Cimarex Reports Second Quarter 2014 Results

05.08.2014 | PR Newswire

Cimarex Reports Second Quarter 2014 Results

Production of 839 MMcfe per day; Up 22% Year-over-Year

DENVER, Aug. 5, 2014 /PRNewswire/ -- Cimarex Energy Co. (NYSE: XEC) today reported second quarter 2014 net income of $148.6 million, or $1.70 per diluted share. This compares to 2013 second quarter net income of $129.6 million, or $1.49 per diluted share. Adjusted 2014 second quarter net income was $1.71 per diluted share⁽¹⁾.

Production volumes averaged 839 million cubic feet equivalent (MMcfe) per day in the quarter, a 22 percent increase over second quarter 2013 output of 687 MMcfe per day. Oil production grew 13 percent over the same period last year to 41,759 barrels per day. Permian oil volumes were 33,317 barrels per day. Natural gas production increased 20 percent over last year to 410 MMcf per day. Cimarex reported NGL volumes of 29,680 barrels per day up 43 percent from 2013 levels as a result of more Permian Basin gas being fully processed. Second quarter 2014 production volumes were 49 percent natural gas, 30 percent oil and 21 percent NGL.

Growth in production and higher product prices resulted in revenues of $622.9 million in the second quarter of 2014 compared to $483.3 million in the same period of 2013. Second quarter 2014 adjusted cash flow from operations was $443.1 million versus $346.3 million a year ago⁽¹⁾.

Natural gas prices averaged $4.62 per thousand cubic feet (Mcf) in the quarter, up 13 percent year-over-year. Oil prices averaged $93.39 per barrel, up three percent from a year ago and NGL prices averaged $35.35 per barrel.

Long-term debt at June 30, 2014, consisted of $1.5 billion of senior notes. Cimarex had no borrowings under its senior unsecured revolving credit facility and had a cash balance of $129 million. Debt to total capitalization at June 30 was 26 percent⁽²⁾.

2014 Outlook

Cimarex estimates 2014 production to average 860-875 MMcfe per day, a mid-point increase of 25 percent over 2013. Oil volumes are projected to grow 22-25 percent year-over-year. Third quarter 2014 volumes are projected to average 920-945 MMcfe per day.

Capital investment in exploration and development is now expected to be $1.95 billion due to slightly higher activity levels in the Mid-Continent.

Expenses per Mcfe of production for 2014 are estimated to be:
	Production expense	$1.12 - $1.17
	Transportation, processing and other expense	0.65 - 0.68
	DD&A and ARO accretion	2.60 - 2.70
	General and administrative expense	0.25 - 0.28
	Taxes other than income (% of oil and gas revenue)	5.5 - 5.9%

Cimarex invested $498 million on exploration and development during the second quarter, bringing the total invested year-to-date to $964 million. The Permian Basin accounted for 71 percent of the capital investment in the first half of 2014 with the Mid-Continent representing the remainder. The company also purchased assets in the Cana-Woodford area for $238 million during the quarter.

Cimarex drilled a total of 85 gross (51 net) wells during the quarter. At quarter-end, 46 gross (25 net) wells were awaiting completion.

WELLS DRILLED AND COMPLETED BY REGION

		For the Three Months Ended		For the Six Months Ended
		June 30,		June 30,
		2014	2013	2014	2013
	Gross wells
	Permian Basin	47	55	81	90
	Mid-Continent	37	35	76	87
	Other	1	2	2	2
		85	92	159	179
	Net wells
	Permian Basin	30	32	51	59
	Mid-Continent	21	15	35	35
	Other	-	1	1	1
		51	48	87	95
	% Gross wells completed as producers	99%	97%	99%	98%

Permian Basin Update

Production from the Permian Basin averaged 393.3 MMcfe per day in the second quarter, an increase of 23 percent over second quarter 2013 and a 13 percent increase sequentially. Quarterly oil volumes increased 11 percent year-over-year to 33,317 barrels per day and accounted for 51 percent of the region's total production for the quarter.

Cimarex drilled and completed 47 gross (30 net) Permian Basin wells during the second quarter, bringing the total for 2014 to 81 gross wells (51 net). At June 30, 22 gross (18 net) wells were awaiting completion.

Year-to-date, 32 gross (15 net) New Mexico Bone Spring wells have been drilled and completed. Per well first 30-day average gross production from the Cimarex-operated wells averaged approximately 905 barrels of oil equivalent (BOE) per day (79 percent oil). Year-to-date Ward County, Texas, Third Bone Spring drilling totaled seven gross (five net) wells with per well first 30-day average gross production rates of approximately 1,034 BOE per day (75 percent oil) from Cimarex-operated wells. Culberson County Bone Spring wells total nine gross (five net) year-to-date with per well first 30-day average gross production rates of approximately 1,170 BOE per day (60 percent oil).

In the Wolfcamp play, Cimarex continues to drill horizontal wells in multiple benches throughout its acreage in Culberson, Reeves and Ward Counties. In the second quarter, the company drilled and completed 26 gross (21 net) Wolfcamp wells including four long laterals to the Wolfcamp D in Culberson County. Of note, Cimarex has completed and is now producing from three of the four downspacing pilots begun in 2014.

Mid-Continent Update

Mid-Continent production averaged 425.5 MMcfe per day for the second quarter of 2014, a 24 percent increase over the second quarter 2013 average of 343.2 MMcfe per day. The Cana-Woodford area represented 309.7 MMcfe per day, or 73 percent of Mid-Continent production in the second quarter. Year-to-date Cimarex has drilled and completed 76 gross (35 net) wells in the region, 60 gross (31 net) of which were in the Cana-Woodford shale play. At June 30, 24 gross (7.5 net) wells were awaiting completion.

Cimarex's average daily production by commodity and region is summarized below:

	For the Three Months Ended		For the Six Months Ended
	June 30,		June 30,
	2014	2013	2014	2013
Gas (MMcf per day)
Permian Basin	123.6	96.3	113.1	89.6
Mid-Continent	276.6	231.5	260.3	233.8
Other	9.9	13.5	9.4	13.7
	410.1	341.3	382.8	337.1

Oil (Bbls per day)
Permian Basin	33,317	30,137	32,475	27,997
Mid-Continent	7,259	5,745	6,662	6,017
Other	1,183	996	1,334	1,012
	41,759	36,878	40,471	35,026
NGL (Bbls per day)
Permian Basin	11,633	7,079	10,386	6,661
Mid-Continent	17,543	12,881	16,376	13,658
Other	504	745	605	812
	29,680	20,705	27,367	21,131
Total Equivalent (MMcfe per day)
Permian Basin	393.3	319.6	370.3	297.5
Mid-Continent	425.5	343.2	398.5	351.9
Other	19.9	24.0	21.1	24.6
	838.7	686.8	789.9	674.0

Other

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

Oil Contracts

Weighted Ave. Price

Period

Type

Bbl/day

Index⁽³⁾

Floor

Ceiling

July 14 – Dec. 14

Collar

12,000

WTI

85.00

103.47

Gas Contracts
				Weighted Ave. Price
Period	Type	MMBTU/day	Index⁽³⁾	Floor		Ceiling
July 14 – Dec. 14	Collar	80,000	PEPL	$	3.51	$	4.57
July 14 – Dec. 14	Collar	60,000	PermEP	$	3.62	$	4.50

Cimarex accounts for commodity contracts using the mark-to-market (through income) accounting method. Cash settlements on oil and natural gas collars resulted in payments of $1.0 million and $5.8 million related to the second quarter and year-to-date, respectively.

Conference Call and Webcast

Cimarex will host a conference call tomorrow, August 6, at 11:00 a.m. Mountain Time (1:00 p.m. Eastern Time). The call will be webcast and accessible on the Cimarex website at www.cimarex.com. To participate in the live, interactive call, please dial 877-870-4263 five minutes before the scheduled start time (international callers dial 412-317-0790). A replay will be available for one week following the call by dialing 877-344-7529 (international callers dial 412-317-0088); conference I.D. 10047717. The replay will also be available on the company's website or via the Cimarex App.

Investor Presentation

For more details, please refer to the company's updated investor presentation available on the Cimarex website at www.cimarex.com.

About Cimarex Energy Co.

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

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding projected results and future events. In particular, the company is providing revised "2014 Outlook", which contains projections for certain 2014 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, 2013, 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 volatility; the ability to complete property sales or other transactions; the ability to receive drilling and other permits and rights-of-way in a timely manner; development drilling and testing results; the potential for production decline rates to be greater than expected; performance of acquired properties and newly drilled wells; costs and availability of third party facilities for gathering, processing, refining and transportation; regulatory approvals, including regulatory restrictions on federal lands; legislative or regulatory changes, including initiatives related to hydraulic fracturing; higher than expected costs and expenses, including the availability and cost of services and materials; unexpected future capital expenditures; economic and competitive conditions; 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; declines in the values of our oil and gas properties resulting in impairments; changes in estimates of proved reserves; compliance with environmental and other regulations; derivative and hedging activities; risks associated with operating in concentrated geographic areas; the success of the company's risk management activities; title to properties; litigation; environmental liabilities; 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.

(1)	Adjusted net income and adjusted cash flow from operations are non-GAAP financial measures. See the tables below for a reconciliation of the related amounts.
(2)	Reconciliation of debt to total capitalization, which is a non-GAAP measure, is: long-term debt of $1,500 million divided by long-term debt of $1,500 million plus stockholders' equity of $4,287 million.
(3)	WTI refers to West Texas Intermediate oil price as quoted on the New York Mercantile Exchange. PEPL refers to Panhandle Eastern Pipe Line Tex/OK Mid-Continent index and PermEp is El Paso Permian Basin index both as quoted in Platt's Inside FERC.

RECONCILIATION OF ADJUSTED NET INCOME

			For the Three Months Ended				For the Six Months Ended
			June 30,				June 30,
			2014		2013		2014		2013
			(in thousands, net of tax, except per share data)

Net income		$	148,640	$	129,565	$	287,097	$	219,492
	Mark-to-market (gain) loss on open derivative positions		904		(7,926)		7,790		(6,463)
Adjusted net income		$	149,544	$	121,639	$	294,887	$	213,029
Diluted earnings per share *		$	1.70	$	1.49	$	3.29	$	2.53
Adjusted diluted earnings per share *		$	1.71	$	1.40	$	3.38	$	2.46
Diluted shares attributable to common stockholders and participating securities			87,188		86,624		87,178		86,613
Estimated tax rates utilized			37.1%		37.2%		37.1%		37.2%

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

a) Management uses adjusted net income to evaluate the company's operational trends and performance relative to other oil and gas exploration and production companies.

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

* Earnings per share are based on actual figures rather than the rounded figures presented.

RECONCILIATION OF ADJUSTED CASH FLOW FROM OPERATIONS

			For the Three Months Ended				For the Six Months Ended
			June 30,				June 30,
			2014		2013		2014		2013
			(in thousands)
Net cash provided by operating activities		$	421,745	$	322,708	$	769,769	$	569,786
	Change in operating assets and liabilities		21,367		23,601		82,235		68,944
Adjusted cash flow from operations		$	443,112	$	346,309	$	852,004	$	638,730

Management believes that the non-GAAP measure of adjusted cash flow from operations is useful information for investors because it is used internally and is accepted by the investment community as a means of measuring the company's ability to fund its capital program, without fluctuations caused by changes in current assets and liabilities, which are included in the GAAP measure of cash flow from operating activities. It is also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.

PRICE AND PRODUCTION DATA

			For the Three Months Ended				For the Six Months Ended
			June 30,				June 30,
			2014		2013		2014		2013

Gas:
	Total production (MMcf)		37,318		31,054		69,291		61,006
	Daily production (MMcf)		410		341		383		337
	Price (per Mcf)	$	4.62	$	4.08	$	4.94	$	3.73

Oil:
	Total production (Bbls)		3,800,098		3,355,922		7,325,227		6,339,760
	Daily production (Bbls)		41,759		36,878		40,471		35,026
	Price (per Bbl)	$	93.39	$	90.72	$	92.82	$	88.65

NGLs:
	Total production (Bbls)		2,700,915		1,884,189		4,953,394		3,824,763
	Daily production (Bbls)		29,680		20,705		27,367		21,131
	Price (per Bbl)	$	35.35	$	27.76	$	37.43	$	28.55

OIL AND GAS CAPITALIZED EXPENDITURES

			For the Three Months Ended				For the Six Months Ended
			June 30,				June 30,
			2014		2013		2014		2013
			(in thousands)
	Acquisitions:
	Proved	$	144,516	$	923	$	144,516	$	923
	Unproved		114,732		3,415		114,732		3,665
			259,248		4,338		259,248		4,588

	Exploration and development:
	Land and Seismic		43,869		36,719		109,194		68,029
	Exploration and development		453,714		353,594		855,175		730,891
			497,583		390,313		964,369		798,920

	Sale proceeds:
	Proved		(464)		(37,061)		(223)		(37,879)
	Unproved		(900)		(960)		(900)		(1,041)
			(1,364)		(38,021)		(1,123)		(38,920)

		$	755,467	$	356,630	$	1,222,494	$	764,588

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)

				For the Three Months Ended				For the Six Months Ended
				June 30,				June 30,
				2014		2013		2014		2013

			(in thousands, except per share data)

Revenues:
	Gas sales		$	172,503	$	126,547	$	342,600	$	227,668
	Oil sales			354,882		304,466		679,953		561,998
	NGL sales			95,470		52,309		185,427		109,184
	Gas gathering and other, net			13,814		10,435		27,905		21,263
				636,669		493,757		1,235,885		920,113
Costs and expenses:
	Depreciation, depletion, amortization and accretion			198,639		150,115		375,788		288,952
	Production			86,085		69,433		161,226		138,819
	Transportation, processing, and other operating			46,478		22,022		90,726		40,656
	Gas gathering and other			10,041		5,184		18,825		11,340
	Taxes other than income			32,323		27,807		65,944		52,935
	General and administrative			16,571		22,836		37,283		38,413
	Stock compensation			3,548		3,507		7,272		7,112
	(Gain) loss on derivative instruments, net			2,454		(13,660)		18,189		(12,057)
	Other operating, net			112		2,365		215		5,297
				396,251		289,609		775,468		571,467

Operating income				240,418		204,148		460,417		348,646

Other (income) and expense:
	Interest expense			15,729		13,097		28,773		25,283
	Amortization of deferred financing costs			995		1,015		1,993		2,035
	Capitalized interest			(8,575)		(7,387)		(15,865)		(16,582)
	Other, net			(4,129)		(8,758)		(11,084)		(11,374)

Income before income tax				236,398		206,181		456,600		349,284
Income tax expense				87,758		76,616		169,503		129,792

Net income			$	148,640	$	129,565	$	287,097	$	219,492

Earnings per share to common stockholders:

	Basic		$	1.71	$	1.50	$	3.30	$	2.54
	Diluted		$	1.70	$	1.49	$	3.29	$	2.53

Dividends per share			$	0.16	$	0.14	$	0.32	$	0.28

Shares attributable to common stockholders:
	Unrestricted common shares outstanding			85,532		84,942		85,532		84,942
	Diluted common shares			85,689		85,054		85,679		85,043

Shares attributable to common stockholders and participating securities:
	Basic shares outstanding			87,031		86,512		87,031		86,512
	Fully diluted shares			87,188		86,624		87,178		86,613

Comprehensive income:
	Net income		$	148,640	$	129,565	$	287,097	$	219,492
	Other comprehensive income:
		Change in fair value of investments, net of tax		(56)		19		(16)		99
	Total comprehensive income		$	148,584	$	129,584	$	287,081	$	219,591

CONDENSED CONSOLIDATED CASH FLOW STATEMENTS (unaudited)

						For the Three Months Ended				For the Six Months Ended
						June 30,				June 30,
						2014		2013		2014		2013
						(in thousands)
Cash flows from operating activities:
	Net income				$	148,640	$	129,565	$	287,097	$	219,492
	Adjustment to reconcile net income to net cash provided by operating activities:
		Depreciation, depletion, amortization and accretion				198,639		150,115		375,788		288,952
		Deferred income taxes				87,758		76,616		169,503		129,792
		Stock compensation				3,548		3,507		7,272		7,112
		(Gain) loss on derivative instruments				2,454		(13,660)		18,189		(12,057)
		Settlements on derivative instruments				(1,017)		1,039		(5,804)		1,765
		Changes in non-current assets and liabilities				1,771		2,416		(2,436)		5,790
		Amortization of deferred financing costs
			and other, net			1,319		(3,289)		2,395		(2,116)
	Changes in operating assets and liabilities:
		Receivables, net				(46,173)		(24,484)		(81,702)		(55,060)
		Other current assets				(2,410)		5,697		(19,182)		14,840
		Accounts payable and accrued liabilities				27,216		(4,814)		18,649		(28,724)
				Net cash provided by operating activities		421,745		322,708		769,769		569,786
Cash flows from investing activities:
	Oil and gas expenditures					(718,740)		(385,469)		(1,138,539)		(776,138)
	Sales of oil and gas assets					1,364		13,508		1,123		14,407
	Sales of other assets					147		31,081		251		31,157
	Other expenditures					(31,547)		(5,952)		(51,401)		(25,475)
				Net cash used by investing activities		(748,776)		(346,832)		(1,188,566)		(756,049)
Cash flows from financing activities:
	Net bank debt borrowings					(275,000)		22,000		(174,000)		142,000
	Proceeds from other long-term debt					750,000		—		750,000		—
	Financing costs incurred					(11,218)		—		(11,218)		—
	Dividends paid					(13,879)		(12,092)		(26,022)		(22,448)
	Issuance of common stock and other					1,153		216		4,061		1,705
				Net cash provided by financing activities		451,056		10,124		542,821		121,257
Net change in cash and cash equivalents						124,025		(14,000)		124,024		(65,006)
Cash and cash equivalents at beginning of period						4,530		18,532		4,531		69,538
Cash and cash equivalents at end of period					$	128,555	$	4,532	$	128,555	$	4,532

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
			June 30,		December 31,
			2014		2013
Assets				(in thousands, except share data)
Current assets:
	Cash and cash equivalents		$	128,555	$	4,531
	Receivables, net			449,456		367,754
	Oil and gas well equipment and supplies			85,278		66,772
	Deferred income taxes			13,725		16,854
	Derivative instruments			—		4,268
	Other current assets			9,338		8,960
		Total current assets		686,352		469,139
Oil and gas properties at cost, using the full cost method of accounting:
	Proved properties			13,801,249		12,863,961
	Unproved properties and properties under development,
		not being amortized		886,361		585,361
				14,687,610		13,449,322
	Less – accumulated depreciation, depletion and amortization			(7,838,007)		(7,483,685)
		Net oil and gas properties		6,849,603		5,965,637
Fixed assets, net				182,521		146,918
Goodwill				620,232		620,232
Other assets, net				60,299		51,209
			$	8,399,007	$	7,253,135
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	126,259	$	116,110
	Accrued liabilities			468,952		412,495
	Derivative instruments			8,506		389
	Revenue payable			197,473		154,173
		Total current liabilities		801,190		683,167
Long-term debt				1,500,000		924,000
Deferred income taxes				1,626,206		1,459,841
Other liabilities				184,980		163,919
		Total liabilities		4,112,376		3,230,927
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $0.01 par value, 15,000,000 shares
		authorized, no shares issued		—		—
	Common stock, $0.01 par value, 200,000,000 shares authorized,
		87,021,935 and 87,152,197 shares issued, respectively		870		872
	Paid-in capital			1,975,159		1,970,113
	Retained earnings			2,309,429		2,050,034
	Accumulated other comprehensive income			1,173		1,189
				4,286,631		4,022,208
			$	8,399,007	$	7,253,135

SOURCE Cimarex Energy Co.

Contact
Karen Acierno, 303.285.4957, or Mark Burford - 303.295-3995, www.cimarex.com

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