----

| (Mark One) |                                          |   |
|------------|-----------------------------------------------|--------|
| x          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) |   |
|       | OF THE SECURITIES EXCHANGE ACT OF 1934        |   |
|       | For the fiscal year ended December 31, 2010   |   |

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

| 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                       |

| Title of each class           |   | Name of each exchange on which registered |
|-------------------------------|--------|-------------------------------------------|
| Common Stock - $.10 Par Value |   | The NASDAQ Stock Market LLC               |

| Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act                                                                                                                                                                                                                                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                          |  ̈ Yes |   | x No |   |
| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                          |  ̈ Yes |   | x No |   |
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
|                                                                                                                                                                                                                                                                                                                                                          | x Yes |   |  ̈ No |   |

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

| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 |   | x No |   |

| State the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter.  $248,192,774. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Portions of the definitive proxy statement relating to the 2011 Annual Meeting of Stockholders, which will be filed with the Commission not later than April 30, 2011, are incorporated by reference in Part III of this Form 10-K. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Page   |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Part I   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 1.  | Business                                                                                                                        | 6      |   |
|     | General                                                                                                                                             | 6      |   |
|     | Company Profile                                                                                                                                     | 6      |   |
|     | Desta Drilling                                                                                                                                      | 8      |   |
|     | Exploration and Development Activities                                                                                                              | 9      |   |
|     | Marketing Arrangements                                                                                                                              | 11     |   |
|     | Natural Gas Services                                                                                                                                | 11     |   |
|     | Competition and Markets                                                                                                                             | 12     |   |
|     | Regulation                                                                                                                                          | 12     |   |
|     | Environmental Matters                                                                                                                               | 14     |   |
|     | Title to Properties                                                                                                                                 | 16     |   |
|     | Operational Hazards and Insurance                                                                                                                   | 16     |   |
|     | Operating Segments                                                                                                                                  | 17     |   |
|     | Executive Officers                                                                                                                                  | 17     |   |
|     | Employees                                                                                                                                           | 17     |   |
|     | Website Address                                                                                                                                     | 17     |   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 1A. | Risk Factors                                                                                                                                        | 18     |   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 1B. | Unresolved Staff Comments                                                                                                                           | 28     |   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 2.  | Properties                                                                                                                      | 28     |   |
|     | Reserves                                                                                                                                            | 28     |   |
|     | Delivery Commitments                                                                                                                                | 33     |   |
|     | Exploration and Development Activities                                                                                                              | 33     |   |
|     | Productive Well Summary                                                                                                                             | 33     |   |
|     | Volumes, Prices and Production Costs                                                                                                                | 34     |   |
|     | Development, Exploration and Acquisition Expenditures                                                                                               | 34     |   |
|     | Acreage                                                                                                                                             | 35     |   |
|     | Desta Drilling                                                                                                                                      | 36     |   |
|     | Offices                                                                                                                                             | 36     |   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 3.  | Legal Proceedings                                                                                                               | 36     |   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 4.  | (Removed and Reserved)                                                                                                          | 36     |   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Part II  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 5.  | Market for the Registrant’s Common Equity, Related Stockholder Matters and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |
|     | Issuer Purchases of Equity Securities                                                                                                               | 37     |   |
|     | Price Range of Common Stock                                                                                                                                   | 37     |   |
|     | Dividend Policy                                                                                                                                               | 37     |   |
|     | Securities Authorized for Issuance under Equity Compensation Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 37     |   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 6.  | Selected Financial Data                                                                                                         | 38     |   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
| Item 7.  | Management’s Discussion and Analysis of Financial Condition and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |
|     | Results of Operations                                                                                                                               | 39     |   |
|     | Overview                                                                                                                                                      | 39     |   |
|     | Key Factors to Consider                                                                                                                                       | 39     |   |
|     | Proved Oil and Gas Reserves                                                                                                                                   | 40     |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Page   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Management’s Discussion and Analysis of Financial Condition and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Results of Operations (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Supplemental Information                                                                                                                                                                   | 41     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Operating Results                                                                                                                                                                          | 43     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Liquidity and Capital Resources                                                                                                                                                            | 47     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Known Trends and Uncertainties                                                                                                                                                             | 50     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Application of Critical Accounting Policies and Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 51     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Adopted Accounting Pronouncements                                                                                                                                                          | 54     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 7A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Quantitative and Qualitative Disclosure About Market Risks                                                                                                   | 55     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Oil and Gas Prices                                                                                                                                                                         | 55     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Interest Rates                                                                                                                                                                             | 56     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Financial Statements and Supplementary Data                                                                                                                  | 56     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 9.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Changes in and Disagreements with Accountants on Accounting and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Financial Disclosure                                                                                                                                                             | 56     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 9A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Controls and Procedures                                                                                                                                      | 56     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Disclosure Controls and Procedures                                                                                                                                                         | 56     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Internal Control Over Financial Reporting                                                                                                                                                  | 57     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Changes in Internal Control Over Financial Reporting                                                                                                                                       | 57     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Management’s Report on Internal Control Over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 57     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 58     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 9B.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Other Information                                                                                                                                            | 59     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Part III                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Items 10-14.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Information Incorporated by Reference                                                                                                                        | 59     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Part IV                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Item 15.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Exhibits and Financial Statement Schedules                                                                                                                   | 60     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Financial Statements and Schedules                                                                                                                                                         | 60     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Exhibits                                                                                                                                                                                   | 60     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| Glossary of Terms                                                                                                                       | 65                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| Signatures                                                                                                                              | 68                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |

----

| ·   | estimates of our oil and gas reserves; |
|--------------------|----------------------------------------|

| ·   | estimates of our future oil and gas production, including estimates of any increases or decreases in production; |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | planned capital expenditures and the availability of capital resources to fund those expenditures; |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | our outlook on oil and gas prices; |
|--------------------|------------------------------------|

| ·   | our outlook on domestic and worldwide economic conditions; |
|--------------------|------------------------------------------------------------|

| ·   | our access to capital and our anticipated liquidity; |
|--------------------|------------------------------------------------------|

| ·   | our future business strategy and other plans and objectives for future operations; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | the impact of political and regulatory developments; |
|--------------------|------------------------------------------------------|

| ·   | our assessment of counterparty risks and the ability of our counterparties to perform their future obligations; |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | estimates of the impact of new accounting pronouncements on earnings in future periods; and |
|--------------------|---------------------------------------------------------------------------------------------|

| ·   | our future financial condition or results of operations and our future revenues and expenses. |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | the possibility of unsuccessful exploration and development drilling activities; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | our ability to replace and sustain production; |
|--------------------|------------------------------------------------|

| ·   | commodity price volatility; |
|--------------------|-----------------------------|

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

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

----

| ·   | our level of indebtedness; |
|--------------------|----------------------------|

| ·   | the impact of the past or future economic recessions on our business operations, financial condition and ability to raise capital; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

| ·   | the other risks described in this Form 10-K. |
|--------------------|----------------------------------------------|

----

Item 

General

Company 

----

----

Desta 

----

Exploration 

----

----

Marketing 

Natural 

----

Competition 

Regulation

----

----

Environmental 

----

----

Title 

Operational 

----

Operating 

Executive 

Employees

Website 

----

Item 

| ·   | changes in the supply of and demand for oil and natural gas; |
|--------------------|--------------------------------------------------------------|

| ·   | market uncertainty; |
|--------------------|---------------------|

| ·   | the level of consumer product demands; |
|--------------------|----------------------------------------|

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

| ·   | domestic governmental regulations and taxes; |
|--------------------|----------------------------------------------|

| ·   | the price and availability of alternative fuels; |
|--------------------|--------------------------------------------------|

| ·   | political and economic conditions in oil producing countries; |
|--------------------|---------------------------------------------------------------|

| ·   | the foreign supply of oil and natural gas; |
|--------------------|--------------------------------------------|

| ·   | the price of oil and gas imports; and |
|--------------------|---------------------------------------|

| ·   | overall domestic and foreign economic conditions. |
|--------------------|---------------------------------------------------|

----

| ·   | require us to use a significant portion of our cash flow to pay principal and interest on the debt, which will reduce the amount available to fund working capital, capital expenditures, and other general corporate purposes; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | adversely affect the credit ratings assigned by third party rating agencies, which have in the past and may in the future, downgrade their ratings of our debt and other obligations due to changes in our debt level or our financial condition; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | limit our access to the capital markets; |
|--------------------|------------------------------------------|

| ·   | increase our borrowing costs, and impact the terms, conditions, and restrictions contained in our debt agreements, including the addition of more restrictive covenants; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | limit our flexibility in planning for and reacting to changes in our business as covenants and restrictions contained in our existing and possible future debt arrangements may require that we meet certain financial tests and place restrictions on the incurrence of additional indebtedness; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | place us at a disadvantage compared to similar companies in our industry that have less debt; and |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | make us more vulnerable to economic downturns and adverse developments in our business. |
|--------------------|-----------------------------------------------------------------------------------------|

----

| ·   | we may be limited in receiving the full benefit of increases in oil and gas prices as a result of these transactions; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| ·   | a counterparty may not perform its obligation under the applicable derivative instrument or seek bankruptcy protection; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

| ·   | there may be a change in the expected differential between the underlying commodity price in the derivative instrument and the actual price received; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the steps we take to monitor our derivative financial instruments may not detect and prevent violations of our risk management policies and procedures, particularly if deception or other intentional misconduct is involved. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| ·   | unexpected drilling conditions; |
|--------------------|---------------------------------|

| ·   | title problems; |
|--------------------|-----------------|

| ·   | pressure or irregularities in formations; |
|--------------------|-------------------------------------------|

| ·   | equipment failures or accidents; |
|--------------------|----------------------------------|

| ·   | adverse weather conditions; |
|--------------------|-----------------------------|

| ·   | compliance with environmental and other governmental requirements, which may increase our costs or restrict our activities; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | costs of, or shortages or delays in the availability of, drilling rigs, tubular materials and equipment and services. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

Item 

Item 

Reserves

|                                                                                                                                                                                                                                                                                                                                       |   | Proved Reserves(a) |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                                                                                                                                                                                                                                                                       |   |               |   |   | Natural |   |   | Total Oil |   |
|                                                                                                                                                                                                                                                                                                                                       |   | Oil(b)             |   |   | Gas |   |   | Equivalents(c) |   |
| Reserve Category                                                                                                                                                                                                                                                                                                                           |   | (MBbls)            |   |   | (MMcf) |   |   | (MBOE) |   |
|                                                                                                                                                                                                                                                                                                                                       |   |               |   |   |   |   |   |   |   |
| Developed                                                         |   |               | 24,570 |   |   |   | 59,409 |   |   |   | 34,472 |   |
| Undeveloped                                                       |   |               | 13,245 |   |   |   | 20,088 |   |   |   | 16,593 |   |
| Total Proved                                                      |   |               | 37,815 |   |   |   | 79,497 |   |   |   | 51,065 |   |
|                                                                                                                                                                                                                                                                      |   |               |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                 |   |            |   |   |    |   |   |           |   |   |       |   |           |     |   |   | Percent  |   |
|--------------------------------------------------------------------------------------|--------|-----------------|--------|--------|---------|--------|--------|----------------|--------|--------|------------|--------|----------------|----------|--------|--------|----------|--------|
|                                                                                 |   | Proved Reserves |   |   |    |   |   | PV-10          |   |   | of PV-10   |   |
|                                                                                 |   |            |   |   | Natural |   |   | Total Oil      |   |   | Percent of |   |           | Value of |   |   | Value of |   |
|                                                                                 |   | Oil (a)         |   |   | Gas     |   |   | Equivalents(b) |   |   | Total Oil  |   |           | Proved   |   |   | Proved   |   |
|                                                                                 |   | (MBbls)         |   |   | (MMcf)  |   |   | (MBOE)         |   |   | Equivalent |   |           | Reserves |   |   | Reserves |   |
|                                                                                 |   |            |   |   |    |   |   |           |   |   |       |   | (In thousands) |     |   |   |
|                                                                                 |   |            |   |   |    |   |   |           |   |   |       |   |           |     |   |   |     |   |
| Permian Basin                                                                        |   |            | 27,628 |   |    |   | 59,549 |           |   |   | 37,553     |   |           |     | 73.5   | %      |     | $      | 664,170 |   |   |   | 67.0 | % |
| Giddings Area:                                                                       |   |            |   |   |    |   |   |           |   |   |       |   |           |     |   |   |     |   |   |   |   |   |   |   |
| Austin Chalk/                                                                        |   |            |   |   |    |   |   |           |   |   |       |   |           |     |   |   |     |   |   |   |   |   |   |   |
| Eagle Ford Shale                                                                     |   |            | 9,552  |   |    |   | 5,620  |           |   |   | 10,489     |   |           |     | 20.6   | %      |     |   | 274,115 |   |   |   | 27.6 | % |
| Cotton Valley                                                                        |   |            |   |   |    |   |   |           |   |   |       |   |           |     |   |   |     |   |   |   |   |   |   |   |
| Reef Complex                                                                         |   |            | -      |   |    |   | 5,235  |           |   |   | 873        |   |           |     | 1.7    | %      |     |   | 8,124 |   |   |   | 0.8 | % |
| South Louisiana                                                                      |   |            | 423    |   |    |   | 5,358  |           |   |   | 1,316      |   |           |     | 2.6    | %      |     |   | 33,587 |   |   |   | 3.4 | % |
| Other                                                                                |   |            | 212    |   |    |   | 3,735  |           |   |   | 834        |   |           |     | 1.6    | %      |     |   | 11,752 |   |   |   | 1.2 | % |
| Total                                                                                |   |            | 37,815 |   |    |   | 79,497 |           |   |   | 51,065     |   |           |     | 100.0  | %      |     | $      | 991,748 |   |   |   | 100.0 | % |
|                |   |            |   |   |    |   |   |           |   |   |       |   |           |     |   |   |     |   |   |   |   |   |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Proved   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Reserves |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (MBOE)   |   |
| As of December 31, 2009                                                                                                 |   |     | 33,637 |   |
| Extensions and discoveries                                                                                                                  |   |     | 23,193 |   |
| Revisions                                                                                                                                   |   |     | 2,282  |   |
| Purchases of minerals-in-place                                                                                                              |   |     | 349    |   |
| Sales of minerals-in-place                                                                                                                  |   |     | (2,937 | ) |
| Production                                                                                                                                  |   |     | (5,459 | ) |
| As of December 31, 2010                                                                                                 |   |     | 51,065 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Proved      |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Undeveloped |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Reserves    |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (MBOE)      |   |
| As of December 31, 2009                                                                                                 |   |        | 5,051  |   |
| Extensions and discoveries                                                                                                                  |   |        | 14,434 |   |
| Revisions                                                                                                                                   |   |        | (2,027 | ) |
| Reclassified to proved developed                                                                                                            |   |        | (865   | ) |
| As of December 31, 2010                                                                                                 |   |        | 16,593 |   |

----

|                                                                                                                                                                                                                                                                 |   | Proved Reserves |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|--------|
|                                                                                                                                                                                                                                                                 |   |            |   |   | Natural |   |   | Total Oil |   |   |   |   |
|                                                                                                                                                                                                                                                                 |   | Oil(a)          |   |   | Gas |   |   | Equivalents(b) |   |   |   |   |
| Pricing Cases                                                                                                                                                                                                                                                        |   | (MBbls)         |   |   | (MMcf) |   |   | (MBOE) |   |   | PV-10 Value |   |
|                                                                                                                                                                                                                                                                 |   |            |   |   |   |   |   |   |   |   | (In thousands) |   |
| SEC Case                                                     |   |            | 37,815 |   |   |   | 79,497 |   |   |   | 51,065 |   |   | $ | 991,748 |   |
| Futures Pricing Case                                         |   |            | 38,888 |   |   |   | 82,151 |   |   |   | 52,580 |   |   | $ | 1,289,753 |   |
|                                                                                                                                                                            |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

----

----

Delivery 

Exploration 

|                                                                                                                                                                                                                  |   | Year Ended December 31,                               |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                                                                                                                                                                                  |   | 2010                                                  |   |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                  |   | Gross                                                 |   |   | Net |   |   | Gross |   |   | Net |   |   | Gross |   |   | Net |   |
|                                                                                                                                                                                                                  |   | (Excludes wells in progress at the end of any period) |   |
| Development Wells:                                                                                                                                                                                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil                                    |   |                                                  | 136    |   |   |   | 110.7 |   |   |   | 58 |   |   |   | 49.5 |   |   |   | 70 |   |   |   | 51.5 |   |
| Gas                                    |   |                                                  | 1      |   |   |   | .5 |   |   |   | 11 |   |   |   | 5.4 |   |   |   | 41 |   |   |   | 14.7 |   |
| Dry                                    |   |                                                  | 3      |   |   |   | 1.3 |   |   |   | 1 |   |   |   | 1.0 |   |   |   | 1 |   |   |   | 1.0 |   |
| Total                                                 |   |                                                  | 140    |   |   |   | 112.5 |   |   |   | 70 |   |   |   | 55.9 |   |   |   | 112 |   |   |   | 67.2 |   |
| Exploratory Wells:                                                                                                                                                                                                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil                                    |   |                                                  | 2      |   |   |   | 2.0 |   |   |   | 1 |   |   |   | .2 |   |   |   | 1 |   |   |   | .5 |   |
| Gas                                    |   |                                                  | -      |   |   |   | - |   |   |   | 1 |   |   |   | .1 |   |   |   | 3 |   |   |   | 1.7 |   |
| Dry                                    |   |                                                  | 2      |   |   |   | .5 |   |   |   | 6 |   |   |   | 4.4 |   |   |   | 4 |   |   |   | 3.0 |   |
| Total                                                 |   |                                                  | 4      |   |   |   | 2.5 |   |   |   | 8 |   |   |   | 4.7 |   |   |   | 8 |   |   |   | 5.2 |   |
| Total Wells:                                                                                                                                                                                                          |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil                                    |   |                                                  | 138    |   |   |   | 112.7 |   |   |   | 59 |   |   |   | 49.7 |   |   |   | 71 |   |   |   | 52.0 |   |
| Gas                                    |   |                                                  | 1      |   |   |   | .5 |   |   |   | 12 |   |   |   | 5.5 |   |   |   | 44 |   |   |   | 16.4 |   |
| Dry                                    |   |                                                  | 5      |   |   |   | 1.8 |   |   |   | 7 |   |   |   | 5.4 |   |   |   | 5 |   |   |   | 4.0 |   |
| Total                                                 |   |                                                  | 144    |   |   |   | 115.0 |   |   |   | 78 |   |   |   | 60.6 |   |   |   | 120 |   |   |   | 72.4 |   |

Productive 

|                                                                                                                                                                                                                                                            |   | Oil    |   |   | Gas    |   |   | Total  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                            |   | Gross  |   |   | Net    |   |   | Gross  |   |   | Net |   |   | Gross |   |   | Net |   |
| Permian Basin                                           |   |   | 5,617  |   |   |   | 606.6  |   |   |   | 731 |   |   |   | 95.0 |   |   |   | 6,348 |   |   |   | 701.6 |   |
| Giddings Area:                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Austin Chalk                                                      |   |   | 330    |   |   |   | 263.5  |   |   |   | 19 |   |   |   | 11.7 |   |   |   | 349 |   |   |   | 275.2 |   |
| Deep Bossier                                                      |   |   | -      |   |   |   | -      |   |   |   | 2 |   |   |   | 1.8 |   |   |   | 2 |   |   |   | 1.8 |   |
| Cotton Valley Reef Complex                                                                                                                                                                                                                                      |   |   | -      |   |   |   | -      |   |   |   | 14 |   |   |   | 11.6 |   |   |   | 14 |   |   |   | 11.6 |   |
| South Louisiana                                         |   |   | 5      |   |   |   | 2.5    |   |   |   | 15 |   |   |   | 9.3 |   |   |   | 20 |   |   |   | 11.8 |   |
| Other                                                   |   |   | 12     |   |   |   | 5.9    |   |   |   | 44 |   |   |   | 12.8 |   |   |   | 56 |   |   |   | 18.7 |   |
| Total                                                                                                                                                                                                                                                           |   |   | 5,964  |   |   |   | 878.5  |   |   |   | 825 |   |   |   | 142.2 |   |   |   | 6,789 |   |   |   | 1,020.7 |   |

----

Volumes

|                                                                                                                                                                                                                                                                                                                                                                                                            |   | Year Ended December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                    |   |                    |   |   |   |   |   |   |   |
| Oil (MBbls)                                                                               |   |                    | 3,375  |   |   |   | 2,865 |   |   |   | 2,952 |   |
| Gas (MMcf)                                                                                |   |                    | 10,750 |   |   |   | 15,949 |   |   |   | 18,553 |   |
| Natural gas liquids (MBbls)                                                               |   |                    | 292    |   |   |   | 240 |   |   |   | 182 |   |
| Total (MBOE)                                                                                        |   |                    | 5,459  |   |   |   | 5,763 |   |   |   | 6,226 |   |
| Average Realized Prices(a):                                                                                                                                                                                                                                                                                                                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Oil ($/Bbl)                                                                               |   | $                       | 76.44  |   |   | $ | 57.37 |   |   | $ | 97.35 |   |
| Gas ($/Mcf)                                                                               |   | $                       | 5.17   |   |   | $ | 4.35 |   |   | $ | 9.02 |   |
| Natural gas liquids ($/Bbl)                                                               |   | $                       | 42.47  |   |   | $ | 30.83 |   |   | $ | 54.45 |   |
| Average Production Costs:                                                                                                                                                                                                                                                                                                                                                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |
| Production ($/MBOE)(b)                                                                    |   | $                       | 10.71  |   |   | $ | 9.82 |   |   | $ | 9.83 |   |
|                                                                                                                                                                                                                                                                                                                                           |   |                    |   |   |   |   |   |   |   |   |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                            |   | Year Ended December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                                                                                    |   |                    |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                            |   |                    |   |   |   |   |   |   |   |
| Giddings Field                                                                                                                                                                                                                                                                                                                                                                                                  |   |                    |   |   |   |   |   |   |   |
| Oil (MBbls)                                                                               |   |                    | 1,012  |   |   |   | 963 |   |   |   | 1,189 |   |
| Gas (MMcf)                                                                                |   |                    | 694    |   |   |   | 773 |   |   |   | 709 |   |
| Natural gas liquids (MBbls)                                                               |   |                    | 78     |   |   |   | 94 |   |   |   | 83 |   |
| Total (MBOE)                                                                                        |   |                    | 1,206  |   |   |   | 1,186 |   |   |   | 1,390 |   |

| Spraberry Trend Field                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Oil (MBbls)                                                                               |   |   | 671    |   |   |   | 148    |   |   |   | 60 |   |
| Gas (MMcf)                                                                                |   |   | 304    |   |   |   | 72     |   |   |   | 22 |   |
| Natural gas liquids (MBbls)                                                               |   |   | 94     |   |   |   | 13     |   |   |   | 2 |   |
| Total (MBOE)                                                                                        |   |   | 816    |   |   |   | 173    |   |   |   | 66 |   |

Development

|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Year Ended December 31, |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (In thousands)          |    |
| Property Acquisitions:                                                                                                                                                                                                                                                                                                                                                                                                    |   |                    |    |   |   |   |   |   |   |
| Proved                                                                                              |   | $                       | 9,556   |   |   | $ | - |   |   | $ | - |   |
| Unproved                                                                                            |   |                    | 29,680  |   |   |   | 12,558 |   |   |   | 36,397 |   |
| Developmental Costs                                                                  |   |                    | 238,197 |   |   |   | 86,672 |   |   |   | 260,073 |   |
| Exploratory Costs                                                                    |   |                    | 7,528   |   |   |   | 32,758 |   |   |   | 51,237 |   |
| Total                                                                                               |   | $                       | 284,961 |   |   | $ | 131,988 |   |   | $ | 347,707 |   |

----

Acreage

|                                                                                                                                                                                    |   | Developed |    |   | Undeveloped |   |    | Total  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|---------|--------|-------------|--------|---------|--------|--------|
|                                                                                                                                                                                    |   | Gross     |    |   | Net         |   |    | Gross  |   |   | Net |   |   | Gross |   |   | Net |   |
| Permian Basin                               |   |      | 89,678  |   |        |   | 41,871  |   |   |   | 342,887 |   |   |   | 156,094 |   |   |   | 432,565 |   |   |   | 197,965 |   |
| Giddings Area                               |   |      | 145,993 |   |        |   | 131,688 |   |   |   | 229,714 |   |   |   | 121,933 |   |   |   | 375,707 |   |   |   | 253,621 |   |
| North Louisiana                             |   |      | 5,049   |   |        |   | 4,203   |   |   |   | 93,546 |   |   |   | 87,965 |   |   |   | 98,595 |   |   |   | 92,168 |   |
| South Louisiana                             |   |      | 7,788   |   |        |   | 5,236   |   |   |   | 20,401 |   |   |   | 16,485 |   |   |   | 28,189 |   |   |   | 21,721 |   |
| Other(a)                                    |   |      | 10,951  |   |        |   | 3,506   |   |   |   | 321,766 |   |   |   | 152,924 |   |   |   | 332,717 |   |   |   | 156,430 |   |
| Total                                                 |   |      | 259,459 |   |        |   | 186,504 |   |   |   | 1,008,314 |   |   |   | 535,401 |   |   |   | 1,267,773 |   |   |   | 721,905 |   |
|                                                                                                                                  |   |      |    |   |        |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                                                                                                                                    |   | Acres Expiring(a) |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                                    |   | 2011              |    |   | 2012 |   |   | 2013 |   |
|                                                                                                                                                                                    |   | Gross             |    |   | Net |   |   | Gross |   |   | Net |   |   | Gross |   |   | Net |   |
| Permian Basin                               |   |              | 33,254  |   |   |   | 18,930 |   |   |   | 11,962 |   |   |   | 9,662 |   |   |   | 24,941 |   |   |   | 17,938 |   |
| Giddings Area                               |   |              | 30,194  |   |   |   | 20,502 |   |   |   | 74,928 |   |   |   | 35,048 |   |   |   | 53,462 |   |   |   | 22,957 |   |
| South Louisiana                             |   |              | 3,302   |   |   |   | 2,983 |   |   |   | 198 |   |   |   | 191 |   |   |   | 1,303 |   |   |   | 1,292 |   |
| Other                                       |   |              | 148,108 |   |   |   | 111,563 |   |   |   | 39,469 |   |   |   | 23,204 |   |   |   | 12,450 |   |   |   | 8,907 |   |
|                                                                                                                                                                                    |   |              | 214,858 |   |   |   | 153,978 |   |   |   | 126,557 |   |   |   | 68,105 |   |   |   | 92,156 |   |   |   | 51,094 |   |
|                                                                                                                                  |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Desta 

Offices

Item 

Item 

----

Item 

Price 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | High   |   |   | Low    |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Year Ended December 31, 2010:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |
| Fourth Quarter                                                                                     |   | $      | 84.77  |   |   | $      | 48.62 |   |
| Third Quarter                                                                                      |   |   | 52.09  |   |   |   | 37.83 |   |
| Second Quarter                                                                                     |   |   | 54.50  |   |   |   | 35.07 |   |
| First Quarter                                                                                      |   |   | 41.75  |   |   |   | 32.34 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Year Ended December 31, 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
| Fourth Quarter                                                                                     |   | $      | 37.51  |   |   | $      | 24.67 |   |
| Third Quarter                                                                                      |   |   | 31.84  |   |   |   | 15.66 |   |
| Second Quarter                                                                                     |   |   | 35.27  |   |   |   | 17.80 |   |
| First Quarter                                                                                      |   |   | 52.69  |   |   |   | 19.37 |   |

Dividend 

Securities 

----

Item 

|                                                                                                                                                                                                                                                                                                                                                       |   | Year Ended December 31,          |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                       |   | 2010                             |    |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                       |   | (In thousands, except per share) |    |
| Statement of Operations Data:                                                                                                                                                                                                                                                                                                                              |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues:                                                                                                                                                                                                                                                                                                                                                  |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil and gas sales                                                                           |   | $                                | 326,320 |   |   | $ | 242,338 |   |   | $ | 463,964 |   |   | $ | 316,992 |   |   | $ | 245,967 |   |
| Natural gas services                                                                        |   |                             | 1,631   |   |   |   | 6,146 |   |   |   | 10,926 |   |   |   | 10,230 |   |   |   | 11,327 |   |
| Drilling rig services                                                                       |   |                             | -       |   |   |   | 6,681 |   |   |   | 46,124 |   |   |   | 52,649 |   |   |   | 6,937 |   |
| Gain on sales of assets                                                                     |   |                             | 3,680   |   |   |   | 796 |   |   |   | 44,503 |   |   |   | 14,024 |   |   |   | 1,767 |   |
| Total revenues                                                                                             |   |                             | 331,631 |   |   |   | 255,961 |   |   |   | 565,517 |   |   |   | 393,895 |   |   |   | 265,998 |   |
| Costs and expenses:                                                                                                                                                                                                                                                                                                                                        |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Production                                                                                  |   |                             | 83,146  |   |   |   | 76,288 |   |   |   | 89,054 |   |   |   | 75,319 |   |   |   | 63,298 |   |
| Exploration:                                                                                                                                                                                                                                                                                                                                               |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Abandonment and impairments                                                                                                                                                                                                                                                                                                                                |   |                             | 9,074   |   |   |   | 78,798 |   |   |   | 80,112 |   |   |   | 68,870 |   |   |   | 65,173 |   |
| Seismic and other                                                                                          |   |                             | 6,046   |   |   |   | 8,189 |   |   |   | 22,685 |   |   |   | 4,765 |   |   |   | 11,299 |   |
| Natural gas services                                                                        |   |                             | 1,209   |   |   |   | 5,348 |   |   |   | 10,060 |   |   |   | 9,745 |   |   |   | 10,005 |   |
| Drilling rig services                                                                       |   |                             | 1,198   |   |   |   | 10,848 |   |   |   | 37,789 |   |   |   | 32,964 |   |   |   | 4,538 |   |
| Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                   |   |                             | 101,145 |   |   |   | 129,658 |   |   |   | 120,542 |   |   |   | 84,476 |   |   |   | 66,163 |   |
| Impairment of property and equipment                                                                                                                                                                                                                                                                                                                       |   |                             | 11,908  |   |   |   | 59,140 |   |   |   | 12,882 |   |   |   | 12,137 |   |   |   | 21,848 |   |
| Accretion of abandonment obligations                                                                                                                                                                                                                                                                                                                       |   |                             | 2,623   |   |   |   | 3,120 |   |   |   | 2,355 |   |   |   | 2,508 |   |   |   | 1,653 |   |
| General and administrative                                                                  |   |                             | 35,588  |   |   |   | 20,715 |   |   |   | 25,635 |   |   |   | 19,266 |   |   |   | 16,676 |   |
| Loss on sales of assets and impairment of inventory                                                                                                                                                                                                                                                                                                        |   |                             | 1,750   |   |   |   | 5,282 |   |   |   | 2,122 |   |   |   | 9,815 |   |   |   | 99 |   |
| Total costs and expenses                                                                                   |   |                             | 253,687 |   |   |   | 397,386 |   |   |   | 403,236 |   |   |   | 319,865 |   |   |   | 260,752 |   |
| Operating income (loss)                                                                                    |   |                             | 77,944  |   |   |   | (141,425 | ) |   |   | 162,281 |   |   |   | 74,030 |   |   |   | 5,246 |   |
| Other income (expense):                                                                                                                                                                                                                                                                                                                                    |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                            |   |                             | (24,402 | ) |   |   | (23,758 | ) |   |   | (24,994 | ) |   |   | (32,118 | ) |   |   | (20,895 | ) |
| Gain (loss) on derivatives                                                                  |   |                             | 722     |   |   |   | (17,416 | ) |   |   | 74,743 |   |   |   | (31,968 | ) |   |   | 37,340 |   |
| Other income (expense)                                                                      |   |                             | 3,308   |   |   |   | 2,543 |   |   |   | 6,539 |   |   |   | 5,355 |   |   |   | (1,339 | ) |
| Total other income (expense)                                                                               |   |                             | (20,372 | ) |   |   | (38,631 | ) |   |   | 56,288 |   |   |   | (58,731 | ) |   |   | 15,106 |   |
| Income (loss) before income taxes                                                                                                                                                                                                                                                                                                                          |   |                             | 57,572  |   |   |   | (180,056 | ) |   |   | 218,569 |   |   |   | 15,299 |   |   |   | 20,352 |   |
| Income tax (expense) benefit                                                      |   |                             | (20,634 | ) |   |   | 64,096 |   |   |   | (77,327 | ) |   |   | (5,497 | ) |   |   | (1,979 | ) |
| NET INCOME (LOSS)                                                                 |   |                             | 36,938  |   |   |   | (115,960 | ) |   |   | 141,242 |   |   |   | 9,802 |   |   |   | 18,373 |   |
| Less income attributable to noncontrolling                                                                                                                                                                                                                                                                                                                 |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest, net of tax                                                                                       |   |                             | -       |   |   |   | (1,455 | ) |   |   | (708 | ) |   |   | (3,812 | ) |   |   | (574 | ) |
| NET INCOME (LOSS) attributable to                                                                                                                                                                                                                                                                                                                          |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Clayton Williams Energy, Inc.                                                               |   | $                                | 36,938  |   |   | $ | (117,415 | ) |   | $ | 140,534 |   |   | $ | 5,990 |   |   | $ | 17,799 |   |
| Net income (loss) per common share attributable                                                                                                                                                                                                                                                                                                            |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| to Clayton Williams Energy, Inc. stockholders:                                                                                                                                                                                                                                                                                                             |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                       |   | $                                | 3.04    |   |   | $ | (9.67 | ) |   | $ | 11.78 |   |   | $ | .53 |   |   | $ | 1.64 |   |
| Diluted                                                                                     |   | $                                | 3.04    |   |   | $ | (9.67 | ) |   | $ | 11.67 |   |   | $ | .52 |   |   | $ | 1.58 |   |
| Weighted average common shares outstanding:                                                                                                                                                                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                       |   |                             | 12,148  |   |   |   | 12,138 |   |   |   | 11,932 |   |   |   | 11,337 |   |   |   | 10,885 |   |
| Diluted                                                                                     |   |                             | 12,148  |   |   |   | 12,138 |   |   |   | 12,039 |   |   |   | 11,494 |   |   |   | 11,244 |   |
| Other Data:                                                                                                                                                                                                                                                                                                                                                |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                                                                                                                                                                                                                                                                                                                  |   | $                                | 208,251 |   |   | $ | 104,711 |   |   | $ | 381,980 |   |   | $ | 234,866 |   |   | $ | 145,990 |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                       |   | December 31,                     |    |
|                                                                                                                                                                                                                                                                                                                                                       |   |                             | 2010    |   |   |   | 2009 |   |   |   | 2008 |   |   |   | 2007 |   |   |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                       |   | (In thousands)                   |    |
| Balance Sheet Data:                                                                                                                                                                                                                                                                                                                                        |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Working capital (deficit)                                                         |   | $                                | (19,899 | ) |   | $ | 19,324 |   |   | $ | 2,607 |   |   | $ | (76,388 | ) |   | $ | (23,068 | ) |
| Total assets                                                                      |   |                             | 890,917 |   |   |   | 784,604 |   |   |   | 943,409 |   |   |   | 861,096 |   |   |   | 795,433 |   |
| Long-term debt                                                                    |   |                             | 385,000 |   |   |   | 395,000 |   |   |   | 347,225 |   |   |   | 430,175 |   |   |   | 413,876 |   |
| Stockholders’ equity                                                        |   |                             | 249,452 |   |   |   | 212,275 |   |   |   | 320,276 |   |   |   | 160,806 |   |   |   | 144,980 |   |

----

Item 

Overview

Key 

| ·   |     Our oil and gas sales increased $84 million, or 35%, from 2009.  Price variances accounted for an increase of $76.7 million while, production variances accounted for the remaining $7.3 million increase. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     Our combined oil and gas production for 2010 was 5% lower on a barrel of oil equivalent (“BOE”) basis than in the comparable period in 2009.  Our oil production increased 18% compared to 2009 while gas production declined 33%.  On a comparable basis, after giving effect to the sale of properties in North Louisiana in June 2010, total oil and gas production in 2010 (on a BOE basis) was 5% higher than 2009. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     We recorded a $722,000 net gain on derivatives in fiscal 2010, consisting of a $9.9 million realized gain on settled contracts and a $9.2 million non-cash loss for changes in mark-to-market valuations.  For fiscal 2009, we reported a $17.4 million net loss on derivatives consisting of a $15.9 million realized loss on settled contracts and a $1.5 million non-cash loss for changes in market-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. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     At December 31, 2010, our capitalized unproved oil and gas properties totaled $52 million, of which approximately $17.7 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   |     We recorded a non-cash charge of $11.9 million for impairment of property and equipment primarily related to certain non-core oil and gas properties in the Permian Basin to reduce the carrying value to their estimated fair market value. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     Our estimated proved oil and gas reserves at December 31, 2010 were 51,065 MBOE compared to 33,637 MBOE at December 31, 2009.  In 2010, we added 23,193 MBOE through extensions and discoveries, had upward net revisions of 2,282 MBOE, had purchases of minerals-in-place of 349 MBOE and had sales of minerals-in-place of 2,937 MBOE (see Item 2 – Properties – Reserves). |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Proved 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Proved   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Reserves |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (MBOE)   |   |
| As of December 31, 2009                                                                                                 |   |     | 33,637 |   |
| Extensions and discoveries                                                                                                                  |   |     | 23,193 |   |
| Revisions                                                                                                                                   |   |     | 2,282  |   |
| Purchases of minerals-in-place                                                                                                              |   |     | 349    |   |
| Sales of minerals-in-place                                                                                                                  |   |     | (2,937 | ) |
| Production                                                                                                                                  |   |     | (5,459 | ) |
| As of December 31, 2010                                                                                                 |   |     | 51,065 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Proved      |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Undeveloped |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Reserves    |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (MBOE)      |   |
| As of December 31, 2009                                                                                                 |   |        | 5,051  |   |
| Extensions and discoveries                                                                                                                  |   |        | 14,434 |   |
| Revisions                                                                                                                                   |   |        | (2,027 | ) |
| Reclassified to proved developed                                                                                                            |   |        | (865   | ) |
| As of December 31, 2010                                                                                                 |   |        | 16,593 |   |

----

Supplemental 

|                                                                                                                                                                                                                                                                                                                                          |   | As of or for the Year Ended December 31, |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                          |   | 2010                                     |    |   | 2009 |   |   | 2008 |   |
| Oil and Gas Production Data:                                                                                                                                                                                                                                                                                                                  |   |                                     |    |   |   |   |   |   |   |
| Oil (MBbls)                                                                    |   |                                     | 3,375   |   |   |   | 2,865 |   |   |   | 2,952 |   |
| Gas (MMcf)                                                                     |   |                                     | 10,750  |   |   |   | 15,949 |   |   |   | 18,553 |   |
| Natural gas liquids (MBbls)                                                    |   |                                     | 292     |   |   |   | 240 |   |   |   | 182 |   |
| Total (MBOE)                                                                   |   |                                     | 5,459   |   |   |   | 5,763 |   |   |   | 6,226 |   |
| Average Realized Prices(a):                                                                                                                                                                                                                                                                                                                   |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Oil ($/Bbl)                                                                    |   | $                                        | 76.44   |   |   | $ | 57.37 |   |   | $ | 97.35 |   |
| Gas ($/Mcf)                                                                    |   | $                                        | 5.17    |   |   | $ | 4.35 |   |   | $ | 9.02 |   |
| Natural gas liquids ($/Bbl)                                                    |   | $                                        | 42.47   |   |   | $ | 30.83 |   |   | $ | 54.45 |   |
| Gain (Loss) on Settled Derivative Contracts(a):                                                                                                                                                                                                                                                                                               |   |                                     |    |   |   |   |   |   |   |   |   |   |
| ($ in thousands, except per unit)                                                                                                                                                                                                                                                                                                             |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Oil:      Net realized gain (loss)                                                       |   | $                                        | (7,685  | ) |   | $ | (25,713 | ) |   | $ | 15,560 |   |
| Per unit produced ($/Bbl)                                                                                              |   | $                                        | (2.28   | ) |   | $ | (8.97 | ) |   | $ | 5.27 |   |
| Gas:    Net realized gain                                                                          |   | $                                        | 17,560  |   |   | $ | 9,777 |   |   | $ | 11,764 |   |
| Per unit produced ($/Mcf)                                                                                              |   | $                                        | 1.63    |   |   | $ | .61 |   |   | $ | .63 |   |
|                                                                                                                                                                                                                                                                                                                                          |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Average Daily Production:                                                                                                                                                                                                                                                                                                                     |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Oil (Bbls):                                                                                                                                                                                                                                                                                                                                   |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Permian Basin                                                                                           |   |                                     | 5,601   |   |   |   | 4,142 |   |   |   | 3,821 |   |
| Austin Chalk/Eagle Ford Shale                                                                                                                                                                                                                                                                                                                 |   |                                     | 2,944   |   |   |   | 2,734 |   |   |   | 3,384 |   |
| North Louisiana                                                                                         |   |                                     | 71      |   |   |   | 238 |   |   |   | 415 |   |
| South Louisiana                                                                                         |   |                                     | 559     |   |   |   | 649 |   |   |   | 378 |   |
| Other                                                                                                   |   |                                     | 72      |   |   |   | 86 |   |   |   | 90 |   |
| Total                                                                                                                            |   |                                     | 9,247   |   |   |   | 7,849 |   |   |   | 8,088 |   |
| Gas (Mcf):                                                                                                                                                                                                                                                                                                                                    |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Permian Basin                                                                                           |   |                                     | 13,668  |   |   |   | 14,739 |   |   |   | 14,326 |   |
| Giddings Area:                                                                                                                                                                                                                                                                                                                                |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Austin Chalk/Eagle Ford Shale                                                                                                                                                                                                                                                                                                                 |   |                                     | 2,179   |   |   |   | 2,485 |   |   |   | 2,367 |   |
| Cotton Valley Reef Complex                                                                                                                                                                                                                                                                                                                    |   |                                     | 3,599   |   |   |   | 3,960 |   |   |   | 5,745 |   |
| North Louisiana                                                                                         |   |                                     | 3,581   |   |   |   | 11,325 |   |   |   | 17,500 |   |
| South Louisiana                                                                                         |   |                                     | 5,265   |   |   |   | 9,851 |   |   |   | 10,402 |   |
| Other                                                                                                   |   |                                     | 1,160   |   |   |   | 1,336 |   |   |   | 490 |   |
| Total                                                                                                                            |   |                                     | 29,452  |   |   |   | 43,696 |   |   |   | 50,830 |   |
| Natural Gas Liquids (Bbls):                                                                                                                                                                                                                                                                                                                   |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Permian Basin                                                                                           |   |                                     | 440     |   |   |   | 241 |   |   |   | 183 |   |
| Austin Chalk/Eagle Ford Shale                                                                                                                                                                                                                                                                                                                 |   |                                     | 237     |   |   |   | 288 |   |   |   | 250 |   |
| North Louisiana                                                                                         |   |                                     | 8       |   |   |   | 22 |   |   |   | 7 |   |
| South Louisiana                                                                                         |   |                                     | 89      |   |   |   | 98 |   |   |   | 49 |   |
| Other                                                                                                   |   |                                     | 26      |   |   |   | 9 |   |   |   | 10 |   |
| Total                                                                                                                            |   |                                     | 800     |   |   |   | 658 |   |   |   | 499 |   |
| Total Proved Reserves:                                                                                                                                                                                                                                                                                                                        |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Oil and natural gas liquids (MBbls)                                                                                                                                                                                                                                                                                                           |   |                                     | 37,815  |   |   |   | 20,953 |   |   |   | 20,776 |   |
| Gas (MMcf)                                                                     |   |                                     | 79,497  |   |   |   | 76,103 |   |   |   | 103,929 |   |
| Total (MBOE)                                                                   |   |                                     | 51,065  |   |   |   | 33,637 |   |   |   | 38,098 |   |
| Standardized measure of discounted                                                                                                                                                                                                                                                                                                            |   |                                     |    |   |   |   |   |   |   |   |   |   |
| future net cash flows                                                                         |   | $                                        | 684,438 |   |   | $ | 364,273 |   |   | $ | 405,166 |   |

----

|                                                                                                                                                                                                                                                                                                                                                      |   | As of or for the Year Ended December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                      |   | 2010                                     |   |   | 2009 |   |   | 2008 |   |
| Total Proved Reserves by Area:                                                                                                                                                                                                                                                                                                                            |   |                                     |   |   |   |   |   |   |   |
| Oil and Natural Gas Liquids (MBbls):                                                                                                                                                                                                                                                                                                                      |   |                                     |   |   |   |   |   |   |   |
| Permian Basin                                                                              |   |                                     | 27,628 |   |   |   | 13,325 |   |   |   | 13,491 |   |
| Austin Chalk/Eagle Ford Shale                                                              |   |                                     | 9,552  |   |   |   | 6,887 |   |   |   | 6,280 |   |
| North Louisiana                                                                            |   |                                     | -      |   |   |   | 291 |   |   |   | 285 |   |
| South Louisiana                                                                            |   |                                     | 423    |   |   |   | 243 |   |   |   | 524 |   |
| Other                                                                                      |   |                                     | 212    |   |   |   | 207 |   |   |   | 196 |   |
| Total                                                                                                          |   |                                     | 37,815 |   |   |   | 20,953 |   |   |   | 20,776 |   |
|                                                                                                                                                                                                                                                                                                                                                      |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Gas (MMcf):                                                                                                                                                                                                                                                                                                                                               |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Permian Basin                                                                              |   |                                     | 59,549 |   |   |   | 39,874 |   |   |   | 54,914 |   |
| Giddings Area:                                                                                                                                                                                                                                                                                                                                            |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Austin Chalk/Eagle Ford Shale                                                                                                                                                                                                                                                                                                                             |   |                                     | 5,620  |   |   |   | 5,131 |   |   |   | 4,471 |   |
| Cotton Valley Reef Complex                                                                                |   |                                     | 5,235  |   |   |   | 5,981 |   |   |   | 9,281 |   |
| Deep Bossier                                                                                              |   |                                     | -      |   |   |   | 98 |   |   |   | 519 |   |
| South Louisiana                                                                            |   |                                     | 5,358  |   |   |   | 5,968 |   |   |   | 13,966 |   |
| Other                                                                                      |   |                                     | 3,370  |   |   |   | 1,846 |   |   |   | 1,028 |   |
| Total                                                                                                          |   |                                     | 79,497 |   |   |   | 76,103 |   |   |   | 103,929 |   |
| Total Oil Equivalent (MBOE):                                                                                                                                                                                                                                                                                                                              |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Permian Basin                                                                              |   |                                     | 37,553 |   |   |   | 19,971 |   |   |   | 22,643 |   |
| Giddings Area:                                                                                                                                                                                                                                                                                                                                            |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Austin Chalk/Eagle Ford Shale                                                                                                                                                                                                                                                                                                                             |   |                                     | 10,489 |   |   |   | 7,742 |   |   |   | 7,025 |   |
| Cotton Valley Reef Complex                                                                                |   |                                     | 873    |   |   |   | 997 |   |   |   | 1,547 |   |
| Deep Bossier                                                                                              |   |                                     | -      |   |   |   | 16 |   |   |   | 87 |   |
| North Louisiana                                                                            |   |                                     | 61     |   |   |   | 3,159 |   |   |   | 3,577 |   |
| South Louisiana                                                                            |   |                                     | 1,316  |   |   |   | 1,238 |   |   |   | 2,852 |   |
| Other                                                                                      |   |                                     | 773    |   |   |   | 514 |   |   |   | 367 |   |
| Total                                                                                                          |   |                                     | 51,065 |   |   |   | 33,637 |   |   |   | 38,098 |   |
| Exploration Costs (in thousands):                                                                                                                                                                                                                                                                                                                         |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Abandonment and impairment costs:                                                                                                                                                                                                                                                                                                                         |   |                                     |   |   |   |   |   |   |   |   |   |   |
| North Louisiana                                                                            |   | $                                        | 2,612  |   |   | $ | 9,716 |   |   | $ | 25,414 |   |
| South Louisiana                                                                            |   |                                     | 1,261  |   |   |   | 22,502 |   |   |   | 3,187 |   |
| Permian Basin                                                                              |   |                                     | 18     |   |   |   | 3,484 |   |   |   | 717 |   |
| Deep Bossier                                                                               |   |                                     | 2,522  |   |   |   | 30,200 |   |   |   | 40,544 |   |
| Utah                                                                                       |   |                                     | 1,929  |   |   |   | 11,111 |   |   |   | 6,331 |   |
| Other                                                                                      |   |                                     | 732    |   |   |   | 1,785 |   |   |   | 3,919 |   |
| Total                                                                                                          |   |                                     | 9,074  |   |   |   | 78,798 |   |   |   | 80,112 |   |
| Seismic and other                                                                          |   |                                     | 6,046  |   |   |   | 8,189 |   |   |   | 22,685 |   |
| Total exploration costs                                                                                        |   | $                                        | 15,120 |   |   | $ | 86,987 |   |   | $ | 102,797 |   |
|                                                                                                                                                                                                                                                                                                                                                      |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Oil and Gas Costs ($/BOE Produced):                                                                                                                                                                                                                                                                                                                       |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Production costs                                                            |   | $                                        | 15.23  |   |   | $ | 13.24 |   |   | $ | 14.30 |   |
| Production costs (excluding production taxes)                                                                                                                                                                                                                                                                                                             |   | $                                        | 12.03  |   |   | $ | 10.79 |   |   | $ | 10.70 |   |
| Oil and gas depletion                                                       |   | $                                        | 18.09  |   |   | $ | 21.94 |   |   | $ | 17.83 |   |
| Net Wells Drilled(b):                                                                                                                                                                                                                                                                                                                                     |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Developmental wells                                                         |   |                                     | 112.5  |   |   |   | 55.9 |   |   |   | 67.2 |   |
| Exploratory wells                                                           |   |                                     | 2.5    |   |   |   | 4.7 |   |   |   | 5.2 |   |
|                                                                                                                                                                                                                                                                                     |   |                                     |   |   |   |   |   |   |   |   |   |   |
| (a)    No derivatives were designated as cash flow hedges in the table above. All gains or losses on settled derivatives were included in other income (expense) - gain (loss) on derivatives.                                                                                                                                   |   |
| (b)    Excludes wells being drilled or completed at the end of each period.                                                                                                                                                                                                                                                           |   |

----

Operating 

----

----

----

----

Liquidity 

|                                                                                                                                                                                                                                                                                          |   | Actual            |    |   | Planned           |   |    |       |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|---------|------------|--------|
|                                                                                                                                                                                                                                                                                          |   | Expenditures      |    |   | Expenditures      |   |    | 2011       |   |
|                                                                                                                                                                                                                                                                                          |   | Year Ended        |    |   | Year Ended        |   |    | Percentage |   |
|                                                                                                                                                                                                                                                                                          |   | December 31, 2010 |    |   | December 31, 2011 |   |    | of Total   |   |
|                                                                                                                                                                                                                                                                                          |   | (In thousands)    |    |   |              |   |
| Permian Basin                                                |   | $                 | 199,600 |   |              | $      | 295,300 |       |   |   | 77 | % |
| Giddings Area:                                                                                                                                                                                                                                                                                |   |              |    |   |              |   |    |       |   |   |   |   |
| Austin Chalk/Eagle Ford Shale                                                                                                                                                                                                                                                                 |   |              | 73,600  |   |              |   | 66,100  |       |   |   | 17 | % |
| Deep Bossier                                                           |   |              | 1,600   |   |              |   | 13,900  |       |   |   | 4 | % |
| South Louisiana                                              |   |              | 8,700   |   |              |   | 3,900   |       |   |   | 1 | % |
| Other                                                        |   |              | 8,600   |   |              |   | 2,600   |       |   |   | 1 | % |
|                                                                                                                                                                                                                                                                                          |   | $                 | 292,100 |   |              | $      | 381,800 |       |   |   | 100 | % |

----

|                                                                                  |   | December 31,   |    |
|---------------------------------------------------------------------------------------|--------|----------------|---------|
|                                                                                  |   | 2010           |    |   | 2009 |   |
|                                                                                  |   | (In thousands) |    |
| Working capital (deficit) per GAAP                                                    |   | $              | (19,899 | ) |   | $ | 19,324 |   |
| Add funds available under the revolving credit facility                               |   |           | 187,975 |   |   |   | 79,196 |   |
| Exclude fair value of derivatives classified as current assets or current liabilities |   |           | 7,224   |   |   |   | 5,907 |   |
| Working capital per loan covenant                                                     |   | $              | 175,300 |   |   | $ | 104,427 |   |

----

----

|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Payments Due by Period |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   |  Total            |    |   |  2011 |   |   | 2012to2013 |   |   | 2014to2015 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |    |   |   |   |   | (In thousands) |   |   |   |   |
| Contractual obligations:                                                                                                                                                                                                                                                                                                                                                                                                  |   |                   |    |   |   |   |   |   |   |   |   |   |
| 73⁄4% Senior Notes(a)                                                                       |   | $                      | 225,000 |   |   | $ | - |   |   | $ | 225,000 |   |   | $ | - |   |
| Secured bank credit facility(a)                                                                |   |                   | 160,000 |   |   |   | - |   |   |   | - |   |   |   | 160,000 |   |
| Lease obligations                                                                              |   |                   | 3,542   |   |   |   | 2,008 |   |   |   | 1,521 |   |   |   | 13 |   |
| Other(b)                                                                                       |   |                   | 14,084  |   |   |   | 14,084 |   |   |   | - |   |   |   | - |   |
| Total contractual obligations                                                                       |   | $                      | 402,626 |   |   | $ | 16,092 |   |   | $ | 226,521 |   |   | $ | 160,013 |   |
|                                                                                                                                                                                                                                                                                                                                                     |   |                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

|   | (a) |      In addition to the principal payments presented, we expect to make annual interest payments of $17.4 million on the Senior Notes and approximately $4.8 million on the secured bank credit facility (based on the balances and interest rates at December 31, 2010). |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) |     Amount relates to non-cancellable orders placed for tubular goods at December 31, 2010. |
|-----|-----------------------------------------------------------------------------------------------------------------|

Known 

----

Application 

| Accounting Policies              |   | Estimates or Assumptions                        |   | Accounts Affected                     |
|----------------------------------|--------|-------------------------------------------------|--------|---------------------------------------|
| Successful efforts accounting    |   | ·Reserve estimates                         |   | ·Oil and gas properties          |
| for oil and gas properties       |   | ·Valuation of unproved                     |   | ·Accumulated DD&A            |
|                             |   | properties                                      |   | ·Provision for DD&A          |
|                             |   | ·Judgment regarding status of              |   | ·Impairment of unproved          |
|                             |   |    in progress exploratory wells |   |    properties          |
|                             |   |                                            |   | ·Abandonment costs               |
|                             |   |                                            |   | (dry hole costs)                      |
| Impairment of proved             |   | ·Reserve estimates and related             |   | ·Oil and gas properties          |
| properties and long-             |   | present value of future net                     |   | ·Contract drilling equipment     |
| lived assets                     |   | revenues (proved properties)                    |   | ·Accumulated DD&A            |
|                             |   | ·Estimates of future undiscounted          |   | ·Impairment of proved properties |
|                             |   | cash flows (long-lived assets)                  |   | and long-lived assets                 |
|                             |   |                                            |   |                                  |
| Asset retirement obligations     |   | ·Estimates of the present value            |   | ·Abandonment obligations         |
|                             |   | of future abandonment costs                     |   | (non-current liability)               |
|                             |   |                                            |   | ·Oil and gas properties          |
|                             |   |                                            |   | ·Accretion of discount           |
|                             |   |                                            |   | expense                               |
| Inventory stated at the lower of |   | ·Estimates of market value of              |   | ·Impairment of inventory         |
| average cost or estimated        |   | tubular goods and other well                    |   |                                  |
| market value                     |   | equipment                                       |   |                                  |
|                             |   |                                            |   |                                  |
| Derivatives mark-to-market       |   | ·Estimates of the fair value               |   | ·Fair value of derivatives       |
|                             |   | of derivatives                                  |   | ·Other income (expense):         |
|                             |   |                                            |   | Gain (loss) on derivatives            |

----

| Type of Reserves               |   | Nature of Available Data                      |   | Degree of Accuracy |
|--------------------------------|--------|-----------------------------------------------|--------|--------------------|
| Proved undeveloped             |   | Data from offsetting wells, seismic data      |   | Least accurate     |
| Proved developed non-producing |   | Logs, core samples, well tests, pressure data |   | More accurate      |
| Proved developed producing     |   | Production history, pressure data over time   |   | Most accurate      |

|                                                                                 |   |            |   |   |          |   |   | Standardized  |   |
|--------------------------------------------------------------------------------------|--------|-----------------|--------|--------|---------------|--------|--------|---------------|--------|
|                                                                                 |   |            |   |   |          |   |   |          |   |   |   |   |   | Measure |   |
|                                                                                 |   | Proved Reserves |   |   | Average Price |   |   | of Discounted |   |
|                                                                                 |   | Oil(a)          |   |   | Gas           |   |   | Oil (a)       |   |   | Gas |   |   | Future |   |
|                                                                                 |   | (MMBbls)        |   |   | (Bcf)         |   |   | ($/Bbl)       |   |   | ($/Mcf) |   |   | Net Cash Flows |   |
|                                                                                 |   |            |   |   |          |   |   |          |   |   |   |   |   | (In millions) |   |
| As of December 31:                                                                   |   |            |   |   |          |   |   |          |   |   |   |   |   |   |   |
| 2010                                                                                 |   |            | 37.8   |   |          |   | 79.5   |          |   | $ | 72.36 |   |   | $ | 5.44 |   |   | $ | 684.4 |   |
| 2009                                                                                 |   |            | 21.0   |   |          |   | 76.1   |          |   | $ | 54.81 |   |   | $ | 3.71 |   |   | $ | 364.3 |   |
| 2008                                                                                 |   |            | 20.8   |   |          |   | 103.9  |          |   | $ | 42.03 |   |   | $ | 5.90 |   |   | $ | 405.2 |   |
|                |   |            |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |

| ·   |     the location of the prospect in relation to known fields and reservoirs, available markets and transportation systems for oil and gas production in the vicinity, and other critical services; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     the nature and extent of geological and geophysical data on the prospect; |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   |     the terms of the leases holding the acreage in the prospect, such as ownership interests, expiration terms, delay rental obligations, depth limitations, drilling and marketing restrictions, and similar terms; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     the prospect’s risk-adjusted potential for return on investment, giving effect to such factors as potential reserves to be discovered, drilling and completion costs, prevailing commodity prices, and other economic factors; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     the results of drilling activity in close proximity to the prospect that could either enhance or condemn the prospect’s chances of success. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   |     DD&A Rate = Unamortized Cost   ̧  Beginning of Period Reserves |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   |     Provision for DD&A = DD&A Rate   ́  Current Period Production |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

----

Adopted 

----

Item 

Oil 

|                                                                                                                                                                                                 |   | Oil    |      |   | Gas    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                                                                                                                                                 |   | Bbls   |      |   | Price  |   |   | MMBtu (a) |   |   | Price |   |
| Production Period:                                                                                                                                                                                   |   |   |      |   |   |   |   |   |   |   |   |   |
| 1st Quarter 2011                               |   |   | 657,000   |   |   | $      | 83.74 |   |   |   | 1,710,000 |   |   | $ | 7.07 |   |
| 2nd Quarter 2011                               |   |   | 632,000   |   |   | $      | 83.71 |   |   |   | 1,650,000 |   |   | $ | 7.07 |   |
| 3rd Quarter 2011                               |   |   | 547,000   |   |   | $      | 83.78 |   |   |   | 1,560,000 |   |   | $ | 7.07 |   |
| 4th Quarter 2011                               |   |   | 540,000   |   |   | $      | 83.78 |   |   |   | 1,500,000 |   |   | $ | 7.07 |   |
| 2012                                           |   |   | 1,170,000 |   |   | $      | 90.65 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                                                                                 |   |   | 3,546,000 |   |   |   |   |   |   |   | 6,420,000 |   |   |   |   |   |
|                                                                                                                                               |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)    One MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                                                        |   |

----

Interest 

Item 

Item 

Item 

Disclosure 

| ·   |     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 and chief financial officers 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. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Internal 

| ·   |     pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our Board of Directors; and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     provide reasonable assurance regarding prevention or timely detection of any unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Changes 

Management’s 

----

Report 

----

Item 

Item 

----

Item 

| ExhibitNumber |   | Description of Exhibit                                                                                                                                                                                                                                                                 |
|---------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                                                                                                                                   |
| **2.1         |   | Agreement and Plan of Merger among Clayton Williams Energy, Inc. and Southwest Royalties, Inc. dated May 3, 2004, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2004††                                       |
|          |   |                                                                                                                                                                                                                                                                                   |
| **3.1         |   | Second Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s 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 the Company’s 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 the Company’s Current Report on Form 8-K filed with the Commission on March 13, 2008††                                                                                        |
|          |   |                                                                                                                                                                                                                                                                                   |
| **4.1         |   | Stock Purchase Agreement dated May 19, 2004 by and among Clayton Williams Energy, Inc. and various institutional investors, filed as Exhibit 4 to the Company’s Current Report on Form 8-K filed with the Commission on June 2, 2004††                               |
|          |   |                                                                                                                                                                                                                                                                                   |
| **4.2         |   | 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 the Company’s Current Report on Form 8-K filed with the Commission on July 22, 2005†† |
|          |   |                                                                                                                                                                                                                                                                                   |
| **10.1        |   | Amended and Restated Credit Agreement dated as of May 21, 2004 among Clayton Williams Energy, Inc., et al, and Bank One, NA, et al, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed with the Commission on June 23, 2004††                 |
|          |   |                                                                                                                                                                                                                                                                                   |
| **10.2        |   | First Amendment to Amended and Restated Credit Agreement dated July 18, 2005, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2005††                                                                         |
|          |   |                                                                                                                                                                                                                                                                                   |
| **10.3        |   | Second Amendment to Amended and Restated Credit Agreement dated December 30, 2005, filed as Exhibit 10.3 to the Company’s Form 10-K for the period ended December 31, 2005††                                                                                         |
|          |   |                                                                                                                                                                                                                                                                                   |
| **10.4        |   | Third Amendment to Amended and Restated Credit Agreement dated June 30, 2006, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 14, 2006††                                                                         |
|          |   |                                                                                                                                                                                                                                                                                   |
| **10.5        |   | Fourth Amendment to Amended and Restated Credit Agreement dated July 28, 2006                                                                                                                                                                                                          |
|          |   |                                                                                                                                                                                                                                                                                   |
| **10.6        |   | Fifth Amendment to Amended and Restated Credit Agreement dated June 13, 2008, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 18, 2008††                                                                         |
|          |   |                                                                                                                                                                                                                                                                                   |
| **10.7        |   | Sixth Amendment to Amended and Restated Credit Agreement dated April 14, 2009, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 17, 2009††                                                                       |
|          |   |                                                                                                                                                                                                                                                                                   |
| **10.8        |   | Seventh Amendment to Amended and Restated Credit Agreement dated May 26, 2009, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 26, 2009††                                                                         |

----

| ExhibitNumber  |   | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                   |
|----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **10.9         |   | Eighth Amendment to Amended and Restated Credit Agreement dated April 29, 2010, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 5, 2010††                                                                                                                                                                                                                           |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.10        |   | Second Amended and Restated Credit Agreement dated as of November 29, 2010, among Clayton Williams Energy, Inc., as Borrower, certain Subsidiaries of Clayton Williams Energy, Inc., as Guarantors, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 2, 2010†† |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.11† |   | Outside Directors Stock Option Plan, filed as Exhibit 10.1 to the Company’s Form S-8 Registration Statement, Commission File No. 33-68316                                                                                                                                                                                                                                                                                          |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.12† |   | First Amendment to Outside Directors Stock Option Plan, filed as Exhibit 10.13 to the Company’s Form 10-K for the period ended December 31, 1995††                                                                                                                                                                                                                                                                     |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.13† |   | Second Amendment to Outside Directors Stock Option Plan, filed as Exhibit 10.13 to the Company’s Form 10-K for the period ended December 31, 2005††                                                                                                                                                                                                                                                                    |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.14† |   | Amendment to Outside Directors Stock Option Plan, filed as Exhibit 10.1 to the Company’s Form S-8 Registration Statement, Commission File No. 33-68316                                                                                                                                                                                                                                                                             |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.15† |   | Bonus Incentive Plan, filed as Exhibit 10.1 to the Company’s Form S-8 Registration Statement, Commission File No. 33-68320                                                                                                                                                                                                                                                                                                         |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.16† |   | First Amendment to Bonus Incentive Plan, filed as Exhibit 10.9 to the Company’s Form 10-K for the period ended December 31, 1997††                                                                                                                                                                                                                                                                                     |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.17† |   | Scudder Trust Company Prototype Defined Contribution Plan adopted by Clayton Williams Energy, Inc. effective as of August 1, 2004, filed as Exhibit 10.12 to the Company’s Form 10-K for the period ended December 31, 2004††                                                                                                                                                                                          |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.18† |   | Executive Incentive Stock Compensation Plan, filed as Exhibit 10.1 to the Company’s Form S-8 Registration Statement, Commission File No. 33-92834                                                                                                                                                                                                                                                                                  |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.19† |   | First Amendment to Executive Incentive Stock Compensation Plan, filed as Exhibit 10.16 to the Company’s Form 10-K for the period ended December 31, 1996††                                                                                                                                                                                                                                                             |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.20        |   | Consolidation Agreement dated May 13, 1993 among Clayton Williams Energy, Inc., Warrior Gas Co. and the Williams Entities, filed as Exhibit 10.1 to the Company’s Form S-1 Registration Statement, Commission File No. 033-43350                                                                                                                                                                                                   |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.21        |   | Amendment to Consolidation Agreement dated August 7, 2000 among Clayton Williams Energy, Inc., Warrior Gas Co., Clayton W. Williams, Jr. and the Williams Companies, filed as Exhibit 10.1 to the Company’s Form 10-Q for the period ended September 30, 2000††                                                                                                                                                        |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.22        |   | Agreement dated April 23, 1993 between the Company and Robert C. Lyon, filed as Exhibit 10.42 to the Company’s Form S-1 Registration Statement, Commission File No. 033-43350                                                                                                                                                                                                                                                      |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.23        |   | Second Amended and Restated Service Agreement effective March 1, 2005 among Clayton Williams Energy, Inc. and its subsidiaries, Clayton Williams Ranch Holdings, Inc., ClayDesta L.P., Clayton Williams Partnership, Ltd. and CWPLCO, Inc., filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 3, 2005††                                                             |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.24        |   | Amendment to Second Amended and Restated Service Agreement effective January 1, 2008 among Clayton Williams Energy, Inc. and its subsidiaries, Clayton Williams, Jr., Clayton Williams Ranch Holdings, Inc., ClayDesta L.P., The Williams Children’s Partnership, Ltd. and CWPLCO, Inc.††                                                                                                                              |
|           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **10.25† |   | Agreement of Limited Partnership of CWEI Longfellow Ranch I, L.P. dated April 1, 2003, filed as Exhibit 10.32 to the Company’s Form 10-K for the period ended December 31, 2003††                                                                                                                                                                                                                                      |

----

| ExhibitNumber  |   | Description of Exhibit                                                                                                                                                                                                                       |
|----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **10.26† |   | Agreement of Limited Partnership of CWEI South Louisiana II, L.P. effective as of January 1, 2004, filed as Exhibit 10.29 to the Company’s Form 10-K for the period ended December 31, 2004††                              |
|           |   |                                                                                                                                                                                                                                         |
| **10.27† |   | Agreement of Limited Partnership of Rocky Arroyo, L.P. effective as of January 2, 2005, filed as Exhibit 10.31 to the Company’s Form 10-K for the period ended December 31, 2004††                                         |
|           |   |                                                                                                                                                                                                                                         |
| **10.28† |   | Agreement of Limited Partnership of CWEI West Pyle/McGonagill, L.P. effective as of January 2, 2005, filed as Exhibit 10.33 to the Company’s Form 10-K for the period ended December 31, 2004††                            |
|           |   |                                                                                                                                                                                                                                         |
| **10.29† |   | Agreement of Limited Partnership of CWEI South Louisiana III, L.P. effective as of March 1, 2005, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 14, 2005††          |
|           |   |                                                                                                                                                                                                                                         |
| **10.30† |   | Agreement of Limited Partnership of CWEI North Louisiana, L.P. effective as of March 1, 2005, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 14, 2005††              |
|           |   |                                                                                                                                                                                                                                         |
| **10.31† |   | Agreement of Limited Partnership of Floyd Prospect, L.P. effective as of March 1, 2005, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2005††                      |
|           |   |                                                                                                                                                                                                                                         |
| **10.32† |   | Amendment to Agreement dated April 23, 1993 between the Company and Robert C. Lyon, filed as Exhibit 10.35 to the Company’s Form 10-K for the period ended December 31, 2004††                                             |
| **10.33† |   | Second Amendment to Agreement dated April 23, 1993 between the Company and Robert C. Lyon, filed as Exhibit 10.36 to the Company’s Form 10-K for the period ended December 31, 2004††                                      |
|           |   |                                                                                                                                                                                                                                         |
| **10.34† |   | Form of stock option agreement for Outside Directors Stock Option Plan, filed as Exhibit 10.38 to the Company’s Form 10-K for the period ended December 31, 2004††                                                         |
|           |   |                                                                                                                                                                                                                                         |
| **10.35† |   | Agreement of Limited Partnership of Floyd Prospect II, L.P. dated May 15, 2006., filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 17, 2006††                             |
|           |   |                                                                                                                                                                                                                                         |
| **10.36† |   | Participation Agreement relating to South Louisiana IV dated August 2, 2006, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 7, 2006††                               |
|           |   |                                                                                                                                                                                                                                         |
| **10.37† |   | Participation Agreement relating to North Louisiana — Hosston/Cotton Valley dated August 2, 2006, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on August 7, 2006††    |
|           |   |                                                                                                                                                                                                                                         |
| **10.38† |   | Participation Agreement relating to North Louisiana — Bossier dated August 2, 2006, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on August 7, 2006††                  |
|           |   |                                                                                                                                                                                                                                         |
| **10.39† |   | Participation Agreement relating to Floyd Prospect III dated November 15, 2006, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on November 17, 2006††                         |
|           |   |                                                                                                                                                                                                                                         |
| **10.40† |   | Participation Agreement relating to North Louisiana - Bossier II dated November 15, 2006, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on November 17, 2006††               |
|           |   |                                                                                                                                                                                                                                         |
| **10.41† |   | Participation Agreement relating to North Louisiana - Hosston/Cotton Valley II dated November 15, 2006, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on November 17, 2006†† |
|           |   |                                                                                                                                                                                                                                         |
| **10.42† |   | Participation Agreement relating to South Louisiana V dated November 15, 2006, filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on November 17, 2006††                          |
|           |   |                                                                                                                                                                                                                                         |
| **10.43† |   | Southwest Royalties Reward Plan dated January 15, 2007, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with Commission on January 18, 2007††                                                      |
|           |   |                                                                                                                                                                                                                                         |
| **10.44† |   | Form of Notice of Bonus Award Under the Southwest Royalties Reward Plan, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on January 18, 2007††                                 |
|           |   |                                                                                                                                                                                                                                         |

----

| ExhibitNumber  |   | Description of Exhibit                                                                                                                                                                                                                                           |
|----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **10.45† |   | Participation Agreement relating to West Coast Energy Properties, L.P. dated December 11, 2006, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 14, 2006††                             |
|           |   |                                                                                                                                                                                                                                                             |
| **10.46† |   | Participation Agreement relating to RMS/Warnick dated April 10, 2007, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 13, 2007††                                                          |
|           |   |                                                                                                                                                                                                                                                             |
| **10.47† |   | Participation Agreement relating to East Texas Bossier – Big Bill Simpson dated December 17, 2007, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 20, 2007††                    |
|           |   |                                                                                                                                                                                                                                                             |
| **10.48† |   | Participation Agreement relating to East Texas Bossier – Margarita dated December 17, 2007, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on December 20, 2007††                           |
|           |   |                                                                                                                                                                                                                                                             |
| **10.49† |   | Amaker Tippett Reward Plan dated June 19, 2008, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                                                                                 |
|           |   |                                                                                                                                                                                                                                                             |
| **10.50† |   | Austin Chalk Reward Plan dated June 19, 2008, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                                                                                   |
|           |   |                                                                                                                                                                                                                                                             |
| **10.51† |   | Barstow Area Reward Plan dated June 19, 2008, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                                                                                   |
|           |   |                                                                                                                                                                                                                                                             |
| **10.52† |   | Participation Agreement relating to CWEI Andrews Area dated June 19, 2008, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                                                      |
|           |   |                                                                                                                                                                                                                                                             |
| **10.53† |   | Participation Agreement relating to CWEI Crockett County Area dated June 19, 2008, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                                              |
|           |   |                                                                                                                                                                                                                                                             |
| **10.54† |   | Participation Agreement relating to CWEI North Louisiana Bossier III dated June 19, 2008, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                                       |
|           |   |                                                                                                                                                                                                                                                             |
| **10.55† |   | Participation Agreement relating to CWEI North Louisiana Hosston/Cotton Valley III dated June 19, 2008, filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                         |
|           |   |                                                                                                                                                                                                                                                             |
| **10.56† |   | Participation Agreement relating to CWEI South Louisiana VI dated June 19, 2008, filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                                                |
|           |   |                                                                                                                                                                                                                                                             |
| **10.57† |   | Participation Agreement relating to CWEI Utah dated June 19, 2008, filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the Commission on June 25, 2008††                                                              |
|           |   |                                                                                                                                                                                                                                                             |
| **10.58† |   | Participation Agreement relating to CWEI Sacramento Basin I dated August 12, 2008, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 14, 2008††                                            |
|           |   |                                                                                                                                                                                                                                                             |
| **10.59† |   | Form of Director Indemnification Agreement                                                                                                                                                                                                                       |
|           |   |                                                                                                                                                                                                                                                             |
| **10.60† |   | Participation Agreement relating to CWEI East Texas Bossier - Sunny dated November 19, 2008, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on November 20, 2008††                                |
|           |   |                                                                                                                                                                                                                                                             |
| **10.61† |   | Fuhrman-Mascho Reward Plan dated December 1, 2009, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 2, 2009††                                                                           |
|           |   |                                                                                                                                                                                                                                                             |
| **10.62† |   | Employment Agreement by and between Clayton Williams Energy, Inc. and Clayton W. Williams, Jr., effective as of March 1, 2010, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 18, 2010†† |

----

| ExhibitNumber                                                                                                                                                                                      |   | Description of Exhibit                                                                                                                                                                                                                                     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **10.63†                                                                                                                                                                                     |   | Employment Agreement by and between Clayton Williams Energy, Inc. and Mel G. Riggs, effective as of March 1, 2010, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on March 18, 2010††       |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| **10.64†                                                                                                                                                                                     |   | Employment Agreement by and between Clayton Williams Energy, Inc. and Patrick C. Reesby, effective as of March 1, 2010, filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on March 18, 2010††  |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| **10.65†                                                                                                                                                                                     |   | Employment Agreement by and between Clayton Williams Energy, Inc. and Michael L. Pollard, effective as of March 1, 2010, filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Commission on March 18, 2010†† |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| **10.66†                                                                                                                                                                                     |   | Employment Agreement by and between Clayton Williams Energy, Inc. and Greg S. Welborn, effective as of March 1, 2010, filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the Commission on March 18, 2010††    |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| **10.67†                                                                                                                                                                                     |   | Employment Agreement by and between Clayton Williams Energy, Inc. and T. Mark Tisdale, effective as of March 1, 2010, filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the Commission on March 18, 2010††    |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| **10.68†                                                                                                                                                                                     |   | CWEI Andrews Fee Reward Plan dated October 19, 2010, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                                   |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| **10.69†                                                                                                                                                                                     |   | CWEI Andrews Samson Reward Plan dated October 19, 2010, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                                |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| **10.70†                                                                                                                                                                                     |   | CWEI Austin Chalk Reward Plan II dated October 19, 2010, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on October 22, 2010††                                                               |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *21                                                                                                                                                                                                |   | Subsidiaries of the Registrant                                                                                                                                                                                                                             |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *23.1                                                                                                                                                                                              |   | Consent of KPMG LLP                                                                                                                                                                                                                                        |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *23.2                                                                                                                                                                                              |   | Consent of Williamson Petroleum Consultants, Inc.                                                                                                                                                                                                          |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *23.3                                                                                                                                                                                              |   | Consent of Ryder Scott Company, L.P.                                                                                                                                                                                                                       |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *24.1                                                                                                                                                                                              |   | Power of Attorney                                                                                                                                                                                                                                          |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *31.1                                                                                                                                                                                              |   | Certification by the President and Chief Executive Officer of the Company pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934                                                                                                        |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *31.2                                                                                                                                                                                              |   | Certification by the Chief Financial Officer of the Company pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934                                                                                                                      |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| ***32.1                                                                                                                                                                                            |   | Certifications by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C. § 1350                                                                                                                                 |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *99.1                                                                                                                                                                                              |   | Report of Williamson Petroleum Consultants, Inc. independent consulting engineers                                                                                                                                                                          |
|                                                                                                                                                                                               |   |                                                                                                                                                                                                                                                       |
| *99.2                                                                                                                                                                                              |   | Report of Ryder Scott Company, L.P. independent consulting engineers                                                                                                                                                                                       |
|                                                                                                          |
| *             Filed herewith                                                                                                      |
| **           Incorporated by reference to the filing indicated                                                                              |
| ***         Furnished herewith                                                                                                                        |
| †             Identifies an Exhibit that consists of or includes a management contract or compensatory plan or arrangement. |
| ††            Filed under the Company’s Commission File No. 001-10924.                                               |

----

GLOSSARY 

----

----

----

SIGNATURES

| CLAYTON WILLIAMS ENERGY, INC. |
|-------------------------------|
| (Registrant)                  |
|                          |   |
| By:                           | /s/ CLAYTON W. WILLIAMS * |
|                          | Clayton W. Williams |
|                          | Chairman of the Board, President |
|                          | and Chief Executive Officer |

| Signature                                                                        |   | Title                                 |   | Date              |
|----------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------|
|                                                                             |   |                                  |   |              |
| /s/ CLAYTON W. WILLIAMS *                                                        |   | Chairman of the Board,                |   | February 28, 2011 |
| Clayton W. Williams                                                              |   | President and Chief Executive         |   |              |
|                                                                             |   | Officer and Director                  |   |              |
|                                                                             |   |                                  |   |              |
| /s/ MEL G. RIGGS                                                                 |   | Executive Vice President,             |   | February 28, 2011 |
| Mel G. Riggs                                                                     |   | Chief Operating Officer and           |   |              |
|                                                                             |   | Director                              |   |              |
|                                                                             |   |                                  |   |              |
| /s/ MICHAEL L. POLLARD                                                           |   | Senior Vice President -               |   | February 28, 2011 |
| Michael L. Pollard                                                               |   | Finance, Chief Financial Officer      |   |              |
|                                                                             |   | and Treasurer                         |   |              |
|                                                                             |   |                                  |   |              |
| /s/ ROBERT L. THOMAS                                                             |   | Vice President – Accounting and |   | February 28, 2011 |
| Robert L. Thomas                                                                 |   | Principal Accounting Officer          |   |              |
|                                                                             |   |                                  |   |              |
| /s/ TED GRAY, JR.*                                                               |   | Director                              |   | February 28, 2011 |
| Ted Gray, Jr.                                                                    |   |                                  |   |              |
|                                                                             |   |                                  |   |              |
| /s/ DAVIS L. FORD *                                                              |   | Director                              |   | February 28, 2011 |
| Davis L. Ford                                                                    |   |                                  |   |              |
|                                                                             |   |                                  |   |              |
| /s/ ROBERT L. PARKER *                                                           |   | Director                              |   | February 28, 2011 |
| Robert L. Parker                                                                 |   |                                  |   |              |
|                                                                             |   |                                  |   |              |
| /s/ JORDAN R. SMITH *                                                            |   | Director                              |   | February 28, 2011 |
| Jordan R. Smith                                                                  |   |                                  |   |              |
|                                                                             |   |                                  |   |              |
| *        By:  /s/ MEL G. RIGGS |   |                                  |   |              |
| Mel G. Riggs                                                                     |   |                                  |   |              |
| Attorney-in-Fact                                                                 |   |                                  |   |              |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Page |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------|
| Report of Independent Registered Public Accounting Firm                                                                                                                      |   | F-2  |
| Consolidated Balance Sheets                                                                                                                                                  |   | F-3  |
| Consolidated Statements of Operations                                                                                                                                        |   | F-5  |
| Consolidated Statements of Comprehensive Income (Loss)                                                                                                                       |   | F-6  |
| Consolidated Statements of Equity                                                                                                                                            |   | F-7  |
| Consolidated Statements of Cash Flows                                                                                                                                        |   | F-8  |
| Notes to Consolidated Financial Statements                                                                                                                                   |   | F-9  |
| Financial Statement ScheduleSchedule II—Valuation and Qualifying Accounts                                                                                                                  |   | S-1  |

----

REPORT 

----

CLAYTON 

| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2010 |   |   | 2009 |   |
| CURRENT ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                              |   | $ | 8,720 |   |   | $ | 14,013 |   |
| Accounts receivable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Oil and gas sales                                                                                                                                               |   |   | 35,361 |   |   |   | 28,721 |   |
| Joint interest and other, net                                                                                                                                   |   |   | 9,893 |   |   |   | 6,669 |   |
| Affiliates                                                                                                                                                      |   |   | 796 |   |   |   | 624 |   |
| Inventory                                                                                                                              |   |   | 39,218 |   |   |   | 43,068 |   |
| Deferred income taxes                                                                                                                  |   |   | 5,074 |   |   |   | 1,362 |   |
| Assets held for sale                                                                                                                   |   |   | 8,762 |   |   |   | 7,411 |   |
| Prepaids and other                                                                                                                     |   |   | 5,997 |   |   |   | 1,729 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 113,821 |   |   |   | 103,597 |   |
| PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
| Oil and gas properties, successful efforts method                                                                                      |   |   | 1,707,252 |   |   |   | 1,579,664 |   |
| Natural gas gathering and processing systems                                                                                           |   |   | 18,153 |   |   |   | 17,816 |   |
| Contract drilling equipment                                                                                                            |   |   | 58,486 |   |   |   | 41,533 |   |
| Other                                                                                                                                  |   |   | 17,425 |   |   |   | 16,550 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 1,801,316 |   |   |   | 1,655,563 |   |
| Less accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | (1,034,227 | ) |   |   | (985,517 | ) |
| Property and equipment, net                                                                                                                                     |   |   | 767,089 |   |   |   | 670,046 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| OTHER ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |   |
| Debt issue costs, net                                                                                                                  |   |   | 8,323 |   |   |   | 4,874 |   |
| Fair value of derivatives                                                                                                              |   |   | - |   |   |   | 4,427 |   |
| Other                                                                                                                                  |   |   | 1,684 |   |   |   | 1,660 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 10,007 |   |   |   | 10,961 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $ | 890,917 |   |   | $ | 784,604 |   |

----

| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | December 31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 2010 |   |   | 2009 |   |
| CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |
| Accounts payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |
| Trade                                                                                                                                             |   | $ | 74,123 |   |   | $ | 47,211 |   |
| Oil and gas sales                                                                                                                                 |   |   | 28,920 |   |   |   | 18,063 |   |
| Affiliates                                                                                                                                        |   |   | 1,251 |   |   |   | 1,097 |   |
| Fair value of derivatives                                                                                                |   |   | 7,224 |   |   |   | 5,907 |   |
| Accrued liabilities and other                                                                                            |   |   | 22,202 |   |   |   | 11,995 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 133,720 |   |   |   | 84,273 |   |
| NON-CURRENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Long-term debt                                                                                                           |   |   | 385,000 |   |   |   | 395,000 |   |
| Deferred income taxes                                                                                                    |   |   | 78,035 |   |   |   | 54,065 |   |
| Fair value of derivatives                                                                                                |   |   | 3,409 |   |   |   | - |   |
| Other                                                                                                                    |   |   | 41,301 |   |   |   | 38,991 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 507,745 |   |   |   | 488,056 |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
| Preferred stock, par value $.10 per share, authorized – 3,000,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
|  shares; none issued                                                                                                |   |   | - |   |   |   | - |   |
| Common stock, par value $.10 per share, authorized – 30,000,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |
|  shares; issued and outstanding – 12,154,536 shares in 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
|  and 12,145,536 shares in 2009                                                                                      |   |   | 1,215 |   |   |   | 1,215 |   |
| Additional paid-in capital                                                                                               |   |   | 152,290 |   |   |   | 152,051 |   |
| Retained earnings                                                                                                        |   |   | 95,947 |   |   |   | 59,009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 249,452 |   |   |   | 212,275 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $ | 890,917 |   |   | $ | 784,604 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Year Ended December 31, |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
| REVENUES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                    |    |   |   |   |   |   |   |
| Oil and gas sales                                                                                                                     |   | $                       | 326,320 |   |   | $ | 242,338 |   |   | $ | 463,964 |   |
| Natural gas services                                                                                                                  |   |                    | 1,631   |   |   |   | 6,146 |   |   |   | 10,926 |   |
| Drilling rig services                                                                                                                 |   |                    | -       |   |   |   | 6,681 |   |   |   | 46,124 |   |
| Gain on sales of assets                                                                                                               |   |                    | 3,680   |   |   |   | 796 |   |   |   | 44,503 |   |
| Total revenues                                                                                                                                                      |   |                    | 331,631 |   |   |   | 255,961 |   |   |   | 565,517 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |   |   |   |   |
| COSTS AND EXPENSES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                    |    |   |   |   |   |   |   |   |   |   |
| Production                                                                                                                            |   |                    | 83,146  |   |   |   | 76,288 |   |   |   | 89,054 |   |
| Exploration:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                    |    |   |   |   |   |   |   |   |   |   |
| Abandonments and impairments                                                                                                                                        |   |                    | 9,074   |   |   |   | 78,798 |   |   |   | 80,112 |   |
| Seismic and other                                                                                                                                                   |   |                    | 6,046   |   |   |   | 8,189 |   |   |   | 22,685 |   |
| Natural gas services                                                                                                                  |   |                    | 1,209   |   |   |   | 5,348 |   |   |   | 10,060 |   |
| Drilling rig services                                                                                                                 |   |                    | 1,198   |   |   |   | 10,848 |   |   |   | 37,789 |   |
| Depreciation, depletion and amortization                                                                                              |   |                    | 101,145 |   |   |   | 129,658 |   |   |   | 120,542 |   |
| Impairment of property and equipment                                                                                                  |   |                    | 11,908  |   |   |   | 59,140 |   |   |   | 12,882 |   |
| Accretion of abandonment obligations                                                                                                  |   |                    | 2,623   |   |   |   | 3,120 |   |   |   | 2,355 |   |
| General and administrative                                                                                                            |   |                    | 35,588  |   |   |   | 20,715 |   |   |   | 25,635 |   |
| Loss on sales of assets and impairment of inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                    | 1,750   |   |   |   | 5,282 |   |   |   | 2,122 |   |
| Total costs and expenses                                                                                                                                            |   |                    | 253,687 |   |   |   | 397,386 |   |   |   | 403,236 |   |
| Operating income (loss)                                                                                                                                             |   |                    | 77,944  |   |   |   | (141,425 | ) |   |   | 162,281 |   |
| OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |    |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                                      |   |                    | (24,402 | ) |   |   | (23,758 | ) |   |   | (24,994 | ) |
| Gain (loss) on derivatives                                                                                                            |   |                    | 722     |   |   |   | (17,416 | ) |   |   | 74,743 |   |
| Other                                                                                                                                 |   |                    | 3,308   |   |   |   | 2,543 |   |   |   | 6,539 |   |
| Total other income (expense)                                                                                                                                        |   |                    | (20,372 | ) |   |   | (38,631 | ) |   |   | 56,288 |   |
| Income (loss) before income taxes                                                                            |   |                    | 57,572  |   |   |   | (180,056 | ) |   |   | 218,569 |   |
| Income tax (expense) benefit                                                                                 |   |                    | (20,634 | ) |   |   | 64,096 |   |   |   | (77,327 | ) |
| NET INCOME (LOSS)                                                                                            |   |                    | 36,938  |   |   |   | (115,960 | ) |   |   | 141,242 |   |
| Less income attributable to                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| noncontrolling interest, net of tax                                                                                                                                 |   |                    | -       |   |   |   | (1,455 | ) |   |   | (708 | ) |
| NET INCOME (LOSS) attributable to Clayton                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Williams Energy, Inc.                                                                                                                 |   | $                       | 36,938  |   |   | $ | (117,415 | ) |   | $ | 140,534 |   |
| Net income (loss) per common share attributable to                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                    |    |   |   |   |   |   |   |   |   |   |
| Clayton Williams Energy, Inc. stockholders:                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                 |   | $                       | 3.04    |   |   | $ | (9.67 | ) |   | $ | 11.78 |   |
| Diluted                                                                                                                               |   | $                       | 3.04    |   |   | $ | (9.67 | ) |   | $ | 11.67 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |   |   |   |   |
| Weighted average common shares outstanding:                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                 |   |                    | 12,148  |   |   |   | 12,138 |   |   |   | 11,932 |   |
| Diluted                                                                                                                               |   |                    | 12,148  |   |   |   | 12,138 |   |   |   | 12,039 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                    |    |   |   |   |   |   |   |   |   |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | Year Ended December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
| Net income (loss) attributable to                                                                                                                                                                                                                                                                                                                                                                                                 |   |                    |   |   |   |   |   |   |   |
| Clayton Williams Energy, Inc.                                                                     |   | $                       | 36,938 |   |   | $ | (117,415 | ) |   | $ | 140,534 |   |
| Unrealized gain on marketable securities, net of tax                                                                                                                                                                                                                                                                                                                                                                              |   |                    |   |   |   |   |   |   |   |   |   |   |
| $2,015 in 2008                                                                     |   |                    | -      |   |   |   | - |   |   |   | 3,742 |   |
| Total comprehensive income (loss)                                                                 |   | $                       | 36,938 |   |   | $ | (117,415 | ) |   | $ | 144,276 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    |   |   |   |   |   |   |   |   |   |   |

----

CLAYTON 

|                                                                                                                                                                                                                          |   | Clayton Williams Energy, Inc. Stockholders’ Equity |   |   |       |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|--------|------------|--------|
|                                                                                                                                                                                                                          |   |                                                     |   |   |       |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |
|                                                                                                                                                                                                                          |   |                                                     |   |   |       |   |   |   |   |   |   |   |   | Other |   |   |   |   |
|                                                                                                                                                                                                                          |   | Common Stock                                             |   |   | Additional |   |   |   |   |   | Compre- |   |   | Non- |   |
|                                                                                                                                                                                                                          |   | No. of                                                   |   |   | Par        |   |   | Paid-In |   |   | Retained |   |   | hensive |   |   | Controlling |   |
|                                                                                                                                                                                                                          |   | Shares                                                   |   |   | Value      |   |   | Capital |   |   | Earnings |   |   | Income |   |   | Interest |   |
| BALANCE,                                                                                                                                                                                                                      |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2007                                   |   |                                                     | 11,354 |   |       | $      | 1,135 |   |   | $ | 121,063 |   |   | $ | 35,890 |   |   | $ | 2,718 |   |   | $ | 4,886 |   |
| Net income                                                    |   |                                                     | -      |   |       |   | - |   |   |   | - |   |   |   | 140,534 |   |   |   | - |   |   |   | 708 |   |
| Unrealized gain on                                                                                                                                                                                                            |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   marketable securities,                                                                                                                                                                                            |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   net of tax of $2,015                                                                                                                                                                                              |   |                                                     | -      |   |       |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,742 |   |   |   | - |   |
| Reclassification adjustment for                                                                                                                                                                                               |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   securities gains included                                                                                                                                                                                         |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   in income, net of tax of $3,479                                                                                                                                                                                   |   |                                                     | -      |   |       |   | - |   |   |   | - |   |   |   | - |   |   |   | (6,460 | ) |   |   | - |   |
| Issuance of stock through                                                                                                                                                                                                     |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   compensation plans, including                                                                                                                                                                                     |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   income tax benefits                                                                                                                                                                                               |   |                                                     | 762    |   |       |   | 77 |   |   |   | 15,983 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| BALANCE,                                                                                                                                                                                                                      |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2008                                   |   |                                                     | 12,116 |   |       |   | 1,212 |   |   |   | 137,046 |   |   |   | 176,424 |   |   |   | - |   |   |   | 5,594 |   |
| Net income (loss)                                             |   |                                                     | -      |   |       |   | - |   |   |   | - |   |   |   | (117,415 | ) |   |   | - |   |   |   | 1,455 |   |
| Issuance of stock through                                                                                                                                                                                                     |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   compensation plans, including                                                                                                                                                                                     |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   income tax benefits                                                                                                                                                                                               |   |                                                     | 30     |   |       |   | 3 |   |   |   | 173 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Acquisition of noncontrolling                                                                                                                                                                                                 |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   interest                                          |   |                                                     | -      |   |       |   | - |   |   |   | 14,832 |   |   |   | - |   |   |   | - |   |   |   | (7,049 | ) |
| BALANCE,                                                                                                                                                                                                                      |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                                   |   |                                                     | 12,146 |   |       |   | 1,215 |   |   |   | 152,051 |   |   |   | 59,009 |   |   |   | - |   |   |   | - |   |
| Net income                                                    |   |                                                     | -      |   |       |   | - |   |   |   | - |   |   |   | 36,938 |   |   |   | - |   |   |   | - |   |
| Issuance of stock through                                                                                                                                                                                                     |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   compensation plans, including                                                                                                                                                                                     |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   income tax benefits                                                                                                                                                                                               |   |                                                     | 9      |   |       |   | - |   |   |   | 239 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| BALANCE,                                                                                                                                                                                                                      |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010                                   |   |                                                     | 12,155 |   |       | $      | 1,215 |   |   | $ | 152,290 |   |   | $ | 95,947 |   |   | $ | - |   |   | $ | - |   |
|                                                                                                                                                                                                                          |   |                                                     |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Year Ended December 31, |     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2010                    |     |   | 2009 |   |   | 2008 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |     |   |   |   |   |   |   |
| Net income (loss)                                                                                                                     |   | $                       | 36,938   |   |   | $ | (115,960 | ) |   | $ | 141,242 |   |
| Adjustments to reconcile net income (loss) to cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                    |     |   |   |   |   |   |   |   |   |   |
|    provided by operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |     |   |   |   |   |   |   |   |   |   |
| Depreciation, depletion and amortization                                                                                                                            |   |                    | 101,145  |   |   |   | 129,658 |   |   |   | 120,542 |   |
| Impairment of property and equipment                                                                                                                                |   |                    | 11,908   |   |   |   | 59,140 |   |   |   | 12,882 |   |
| Exploration costs                                                                                                                                                   |   |                    | 9,074    |   |   |   | 78,798 |   |   |   | 80,112 |   |
| (Gain) loss on sales of assets and impairment of inventory, net                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                    | (1,930   | ) |   |   | 4,486 |   |   |   | (42,381 | ) |
| Deferred income tax expense (benefit)                                                                                                                               |   |                    | 20,259   |   |   |   | (64,220 | ) |   |   | 77,315 |   |
| Non-cash employee compensation                                                                                                                                      |   |                    | 13,898   |   |   |   | 1,434 |   |   |   | 5,834 |   |
| Unrealized (gain) loss on derivatives                                                                                                                               |   |                    | 9,153    |   |   |   | 1,480 |   |   |   | (49,738 | ) |
| Settlements on derivatives with financing elements                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                    | -        |   |   |   | - |   |   |   | 43,486 |   |
| Amortization of debt issue costs                                                                                                                                    |   |                    | 1,648    |   |   |   | 1,458 |   |   |   | 1,354 |   |
| Accretion of abandonment obligations                                                                                                                                |   |                    | 2,623    |   |   |   | 3,120 |   |   |   | 2,355 |   |
| Changes in operating working capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                    |     |   |   |   |   |   |   |   |   |   |
| Accounts receivable                                                                                                                                                 |   |                    | (10,036  | ) |   |   | 4,571 |   |   |   | 13,087 |   |
| Accounts payable                                                                                                                                                    |   |                    | 19,144   |   |   |   | (19,590 | ) |   |   | (4,946 | ) |
| Other                                                                                                                                                               |   |                    | (5,573   | ) |   |   | 20,336 |   |   |   | (19,164 | ) |
| Net cash provided by operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                    | 208,251  |   |   |   | 104,711 |   |   |   | 381,980 |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |     |   |   |   |   |   |   |   |   |   |
| Additions to property and equipment                                                                                                   |   |                    | (285,655 | ) |   |   | (142,623 | ) |   |   | (351,789 | ) |
| Proceeds from sales of assets                                                                                                         |   |                    | 77,216   |   |   |   | 729 |   |   |   | 117,226 |   |
| Change in equipment inventory                                                                                                         |   |                    | 4,638    |   |   |   | (26,675 | ) |   |   | (8,247 | ) |
| Other                                                                                                                                 |   |                    | 18       |   |   |   | (29 | ) |   |   | 3,935 |   |
| Net cash used in investing activities                                                                                                                                                             |   |                    | (203,783 | ) |   |   | (168,598 | ) |   |   | (238,875 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                    |     |   |   |   |   |   |   |   |   |   |
| Proceeds from long-term debt                                                                                                          |   |                    | -        |   |   |   | 75,900 |   |   |   | 7,500 |   |
| Repayments of long-term debt                                                                                                          |   |                    | (10,000  | ) |   |   | (39,375 | ) |   |   | (94,200 | ) |
| Proceeds from exercise of stock options                                                                                               |   |                    | 239      |   |   |   | 176 |   |   |   | 15,936 |   |
| Settlements on derivatives with financing elements                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                    | -        |   |   |   | - |   |   |   | (43,486 | ) |
| Net cash provided by (used in) financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    | (9,761   | ) |   |   | 36,701 |   |   |   | (114,250 | ) |
| NET INCREASE (DECREASE) IN CASH AND                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                    |     |   |   |   |   |   |   |   |   |   |
|   CASH EQUIVALENTS                                                                                 |   |                    | (5,293   | ) |   |   | (27,186 | ) |   |   | 28,855 |   |
| CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                    |     |   |   |   |   |   |   |   |   |   |
| Beginning of period                                                                                                                   |   |                    | 14,013   |   |   |   | 41,199 |   |   |   | 12,344 |   |
| End of period                                                                                                                         |   | $                       | 8,720    |   |   | $ | 14,013 |   |   | $ | 41,199 |   |
| SUPPLEMENTAL DISCLOSURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                    |     |   |   |   |   |   |   |   |   |   |
| Cash paid for interest, net of amounts capitalized                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                       | 22,457   |   |   | $ | 23,349 |   |   | $ | 24,027 |   |
| Cash paid for income taxes                                                                                                            |   | $                       | -        |   |   | $ | - |   |   | $ | 16,652 |   |

----

CLAYTON 

| ·   | Provisions for depreciation, depletion and amortization and estimates of non-equity plans are based on estimates of proved reserves; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Impairments of long-lived assets are based on estimates of future net cash flows and, when applicable, the estimated fair values of impaired assets; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Exploration expenses related to impairments of unproved acreage are based on estimates of fair values of the underlying leases; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | Impairments of inventory are based on estimates of fair values of tubular goods and other well equipment held in inventory; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| ·   | Exploration expenses related to well abandonment costs are based on the judgments regarding the productive status of in-progress exploratory wells; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Abandonment obligations are based on estimates regarding the timing and cost of future asset abandonments. |
|--------------------|------------------------------------------------------------------------------------------------------------|

----

CLAYTON 

----

CLAYTON 

----

CLAYTON 

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

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

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

----

CLAYTON 

|                                            |   | December 31,   |    |   | December 31, |   |
|-------------------------------------------------|--------|----------------|---------|--------|--------------|--------|
|                                            |   | 2010           |    |   | 2009         |   |
|                                            |   | (In thousands) |    |
| 73⁄4% Senior Notes due 2013                  |   | $              | 225,000 |   |         | $      | 225,000 |   |
| Secured bank credit facility, due November 2015 |   |           | 160,000 |   |         |   | 170,000 |   |
|                                            |   | $              | 385,000 |   |         | $      | 395,000 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2010           |   |   | 2009   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (In thousands) |   |
| Abandonment obligations                                                                                    |   | $              | 40,444 |   |   | $      | 38,412 |   |
| Other                                                                                                      |   |           | 857    |   |   |   | 579 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $              | 41,301 |   |   | $      | 38,991 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 2010           |   |   | 2009   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | (In thousands) |   |
| Beginning of year                                                                                    |   | $              | 38,412 |   |   | $      | 31,737 |   |
| Additional abandonment obligations from new properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |           | 1,786  |   |   |   | 1,654 |   |
| Sales or abandonments of properties                                                                                      |   |           | (2,057 | )      |   |   | (293 | ) |
| Accretion expense                                                                                                        |   |           | 2,623  |   |   |   | 3,120 |   |
| Revisions of previous estimates                                                                                          |   |           | (320   | )      |   |   | 2,194 |   |
| End of year                                                                                          |   | $              | 40,444 |   |   | $      | 38,412 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2010           |     |   | 2009   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|----------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | (In thousands) |     |
| Deferred tax assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |           |     |   |   |   |
| Net operating loss carryforwards                                                                                                           |   | $              | 27,156   |   |   | $      | 24,275 |   |
| Fair value of derivatives                                                                                                                  |   |           | 3,536    |   |   |   | 518 |   |
| Statutory depletion carryforwards                                                                                                          |   |           | 7,075    |   |   |   | 6,589 |   |
| Abandonment obligations and other                                                                                                          |   |           | 16,451   |   |   |   | 11,389 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |           | 54,218   |   |   |   | 42,771 |   |
| Deferred tax liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |           |     |   |   |   |   |   |
| Property and equipment                                                                                                                     |   |           | (127,179 | )      |   |   | (95,474 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |           | (127,179 | )      |   |   | (95,474 | ) |
| Net deferred tax liabilities                                                                                      |   | $              | (72,961  | )      |   | $      | (52,703 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |           |     |   |   |   |   |   |
| Components of net deferred tax liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |           |     |   |   |   |   |   |
| Current assets                                                                                                                             |   | $              | 5,074    |   |   | $      | 1,362 |   |
| Non-current liabilities                                                                                                                    |   |           | (78,035  | )      |   |   | (54,065 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $              | (72,961  | )      |   | $      | (52,703 | ) |

|                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2010           |   |   | 2009   |   |    | 2008   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|---------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   | (In thousands) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |           |   |   |   |   |    |   |   |
| Income tax expense (benefit) at statutory rate of 35%                                                                                                                                                                                                                                                                                                                                                                  |   | $              | 20,150 |   |   | $      | (63,020 | )      |   | $ | 76,500 |   |
| Tax depletion in excess of basis                                                                 |   |           | (490   | )      |   |   | (388    | )      |   |   | (700 | ) |
| Revision of previous tax estimates                                                               |   |           | 8      |   |   |   | (130    | )      |   |   | 55 |   |
| State income taxes, net of federal tax effect                                                                                                                                                                                                                                                                                                                                                                          |   |           | 884    |   |   |   | (655    | )      |   |   | 1,375 |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                  |   |           | 82     |   |   |   | 97      |   |   |   | 97 |   |
| Income tax expense (benefit)                                                                                                        |   | $              | 20,634 |   |   | $      | (64,096 | )      |   | $ | 77,327 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                   |   |           |   |   |   |   |    |   |   |   |   |   |
| Current                                                                                          |   | $              | 375    |   |   | $      | 124     |   |   | $ | 12 |   |
| Deferred                                                                                         |   |           | 20,259 |   |   |   | (64,220 | )      |   |   | 77,315 |   |
| Income tax expense (benefit)                                                                                                        |   | $              | 20,634 |   |   | $      | (64,096 | )      |   | $ | 77,327 |   |

----

CLAYTON 

| Balance at December 31, 2008                                                                                    |   | $      | 144  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------|--------|
| Reductions for tax positions of prior years                                                                                    |   |   | (144 | )      |
| Balance at December 31, 2009                                                                                    |   |   | -    |   |
| Reductions for tax positions of prior years                                                                                    |   |   | -    |   |
| Balance at December 31, 2010                                                                                    |   | $      | -    |   |

|                                                                                                                                                                                                 |   | Oil    |      |   | Gas    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                                                                                                                                                 |   | Bbls   |      |   | Price  |   |   | MMBtu (a) |   |   | Price |   |
| Production Period:                                                                                                                                                                                   |   |   |      |   |   |   |   |   |   |   |   |   |
| 1st Quarter 2011                               |   |   | 657,000   |   |   | $      | 83.74 |   |   |   | 1,710,000 |   |   | $ | 7.07 |   |
| 2nd Quarter 2011                               |   |   | 632,000   |   |   | $      | 83.71 |   |   |   | 1,650,000 |   |   | $ | 7.07 |   |
| 3rd Quarter 2011                               |   |   | 547,000   |   |   | $      | 83.78 |   |   |   | 1,560,000 |   |   | $ | 7.07 |   |
| 4th Quarter 2011                               |   |   | 540,000   |   |   | $      | 83.78 |   |   |   | 1,500,000 |   |   | $ | 7.07 |   |
| 2012                                           |   |   | 1,170,000 |   |   | $      | 90.65 |   |   |   | - |   |   | $ | - |   |
|                                                                                                                                                                                                 |   |   | 3,546,000 |   |   |   |   |   |   |   | 6,420,000 |   |   |   |   |   |
|                                                                                                                                |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)    One MMBtu equals one Mcf at a Btu factor of 1,000.                                                                                                                        |   |

----

CLAYTON 

|                          | Fair Value of Derivative Instruments as of December 31, 2010 |
|-------------------------------|--------------------------------------------------------------|
|                          | Asset Derivatives                                            |   | Liability Derivatives |
|                          | Balance Sheet                                                |   |   |   | Balance Sheet |   |   |
|                          | Location                                                     |   | Fair Value |   | Location |   | Fair Value |
|                          |                                                         |   | (In thousands) |   |   |   | (In thousands) |
| Derivatives not designated as |                                                         |   |   |   |   |   |
| hedging instruments:          |                                                         |   |   |   |   |   |   |
|                          |                                                         |   |   |   |   |   |   |
| Commodity derivatives         | Fair value of derivatives:                                   |   |   |   | Fair value of derivatives: |   |   |
|                          | Current                                                      |   | $                                 - |   | Current |   | $                                    7,224 |
|                          | Non-current                                                  |   |                                       - |   | Non-current |   |                                 3,409 |
| Total                         |                                                         |   | $                                 - |   |   |   | $                                  10,633 |

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

|                                                 |   | December 31, 2010 |    |
|------------------------------------------------------|--------|-------------------|---------|
|                                                 |   | Assets            |    |   | Liabilities |   |
|                                                 |   | (In thousands)    |    |
| Fair value of derivatives – gross presentation |   | $                 | 16,051  |   |   | $ | 26,684 |   |
| Effects of netting arrangements                      |   |              | (16,051 | ) |   |   | (16,051 | ) |
| Fair value of derivatives – net presentation   |   | $                 | -       |   |   | $ | 10,633 |   |

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

|                          |   | Amount of Gain or (Loss) Recognized in Earnings |
|-------------------------------|--------|-------------------------------------------------|
|                          |   |                                            |   | Year Ended |
|                          |   | Location of Gain or (Loss)                      |   | December 31, |
|                          |   | Recognized in Earnings                          |   | 2010 |   | 2009 |
|                          |   |                                            |   | (In thousands) |
| Derivatives not designated as |   |                                            |   |   |   |   |
| hedging instruments:          |   |                                            |   |   |   |   |
|                          |   |                                            |   |   |   |   |
| Commodity derivatives         |   | Other income (expense) -                        |   |   |   |   |
|                          |   | Gain (loss) on derivatives                      |   | $                                               722 |   | $                                      (17,416) |
| Total                         |   |                                            |   | $                                               722 |   | $                                      (17,416) |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | December 31,      |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2010              |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Significant Other |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Observable Inputs |   |
| Description                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Level 2)         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (In thousands)    |   |
| Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |   |   |   |   |
| Fair value of commodity derivatives                                                                   |   | $                 | -      |   |   | $ | 4,427 |   |
| Total assets                                                                                |   | $                 | -      |   |   | $ | 4,427 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |              |   |   |   |   |   |   |
| Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |              |   |   |   |   |   |   |
| Fair value of commodity derivatives                                                                   |   | $                 | 10,633 |   |   | $ | 5,907 |   |
| Total liabilities                                                                           |   | $                 | 10,633 |   |   | $ | 5,907 |   |

|                                                                                              |   |   |   |   |     |   |   | Weighted    |   |   |      |   |
|---------------------------------------------------------------------------------------------------|--------|--------|--------|--------|----------|--------|--------|-------------|--------|--------|-----------|--------|
|                                                                                              |   |   |   |   | Weighted |   |   | Average     |   |   |      |   |
|                                                                                              |   |   |   |   | Average  |   |   | Remaining   |   |   | Aggregate |   |
|                                                                                              |   |   |   |   | Exercise |   |   | Contractual |   |   | Intrinsic |   |
|                                                                                              |   | Shares |   |   | Price    |   |   | Term        |   |   | Value(a)  |   |
| Outstanding at January 1, 2010                                                                    |   |   | 24,000 |   |     | $      | 26.66  |        |   |   |      |   |   |   |
| Exercised (b)                                                                                |   |   | 9,000  |   |     | $      | 26.70  |        |   |   |      |   |   |   |
| Outstanding at December 31, 2010                                                                  |   |   | 15,000 |   |     | $      | 26.64  |        |   |   | 4         |   |   | $ | 859,990 |   |
|                                                                                              |   |   |   |   |     |   |   |        |   |   |      |   |   |   |   |   |
| Vested at December 31, 2010                                                                       |   |   | 15,000 |   |     | $      | 26.64  |        |   |   | 4         |   |   | $ | 859,990 |   |
| Exercisable at December 31, 2010                                                                  |   |   | 15,000 |   |     | $      | 26.64  |        |   |   | 4         |   |   | $ | 859,990 |   |
|                                                           |   |   |   |   |     |   |   |        |   |   |      |   |   |   |   |   |
| (a)     Based on closing price at December 31, 2010 of $83.97 per share. |   |
| (b)     Cash received for options exercised totaled $240,280.            |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                      | Outstanding and Exercisable Options |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                      |                                |   |   |   | Weighted |
|                                                                                                                                                                                                                                                                                                                                                                                                      |                                |   | Weighted |   | Average |
|                                                                                                                                                                                                                                                                                                                                                                                                      |                                |   | Average |   | Remaining |
|                                                                                                                                                                                                                                                                                                                                                                                                      |                                |   | Exercise |   | Life in |
|                                                                                                                                                                                                                                                                                                                                                                                                      | Shares                              |   | Price |   | Years |
| Range of exercise prices:                                                                                                                                                                                                                                                                                                                                                                                 |                                |   |   |   |   |
| $12.14 - $13.10                                                                | 4,000                               |   | $                         12.62 |   | 1.5 |
| $22.90 - $41.74                                                                | 11,000                              |   | $                         31.73 |   | 4.5 |
|                                                                                                                                                                                                                                                                                                                                                                                                      | 15,000                              |   | $                         26.64 |   | 3.7 |

|                                                                |   | 2010                             |   |   | 2009   |   |   | 2008   |   |
|---------------------------------------------------------------------|--------|----------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   | (In thousands, except per share) |   |
| Weighted average grant date fair value of options granted per share |   | $                                | -      |   |   | $      | -      |   |   | $ | 23.06 |   |
| Intrinsic value of options exercised                                |   | $                                | 261    |   |   | $      | 586    |   |   | $ | 20,480 |   |
|                                                                |   |                             |   |   |   |   |   |   |   |   |   |   |
| Stock-based employee compensation expense                           |   | $                                | -      |   |   | $      | -      |   |   | $ | 92 |   |
| Tax benefit                                                         |   |                             | -      |   |   |   | -      |   |   |   | (32 | ) |
| Net stock-based employee compensation expense                       |   | $                                | -      |   |   | $      | -      |   |   | $ | 60 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2010 |   | 2009 |   | 2008 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|--------|------|--------|------|
| Risk-free interest rate                                                                                | -    |   | -    |   | 4%   |
| Stock price volatility                                                                                      | -    |   | -    |   | 63%  |
| Expected life in years                                                                                      | -    |   | -    |   | 10   |
| Dividend yield                                                                                              | -    |   | -    |   | -    |

----

CLAYTON 

----

CLAYTON 

|                                                                                                         |   | 2010           |   |   | 2009   |   |   | 2008   |   |
|--------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                         |   | (In thousands) |   |
| Amounts received from the Williams Entities:                                                                 |   |           |   |   |   |   |   |   |   |
| Service Agreement:                                                                                           |   |           |   |   |   |   |   |   |   |
| Services                                                                                                     |   | $              | 513    |   |   | $      | 519    |   |   | $ | 581 |   |
| Insurance premiums and benefits                                                                              |   |           | 859    |   |   |   | 826    |   |   |   | 868 |   |
| Reimbursed expenses                                                                                          |   |           | 319    |   |   |   | 300    |   |   |   | 467 |   |
|                                                                                                         |   | $              | 1,691  |   |   | $      | 1,645  |   |   | $ | 1,916 |   |
| Amounts paid to the Williams Entities:                                                                       |   |           |   |   |   |   |   |   |   |   |   |   |
| Rent(a)                                                                                                 |   | $              | 811    |   |   | $      | 895    |   |   | $ | 807 |   |
| Service Agreement:                                                                                           |   |           |   |   |   |   |   |   |   |   |   |   |
| Business entertainment(b)                                                                               |   |           | 116    |   |   |   | 116    |   |   |   | 91 |   |
| Reimbursed expenses                                                                                          |   |           | 146    |   |   |   | 128    |   |   |   | 197 |   |
|                                                                                                         |   | $              | 1,073  |   |   | $      | 1,139  |   |   | $ | 1,095 |   |
|                    |   |           |   |   |   |   |   |   |   |   |   |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                    |   | 2010           |   |   | 2009   |   |   | 2008   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                    |   | (In thousands) |   |
| Gain on sales of assets                                                 |   | $              | 3,680  |   |   | $      | 796    |   |   | $ | 44,503 |   |
|                                                                                                                                                                                                                                                                                                                    |   |           |   |   |   |   |   |   |   |   |   |   |
| Loss on sales of assets and impairment                                                                                                                                                                                                                                                                                  |   |           |   |   |   |   |   |   |   |   |   |   |
| of inventory:                                                                                                                                                                                                                                                                                                           |   |           |   |   |   |   |   |   |   |   |   |   |
| Loss on sales of assets                                                                     |   |           | (1,655 | )      |   |   | (348   | )      |   |   | (2,122 | ) |
| Impairment of inventory                                                                     |   |           | (95    | )      |   |   | (4,934 | )      |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                    |   |           | (1,750 | )      |   |   | (5,282 | )      |   |   | (2,122 | ) |
|                                                                                                                                                                                                                                                                                                                    |   |           |   |   |   |   |   |   |   |   |   |   |
| Net gain (loss)                                                    |   | $              | 1,930  |   |   | $      | (4,486 | )      |   | $ | 42,381 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                       |   | Leases         |   |   |      |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|--------|-----------|--------|
|                                                                                                                                                                                                                                                                                                       |   | Capital(a)     |   |   | Operating |   |   | Total |   |
|                                                                                                                                                                                                                                                                                                       |   | (In thousands) |   |
| 2011                                                       |   | $              | 885    |   |      | $      | 1,123 |   |   | $ | 2,008 |   |
| 2012                                                       |   |           | 692    |   |      |   | 389 |   |   |   | 1,081 |   |
| 2013                                                       |   |           | 226    |   |      |   | 214 |   |   |   | 440 |   |
| Thereafter                                                 |   |           | -      |   |      |   | 13 |   |   |   | 13 |   |
| Total minimum lease payments                                                                                                                                                                                                                                                                               |   | $              | 1,803  |   |      | $      | 1,739 |   |   | $ | 3,542 |   |
|                                                                                                                                                                                                                       |   |           |   |   |      |   |   |   |   |   |   |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                 |   | First                            |    |   | Second  |   |    | Third   |   |   | Fourth  |   |   |   |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|--------|---------|--------|---------|---------|--------|--------|---------|--------|--------|--------|---------|
|                                                                                                                                                                                                                                                                                                                                                                 |   | Quarter                          |    |   | Quarter |   |    | Quarter |   |   | Quarter |   |   | Year   |    |
|                                                                                                                                                                                                                                                                                                                                                                 |   | (In thousands, except per share) |    |
| Year ended December 31, 2010:                                                                                                                                                                                                                                                                                                                                        |   |                             |    |   |    |   |    |    |   |   |    |   |   |   |    |
| Total revenues                                                               |   | $                                | 79,831  |   |    | $      | 77,483  |    |   | $      | 85,232  |   |   | $      | 89,085  |   |   | $ | 331,631 |   |
| Operating income                                                             |   | $                                | 20,873  |   |    | $      | 5,853   |    |   | $      | 27,083  |   |   | $      | 24,135  |   |   | $ | 77,944 |   |
| Net income (loss)(a)                                                         |   | $                                | 16,675  |   |    | $      | 13,963  |    |   | $      | 11,623  |   |   | $      | (5,323  | ) |   | $ | 36,938 |   |
| Net income (loss) per common share(b):                                                                                                                                                                                                                                                                                                                               |   |                             |    |   |    |   |    |    |   |   |    |   |   |   |    |   |   |   |   |   |
| Basic                                                                                  |   | $                                | 1.37    |   |    | $      | 1.15    |    |   | $      | .96     |   |   | $      | (.44    | ) |   | $ | 3.04 |   |
| Diluted                                                                                |   | $                                | 1.37    |   |    | $      | 1.15    |    |   | $      | .96     |   |   | $      | (.44    | ) |   | $ | 3.04 |   |
| Weighted average common shares outstanding:                                                                                                                                                                                                                                                                                                                          |   |                             |    |   |    |   |    |    |   |   |    |   |   |   |    |   |   |   |   |   |
| Basic                                                                                  |   |                             | 12,146  |   |    |   | 12,146  |    |   |   | 12,146  |   |   |   | 12,153  |   |   |   | 12,148 |   |
| Diluted                                                                                |   |                             | 12,146  |   |    |   | 12,146  |    |   |   | 12,146  |   |   |   | 12,153  |   |   |   | 12,148 |   |
|                                                                                                                                                                                                                                                                                                                                                                 |   |                             |    |   |    |   |    |    |   |   |    |   |   |   |    |   |   |   |   |   |
| Year ended December 31, 2009:                                                                                                                                                                                                                                                                                                                                        |   |                             |    |   |    |   |    |    |   |   |    |   |   |   |    |   |   |   |   |   |
| Total revenues                                                               |   | $                                | 57,782  |   |    | $      | 60,503  |    |   | $      | 62,426  |   |   | $      | 75,250  |   |   | $ | 255,961 |   |
| Operating loss                                                               |   | $                                | (31,620 | )      |    | $      | (33,462 | )       |   | $      | (19,571 | )      |   | $      | (56,772 | ) |   | $ | (141,425 | ) |
| Net loss(a)                                                                  |   | $                                | (22,315 | )      |    | $      | (38,608 | )       |   | $      | (13,600 | )      |   | $      | (42,892 | ) |   | $ | (117,415 | ) |
| Net loss per common share(b):                                                                                                                                                                                                                                                                                                                                        |   |                             |    |   |    |   |    |    |   |   |    |   |   |   |    |   |   |   |   |   |
| Basic                                                                                  |   | $                                | (1.84   | )      |    | $      | (3.18   | )       |   | $      | (1.12   | )      |   | $      | (3.53   | ) |   | $ | (9.67 | ) |
| Diluted                                                                                |   | $                                | (1.84   | )      |    | $      | (3.18   | )       |   | $      | (1.12   | )      |   | $      | (3.53   | ) |   | $ | (9.67 | ) |
| Weighted average common shares outstanding:                                                                                                                                                                                                                                                                                                                          |   |                             |    |   |    |   |    |    |   |   |    |   |   |   |    |   |   |   |   |   |
| Basic                                                                                  |   |                             | 12,122  |   |    |   | 12,142  |    |   |   | 12,144  |   |   |   | 12,144  |   |   |   | 12,138 |   |
| Diluted                                                                                |   |                             | 12,122  |   |    |   | 12,142  |    |   |   | 12,144  |   |   |   | 12,144  |   |   |   | 12,138 |   |

| (a) | The Company recorded an $11.1 million charge for impairment of property and equipment in the second quarter of 2010 and an $800,000 charge in the third quarter of 2010.  The Company recorded a $32.1 million charge for impairment of property and equipment in the second quarter of 2009 and a $27 million charge in the fourth quarter of 2009. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | The sum of the individual quarterly net income (loss) per share amounts may not agree to the total for the year since each period’s computation is based on the weighted average number of common shares outstanding during each period. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010           |    |   | 2009   |   |    | 2008   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|---------|--------|--------|--------|---------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                  |   | (In thousands) |    |
| Property acquisitions:                                                                                                                                                                                                                                                                                                                                                                |   |           |    |   |   |   |    |   |   |
| Proved                                                                                                                 |   | $              | 9,556   |   |   | $      | -       |   |   | $ | - |   |
| Unproved                                                                                                               |   |           | 29,680  |   |   |   | 12,558  |   |   |   | 36,397 |   |
| Developmental costs                                                            |   |           | 238,197 |   |   |   | 86,672  |   |   |   | 260,073 |   |
| Exploratory costs                                                              |   |           | 7,528   |   |   |   | 32,758  |   |   |   | 51,237 |   |
| Total                                                                                                                  |   | $              | 284,961 |   |   | $      | 131,988 |   |   | $ | 347,707 |   |
|                                                                                                                                                                                                                                                                                                                                                                                  |   |           |    |   |   |   |    |   |   |   |   |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 2010           |      |   | 2009   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-----------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (In thousands) |      |
| Proved properties                                                                                       |   | $              | 1,655,217 |   |   | $      | 1,532,508 |   |
| Unproved properties                                                                                     |   |           | 52,035    |   |   |   | 47,156 |   |
| Total capitalized costs                                                                                 |   |           | 1,707,252 |   |   |   | 1,579,664 |   |
| Accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |           | (983,119  | )      |   |   | (945,047 | ) |
| Net capitalized costs                                                                                                                           |   | $              | 724,133   |   |   | $      | 634,617 |   |

|                                        |   |           |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
|---------------------------------------------|--------|----------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
| For the Year Ended December 31, 2010        |   | Oil and Gas    |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                        |   | (In thousands) |    |
| Revenues                                    |   | $              | 331,631 |   |     | $      | 35,269 |         |   | $      | (35,269      | )      |   | $ | 331,631 |   |
| Depreciation, depletion and amortization(a) |   |           | 111,353 |   |     |   | 10,044 |         |   |   | (8,344       | )      |   |   | 113,053 |   |
| Other operating expenses(b)            |   |           | 139,514 |   |     |   | 26,614 |         |   |   | (25,494      | )      |   |   | 140,634 |   |
| Interest expense                            |   |           | 24,397  |   |     |   | 5      |         |   |   | -            |   |   |   | 24,402 |   |
| Other expense                               |   |           | (4,030  | )      |     |   | -      |         |   |   | -            |   |   |   | (4,030 | ) |
| Income (loss) before income taxes           |   |           | 60,397  |   |     |   | (1,394 | )            |   |   | (1,431       | )      |   |   | 57,572 |   |
| Income tax expense (benefit)                |   |           | 21,122  |   |     |   | (488   | )            |   |   | -            |   |   |   | 20,634 |   |
| Net income (loss)                           |   |           | 39,275  |   |     |   | (906   | )            |   |   | (1,431       | )      |   |   | 36,938 |   |
| Less (income) loss attributable to          |   |           |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| noncontrolling interest, net of tax         |   |           | -       |   |     |   | -      |         |   |   | -            |   |   |   | - |   |
| Net income (loss) attributable to Clayton   |   |           |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Williams Energy, Inc.                       |   | $              | 39,275  |   |     | $      | (906   | )            |   | $      | (1,431       | )      |   | $ | 36,938 |   |
| Total assets                                |   | $              | 854,621 |   |     | $      | 37,727 |         |   | $      | (1,431       | )      |   | $ | 890,917 |   |
| Additions to property and equipment         |   | $              | 286,285 |   |     | $      | 16,953 |         |   | $      | -            |   |   | $ | 303,238 |   |
|                                        |   |           |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
|                                        |   |           |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

----

CLAYTON 

|                                        |   |           |     |   | Contract |   |    | Intercompany |   |   | Consolidated |   |
|---------------------------------------------|--------|----------------|----------|--------|----------|--------|---------|--------------|--------|--------|--------------|--------|
| For the Year Ended December 31, 2009        |   | Oil and Gas    |     |   | Drilling |   |    | Eliminations |   |   | Total        |   |
|                                        |   | (In thousands) |     |
| Revenues                                    |   | $              | 249,280  |   |     | $      | 27,000  |         |   | $      | (20,319      | )      |   | $ | 255,961 |   |
| Depreciation, depletion and amortization(a) |   |           | 154,328  |   |     |   | 38,027  |         |   |   | (3,557       | )      |   |   | 188,798 |   |
| Other operating expenses(b)            |   |           | 214,282  |   |     |   | 11,054  |         |   |   | (16,748      | )      |   |   | 208,588 |   |
| Interest expense                            |   |           | 22,267   |   |     |   | 1,491   |         |   |   | -            |   |   |   | 23,758 |   |
| Other expense                               |   |           | 14,873   |   |     |   | -       |         |   |   | -            |   |   |   | 14,873 |   |
| Loss before income taxes                    |   |           | (156,470 | )      |     |   | (23,572 | )            |   |   | (14          | )      |   |   | (180,056 | ) |
| Income tax benefit                          |   |           | (55,864  | )      |     |   | (8,232  | )            |   |   | -            |   |   |   | (64,096 | ) |
| Net loss                                    |   |           | (100,606 | )      |     |   | (15,340 | )            |   |   | (14          | )      |   |   | (115,960 | ) |
| Less (income) loss attributable to          |   |           |     |   |     |   |    |         |   |   |         |   |   |   |   |   |
| noncontrolling interest, net of tax         |   |           | 783      |   |     |   | (2,238  | )            |   |   | -            |   |   |   | (1,455 | ) |
| Net loss attributable to Clayton            |   |           |     |   |     |   |    |         |   |   |         |   |   |   |   |   |
| Williams Energy, Inc.                       |   | $              | (99,823  | )      |     | $      | (17,578 | )            |   | $      | (14          | )      |   | $ | (117,415 | ) |
| Total assets                                |   | $              | 773,631  |   |     | $      | 42,623  |         |   | $      | (31,650      | )      |   | $ | 784,604 |   |
| Additions to property and equipment         |   | $              | 133,860  |   |     | $      | 4,696   |         |   | $      | -            |   |   | $ | 138,556 |   |

|                                                                                 |   |           |    |   |     |   |   |         |   |   |         |   |
|--------------------------------------------------------------------------------------|--------|----------------|---------|--------|----------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                 |   |           |    |   | Contract |   |   | Intercompany |   |   | Consolidated |   |
| For the Year Ended December 31, 2008                                                 |   | Oil and Gas    |    |   | Drilling |   |   | Eliminations |   |   | Total        |   |
|                                                                                 |   | (In thousands) |    |
| Revenues                                                                             |   | $              | 514,686 |   |     | $      | 64,153 |         |   | $      | (13,322      | )      |   | $ | 565,517 |   |
| Depreciation, depletion and amortization(a)                                          |   |           | 124,874 |   |     |   | 10,651 |         |   |   | (2,101       | )      |   |   | 133,424 |   |
| Other operating expenses(b)                                                     |   |           | 232,047 |   |     |   | 47,493 |         |   |   | (9,728       | )      |   |   | 269,812 |   |
| Interest expense                                                                     |   |           | 21,134  |   |     |   | 3,860  |         |   |   | -            |   |   |   | 24,994 |   |
| Other income                                                                         |   |           | (81,282 | )      |     |   | -      |         |   |   | -            |   |   |   | (81,282 | ) |
| Income (loss) before income taxes                                                    |   |           | 217,913 |   |     |   | 2,149  |         |   |   | (1,493       | )      |   |   | 218,569 |   |
| Income tax expense                                                                   |   |           | 76,546  |   |     |   | 781    |         |   |   | -            |   |   |   | 77,327 |   |
| Net income (loss)                                                                    |   |           | 141,367 |   |     |   | 1,368  |         |   |   | (1,493       | )      |   |   | 141,242 |   |
| Less (income) loss attributable to                                                   |   |           |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| noncontrolling interest, net of tax                                                  |   |           | 381     |   |     |   | (1,089 | )            |   |   | -            |   |   |   | (708 | ) |
| Net income (loss) attributable to Clayton                                            |   |           |    |   |     |   |   |         |   |   |         |   |   |   |   |   |
| Williams Energy, Inc.                                                                |   | $              | 141,748 |   |     | $      | 279    |         |   | $      | (1,493       | )      |   | $ | 140,534 |   |
| Total assets                                                                         |   | $              | 864,260 |   |     | $      | 85,006 |         |   | $      | (5,857       | )      |   | $ | 943,409 |   |
| Additions to property and equipment                                                  |   | $              | 350,184 |   |     | $      | 1,195  |         |   | $      | (1,493       | )      |   | $ | 349,886 |   |
|                |   |           |    |   |     |   |   |         |   |   |         |   |   |   |   |   |

----

CLAYTON 

| (Dollars in thousands)                                                                                                                                                                                                          |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|----------|
|                                                                                                                                                                                                                            |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |     |
|                                                                                                                                                                                                                            |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |     |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |
| Current assets                                        |   | $      | 164,630 |   |         | $      | 137,156 |       |   | $      | 1,132        |   |   | $            | (189,097 | ) |   | $ | 113,821 |   |
| Property and equipment, net                                                                                                                                                                                                     |   |   | 430,870 |   |         |   | 329,957 |       |   |   | 6,262        |   |   |         | -        |   |   |   | 767,089 |   |
| Investments in subsidiaries                                                                                                                                                                                                     |   |   | 114,247 |   |         |   | -       |       |   |   | -            |   |   |         | (114,247 | ) |   |   | - |   |
| Other assets                                          |   |   | 9,837   |   |         |   | 170     |       |   |   | -            |   |   |         | -        |   |   |   | 10,007 |   |
| Total assets                                                         |   | $      | 719,584 |   |         | $      | 467,283 |       |   | $      | 7,394        |   |   | $            | (303,344 | ) |   | $ | 890,917 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Current liabilities                                   |   | $      | 201,031 |   |         | $      | 121,664 |       |   | $      | 122          |   |   | $            | (189,097 | ) |   | $ | 133,720 |   |
| Non-current liabilities:                                                                                                                                                                                                        |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Long-term debt                                                       |   |   | 385,000 |   |         |   | -       |       |   |   | -            |   |   |         | -        |   |   |   | 385,000 |   |
| Fair value of derivatives                                                                                                                                                                                                       |   |   | 3,409   |   |         |   | -       |       |   |   | -            |   |   |         | -        |   |   |   | 3,409 |   |
| Other                                                                |   |   | 56,494  |   |         |   | 62,700  |       |   |   | 145          |   |   |         | (3       | ) |   |   | 119,336 |   |
|                                                                                                                                                                                                                            |   |   | 444,903 |   |         |   | 62,700  |       |   |   | 145          |   |   |         | (3       | ) |   |   | 507,745 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Equity                                                |   |   | 73,650  |   |         |   | 282,919 |       |   |   | 7,127        |   |   |         | (114,244 | ) |   |   | 249,452 |   |
|                                                                                                                                                                                                                            |   |   |    |   |         |   |    |       |   |   |         |   |   |         |     |   |   |   |   |   |
| Total liabilities and equity                                                                                                                                                                                                    |   | $      | 719,584 |   |         | $      | 467,283 |       |   | $      | 7,394        |   |   | $            | (303,344 | ) |   | $ | 890,917 |   |

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

----

CLAYTON 

| (Dollars in thousands)                                                                                                                                                                                                         |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                           |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                           |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
|                                                                                                                                                                                                                           |   |   |    |   |         |   |    |       |   |   |         |   |   |         |   |
| Total revenue                                        |   | $      | 209,046 |   |         | $      | 122,673 |       |   | $      | 723          |   |   | $            | (811   | ) |   | $ | 331,631 |   |
| Costs and expenses                                   |   |   | 166,846 |   |         |   | 86,963  |       |   |   | 689          |   |   |         | (811   | ) |   |   | 253,687 |   |
| Operating income (loss)                                                                                                                                                                                                        |   |   | 42,200  |   |         |   | 35,710  |       |   |   | 34           |   |   |         | -      |   |   |   | 77,944 |   |
| Other income (expense)                                                                                                                                                                                                         |   |   | (26,801 | )      |         |   | 6,282   |       |   |   | 147          |   |   |         | -      |   |   |   | (20,372 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                   |   |   | (20,634 | )      |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | (20,634 | ) |
| Net income (loss)                                                   |   | $      | (5,235  | )      |         | $      | 41,992  |       |   | $      | 181          |   |   | $            | -      |   |   | $ | 36,938 |   |

| (Dollars in thousands)                                                                                                                                                                                                             |   |   |     |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                               |   |   |     |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                               |   | Issuer |     |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
|                                                                                                                                                                                                                               |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |
| Total revenue                                            |   | $      | 148,347  |   |         | $      | 108,098 |       |   | $      | 617          |   |   | $            | (1,101 | ) |   | $ | 255,961 |   |
| Costs and expenses                                       |   |   | 254,655  |   |         |   | 142,807 |       |   |   | 1,025        |   |   |         | (1,101 | ) |   |   | 397,386 |   |
| Operating income (loss)                                                                                                                                                                                                            |   |   | (106,308 | )      |         |   | (34,709 | )          |   |   | (408         | )      |   |         | -      |   |   |   | (141,425 | ) |
| Other income (expense)                                                                                                                                                                                                             |   |   | (42,820  | )      |         |   | 4,043   |       |   |   | 146          |   |   |         | -      |   |   |   | (38,631 | ) |
| Income tax (expense) benefit                                                                                                                                                                                                       |   |   | 64,096   |   |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | 64,096 |   |
| Noncontrolling interest,                                                                                                                                                                                                           |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
|   net of tax                                   |   |   | (1,455   | )      |         |   | -       |       |   |   | -            |   |   |         | -      |   |   |   | (1,455 | ) |
| Net income (loss)                                                       |   | $      | (86,487  | )      |         | $      | (30,666 | )          |   | $      | (262         | )      |   | $            | -      |   |   | $ | (117,415 | ) |

| (Dollars in thousands)                                                                                                                                                                                                             |   |   |    |   |         |   |    | Non-       |   |   |         |   |   |         |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|---------|
|                                                                                                                                                                                                                               |   |   |    |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |    |
|                                                                                                                                                                                                                               |   | Issuer |    |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |    |
|                                                                                                                                                                                                                               |   |   |    |   |         |   |    |       |   |   |         |   |   |         |    |
| Total revenue                                            |   | $      | 346,570 |   |         | $      | 237,307 |       |   | $      | 1,033        |   |   | $            | (19,393 | ) |   | $ | 565,517 |   |
| Costs and expenses                                       |   |   | 254,093 |   |         |   | 166,310 |       |   |   | 733          |   |   |         | (17,900 | ) |   |   | 403,236 |   |
| Operating income (loss)                                                                                                                                                                                                            |   |   | 92,477  |   |         |   | 70,997  |       |   |   | 300          |   |   |         | (1,493  | ) |   |   | 162,281 |   |
| Other income (expense)                                                                                                                                                                                                             |   |   | 65,414  |   |         |   | (9,362  | )          |   |   | 236          |   |   |         | -       |   |   |   | 56,288 |   |
| Income tax (expense) benefit                                                                                                                                                                                                       |   |   | (77,327 | )      |         |   | -       |       |   |   | -            |   |   |         | -       |   |   |   | (77,327 | ) |
| Noncontrolling interest,                                                                                                                                                                                                           |   |   |    |   |         |   |    |       |   |   |         |   |   |         |    |   |   |   |   |   |
|   net of tax                                   |   |   | (708    | )      |         |   | -       |       |   |   | -            |   |   |         | -       |   |   |   | (708 | ) |
| Net income (loss)                                                       |   | $      | 79,856  |   |         | $      | 61,635  |       |   | $      | 536          |   |   | $            | (1,493  | ) |   | $ | 140,534 |   |

----

CLAYTON 

| (Dollars in thousands)                                                                                                                                                                                                           |   |   |     |   |         |   |    | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|---------|------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |    | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                             |   | Issuer |     |   | Subsidiaries |   |    | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
|                                                                                                                                                                                                                             |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |
| Operating activities                                   |   | $      | 114,960  |   |         | $      | 84,490  |       |   | $      | 457          |   |   | $            | 8,344  |   |   | $ | 208,251 |   |
| Investing activities                                   |   |   | (161,742 | )      |         |   | (33,440 | )          |   |   | (257         | )      |   |         | (8,344 | ) |   |   | (203,783 | ) |
| Financing activities                                   |   |   | 39,983   |   |         |   | (49,723 | )          |   |   | (21          | )      |   |         | -      |   |   |   | (9,761 | ) |
| Net increase (decrease) in                                                                                                                                                                                                       |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                        |   |   | (6,799   | )      |         |   | 1,327   |       |   |   | 179          |   |   |         | -      |   |   |   | (5,293 | ) |
| Cash at the beginning of                                                                                                                                                                                                         |   |   |     |   |         |   |    |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                  |   |   | 11,839   |   |         |   | 1,344   |       |   |   | 830          |   |   |         | -      |   |   |   | 14,013 |   |
| Cash at end of the period                                                                                                                                                                                                        |   | $      | 5,040    |   |         | $      | 2,671   |       |   | $      | 1,009        |   |   | $            | -      |   |   | $ | 8,720 |   |

| (Dollars in thousands)                                                                                                                                                                                                           |   |   |     |   |         |   |     | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|----------|------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |     | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                             |   | Issuer |     |   | Subsidiaries |   |     | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
|                                                                                                                                                                                                                             |   |   |     |   |         |   |     |       |   |   |         |   |   |         |   |
| Operating activities                                   |   | $      | (28,867  | )      |         | $      | 129,934  |       |   | $      | 113          |   |   | $            | 3,531  |   |   | $ | 104,711 |   |
| Investing activities                                   |   |   | (186,872 | )      |         |   | 21,872   |       |   |   | (67          | )      |   |         | (3,531 | ) |   |   | (168,598 | ) |
| Financing activities                                   |   |   | 192,197  |   |         |   | (155,516 | )          |   |   | 20           |   |   |         | -      |   |   |   | 36,701 |   |
| Net increase (decrease) in                                                                                                                                                                                                       |   |   |     |   |         |   |     |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                        |   |   | (23,542  | )      |         |   | (3,710   | )          |   |   | 66           |   |   |         | -      |   |   |   | (27,186 | ) |
| Cash at the beginning of                                                                                                                                                                                                         |   |   |     |   |         |   |     |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                  |   |   | 35,381   |   |         |   | 5,054    |       |   |   | 764          |   |   |         | -      |   |   |   | 41,199 |   |
| Cash at end of the period                                                                                                                                                                                                        |   | $      | 11,839   |   |         | $      | 1,344    |       |   | $      | 830          |   |   | $            | -      |   |   | $ | 14,013 |   |

| (Dollars in thousands)                                                                                                                                                                                                           |   |   |     |   |         |   |     | Non-       |   |   |         |   |   |         |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------------|--------|----------|------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                             |   |   |     |   | Guarantor    |   |     | Guarantor  |   |   | Adjustments/ |   |   |         |   |
|                                                                                                                                                                                                                             |   | Issuer |     |   | Subsidiaries |   |     | Subsidiary |   |   | Eliminations |   |   | Consolidated |   |
|                                                                                                                                                                                                                             |   |   |     |   |         |   |     |       |   |   |         |   |   |         |   |
| Operating activities                                   |   | $      | 319,182  |   |         | $      | 59,737   |       |   | $      | 960          |   |   | $            | 2,101  |   |   | $ | 381,980 |   |
| Investing activities                                   |   |   | (126,079 | )      |         |   | (110,366 | )          |   |   | (329         | )      |   |         | (2,101 | ) |   |   | (238,875 | ) |
| Financing activities                                   |   |   | (163,047 | )      |         |   | 48,797   |       |   |   | -            |   |   |         | -      |   |   |   | (114,250 | ) |
| Net increase (decrease) in                                                                                                                                                                                                       |   |   |     |   |         |   |     |       |   |   |         |   |   |         |   |   |   |   |   |   |
| cash and cash equivalents                                                                                                                                                                                                        |   |   | 30,056   |   |         |   | (1,832   | )          |   |   | 631          |   |   |         | -      |   |   |   | 28,855 |   |
| Cash at the beginning of                                                                                                                                                                                                         |   |   |     |   |         |   |     |       |   |   |         |   |   |         |   |   |   |   |   |   |
| the period                                                  |   |   | 5,325    |   |         |   | 6,886    |       |   |   | 133          |   |   |         | -      |   |   |   | 12,344 |   |
| Cash at end of the period                                                                                                                                                                                                        |   | $      | 35,381   |   |         | $      | 5,054    |       |   | $      | 764          |   |   | $            | -      |   |   | $ | 41,199 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Oil    |   |   | Gas    |   |    | MBOE   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|
| Proved reserves:                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |    |   |   |
| December 31, 2007                                                                       |   |   | 27,946 |   |   |   | 123,156 |   |   |   | 48,472 |   |
| Revisions                                                                                                             |   |   | (5,620 | )      |   |   | (15,938 | )      |   |   | (8,276 | ) |
| Extensions and discoveries                                                                                            |   |   | 2,057  |   |   |   | 23,824  |   |   |   | 6,028 |   |
| Sales of minerals-in-place                                                                                            |   |   | (473   | )      |   |   | (8,560  | )      |   |   | (1,900 | ) |
| Production                                                                                                            |   |   | (3,134 | )      |   |   | (18,553 | )      |   |   | (6,226 | ) |
| December 31, 2008                                                                       |   |   | 20,776 |   |   |   | 103,929 |   |   |   | 38,098 |   |
| Revisions                                                                                                             |   |   | 297    |   |   |   | (15,898 | )      |   |   | (2,353 | ) |
| Extensions and discoveries                                                                                            |   |   | 2,985  |   |   |   | 4,021   |   |   |   | 3,655 |   |
| Production                                                                                                            |   |   | (3,105 | )      |   |   | (15,949 | )      |   |   | (5,763 | ) |
| December 31, 2009                                                                       |   |   | 20,953 |   |   |   | 76,103  |   |   |   | 33,637 |   |
| Revisions                                                                                                             |   |   | 1,511  |   |   |   | 4,628   |   |   |   | 2,282 |   |
| Extensions and discoveries                                                                                            |   |   | 18,969 |   |   |   | 25,343  |   |   |   | 23,193 |   |
| Purchases of minerals-in-place                                                                                        |   |   | 317    |   |   |   | 190     |   |   |   | 349 |   |
| Sales of minerals-in-place                                                                                            |   |   | (268   | )      |   |   | (16,017 | )      |   |   | (2,937 | ) |
| Production                                                                                                            |   |   | (3,667 | )      |   |   | (10,750 | )      |   |   | (5,459 | ) |
| December 31, 2010                                                                       |   |   | 37,815 |   |   |   | 79,497  |   |   |   | 51,065 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |    |   |   |   |   |   |
| Proved developed reserves:                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |    |   |   |   |   |   |
| December 31, 2008                                                                       |   |   | 16,815 |   |   |   | 87,340  |   |   |   | 31,372 |   |
| December 31, 2009                                                                       |   |   | 16,779 |   |   |   | 70,840  |   |   |   | 28,586 |   |
| December 31, 2010                                                                       |   |   | 24,570 |   |   |   | 59,409  |   |   |   | 34,472 |   |

----

CLAYTON 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2010           |       |   | 2009   |   |      | 2008   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|------------|--------|--------|--------|-----------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (In thousands) |       |
| Future cash inflows                                                                         |   | $              | 3,058,637  |   |   | $      | 1,311,330 |   |   | $ | 1,374,684 |   |
| Future costs:                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |           |       |   |   |   |      |   |   |   |   |   |
| Production                                                                                                                |   |           | (1,127,744 | )      |   |   | (588,564  | )      |   |   | (569,053 | ) |
| Development                                                                                                               |   |           | (308,420   | )      |   |   | (86,918   | )      |   |   | (104,223 | ) |
| Income taxes                                                                                                              |   |           | (455,980   | )      |   |   | (119,343  | )      |   |   | (126,819 | ) |
| Future net cash flows                                                                       |   |           | 1,166,493  |   |   |   | 516,505   |   |   |   | 574,589 |   |
| 10% discount factor                                                                         |   |           | (482,055   | )      |   |   | (152,232  | )      |   |   | (169,423 | ) |
| Standardized measure of discounted net cash flows                                                                                                                                                                                                                                                                                                                                                                                                         |   | $              | 684,438    |   |   | $      | 364,273   |   |   | $ | 405,166 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2010           |     |   | 2009   |   |     | 2008   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|----------|--------|--------|--------|----------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (In thousands) |     |
| Standardized measure, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $              | 364,273  |   |   | $      | 405,166  |   |   | $ | 925,969 |   |
| Net changes in sales prices, net of production costs                                                                                                                                                                                                                                                                                                                                                                                                            |   |           | 192,193  |   |   |   | 12,007   |   |   |   | (600,719 | ) |
| Revisions of quantity estimates                                                                             |   |           | 56,190   |   |   |   | (34,419  | )      |   |   | (101,889 | ) |
| Accretion of discount                                                                                       |   |           | 45,963   |   |   |   | 51,123   |   |   |   | 131,824 |   |
| Changes in future development costs, including                                                                                                                                                                                                                                                                                                                                                                                                                  |   |           |     |   |   |   |     |   |   |   |   |   |
|   development costs incurred that reduced future                                                                                                                                                                                                                                                                                                                                                                                                      |   |           |     |   |   |   |     |   |   |   |   |   |
|   development costs                                                                               |   |           | 39,689   |   |   |   | 33,217   |   |   |   | 69,466 |   |
| Changes in timing and other                                                                                 |   |           | 20,839   |   |   |   | (31,567  | )      |   |   | (9,385 | ) |
| Net change in income taxes                                                                                  |   |           | (210,090 | )      |   |   | 15,457   |   |   |   | 299,193 |   |
| Future abandonment cost, net of salvage                                                                     |   |           | (1,107   | )      |   |   | (5,075   | )      |   |   | (548 | ) |
| Extensions and discoveries                                                                                  |   |           | 441,719  |   |   |   | 89,546   |   |   |   | 155,006 |   |
| Sales, net of production costs                                                                              |   |           | (244,792 | )      |   |   | (171,182 | )      |   |   | (373,988 | ) |
| Purchases of minerals-in-place                                                                              |   |           | 9,290    |   |   |   | -        |   |   |   | - |   |
| Sales of minerals-in-place                                                                                  |   |           | (29,729  | )      |   |   | -        |   |   |   | (89,763 | ) |
| Standardized measure, end of period.                                                                        |   | $              | 684,438  |   |   | $      | 364,273  |   |   | $ | 405,166 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Average Price |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Oil (a)       |   |   | Gas |   |
| As of December 31:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |          |   |   |   |   |
| 2010 (b)                                                                                      |   | $             | 72.36  |   |   | $ | 5.44 |   |
| 2009 (b)                                                                                      |   | $             | 54.81  |   |   | $ | 3.71 |   |
| 2008                                                                                          |   | $             | 42.03  |   |   | $ | 5.90 |   |

|   | (a) | Includes natural gas liquids. |
|--------|-----|-------------------------------|

|   | (b) | Average prices for December 31, 2010 and 2009 were based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for the period from January through December during each respective calendar year. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Schedule II – Valuation and Qualifying Accounts                                                              |   |
|--------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                               |   | Balance at |   |   |   |   |   |   |   |   | Balance at |   |
|                                                                                                               |   | Beginning of |   |   |   |   |   |   |   |   | End of |   |
| Description                                                                                                        |   | Period |   |   | Additions(a) |   |   | Deductions(b) |   |   | Period |   |
|                                                                                                               |   |   |   |   | (In thousands) |   |   |   |   |
| Year Ended December 31, 2010:                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts - Joint interest and other                                                         |   | $ | 1,273 |   |   | $ | - |   |   | $ | - |   |   | $ | 1,273 |   |
| Year Ended December 31, 2009:                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts - Joint interest and other                                                         |   | $ | 1,387 |   |   | $ | - |   |   | $ | (114 | ) |   | $ | 1,273 |   |
| Year Ended December 31, 2008:                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful accounts - Joint interest and other                                                         |   | $ | 1,387 |   |   | $ | - |   |   | $ | - |   |   | $ | 1,387 |   |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (a)    Additions relate to provisions for doubtful accounts.                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (b)    Deductions relate to the write-off or recovery of the provisions for doubtful accounts. |   |   |   |   |   |   |   |   |   |