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Cimarex Reports First Quarter 2019 Results


DENVERMay 8, 2019 /PRNewswire/ —

  • Resolute acquisition closed
  • Daily production averaged 258.9 MBOE; oil production averaged 79,415 barrels per day
  • 2Q oil production expected to be up 4% sequentially at the midpoint of guidance
  • Oil production expected to grow 18-30% year over year
  • 2019 capital guidance unchanged

Cimarex Energy Co. (NYSE: XEC) today reported first quarter 2019 net income of $26.3 million, or $0.26 per share, compared to $186.3 million, or $1.96 per share, in the same period a year ago.  First quarter adjusted net income (non-GAAP) was $117.3 million, or $1.20 per share, compared to first quarter 2018 adjusted net income (non-GAAP) of $173.6 million, or $1.82 per share1.  Net cash provided by operating activities was $250.1 million in the first quarter of 2019 compared to $383.1 million in the same period a year ago.  Adjusted cash flow from operations (non-GAAP) was $351.1 million in the first quarter of 2019 compared to $367.2 million in the first quarter a year ago1.

On March 1, Cimarex closed the previously announced acquisition of Resolute Energy Corporation and began integrating the assets into the company.  On March 8, 2019, we issued $500 million of senior unsecured notes due 2029, which carry an interest rate of 4.375 percent. These notes essentially refinanced Resolute’s $600 million 8.50 percent senior notes, which were redeemed as part of the closing of the acquisition.

Total company production volumes for the quarter averaged 258.9 thousand barrels of oil equivalent (MBOE) per day.  Oil production averaged 79,415 barrels (bbls) per day, up 22 percent from the same period a year ago and down less than one percent sequentially.

Realized product prices were down in the first quarter as compared to the same quarter a year ago.  Realized oil prices averaged $48.87 per barrel, down 18 percent from the $59.93 per barrel received in the first quarter of 2018.  Realized natural gas prices averaged $1.91 per thousand cubic feet (Mcf), down 16 percent from the first quarter 2018 average of $2.28 per Mcf.  NGL prices averaged $16.44 per barrel, down 19 percent from the $20.19 per barrel received in the first quarter of 2018.

Both oil and natural gas prices in the first quarter were negatively impacted by local price differentials although oil differentials improved from fourth quarter 2018 levels.  Our realized Permian oil differential to WTI Cushing averaged $6.90 per barrel in the quarter, compared to $3.12 per barrel in the first quarter of 2018 and $11.64per barrel in the fourth quarter of 2018.  Cimarex’s average differential to Henry Hub on its Permian natural gas production was $1.91 per Mcf in the first quarter of 2019 compared to $0.78 per Mcf in the first quarter of 2018 and $2.21 in the fourth quarter of 2018.  In the Mid-Continent region, the company’s average differential to Henry Hub was $0.46 per Mcf versus $0.70 per Mcf in the first quarter of 2018 and $0.83 in the fourth quarter of 2018.

Cimarex invested $368 million in exploration and development (E&D) during the first quarter, of which $319 million is attributable to drilling and completion activities. First quarter investments were funded with cash flow from operations and cash on the balance sheet.  Total debt at March 31, 2019 consisted of $2.0 billion of long-term notes.  Cimarex had no borrowings under its revolving credit facility and a cash balance of $21 million.  Debt was 36 percent of total capitalization2.

2019 Outlook
Second quarter 2019 production volumes are expected to average 263 – 275 MBOE per day with oil volumes estimated to average 79.5 – 85.5 MBbls per day, up four percent sequentially at the midpoint.  Total 2019 daily production volumes are now expected to average 260 – 275 MBOE per day, with annual oil volumes estimated to average 80.0 – 88.0 Mbbls per day.

Estimated 2019 exploration and development investment is $1.35 – 1.45 billion, unchanged from guidance given in February. Midstream investments are estimated to total $60-70 million in 2019.

Expenses per BOE of production for the remainder of 2019 are estimated to be:

Production expense

$3.20 – 3.70

Transportation, processing and other expense

2.10 – 2.50

DD&A and ARO accretion

7.75 – 8.75

General and administrative expense

1.00 – 1.25

Taxes other than income (% of oil and gas revenue)

  5.5 – 6.5%

Operations Update
Cimarex invested $368 million in E&D during the first quarter, 77 percent in the Permian Basin and 23 percent in the Mid-Continent.  Cimarex brought 38 gross (8 net) wells on production during the quarter.  At March 31, 131 gross (52 net) wells were waiting on completion.  Cimarex currently is operating nine drilling rigs.

WELLS BROUGHT ON PRODUCTION BY REGION

Three Months Ended
March 31,

2019

2018

Gross wells

Permian Basin

12

17

Mid-Continent

26

37

38

54

Net wells

Permian Basin

5

9

Mid-Continent

3

6

8

15

Permian Region
Production from the Permian region averaged 168,008 BOE per day in the first quarter, a 47 percent increase from first quarter 2018.  Oil volumes averaged 64,969 barrels per day, a 30 percent increase from first quarter 2018 and up five percent sequentially.

Cimarex completed 12 gross (5 net) wells in the Permian region during the first quarter.  There were 56 gross (40 net) wells waiting on completion at March 31.  Cimarex currently is operating eight drilling rigs and three completion crews in the region.

Mid-Continent Region
Production from the Mid-Continent averaged 90,386 BOE per day for the first quarter, down one percent from first quarter 2018 and down 13 percent sequentially.

During the first quarter, Cimarex completed 26 gross (3 net) wells in the Mid-Continent region.  At the end of the quarter, 75 gross (12 net) wells were waiting on completion.  Cimarex currently is operating one drilling rig and one completion crew in the region.

Production by Region
Cimarex’s average daily production and commodity price by region is summarized below:

DAILY PRODUCTION BY REGION

Three Months Ended
March 31,

2019

2018

Permian Basin

Gas (MMcf)

340.6

237.9

Oil (Bbls)

64,969

49,845

NGL (Bbls)

46,273

24,725

Total Equivalent (BOE)

168,008

114,218

Mid-Continent

Gas (MMcf)

297.2

295.5

Oil (Bbls)

14,224

15,225

NGL (Bbls)

26,630

26,959

Total Equivalent (BOE)

90,386

91,433

Total Company

Gas (MMcf)

639.1

534.7

Oil (Bbls)

79,415

65,212

NGL (Bbls)

72,956

51,719

Total Equivalent (BOE)

258,882

206,050

AVERAGE REALIZED PRICE BY REGION

Three Months Ended
March 31,

2019

2018

Permian Basin

Gas ($ per Mcf)

1.24

2.23

Oil ($ per Bbl)

48.00

59.75

NGL ($ per Bbl)

15.81

20.76

Mid-Continent

Gas ($ per Mcf)

2.69

2.31

Oil ($ per Bbl)

52.73

60.53

NGL ($ per Bbl)

17.52

19.67

Total Company

Gas ($ per Mcf)

1.91

2.28

Oil ($ per Bbl)

48.87

59.93

NGL ($ per Bbl)

16.44

20.19

Other
The following table summarizes the company’s current open hedge positions:

2Q19

3Q19

4Q19

1Q20

2Q20

Gas Collars:

PEPL(3)

Volume (MMBtu/d)

150,000

120,000

90,000

60,000

30,000

Wtd Avg Floor

$

2.03

$

1.94

$

1.94

$

1.96

$

1.95

Wtd Avg Ceiling

$

2.39

$

2.32

$

2.37

$

2.38

$

2.26

El Paso Perm(3)

Volume (MMBtu/d)

90,000

70,000

40,000

20,000

10,000

Wtd Avg Floor

$

1.67

$

1.49

$

1.40

$

1.45

$

1.50

Wtd Avg Ceiling

$

1.95

$

1.79

$

1.73

$

1.92

$

2.13

Waha (3)

Volume (MMBtu/d)

40,000

60,000

60,000

50,000

30,000

Wtd Avg Floor

$

1.41

$

1.48

$

1.48

$

1.50

$

1.57

Wtd Avg Ceiling

$

1.73

$

1.82

$

1.82

$

1.87

$

1.97

Oil Collars:

WTI(4)

Volume (Bbl/d)

34,000

32,000

24,000

16,000

8,000

Wtd Avg Floor

$

53.68

$

54.81

$

56.42

$

56.13

$

52.25

Wtd Avg Ceiling

$

66.57

$

68.60

$

69.40

$

70.08

$

64.31

Oil Basis Swaps:

WTI Midland(5)

Volume (Bbl/d)

40,500

35,500

27,500

15,000

7,000

Wtd Avg Differential

$

(6.51)

$

(7.36)

$

(8.36)

$

(0.13)

$

(0.40)

Oil Swaps:

WTI(4)

Volume (Bbl/d)

5,000

5,000

5,000

Wtd Avg Fixed

$

64.54

$

64.54

$

64.54

$

$

Gas Swaps:

Henry Hub(6)

Volume (MMBtu/d)

35,000

35,000

35,000

Wtd Avg Fixed

$

3.00

$

3.00

$

3.00

$

$

Sold Oil Calls:

WTI(4)

Volume (Bbl/d)

3,670

3,670

3,670

Wtd Avg Ceiling

$

64.36

$

64.36

$

64.36

$

$

Conference call and webcast
Cimarex will host a conference call tomorrow, May 9, at 11:00 a.m. EDT (9:00 a.m. MDT).  The call will be webcast and accessible on the Cimarex website at www.cimarex.com.  To join the live, interactive call, please dial 866-367-3053 ten minutes before the scheduled start time (callers in Canada dial 855-669-9657 and international callers dial 412-902-4216).

A replay will be available on the company’s website.

Investor Presentation
For more details on Cimarex’s first quarter 2019 results, please refer to the company’s investor presentation available at www.cimarex.com.

About Cimarex Energy
Denver-based Cimarex Energy Co. is an independent oil and gas exploration and production company with principal operations in the Permian Basin and Mid-Continent areas of the U.S.

This press release contains forward-looking statements, including statements regarding projected results and future events. In particular, the “2019 Outlook” contains projections for certain 2019 operational and financial metrics.  These forward-looking statements are based on management’s judgment as of the date of this press release and include certain risks and uncertainties.  Please refer to the company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC, and other filings including our Current Reports on Form 8-K and Quarterly Reports on Form 10-Q, for a list of certain risk factors that may affect these forward-looking statements.

Actual results may differ materially from company projections and other forward-looking statements and can be affected by a variety of factors outside the control of the company including among other things: oil, NGL and natural gas price levels and volatility; higher than expected costs and expenses, including the availability and cost of services and materials; our ability to successfully integrate the business of the recently acquired Resolute Energy Corporation; compliance with environmental and other regulations; costs and availability of third party facilities for gathering, processing, refining and transportation; risks associated with operating in one major geographic area; environmental liabilities; the ability to receive drilling and other permits and rights-of-way in a timely manner; development drilling and testing results; declines in the values of our oil and gas properties resulting in impairments; the potential for production decline rates to be greater than expected; performance of acquired properties and newly drilled wells; regulatory approvals, including regulatory restrictions on federal lands; legislative or regulatory changes, including initiatives related to hydraulic fracturing, emissions and disposal of produced water; unexpected future capital expenditures; economic and competitive conditions; the availability and cost of capital; the ability to obtain industry partners to jointly explore certain prospects, and the willingness and ability of those partners to meet capital obligations when requested; changes in estimates of proved reserves; derivative and hedging activities; the success of the company’s risk management activities; title to properties; litigation; the ability to complete property sales or other transactions; the effectiveness of controls over financial reporting; and other factors discussed in the company’s reports filed with the SEC. Cimarex Energy Co. encourages readers to consider the risks and uncertainties associated with projections and other forward-looking statements. In addition, the company assumes no obligation to publicly revise or update any forward-looking statements based on future events or circumstances.

www.cimarex.com

_____________________________________________

1

Adjusted net income and adjusted cash flow from operations are non-GAAP financial measures.  See below for reconciliations of the related GAAP amounts.

2

Debt to total capitalization is calculated by dividing the sum of (i) the principal amount of senior notes and (ii) redeemable preferred stock by the sum of (i) the principal amount of senior notes, (ii) redeemable preferred stock, and (iii) total stockholders’ equity.

3

PEPL refers to Panhandle Eastern Pipe Line Tex/OK Mid-Continent index, El Paso Perm refers to El Paso Permian Basin index, and Waha refers to West Texas (Waha) Index, all as quoted in Platt’s Inside FERC.

4

WTI refers to West Texas Intermediate oil price as quoted on the New York Mercantile Exchange.

5

Index price on basis swaps is WTI NYMEX less the weighted average WTI Midland differential, as quoted by Argus Americas Crude.

6

Henry Hub (located in So. Louisiana) is the official location for futures contracts on the New York Mercantile Exchange (NYMEX).

 

RECONCILIATION OF ADJUSTED NET INCOME

The following reconciles net income as reported under generally accepted accounting principles (GAAP) to adjusted net income (non-GAAP) for the periods indicated.

Three Months Ended
March 31,

2019

2018

(in thousands, except per share data)

Net income

$

26,316

$

186,318

Mark-to-market loss (gain) on open derivative positions

106,401

(16,548)

Loss on early extinguishment of debt

4,250

Acquisition related costs

8,318

Tax impact

(27,958)

3,872

Adjusted net income

$

117,327

$

173,642

Diluted earnings per share

$

0.26

$

1.96

Adjusted diluted earnings per share*

$

1.20

$

1.82

Weighted-average number of shares outstanding:

Adjusted diluted**

97,715

95,475

Adjusted net income and adjusted diluted earnings per share exclude the noted items because management believes these items affect the comparability of operating results. The company discloses these non-GAAP financial measures as a useful adjunct to GAAP measures because:

a)

Management uses adjusted net income to evaluate the company’s operating performance between periods and to compare the company’s performance to other oil and gas exploration and production companies.

b)

Adjusted net income is more comparable to earnings estimates provided by research analysts.

* Does not include adjustments resulting from application of the “two-class method” used to determine earnings per share under GAAP.

** Reflects the weighted-average number of common shares outstanding during the period as adjusted for the dilutive effects of outstanding stock options.

RECONCILIATION OF ADJUSTED CASH FLOW FROM OPERATIONS

The following table provides a reconciliation from generally accepted accounting principles (GAAP) measures of net cash provided by operating activities to adjusted cash flows from operations (non-GAAP) for the periods indicated.

Three Months Ended
March 31,

2019

2018

(in thousands)

Net cash provided by operating activities

$

250,091

$

383,093

Change in operating assets and liabilities

100,971

(15,859)

Adjusted cash flow from operations

$

351,062

$

367,234

Management uses the non-GAAP financial measure of adjusted cash flow from operations as a means of measuring our ability to fund our capital program and dividends, without fluctuations caused by changes in current assets and liabilities, which are included in the GAAP measure of net cash provided by operating activities. Management believes this non-GAAP financial measure provides useful information to investors for the same reason, and that it is also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.

OIL AND GAS CAPITALIZED EXPENDITURES

Three Months Ended
March 31,

2019

2018

(in thousands)

Acquisitions:

Proved

$

692,600

$

62

Unproved

1,050,782

2,159

1,743,382

2,221

Exploration and development:

Land and seismic

$

9,527

$

10,097

Exploration and development

358,491

303,372

368,018

313,469

Property sales:

Proved

$

4,030

$

(24,964)

Unproved

(3,501)

(4,860)

529

(29,824)

$

2,111,929

$

285,866

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)

Three Months Ended
March 31,

2019

2018

(in thousands, except per
share information)

Revenues:

Oil sales

$

349,306

$

351,723

Gas and NGL sales

217,915

203,718

Gas gathering and other

9,736

11,693

576,957

567,134

Costs and expenses:

Depreciation, depletion, amortization, and accretion

192,466

133,919

Production

77,233

71,271

Transportation, processing, and other operating

53,608

45,165

Gas gathering and other

12,320

9,823

Taxes other than income

33,694

30,188

General and administrative

29,084

23,321

Stock compensation

6,713

6,730

Loss (gain) on derivative instruments, net

115,452

(4,159)

Other operating expense, net

8,326

203

528,896

316,461

Operating income

48,061

250,673

Other (income) and expense:

Interest expense

20,405

16,783

Capitalized interest

(8,742)

(4,810)

Loss on early extinguishment of debt

4,250

Other, net

(2,241)

(4,567)

Income before income tax

34,389

243,267

Income tax expense

8,073

56,949

Net income

$

26,316

$

186,318

Earnings per share to common stockholders:

Basic

$

0.26

$

1.96

Diluted

$

0.26

$

1.96

Dividends declared per share

$

0.20

$

0.16

Weighted-average number of shares outstanding:

Basic

95,922

93,699

Diluted

95,932

93,737

Comprehensive income:

Net income

$

26,316

$

186,318

Other comprehensive income:

Change in fair value of investments, net of tax of $339 and ($56), respectively

1,149

(190)

Total comprehensive income

$

27,465

$

186,128

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Three Months Ended
March 31,

2019

2018

(in thousands)

Cash flows from operating activities:

Net income

$

26,316

$

186,318

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation, depletion, amortization, and accretion

192,466

133,919

Deferred income taxes

8,073

56,949

Stock compensation

6,713

6,730

Loss (gain) on derivative instruments, net

115,452

(4,159)

Settlements on derivative instruments

(9,051)

(12,389)

Loss on early extinguishment of debt

4,250

Amortization of debt issuance costs and discounts

719

729

Changes in non-current assets and liabilities

2,148

(900)

Other, net

3,976

37

Changes in operating assets and liabilities:

Accounts receivable

33,976

44,722

Other current assets

350

1,603

Accounts payable and other current liabilities

(135,297)

(30,466)

Net cash provided by operating activities

250,091

383,093

Cash flows from investing activities:

Acquisition of Resolute Energy, net of cash acquired

(284,441)

Oil and gas capital expenditures

(332,742)

(323,455)

Sales of oil and gas assets

5,000

29,824

Sales of other assets

200

432

Other capital expenditures

(17,828)

(19,056)

Net cash used by investing activities

(629,811)

(312,255)

Cash flows from financing activities:

Borrowings of long-term debt

1,182,310

Repayments of long-term debt

(1,553,000)

Financing, underwriting, and debt redemption fees

(10,938)

Finance lease payments

(635)

Dividends paid

(17,179)

(7,602)

Employee withholding taxes paid upon the net settlement of equity-classified stock awards

(654)

(305)

Proceeds from exercise of stock options

80

345

Net cash used by financing activities

(400,016)

(7,562)

Net change in cash and cash equivalents

(779,736)

63,276

Cash and cash equivalents at beginning of period

800,666

400,534

Cash and cash equivalents at end of period

$

20,930

$

463,810

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

March 31,
2019

December 31,
2018

Assets

(in thousands, except share and per share information)

Current assets:

Cash and cash equivalents

$

20,930

$

800,666

Accounts receivable, net of allowance

465,902

454,200

Oil and gas well equipment and supplies

62,600

55,553

Derivative instruments

35,830

101,939

Other current assets

10,946

11,781

Total current assets

596,208

1,424,139

Oil and gas properties at cost, using the full cost method of accounting:

Proved properties

19,410,269

18,566,757

Unproved properties and properties under development, not being amortized

1,707,089

436,325

21,117,358

19,003,082

Less – accumulated depreciation, depletion, amortization, and impairment

(15,462,464)

(15,287,752)

Net oil and gas properties

5,654,894

3,715,330

Fixed assets, net of accumulated depreciation of $340,147 and $324,631, respectively

509,554

257,686

Goodwill

727,573

620,232

Derivative instruments

626

9,246

Other assets

68,337

35,451

$

7,557,192

$

6,062,084

Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity

Current liabilities:

Accounts payable

$

90,854

$

106,814

Accrued liabilities

463,065

379,455

Derivative instruments

77,557

27,627

Revenue payable

215,613

194,811

Operating leases

62,825

Total current liabilities

909,914

708,707

Senior notes principal

2,000,000

1,500,000

Less—senior notes unamortized debt issuance costs and discounts

(16,273)

(11,446)

Senior notes, net

1,983,727

1,488,554

Deferred income taxes

405,294

334,473

Derivative instruments

756

2,267

Operating leases

186,356

Other liabilities

228,163

198,297

Total liabilities

3,714,210

2,732,298

Redeemable preferred stock – 8.125% Series A Cumulative Perpetual Convertible Preferred Stock, $0.01 par value, 62,500 shares authorized and issued and no shares authorized and issued, respectively

81,620

Stockholders’ equity:

Common stock, $0.01 par value, 200,000,000 shares authorized, 101,407,583 and 95,755,797 shares issued, respectively

1,014

958

Additional paid-in capital

3,210,818

2,785,188

Retained earnings

547,626

542,885

Accumulated other comprehensive income

1,904

755

Total stockholders’ equity

3,761,362

3,329,786

$

7,557,192

$

6,062,084



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