UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C. 20549


                            FORM 8-K


                         CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
                              1934



Date of Report (Date of earliest event reported):
          December  11, 2006

                  CLAYTON WILLIAMS ENERGY, INC.
     (Exact name of registrant as specified in its charter)


      Delaware             001-10924             75-2396863
  (State or other         (Commission          (IRS Employer
  jurisdiction of         File Number)      Identification No.)
   incorporation)


                    6 Desta Drive, Suite 6500
                   Midland, Texas  79705-5510
   (Address of principal executive offices including zip code)

       Registrant's telephone number, including area code:
                         (432) 682-6324

Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:

   Written communications pursuant to Rule 425 under the
  Securities Act (17 CFR 230.425)

   Soliciting material pursuant to Rule 14a-12 under the Exchange
  Act (17 CFR 240.14a-12)

   Pre-commencement communications pursuant to Rule 14d-2(b)
   under the Exchange Act (17 CFR 240.14d-2(b))

   Pre-commencement communications pursuant to Rule 13e-4(c)
   under the Exchange Act (17 CFR 240.13e-4(c))



Item 1.01  Entry into a Material Definitive Agreement

The  Compensation Committee of the Board of Directors of  Clayton
Williams Energy, Inc. (the "Company"), in September 2002, adopted
an  incentive  plan for officers, key employees and  consultants,
excluding  Clayton  W.  Williams,  the  Chairman  of  the  Board,
President and Chief Executive Officer of the Company, who promote
the  Company's  drilling and acquisition programs.   Management's
objective in adopting this plan is to further align the interests
of  the  participants with those of the Company by  granting  the
participants   an   after-payout  interest  in   the   production
developed, directly or indirectly, by the participants.  The plan
generally  provides for the creation of a series of  partnerships
between  the  Company and the participants to which  the  Company
contributes  a  portion  of  its interest  in  wells  drilled  or
acquired  within  certain areas. As a general rule,  the  Company
pays  all  costs and receives all revenues until  payout  of  its
costs,  plus  interest; then at payout, the participants  receive
99%  to  100% of all subsequent net revenues attributable to  the
applicable interest.

On  October  1, 2006 the Compensation Committee of the  Board  of
Directors   of   the  Company  approved  the   formation   of   a
participation  agreement  created  pursuant  to  this  plan   and
approved  participation awards to certain officers, key employees
and  consultants.   The  Company  entered  into  a  participation
agreement  with  the participants on December  11,  2006,  to  be
effective as of October 1, 2006.  The participation agreement  is
summarized as follows:

        Participation Agreement related to West Coast Energy
        Properties, L.P. ("WCEP LP"), a Texas limited partnership formed
        to acquire and develop certain oil and gas properties in
        California and Texas.  The general partner of WCEP LP is West
        Coast Energy Properties GP, LLC ("WCEP GP"), a wholly-owned
        subsidiary of CWEI.  Under this agreement, WCEP GP receives all
        of the cash flow from its investment in WCEP LP until it has
        recouped the fair value of its initial investment in WCEP LP,
        plus any further investment and a rate of return of 4.62%.
        Thereafter, the participants as a group will receive 7.5% of the
        cash flow from such investment.

Item 9.01  Financial Statements and Exhibits

The  following  exhibits are provided as part of the  information
furnished under Item 1.01 of this report.

     Exhibit
    Number                Description

        10.1     Participation  Agreement   relating   to   West
                     Coast    Energy  Properties, L.P.
                      dated December 11, 2006

                           SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act
of  1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.

                         CLAYTON WILLIAMS ENERGY, INC.


December 13, 2006      By:  /s/ L. Paul Latham
                                          L Paul Latham
                                          Executive Vice President and Chief
                                          Operating Officer


December 13, 2006     By:  /s/ Mel G. Riggs
                                          Mel G. Riggs
                                          Senior Vice President and Chief
                                          Financial Officer