**Exhibit 10.3**

 

SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

 

 

This SecondAmendment to Amended and Restated Credit Agreement (hereinafter referred to asthe “Amendment”) executed as of the 30th day of December,2005, by and among Clayton Williams Energy Inc., a Delaware corporation (“CWEI”),Southwest Royalties, Inc. (successor by merger to CWEI-SWR, Inc.), a Delawarecorporation (“SWR”, and together with CWEI and each of their respectivesuccessors and permitted assigns, the “Borrowers” and each a “Borrower”),Warrior Gas Co., a Texas corporation (“Warrior”), CWEI Acquisitions,Inc. a Delaware corporation (“CWEI Acquisitions”), Romere PassAcquisition L.L.C., a Delaware limited liability company (“Romere”),CWEI Romere Pass Acquisition Corp., a Delaware corporation (“Romere Corp”),Blue Heel Company, a Delaware corporation (“Blue Heel”), and Tex-HalPartners, Inc., a Delaware corporation (“Tex-Hal” and together withWarrior, CWEI Acquisitions, Romere, Romere Corp and Blue Heel and each of theirsuccessors and permitted assigns, the “Guarantors” and each a “Guarantor”),JPMorgan Chase Bank, N.A. (successor by merger to Bank One, N.A. (Illinois)), anational banking association (“JPMorgan Chase”), each of the financialinstitutions which is a party hereto (as evidenced by the signature pages tothis Amendment) or which may from time to time become a party to the Agreementpursuant to the provisions of Section 14.3 thereof or any successor orpermitted assignee thereof (hereinafter collectively referred to as “Lenders”,and individually, “Lender”), JPMorgan Chase, as Administrative Agent (inits capacity as Administrative Agent and together with its successors in suchcapacity, “Administrative Agent”). Capitalized terms used but notdefined in this Amendment have the meanings assigned to such terms in thatcertain Amended and Restated Credit Agreement dated as of May 21, 2004, by andamong Borrowers, Guarantors, Administrative Agent and Lenders (as amended,supplemented or otherwise modified from time to time, the “Agreement”).

 

**WITNESSETH:**

 

**WHEREAS**,****the Borrowers and the Guarantors haverequested that the Administrative Agent and the Lenders amend the Agreement to (i)increase the Borrowing Base to $150,000,000 and (ii) permit CWEI to makeinvestments in a drilling rig joint venture with Lariat Services, Inc. (“Lariat”)through Larclay, LLC a newly formed limited liability company (“Larclay”)to be owned in equal shares by CWEI and Lariat; and the Administrative Agentand the Lenders (or at least the requisite percentage thereof) have agreed todo so on the terms and conditions hereinafter set forth; and

 

**NOW, THEREFORE**, forand in consideration of the mutual covenants and agreements herein containedand other good and valuable consideration, the receipt and sufficiency of whichare hereby acknowledged and confessed, the Borrowers, the Guarantors, theAdministrative Agent and the Lenders, hereby agree as follows:

 

# **SECTION 1.         Amendments to the Agreement.**Subjectto the satisfaction or waiver in writing of each condition precedent set forthin Section 3 hereof, and in reliance on the representations, warranties,covenants and agreements contained in this Amendment, the Agreement shall beamended in the manner provided in this Section 1.

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## **1.1          Additional Definitions.**ArticleI of the Agreement shall be and it hereby is amended by adding thefollowing definitions in the correct alphabetical order:

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*“DrillingVenture” means the drilling rig joint venture among CWEI and Lariat throughLarclay.*

 

*“Larclay”means Larclay, LLC, a Delaware limited liability company.*

 

*“Lariat”means Lariat Services, Inc., a Texas corporation.*

 

*“SecondAmendment Effective Date” means December 30, 2005.*

 

## **1.2          Borrowing Base.**Section4.1 of the Agreement shall be and it hereby is amended in its entirety toread as follows:

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## *Borrowing Base. Theaggregate amount of credit available to the Borrowers under this Agreementshall be limited by a Borrowing Base (herein so called) which shall be determinedby the Lenders at the times and in accordance with the standards and proceduresset forth in this Article IV. Subject to Section 4.2 hereof, during the periodfrom the Second Amendment Effective Date to the first Determination Date afterthe Second Amendment Effective Date, the Borrowing Base shall be $150,000,000.*

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## **1.3          Noticeof Redetermination.**Section 4 of the Agreementshall be and it hereby is amended by adding the following as Section 4.6of such section:

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*4.6          Notice of Redetermination. Inaddition to notification of any Scheduled Redetermination of the Borrowing Basepursuant to Section 4.2, promptly following any other redetermination of theBorrowing Base pursuant to this Section 4 after the Second Amendment EffectiveDate, the Administrative Agent shall notify Borrowers of the amount of theredetermined Borrowing Base, which Borrowing Base shall be effective as of theDetermination Date specified in such notice, and such Borrowing Base shallremain in effect for all purposes of this Agreement until the nextDetermination Date.*

 

## **1.4          Investments and Acquisitions.**Section8.15 of the Agreement shall be and it hereby is amended by deleting clause(viii) and inserting the following as clauses (viii) and (ix) of such section:

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### *(viii)       Investments by CWEI in the Drilling Venture, including loans,advances or other extensions of credit to Lariat;**provided that the amountof such Investments made pursuant to this clause (viii) of Section 8.15 doesnot exceed in the aggregate, $20,000,000 and the proceeds of such Investmentsare used by Lariat**tomake deposits on drilling rigs and related equipment to be acquired by Larclayor Larclay’s Subsidiaries**and by Larclay or Larclay’s Subsidiaries to acquire, own, operate andmaintain drilling rigs and related equipment.*

 

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### *(ix)        **Other Investments not otherwise described in clauses (i) through (viii)above; provided that, the aggregate amount of all other Investments madepursuant to this clause (ix) outstanding at any time shall not exceed$1,000,000 (calculated based on the original cost of such Investment).*

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# **SECTION 2.         Consent and Reaffirmation of Guarantors.**Bytheir execution hereof, each Guarantor hereby (i) acknowledges receipt of thisAmendment, (ii) consents to the Borrowers’ execution and delivery hereof; (iii)agrees to be bound hereby; (iv) affirms that nothing contained therein shallmodify in any respect whatsoever its guaranty of the obligations of theBorrowers to Lenders pursuant to the terms of its Guaranty in favor ofAdministrative Agent and the Lenders and (v) reaffirms that its Guaranty is andshall continue to remain in full force and effect.

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# **SECTION 3.         Conditions.**The amendmentsto the Agreement contained in Section 1 of this Amendment shall be effectiveupon the satisfaction of each of the conditions set forth in this Section 3.

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## **3.1          Execution and Delivery**. EachBorrower and each Guarantor shall have executed and delivered this Amendment.

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## **3.2          Representations and Warranties**.The representations and warranties of each Borrower under the Agreement, asamended by the Amendment are true and correct in all material respects as ofsuch date, as if then made (except to the extent that such representations andwarranties relate solely to an earlier date).

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## **3.3          No Event of Default**. NoEvent of Default shall have occurred and be continuing nor shall any event haveoccurred or failed to occur which, with the passage of time or service ofnotice, or both, would constitute an Event of Default.

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## **3.4          Other Documents**. TheAdministrative Agent shall have received such other instruments and documentsincidental and appropriate to the transaction provided for herein as theAdministrative Agent or its special counsel may reasonably request, and allsuch documents shall be in form and substance satisfactory to theAdministrative Agent.

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# **SECTION 4.         Representations and Warranties of Borrowers**.To induce the Lenders to enter into this Amendment, the Borrowers herebyrepresent and warrant to the Lenders as follows:

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## **4.1          Reaffirmation of Representations andWarranties/Further Assurances**. After giving effect to theamendments herein, each representation and warranty of any Borrower or anyGuarantor contained in the Agreement or in any of the other Loan Documents istrue and correct in all material respects on the date hereof (except to theextent such representations and warranties relate solely to an earlier date).

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## **4.2          Corporate Authority; No Conflicts**.The execution, delivery and performance by each Borrower and each Guarantor (tothe extent a party hereto or thereto) of this Amendment and all documents,instruments and agreements contemplated herein are within each such 

 

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## Borrower’s orsuch Guarantor’s corporate or other organizational powers, have been dulyauthorized by necessary action, require no action by or in respect of, orfiling with, any court or agency of government and do not violate or constitutea default under any provision of any applicable law or other agreements bindingupon any Borrower or any Guarantor or result in the creation or imposition ofany Lien upon any of the assets of any Borrower or any Guarantor except forPermitted Liens and otherwise as permitted in the Agreement.

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## **4.3          Enforceability**. This Amendmentconstitutes the valid and binding obligation of each Borrower and eachGuarantor enforceable in accordance with its terms, except as (i) theenforceability thereof may be limited by bankruptcy, insolvency or similar lawsaffecting creditor’s rights generally, and (ii) the availability of equitableremedies may be limited by equitable principles of general application.

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# **SECTION 5.         Miscellaneous.**

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## **5.1          Reaffirmation of Loan Documents and Liens**.Any and all of the terms and provisions of the Agreement and the Loan Documentsshall, except as amended and modified hereby, remain in full force and effect. EachBorrower hereby agrees that the amendments and modifications herein containedshall in no manner affect or impair the liabilities, duties and obligations ofsuch Borrower or any Guarantor under the Agreement and the other Loan Documentsor the Liens securing the payment and performance thereof.

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## **5.2          Parties in Interest**. All ofthe terms and provisions of this Amendment shall bind and inure to the benefitof the parties hereto and their respective successors and assigns.

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## **5.3          Legal Expenses.**TheBorrowers hereby agree, jointly and severally, to pay all reasonable fees andexpenses of counsel to the Administrative Agent incurred by the AdministrativeAgent in connection with the preparation, negotiation and execution of thisAmendment and all related documents.

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## **5.4          Counterparts**. ThisAmendment may be executed in one or more counterparts and by different partieshereto in separate counterparts each of which when so executed and deliveredshall be deemed an original, but all such counterparts together shallconstitute but one and the same instrument; signature pages may be detachedfrom multiple separate counterparts and attached to a single counterpart so thatall signature pages are physically attached to the same document. However, thisAmendment shall bind no party until the Borrowers, the Guarantors, the Lenders(or at least the requisite percentage thereof), and the Administrative Agenthave executed a counterpart. Delivery of photocopies of the signature pages tothis Amendment by facsimile or electronic mail shall be effective as deliveryof manually executed counterparts of this Amendment.

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## **5.5          Complete Agreement**. THISAMENDMENT, THE AGREEMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINALAGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORALAGREEMENTS BETWEEN THE PARTIES.

 

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## **5.6          Headings**. The headings,captions and arrangements used in this Amendment are, unless specifiedotherwise, for convenience only and shall not be deemed to limit, amplify ormodify the terms of this Amendment, nor affect the meaning thereof.

 

 

**[Signature Pages Follow]**

 

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**IN WITNESS WHEREOF,**the parties have caused this Second Amendment to Amended and Restated CreditAgreement to be duly executed as of the date first above written.

 

 
|   | **BORROWERS:**                        |                                              |
|--------|---------------------------------------|---------------------------------------------------|
|   |                                  |                                              |
|   | **CLAYTON WILLIAMS ENERGY, INC.**     |                                              |
|   | a Delaware  corporation               |                                              |
|   |                                  |                                              |   |
|   |                                  |                                              |   |
|   | By:                                   | /s/ Mark Tisdale                                  |   |
|   |                                  | Mark  Tisdale, Vice President and General Counsel |   |
|   |                                  |                                              |
|   |                                  |                                              |
|   | **SOUTHWEST ROYALTIES, INC.**         |                                              |
|   | a Delaware  limited liability company |                                              |
|   |                                  |                                              |   |
|   |                                  |                                              |   |
|   | By:                                   | /s/ Mark Tisdale                                  |   |
|   |                                  | Mark  Tisdale, Vice President                     |   |
|   |                                  |                                              |
|   |                                  |                                              |
|   | **GUARANTORS:**                       |                                              |
|   |                                  |                                              |
|   | **WARRIOR GAS CO.**                   |                                              |
|   | a Texas  corporation                  |                                              |
|   |                                  |                                              |   |
|   |                                  |                                              |   |
|   | By:                                   | /s/ Mark Tisdale                                  |   |
|   |                                  | Mark  Tisdale, Secretary                          |   |
|   |                                  |                                              |   |
|   | **CWEI ACQUISITIONS, INC.**           |                                              |
|   | a Delaware  corporation               |                                              |
|   |                                  |                                              |   |
|   |                                  |                                              |   |
|   | By:                                   | /s/ Mark Tisdale                                  |   |
|   |                                  | Mark  Tisdale, Secretary                          |   |
|   |                                  |                                              |   |
|   | **ROMERE PASS ACQUISITION L.L.C.**    |                                              |
|   | a Delaware  limited liability company |                                              |
|   |                                  |                                              |   |
|   |                                  |                                              |   |
|   | By:                                   | /s/ Mark Tisdale                                  |   |
|   |                                  | Mark  Tisdale, Vice President                     |   |

 

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|   | **CWEI ROMERE PASS ACQUISITION CORP.** |                          |
|--------|----------------------------------------|-------------------------------|
|   | a Delaware corporation                 |                          |
|   |                                   |                          |   |
|   |                                   |                          |   |
|   | By:                                    | /s/ Mark Tisdale              |   |
|   |                                   | Mark Tisdale, Vice President  |   |
|   |                                   |                          |   |
|   |                                   |                          |   |
|   | **BLUE HEEL COMPANY**                  |                          |
|   | a Delaware  corporation                |                          |
|   |                                   |                          |   |
|   |                                   |                          |   |
|   | By:                                    | /s/ Mark Tisdale              |   |
|   |                                   | Mark  Tisdale, Vice President |   |
|   |                                   |                          |   |
|   |                                   |                          |   |
|   | **TEX-HAL PARTNERS, INC.**             |                          |
|   | a Delaware corporation                 |                          |
|   |                                   |                          |   |
|   |                                   |                          |   |
|   | By:                                    | /s/ Mark Tisdale              |   |
|   |                                   | Mark Tisdale, Vice President  |   |

 

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| ** ** | **JPMORGAN CHASE BANK, N.A.**,                       | ** **           |
|------------|------------------------------------------------------|----------------------|
|       | (successor  by merger to Bank One, N.A. (Illinois)), |                 |
|       | as  Administrative Agent and a Lender                |                 |
|       |                                                 |                 |
|       |                                                 |                 |
|       | By:                                                  | /s/ Wm. Mark Cranmer |   |
|       | Name:                                                | Wm. Mark Cranmer     |   |
|       | Title:                                               | Vice  President      |   |
|            |                                                      |                      |  |  |

 

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| ** ** | **BANK OF SCOTLAND**      | ** ** |
|------------|---------------------------|------------|
|       | as Co-Agent  and a Lender |       |
|       |                      |       |   |
|       |                      |       |   |
|       | By:                       |       | /s/ Karen Welch |   |
|       | Name:                     |       | Karen Welch |   |
|       | Title:                    |       | Assistant Vice President |   |
|            |                           |            |  |  |  |  |  |

 

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|   | **UNION BANK OF CALIFORNIA, N.A.** |              |
|--------|------------------------------------|-------------------|
|   | as  Syndication Agent and a Lender |              |
|   |                               |              |   |
|   |                               |              |   |
|   | By:                                | /s/ Kimberly Coil |   |
|   | Name:                              | Kimberly Coil     |   |
|   | Title:                             | Vice President    |   |
|   |                               |              |   |
|   |                               |              |   |
|   | By:                                | /s/ Ali Ahmed     |   |
|   | Name:                              | Ali Ahmed         |   |
|   | Title:                             | Vice President    |   |

 

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|   | **BNP PARIBAS**                      |             |
|--------|--------------------------------------|------------------|
|   | as  Documentation Agent and a Lender |             |
|   |                                 |             |   |
|   |                                 |             |   |
|   | By:                                  | /s/ Betsy Jocher |   |
|   | Name:                                | Betsy Jocher     |   |
|   | Title:                               | Vice President   |   |
|   |                                 |             |   |
|   |                                 |             |   |
|   | By:                                  | /s/ Russell Otts |   |
|   | Name:                                | Russell Otts     |   |
|   | Title:                               | Vice President   |   |

 

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|   | **FORTIS CAPITAL CORP.** |                  |
|--------|--------------------------|-----------------------|
|   | as a Lender              |                  |
|   |                     |                  |   |
|   | By:                      | /s/ Michele Jones     |   |
|   | Name:                    | Michele Jones         |   |
|   | Title:                   | Senior Vice President |   |
|   |                     |                  |   |
|   |                     |                  |   |
|   | By:                      | /s/ Darrell Holley    |   |
|   | Name:                    | Darrell Holley        |   |
|   | Title:                   | Managing Director     |   |

 

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|   | **COMERICA BANK** |                    |
|--------|-------------------|-------------------------|
|   | as a Lender       |                    |
|   |              |                    |   |
|   |              |                    |   |
|   | By:               | /s/ Matthew J. Purchase |   |
|   | Name:             | Matthew J. Purchase     |   |
|   | Title:            | Vice President          |   |

 

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|   | **GUARANTY BANK** |                  |
|--------|-------------------|-----------------------|
|   | as a Lender       |                  |
|   |              |                  |
|   |              |                  |   |
|   | By:               | /s/ John A. Clark     |   |
|   | Name:             | John A. Clark         |   |
|   | Title:            | Senior Vice President |   |

 

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|   | **NATEXIS BANQUES POPULAIRES** |                               |
|--------|--------------------------------|------------------------------------|
|   | as a Lender                    |                               |
|   |                           |                               |   |
|   |                           |                               |   |
|   | By:                            | /s/ Donovan C. Broussard           |   |
|   | Name:                          | Donovan C. Broussard               |   |
|   | Title:                         | Vice President & Group Manager |   |
|   |                           |                               |   |
|   |                           |                               |   |
|   | By:                            | /s/ Louis P. Laville, III          |   |
|   | Name:                          | Louis P. Laville, III              |   |
|   | Title:                         | Vice President and Group Manager   |   |

 

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|   | **BANK OF TEXAS, N.A.** |                     |
|--------|-------------------------|--------------------------|
|   | as a Lender             |                     |
|   |                    |                     |   |
|   |                    |                     |   |
|   | By:                     | /s/ J. Michael Delbridge |   |
|   | Name:                   | J. Michael Delbridge     |   |
|   | Title:                  | Senior Vice President    |   |

 

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