- Fourth quarter 2017 net income of $174.7 million, or $1.83 per share, compared to fourth quarter 2016 net income of $47.8 million, or $0.50 per share
- For 2017, net income totaled $494.3 million, or $5.19 per share
Cimarex Energy Co. (ticker: XEC) averaged 1,204 MMcfe/d in Q4 2017 – this equates to 201 MBOEPD, and is up 25% from a year ago. Fourth quarter oil production averaged 61,771 BOPD, an increase of 36% from 2016 levels. For the full year, Cimarex reported daily production volumes of 1,142 MMcfe/day (190 MBOEPD), which is up 19% from 2016’s average daily output of 963 MMcfe/d.
Exploration and development
Cimarex invested $1.28 billion in exploration and development (E&D) in 2017, including $344 million in the fourth quarter. Of the $1.28 billion, 59% was for the Permian and 39% was for the Mid-Continent. An additional $45 million was invested in midstream operations in 2017. During 2017, Cimarex participated in the drilling and completion of 319 gross (98 net) wells. At year-end, 91 gross (34 net) wells were waiting on completion, of which 60 gross (16 net) are in the Mid-Continent and 31 gross (18 net) in the Permian. Cimarex currently is operating 14 drilling rigs.
Permian Basin
Production from the Permian Basin averaged 673 MMcfe/d in the fourth quarter, a 32% increase over fourth quarter 2016. Oil volumes averaged 47,642 BOPD. For the full year, production averaged 631 MMcfe/d, up 25% year over year.
Cimarex brought 32 gross (14 net) wells on production in the Permian region during the fourth quarter, bringing the total for the year to 97 gross (55 net) wells. Cimarex currently operates ten rigs in the Permian region.
Activity in the Permian region in the fourth quarter included the completion of 14 wells in the Wolfcamp, Avalon and Bone Spring formations. As of year-end, Cimarex has completed 70 10,000-foot lateral Wolfcamp wells including 23 in the Lower Wolfcamp and 47 in the Upper Wolfcamp.
Mid-Continent
Production from the Mid-Continent region averaged 529 MMcfe/d in the fourth quarter, a 19% increase over fourth-quarter 2016. Oil volumes averaged 13,999 BOPD. For the full year, production averaged 509 MMcfe/d, up 11% year over year.
Wells brought on production during the fourth quarter totaled 85 gross (10 net) in the Mid-Continent region, bringing the total wells in 2017 to 222 gross (43 net). Cimarex currently operates four rigs in the Mid-Continent.
Reserves
Proved reserves at December 31, 2017 were 3.4 Tcfe or 559 MMBOE, up 16% year over year. Proved developed reserves increased 21% to 2.8 Tcfe. Cimarex added 941 Bcfe through extensions and discoveries and deducted 60 Bcfe through net revisions, resulting in reserve replacement of 211% of 2017 production.
2018 CapEx and Q1 production
Cimarex projects a 2018 exploration and development capital of $1.6-$1.7 billion, a 29% increase from 2017 levels at the midpoint. An additional $80-$90 million is earmarked for midstream and other infrastructure.
For 2018, total company production is projected to average 211-221 MBOEPD, an increase of 14% at the midpoint from 2017 production levels, with oil production expected to lead year-over-year growth and be up 21-26%. Fourth quarter 2018 oil production is projected to increase 29-34% over fourth quarter 2017 levels. First quarter 2018 output is expected to average 198-207 MBOEPD.
Cimarex Chairman and CEO Tom Jorden said, “We generated strong full-cycle returns for shareholders in 2017. The capital program we are releasing today for 2018 is expected to continue that trend. It will be funded through cash available including operating cash flow and some portion of cash on the balance sheet. We have stress tested this program and we will be able to execute our plans well within our available cash.”
Cimarex intends to invest $1.3-$1.4 billion on the drilling and completion of 127 net wells during 2018. Nearly 70% of the capital will be invested in the Permian region with the remainder in the Mid-Continent.
In the Mid-Continent, Cimarex’s 2018 investments are focused on the drilling and completion of Woodford wells in the Lone Rock area and in further delineation and initial development of the Meramec play.
Conference call Q&A excerpts
Q: My question really addresses your production timing. Recognizing that you have the ’18 guidance out and nothing beyond, could you all talk about the type of impact on total production these large pads, like Animal Kingdom or Snowshoe, will have?
Really, what I’m trying to get a sense of, if essentially the benefit of these large A-plus type well pads will essentially be more in ’19 than ’18. Obviously, recognizing you don’t have any sort of ’19 guidance out.
COO and EVP Joe Albi: Yeah, this is Joe. By virtue of me just saying that we’re going to be flat from basically Q4 through Q2, and then all of a sudden we talk about the fourth-quarter oil growth and the year-over-year production growth, there is a strong ramp that’s going to give us a real nice exit rate into 2019.
It’s really no different than years past where we’ve had these program ramps, other than, from my standpoint, we have like seven of them now and all of them are coming on about the same time. So, as you really look to us getting more into development mode, I think this is going to kind of be the norm. We’re going to have a number of projects, where you got six to eight or God knows how many wells all coming on at once. And I think we’re gone from the days where you’ve got this steady, single-well growth to program platform growth like we’re seeing.
So, I’m kind of dancing around your question in ’19, because we really haven’t modeled that in tremendous detail, but what I will tell you is that it’s a very strong ramp going into the fourth quarter. And it’s not beginning in the fourth quarter, it’s beginning in the third quarter. So, from a timing standpoint, if it were to get delayed, it’s not going to – the ones I hate are the ones that all come on around November, December and if you have any hiccup, it gets pushed into the next year.
But, you know, this production thing, maybe to philosophize a little bit, we’re measured quarter to quarter and you’re looking at quarter-to-quarter production. What we’re looking at is net asset value growth and the returns that are being generated by those production ramps are what are key to us. And if they move out a month or move forward a month, it really – it’s not what we’re focused on. We’re focused on our return on invested capital.
SVP John Lambuth: I think, as we look at our per-unit drilling cost, absolutely the big projects make sense from our standpoint. I do want to add a little bit of color, and I want to be clear, it’s not like we planned for these projects all to come on in the second half. There are some, in this particular case, mitigating circumstance.
One is our Avalon pilot. Basically, we ran into – we could start the completions and then we’d have to become very inefficient because we run into what’s called the prairie chicken season, and we’d have to then shut down during that period of time. Thus, we decided it’s best to delay it till after that. That pushed it back later in the year.
And then, secondly, our Shelly pilot. We’re doing a lot of science with that, including surface microseismic, and so we’ve imposed a single frac crew on that particular pilot. Again, in normal operations, we’d expect to have two frac crews out there. That further delays it.
So, there are some operational things that are also pushing it. I would expect, as we get more and more to these individual developments, I think you’ll see it line out more always being back-end loaded. It’s just this particular year, a couple of them had a little bit longer delay than what they normally would.
Q: Around the Lone Rock area, as far as indications or thoughts around spacing there?
SVP Lambuth: Well, that’s why we’ve drilled both the Shelly pilot and why we’ve gone ahead and moved to the next pilot I mentioned. We want to go ahead and get that one in the ground, too.
We feel very good about eight wells, that’s what we’re testing. The additional pilot that we’re going to start drilling here very soon is on the more eastern side, so it’s the more liquid-rich side, so now we’ll have nice bookend pilots on either end of our Lone Rock position. I think with both of those outcomes in hand we’ll be in very good shape then to move forward pretty confidently in terms of how we would develop that acreage.
COO and EVP Albi: Yeah, our team’s chomping at the bit on some 10,000-foot long development projects that are just waiting to be approved.
