Cimarex Reports Third-Quarter Earnings of $1.11 per Share

Cimarex Energy Co. reported third-quarter 2006 net income of $94.0 million, or $1.11 per diluted share. This compares to third-quarter 2005 earnings of $64.1 million, or $0.76 per diluted share.

Revenues from oil and gas sales in the third quarter of 2006 were $309.3 million, compared to $343.5 million in the same period of 2005. Third-quarter 2006 cash flow from operations totaled $241.7 million versus $217 million in the same period of 2005(1).

Third-quarter 2006 gas prices decreased 19% to $6.35 per thousand cubic feet (Mcf) and oil rose 12% to $66.57 per barrel from the same period of 2005.

Third-quarter 2006 oil and gas production averaged 447.5 million cubic feet equivalent per day (MMcfe/d), as compared to 445.8 MMcfe/d for the same period a year earlier. The current quarter's daily production was comprised of 338 million cubic feet of gas and 18,255 barrels of oil.

"Our quality reserve base continues to provide solid financial results and our process of rationalizing peripheral assets continues," said F.H. Merelli, Cimarex's Chairman, Chief Executive Officer and President. "Operational challenges on several significant onshore producers and completion delays in the Gulf of Mexico have affected production. Drilling results have been impacted by increased service costs and by less than expected exploration success. All of these factors force further high-grading of the drilling program and increased emphasis on cost reductions."

Included in the current quarter's net income is an $18.3 million gain on sale of certain limited partnership interests in oil and gas properties. Net sales consideration received to date via distributions from these affiliated partnerships totaled $57.9 million.

For the nine months ended September 30, 2006, Cimarex reported net income of $287 million, or $3.41 per diluted share, up from the $159.9 million, or $2.63 per diluted share for the comparable period of 2005. Cash flow from operations for the first nine months of 2006 totaled $704.7 million versus $450.4 million in the same period of 2005(1). Nine month results for the prior year reflect the impact of the Magnum Hunter merger beginning on June 7, 2005.


In the third quarter of 2006 we drilled 125 gross (81.0 net) wells and exploration and development (E&D) expenditures totaled $249.7 million, up from $192.9 million in the third quarter of 2005. We expect full-year 2006 exploration and development expenditures to approximate $1 billion.


Cimarex has hedged a portion of its natural gas production through collars covering calendar years 2007 and 2008 for 80,000 and 40,000 MMBtu per day, respectively. The floor price protects our return on capital invested in certain Mid-Continent drilling programs while still allowing participation in potential price increases up to the ceiling. The prices in the table below are at the Mid-Continent delivery point.

                                                        Weighted Average Price
    Period    Commodity     Volume/Day     Settlement     Floor       Ceiling
    2007      Gas          80,000 MMBtu   Mid-Continent   $7.00       $10.17
    2008      Gas          40,000 MMBtu   Mid-Continent   $7.00        $9.90

    Oil and gas collars assumed as part of the Magnum Hunter acquisition also
remain in place.  These contracts have not been designated for hedge
accounting treatment.  The following table summarizes the open contracts as of
September 30, 2006:

                                                              Weighted Average
    Period            Commodity   Volume/Day     Settlement   Floor    Ceiling
    Oct 06 - Dec 06   Gas         20,000 MMBtu   NYMEX        $5.25      $6.30
    Oct 06 - Dec 06   Oil          1,000 Bbl     NYMEX        $30.00    $35.85

Exploration and Development Activity

Cimarex drilled 429 gross (269.9 net) wells during the first nine months of 2006, with a completion rate of 92%. At the present time we have 27 operated rigs running.


Cimarex drilled 235 gross (146.2 net) wells in the Mid-Continent region during the first three quarters of 2006 realizing a 98% success rate. Mid-Continent third quarter production volumes averaged 182.7 MMcfe/d, a two percent increase over second-quarter 2006.

In the Texas Panhandle, principally targeting the Granite Wash formation at depths of 11,000-14,000 feet, Cimarex drilled 61 gross (42.6 net) wells with a 97% success rate. Meaningful wells recently brought on production in the Texas Panhandle area include the Webb 5-194 (100% working interest) at 3.6 MMcfe/d, Webb 4-194 (75% working interest) at 3.4 MMcfe/d, Earp 3-60 (100% working interest) at 2.7 MMcfe/d and the Earp 3-59 (75% working interest) at 2.4 MMcfe/d.

Exploitation activity in the Panoma gas field, also located in the Texas Panhandle, consisted of drilling 75 (73.4 net) infill wells with a 100% success rate. These wells target the Brown Dolomite formation at 2,200 feet. This drilling has increased gross field production by 5.1 MMcfe/d.

In the Anadarko Basin of western Oklahoma, Cimarex drilled 71 gross (13.1 net) wells realizing a 99% success rate. Wells in this area generally target the Red Fork and Clinton Lake/Atoka at depths of 12,000-15,000 feet. A notable Clinton Lake well, the Patricia 1-29 (56% working interest), commenced production averaging 6.5 MMcfe/d. In southern Oklahoma, Cimarex drilled 13 gross (10.4 net) wells with an 85% success rate including the Eola Robberson field's, Harmon Heirs 4-8H (100% working interest) producing at 2.0 MMcfe/d.

Cimarex currently has 11 operated rigs drilling in the Mid-Continent region.

Permian Basin

Permian Basin drilling for the first nine months of 2006 totaled 125 gross (92.0 net) wells, 97% of which were completed as producers. Permian Basin third-quarter 2006 production volumes averaged 130.2 MMcfe/d as compared to 137.6 MMcfe/d in the second quarter of 2006.

In southeast New Mexico, two wells the Laguna Deep 8 (94% working interest) and the New Mexico DD State 3 (100% working interest) declined rapidly as a result of smaller than anticipated reservoir size and/or water encroachment. Net daily production from these two wells decreased 5.3 MMcfe/d from the second to the third quarter of 2006. Year-to-date southeast New Mexico drilling totaled 43 gross (31.6 net) wells with a 93% success rate in the Morrow, Atoka and Strawn formations. Initial production rates averaged 1.5 MMcfe/d. Notable wells in Eddy County, New Mexico include the Ozley 25 (100% working interest) at 2.9 MMcfe/d, White City 31 (100% working interest) at 2.7 MMcfe/d and the Parks 1 (62.5% working interest) at 2.6 MMcfe/d.

In West Texas, a total of 70 gross (51.9 net) wells were drilled, of which 99% were successful. Included in the West Texas program is exploitation of the Westbrook Unit (90% working interest) where 32 infill wells have been drilled and completed in the Clearfork formation at 3,200 feet. Other geologic targets in West Texas include the Devonian, Ellenburger, Bone Springs and Spraberry. Cimarex has drilled or participated in 17 (5.8 net) Devonian wells in the Arbol de Nada field, five gross (five net) Ellenburger wells in the Will-O field, and four gross (1.8 net) Bone Springs wells in the War-Wink field.

Cimarex has 11 operated rigs drilling in the Permian Basin, six in southeast New Mexico and five in West Texas.

Gulf Coast

Cimarex drilled 37 gross (21.2 net) Gulf Coast area wells during the first nine months of 2006, realizing a 65% success rate. Gulf Coast third-quarter 2006 production volumes averaged 72.9 MMcfe/d as compared to 76.4 MMcfe/d in the second quarter of 2006.

Net production from the Donald Harrington #1 (100% working interest) in south Louisiana, Rich #1 (100% working interest) and the Galloway Gas Unit #1, both in Liberty County Texas, cumulatively decreased 5.4 MMcfe/d from the second to the third quarter of 2006. The decrease in production from these wells is a result of increased water production in the primary zone, mechanical well bore failure and natural decline.

Year-to-date Cimarex drilled or participated in 12 gross (7.7 net) Liberty County wells, eight of which were successful. The Cimarex-operated Galloway Gas Unit #2 (50% working interest) commenced production in July and is currently producing 16 MMcfe/d. In the fourth quarter, first production is expected from three Kate Dishman (60% working interest) wells at rates of 350 barrels of oil per day each. In the Mississippi Salt Basin, Cimarex drilled the Blackstone #2 (100% working interest) to a total depth of 16,546 feet. Production commenced in August at a rate of 5.5 Mcfe/d.

Cimarex has three operated rigs drilling in the onshore Gulf Coast area.

Gulf of Mexico

Third-quarter Gulf of Mexico production volumes averaged 51 MMcfe/d, up from 46 MMcfe/d in the second quarter of 2006. Shut-in production volumes related to damage from last year's hurricanes decreased to approximated 1-2 MMcfe/d in the third quarter from 10-15 MMcfe/d in the second quarter. In addition, 6 MMcfe/d of production in the Main Pass area has been consistently curtailed because of weather-related difficulties impacting barging operations. To prevent such ongoing delays, work is proceeding to tie-in Main Pass oil production to a new pipeline, which is expected to be completed in early 2007.

Net volumes of 15-20 MMcfe/d from discoveries at Main Pass 185 (47% working interest), Main Pass 187 (100% working interest) and Main Pass 200 (50% working interest) are expected to begin in the first quarter of 2007. Cimarex will resume drilling on its Main Pass operated blocks in November. However, Cimarex has elected to market its operated Main Pass assets. The sales package includes these three discoveries as well as interest in 40 total blocks and 15 billion cubic feet equivalent of proved reserves.


The following statements provide a summary of production and certain expense projections for the remainder of 2006.

We estimate that fourth-quarter 2006 production volumes will range between 445-455 MMcfe/d, resulting in full-year 2006 volumes of 450-455 MMcfe/d. Fourth-quarter volume estimates have been negatively impacted by Gulf Coast operational issues, less than expected exploration success, delays in bringing on Gulf of Mexico production and completion delays in the Permian Basin.

Expenses for the remainder of 2006 are expected to fall within the following ranges:

    Expenses ($/Mcfe):
          Production expense                           $1.00  -  $1.10
          Transportation expense                        0.11  -   0.14
          DD&A and ARO accretion                        2.60  -   2.70
          General and administrative expense            0.25  -   0.28
          Production taxes (% of oil and gas revenue)    7.0% -    8.0%

Denver-based Cimarex Energy Co. is an independent oil and gas exploration and production company with principal operations in the Mid-Continent, Gulf Coast, Permian Basin of West Texas and New Mexico and Gulf of Mexico areas of the U.S.