      |   |   |   | 13,840 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |   |      |   |   |         |   |   |         |   |   |   |   |   |   |
| Cash      at end of the period                                                                                                                                                                                                  |   | $      | 7,513   |   |         | $      | 1,149  |      |   | $      | 2,009        |   |   | $            | -      |   |   | $ | 10,671 |   |

----

Item 2-  

| ·   | Our      oil and gas sales increased $57.7 million, or 94%, from 2007, of which      price variances accounted 70% of the increase and incremental production      accounted for the remaining 30%. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      oil and gas production for the first quarter of 2008 was 27% higher on an      Mcfe basis than in the comparable period in 2007 resulting primarily from      drilling programs in all of our core areas of  operations. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      recorded a $46.1 million net loss on derivatives in the first quarter      of 2008.  We recorded a $14.1 million realized loss on      settled contracts and a $32 million loss for changes in mark-to-market      valuations.  Since we do not presently designate our derivatives      as cash flow hedges under applicable accounting standards, we recognize      the full effect of changing prices on mark-to-market valuations as a      current charge or credit to our results of  operations. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | During      the first quarter of 2008, we decreased borrowings under our revolving      credit facility by $10.8 million from $165.8 million at December      31, 2007 to $155 million at March 31, 2008.  Subsequent to March      31, 2008, we further reduced our debt using proceeds from the sale of      assets in South Louisiana. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | At      March 31, 2008, our capitalized unproved oil and gas properties totaled      $134.2 million, of which approximately $80.3 million was attributable      to unproved acreage.  Unproved properties are subject to a      valuation impairment to the extent the carrying cost of a prospect exceeds      its estimated fair value.  Therefore, our results of operations      in future periods may be adversely affected by unproved property      impairments. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Three      Months Ended |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | March      31,          |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2008                    |    |   | 2007 |   |
| Oil      and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |   |   |
| Gas      (MMcf)                                                                                                         |   |                    | 5,548   |   |   |   | 4,327 |   |
| Oil      (MBbls)                                                                                                        |   |                    | 684     |   |   |   | 543 |   |
| Natural gas liquids      (MBbls)                                                                                        |   |                    | 58      |   |   |   | 46 |   |
| Total      (MMcfe)                                                                                                      |   |                    | 10,000  |   |   |   | 7,861 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |    |   |   |   |   |   |
| Average      Realized Prices (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |    |   |   |   |   |   |
| Gas      ($/Mcf)                                                                                                        |   | $                       | 8.86    |   |   | $ | 6.91 |   |
| Oil      ($/Bbl)                                                                                                        |   | $                       | 96.37   |   |   | $ | 55.21 |   |
| Natural gas liquids      ($/Bbl)                                                                                        |   | $                       | 54.83   |   |   | $ | 33.30 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |    |   |   |   |   |   |
| Gain      (Losses) on Settled Derivative Contracts (a):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                    |    |   |   |   |   |   |
| ($ in thousands, except per      unit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                    |    |   |   |   |   |   |
| Gas:  Net realized      gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                       | (884    | ) |   | $ | 4,509 |   |
| Per unit produced      ($/Mcf)                                                                                                                             |   | $                       | (0.16   | ) |   | $ | 1.04 |   |
| Oil:    Net      realized loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                       | (12,906 | ) |   | $ | (2,559 | ) |
| Per unit produced      ($/Bbl)                                                                                                                             |   | $                       | (18.87  | ) |   | $ | (4.71 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |    |   |   |   |   |   |
| Average      Daily Production:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                    |    |   |   |   |   |   |
| Natural Gas    (Mcf):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                    |    |   |   |   |   |   |
| Permian      Basin                                                                                                                                         |   |                    | 15,562  |   |   |   | 15,389 |   |
| North      Louisiana                                                                                                                                       |   |                    | 13,596  |   |   |   | 2,409 |   |
| South      Louisiana                                                                                                                                       |   |                    | 23,552  |   |   |   | 20,121 |   |
| Austin Chalk      (Trend)                                                                                                                                  |   |                    | 2,460   |   |   |   | 2,011 |   |
| Cotton Valley Reef      Complex                                                                                                                            |   |                    | 5,270   |   |   |   | 7,697 |   |
| Other                                                                                                                                                      |   |                    | 527     |   |   |   | 451 |   |
| Total                                                                                                                                                                                    |   |                    | 60,967  |   |   |   | 48,078 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |    |   |   |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |
| Permian      Basin                                                                                                                                         |   |                    | 3,494   |   |   |   | 3,096 |   |
| North      Louisiana                                                                                                                                       |   |                    | 343     |   |   |   | 29 |   |
| South      Louisiana                                                                                                                                       |   |                    | 985     |   |   |   | 1,172 |   |
| Austin Chalk      (Trend)                                                                                                                                  |   |                    | 2,635   |   |   |   | 1,672 |   |
| Other                                                                                                                                                      |   |                    | 59      |   |   |   | 64 |   |
| Total                                                                                                                                                                                    |   |                    | 7,516   |   |   |   | 6,033 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |    |   |   |   |   |   |
| Natural Gas Liquids      (Bbls):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                    |    |   |   |   |   |   |
| Permian      Basin                                                                                                                                         |   |                    | 215     |   |   |   | 199 |   |
| Austin Chalk      (Trend)                                                                                                                                  |   |                    | 272     |   |   |   | 265 |   |
| Other                                                                                                                                                      |   |                    | 150     |   |   |   | 47 |   |
| Total                                                                                                                                                                                    |   |                    | 637     |   |   |   | 511 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Three      Months Ended |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | March      31,          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 2008                    |   |   | 2007 |
| Exploration      Costs (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |   |   |   |
| Abandonment and impairment      costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |   |   |   |
| North      Louisiana                                                                                                                                           |   | $                       | 297 |   |   | $ | 306 |   |
| South      Louisiana                                                                                                                                           |   |                    | - |   |   |   | 7,179 |   |
| Permian      Basin                                                                                                                                             |   |                    | - |   |   |   | 43 |   |
| Utah                                                                                                                                                           |   |                    | - |   |   |   | 3,577 |   |
| Total                                                                                                                                                                                        |   |                    | 297 |   |   |   | 11,105 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |   |   |   |   |
| Seismic and      other                                                                                                      |   |                    | 3,675 |   |   |   | 890 |   |
| Total exploration      costs                                                                                                                                                                 |   | $                       | 3,972 |   |   | $ | 11,995 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |   |   |   |   |
| Depreciation,      Depletion and Amortization (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |   |   |   |   |   |   |
| Oil and gas      depletion                                                                                                  |   | $                       | 27,741 |   |   | $ | 13,548 |   |
| Contract drilling      depreciation                                                                                         |   |                    | 2,285 |   |   |   | 1,383 |   |
| Other      depreciation                                                                                                     |   |                    | 247 |   |   |   | 300 |   |
| Total      DD&A                                                                                                                                                                          |   | $                       | 30,273 |   |   | $ | 15,231 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |   |   |   |   |
| Oil      and Gas Costs ($/Mcfe Produced):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                    |   |   |   |   |   |   |
| Production      costs                                                                                                       |   | $                       | 2.06 |   |   | $ | 2.20 |   |
| Oil and gas      depletion                                                                                                  |   | $                       | 2.77 |   |   | $ | 1.72 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |   |   |   |   |   |   |
| Net      Wells Drilled (b):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |   |   |   |   |   |   |
| Exploratory      Wells                                                                                                      |   |                    | 1.7 |   |   |   | 5.0 |   |
| Developmental      Wells                                                                                                    |   |                    | 12.9 |   |   |   | 3.5 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                    |   |   |   |   |   |   |
| (a)     No derivatives were      designated as cash flow hedges in 2008 or 2007. All gains or losses      on settled derivatives were included in loss on    derivatives.                                                                                                                                                                                                                                                                                                                                                                             |   |
| (b)     Excludes wells being      drilled or completed at the end of each period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |

----

----

----

|                                                                                                                                                                                                                                                                                                   |   | Actual                  |   |   | Planned                |   |    |           |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|--------|------------------------|--------|---------|----------------|--------|
|                                                                                                                                                                                                                                                                                                   |   | Expenditures            |   |   | Expenditures           |   |    | Year      2008 |   |
|                                                                                                                                                                                                                                                                                                   |   | Three      Months Ended |   |   | Year      Ending       |   |    | Percentage     |   |
|                                                                                                                                                                                                                                                                                                   |   | March      31, 2008     |   |   | December      31, 2008 |   |    | of      Total  |   |
|                                                                                                                                                                                                                                                                                                   |   | (In      thousands)     |   |   |                   |   |
| Permian      Basin                                                         |   | $                       | 21,500 |   |                   | $      | 168,000 |           |   |   | 49 | % |
| North      Louisiana                                                       |   |                    | 14,800 |   |                   |   | 62,600  |           |   |   | 18 | % |
| Austin      Chalk      (Trend)                                             |   |                    | 10,800 |   |                   |   | 55,400  |           |   |   | 16 | % |
| East      Texas      Bossier                                               |   |                    | 6,900  |   |                   |   | 28,600  |           |   |   | 8 | % |
| South      Louisiana                                                       |   |                    | 2,700  |   |                   |   | 18,700  |           |   |   | 6 | % |
| Utah/California                                                            |   |                    | 900    |   |                   |   | 10,900  |           |   |   | 3 | % |
| Other                                                                      |   |                    | 100    |   |                   |   | 300     |           |   |   | - |   |
|                                                                                                                                                                                                                                                                                                   |   | $                       | 57,700 |   |                   | $      | 344,500 |           |   |   | 100 | % |

----

----

|                                                                                            |   | March      31,      |    |   | December      31, |   |
|-------------------------------------------------------------------------------------------------|--------|---------------------|---------|--------|-------------------|--------|
|                                                                                            |   | 2008                |    |   | 2007              |   |
|                                                                                            |   | (In      thousands) |    |
| Working      capital (deficit) per GAAP                                                         |   | $                   | (23,343 | )      |              | $      | (76,388 | ) |
| Add      funds available under the revolving credit facility                                    |   |                | 119,196 |   |              |   | 108,396 |   |
| Exclude      fair value of derivatives classified as current assets or current      liabilities |   |                | 71,646  |   |              |   | 49,738 |   |
| Exclude      current assets and current liabilities of Larclay JV                               |   |                | 22,889  |   |              |   | 21,423 |   |
| Working      capital per loan covenant                                                          |   | $                   | 190,388 |   |              | $      | 103,169 |   |

----

Item 3

----

|                    |   | Gas            |    |   | Oil    |   |
|-------------------------|--------|----------------|---------|--------|--------|--------|
|                    |   | MMBtu      (a) |    |   | Floor  |   |   | Ceiling |   |   | Bbls |   |   | Floor |   |   | Ceiling |   |
| Production      Period: |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2nd      Quarter 2008   |   |           | 426,000 |   |   | $      | 4.00 |   |   | $ | 5.15 |   |   |   | 132,000 |   |   | $ | 23.00 |   |   | $ | 25.07 |   |
| 3rd      Quarter 2008   |   |           | 419,000 |   |   | $      | 4.00 |   |   | $ | 5.15 |   |   |   | 128,000 |   |   | $ | 23.00 |   |   | $ | 25.07 |   |
|                    |   |           | 845,000 |   |   |   |   |   |   |   |   |   |   |   | 260,000 |   |   |   |   |   |   |   |   |   |

|                                                                                                                                                                   |   | Gas            |       |   | Oil    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------|--------|--------|--------|
|                                                                                                                                                                   |   | MMBtu      (a) |       |   | Price  |   |   | Bbls |   |   | Price |   |
| Production      Period:                                                                                                                                                |   |           |       |   |   |   |   |   |   |   |   |   |
| 2nd      Quarter 2008                                                                                                                                                  |   |           | 4,650,000  |   |   | $      | 9.20 |   |   |   | 330,000 |   |   | $ | 79.84 |   |
| 3rd      Quarter 2008                                                                                                                                                  |   |           | 4,200,000  |   |   | $      | 9.15 |   |   |   | 310,000 |   |   | $ | 78.96 |   |
| 4th      Quarter 2008                                                                                                                                                  |   |           | 4,200,000  |   |   | $      | 9.15 |   |   |   | 400,000 |   |   | $ | 82.21 |   |
| 2009                            |   |           | 3,600,000  |   |   | $      | 9.33 |   |   |   | 1,440,000 |   |   | $ | 85.30 |   |
|                                                                                                                                                                   |   |           | 16,650,000 |   |   |   |   |   |   |   | 2,480,000 |   |   |   |   |   |
|                                                                                                                           |   |           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)    One      MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                     |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |      |        |   | Fixed  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|-------------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Principal |        |   | Libor  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Balance   |        |   | Rates  |   |
| Period:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |      |        |   |   |   |
| April 1, 2008 to September 24,      2008(a)                                                                                     |   | $         | 100,000,000 |   |   |   | 4.73 | % |
| April 1, 2008 to November 3,      2008                                                                                          |   | $         | 45,000,000  |   |   |   | 5.73 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |      |        |   |   |   |   |   |
| (a)    In      April 2008, the Company terminated this $100 million interest rate swap      for a cash payment of $899,000.                                                                                                                                                                                                                                                                                                                                                                                                                     |   |

Item 4

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

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

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

----

Item 1A

hibit

| **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†† |
|   |                                                                                                                                                                                                                                                                                                 |
| *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 to18 U.S.C. § 1350                                                                                                                                                   |

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

| ** | Incorporated      by reference to the filingindicated |
|----|-------------------------------------------------------|

| †† | Filed      under our Commission FileNo. 001-10924 |
|----------------|--------------------------------------------------------|

----

CLAYTON 

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

| Date:  | May      9, 2008 | By:    | /s/      L. Paul Latham                 |
|--------|------------------|--------|-----------------------------------------|
|   |             |   | L.      Paul Latham                     |
|   |             |   | Executive      Vice President and Chief |
|   |             |   |   Operating      Officer      |

| Date:  | May      9, 2008 | By:    | /s/      Mel G. Riggs                          |
|--------|------------------|--------|------------------------------------------------|
|   |             |   | Mel      G. Riggs                              |
|   |             |   | Senior      Vice President and Chief Financial |
|   |             |   |   Officer                            |