Cimarex Energy – A Look At Oklahoma Operations

The oil price collapse, which began in June 2014, triggered a wave of cost reduction among upstream businesses, including Cimarex Energy (NYSE: XEC). During this tumultuous time frame, going back to Q3 of 2015 the company experienced a series of losing quarters during a time when energy companies were adjusting their business models to a period of recovery.

Cimarex issued its quarterly earnings data back on Wednesday, February 14th and earnings are improving. The oil and gas producer reported $1.47 earnings per share (EPS) for the quarter, beating analysts’ consensus estimates of $1.40 by $0.07, Bloomberg Earnings reported.

Denver based Cimarex Energy Co is an independent oil and gas exploration and production company. The Company operates in the exploration and production (E&P) segment. Its operations are located in Oklahoma, Texas and New Mexico. Its E&P activities take place primarily in two areas: the Permian Basin and the Mid-Continent region.

The Mid-Continent accounted for 52 percent of Cimarex’s year-end 2017 proved reserves and 45 percent of total production. The Mid-Continent is expected to contribute approximately 40 to 45 percent of total 2018 production.

Cimarex currently operates four rigs in the Mid-Continent.  

Mid-Continent Oil & Gas Region

The Mid-Continent oil and gas region contains hundreds of fields, producing more oil than any other area in the United States since the first oil discovery in 1892. This area has a long history of drilling activity and still provides exceptional opportunities for exploration and production for companies like Cimarex.

Cimarex defines its Mid-Continent region as the Anadarko Basin in Western Oklahoma, Southern Oklahoma, and the Texas Panhandle. The bulk of Cimarex activity is focused on the Woodford Shale and Meramec Shale in Western Oklahoma. Horizontal drilling and multi-stage fracture stimulation enabled the economic development of this significant resource.

Production from the Mid-Continent region averaged 529 MMcfe per day in the fourth quarter, a 19 percent increase over fourth-quarter 2016, and a three percent increase sequentially. Oil volumes averaged 13,999 barrels per day and represented 16 percent of the region’s total equivalent production. For the full year, production averaged 509 MMcfe per day, up 11 percent year over year.

The liquids-rich Woodford Shale formation varies in thickness from 120 to 280 feet and is found at depths of 11,000 to 16,000 feet throughout Cimarex’s acreage. The company’s infill program is taking place in the heart of the play in Canadian County, Oklahoma. Cimarex has participated in more than 800 Woodford Shale wells since 2007 and has approximately 136,500 net undeveloped acres in the liquids-rich portion of the play and anticipates multiple years of multi-well infill drilling opportunities.

The liquids-rich Meramec Shale formation has thicknesses ranging from 140 to 600 feet and is found at depths of 10,000 to 13,500 feet throughout Cimarex’s acreage. Southeast Blaine County is the central portion of the play. Cimarex has participated in over 250 Meramec Shale wells since 2013 and has approximately 116,500 net undeveloped acres in the liquids-rich portion of the play and anticipates multiple years of drilling opportunities.

STACK ACREAGE POSITIONS

Devon Energy currently has the top acreage position in the STACK. While some of that land is from its legacy operations in the region, it significantly bulked up at the end of 2015 by spending $1.9 billion to purchase privately held Felix Energy for its STACK position. As a result of that deal and its leasing efforts, the company controls at least 5,700 drilling locations in the region, with the potential for that number to rise to more than 11,000 in the future.

Some of the other large position STACK acreage holders are Continental Resources, Newfield Energy, and Marathon Oil.

Cimarex has a Meramec position totaling 116,500 net prospective acres which are 100% HBP, and in the Woodford has 136,500 net undeveloped acres (88% HBP).

Meramec Plans – The Big Picture

Cimarex has 52 wells producing with an average lateral length of ~7,100 ft – Average 30-day IP of 1,742 BOE/D (38% oil). Thirteen – 10,000 ft lateral wells were brought online in 2017 with Average 30-day IP of 2,383 BOE/D (37% oil). The company has 28 downspacing pilots online or underway in the play and has interest or data on all but four. Formulating development plans in the 14N-10W area – Stacked Meramec & Woodford – Operated almost all of the 24,000 acres leased –with an average 62% working interest.

Meramec Development Plans

2018 planned developments – Steve O – developing remaining section with 8 well spacing – Lehman – developing remaining section with 8 well spacing – Miss Mary – testing landing zone with 8 well spacing.

Future 14N-10W development – Stacked Meramec/Woodford – Successfully tested 19 wells per section (Leon Gundy) – Positive results with zone completion sequence at Woolfolk/NIB. Another zone completion test planned.

LONE ROCK UPDATE

Drilling activity continues in the high return Lone Rock area where Cimarex Energy has six long lateral Woodford wells on production with average 30-day peak initial production of 1,806 BOE per day (35 percent oil, 36 percent gas, 29 percent NGL). The company is currently drilling the Shelly spacing pilot in Lone Rock with the first production expected mid-summer.

Looking Ahead

Cimarex Energy demonstrated year-end, solid returns from a large portfolio across the Permian and Mid-Continent areas and has a strong financial position – $401 million of cash on the balance sheet at 12/31/17. XEC says it plans to invest $1.3B-$1.4B on the drilling and completion of 127 net wells during 2018, with nearly 70% of capital spent in the Permian region and the remainder in the Mid-Continent.

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