Cimarex Reports Lower Q4 Earnings
Cimarex Energy Co. reported fourth-quarter 2006 net income of $58.7 million, or $0.70 per diluted share. This compares to fourth-quarter 2005 earnings of $168.4 million, or $1.98 per diluted share.
Revenues from oil and gas sales in the fourth quarter of 2006 were $283.7 million, compared to $406.6 million in the same period of 2005. Fourth- quarter 2006 cash flow from operations totaled $213.1 million versus $274.2 million in the same period of 2005(1).
The decrease in fourth-quarter 2006 revenues, earnings and cash flow is primarily a result of lower oil and gas prices. Fourth-quarter 2006 gas prices decreased 41% to $6.21 per thousand cubic feet (Mcf) and oil fell 2% to $55.91 per barrel from the same period of 2005.
The current quarter also has $1.4 million ($0.9 million after-tax), or $0.01 per share, related to hurricanes Katrina and Rita repair costs in excess of insurance reimbursement.
Fourth-quarter 2006 oil and gas production averaged 441 million cubic feet equivalent per day (MMcfe/d), as compared to 431 MMcfe/d for the same period a year earlier. The current quarter's daily production was comprised of 329 million cubic feet of gas and 18,587 barrels of oil.
For the year-ended December 31, 2006, Cimarex reported net income of $345.7 million, or $4.11 per diluted share. In 2005, net income totaled $328.3 million, or $4.90 per diluted share. Cash flow from operations for 2006 totaled $917.7 million versus $724.6 million in 2005(1). Financial results for 2005 reflect the impact of the Magnum Hunter merger beginning on June 7, 2005.
In 2006, exploration and development (E&D) expenditures totaled $1,049 million, up from $642 million in 2005. E&D expenditures during the fourth quarter of 2006 totaled $244 million.
Year-end 2006 proved reserves totaled 1.45 trillion cubic feet equivalent (Tcfe), a 4% increase over year-end 2005. Proved reserves are 75% gas and 80% proved developed.
Reserve additions totaled 223 billion cubic feet equivalent (Bcfe) and replaced 136% of 2006 production. Excluding revisions of previous estimates, 158% of production was replaced. Negative revisions, principally resulting from lower year-end oil and gas prices, reduced reserves by 37 Bcfe.
Acquisitions of proved reserves totaled 58 Bcfe, of which 53 Bcfe are from the purchase of a reversionary working interest in certain wells at the Riley Ridge Unit gas development project in Sublette County, Wyoming.
Cimarex's exploration and development capital expenditures for 2007 are projected to range from $800 million to $1 billion. The actual amount invested will be highly dependent on commodity prices and rig rates. Mid- point estimates by region are as follows:
(in millions) Mid-Continent $330 37% Permian 255 28% Gulf Coast 215 24% Gulf of Mexico 70 8% Other 30 3% ---- ---- $900 100%
First-quarter 2007 production volumes are projected to range between 435 - 445 MMcfe/d. January 2007 Mid-Continent volumes were reduced by approximately 10 MMcfe/d because of ice storms in Kansas, Oklahoma and Texas. Full-year 2007 production is projected to be in the range of 450 - 470 MMcfe/d.
Expenses for 2007 are expected to fall within the following ranges: Expenses ($/Mcfe): Production expense $1.05 - $1.15 Transportation expense 0.11 - 0.14 DD&A and ARO accretion 2.65 - 2.75 General and administrative expense 0.25 - 0.28 Production taxes (% of oil and gas revenue) 7.0% - 8.0%
Exploration and Development Activity
Cimarex drilled 558 gross (346 net) wells during 2006 of which 510 gross (316 net) were completed as producers. Exploration and development activity is focused on conventional gas resource plays principally located in the Mid- Continent, Permian Basin and Gulf Coast areas of the United States. Of total E&D investment of $1,049 million, 65% was comprised of moderate risk Mid- Continent and Permian Basin drilling.
Cimarex drilled 302 gross (186 net) wells in the Mid-Continent region during 2006 completing 97% as producers. Mid-Continent fourth quarter production volumes averaged 185 MMcfe/d, an increase of 6% over the fourth quarter of 2005.
Mid-Continent drilling investment of $350 million accounted for 33% of total E&D capital. Drilling principally occurred in the Anadarko Basin, the Texas Panhandle, and the Panoma field. In the Anadarko Basin of western Oklahoma, Cimarex drilled 92 (18 net) wells completing 96% as producers. Wells in this area generally target the Red Fork, Clinton Lake, Morrow and Springer at depths of 12,000-16,000 feet.
Texas Panhandle drilling principally targets the Granite Wash and Morrow formations at depths of 11,000-14,000 feet. Cimarex drilled 86 gross (59 net) wells, of which 98% were completed as producers. Highlights include the Mendota Ranch 5-63 (48% working interest) which commenced production in the fourth quarter at a pipeline restricted gross rate of 15 MMcfe/d. Production rates from other meaningful wells include the Byrum 7-6 (74% working interest) at 3.2 MMcfe/d and the Earp 3-58 (50% working interest) at 3.1 MMcfe/d.
Exploitation activity in the Panoma gas field, also located in the Texas Panhandle, consisted of drilling 80 gross (79 net) infill wells with a 100% success rate. These wells target the Brown Dolomite formation at 2,200 feet. The current year drilling activity has increased net field production by 3.2 MMcfe/d.
Five operated rigs are currently drilling in the Texas Panhandle and three rigs are active in Oklahoma.
Permian Basin 2006 drilling totaled 167 gross (119 net) wells, 96% of which were completed as producers. Full-year 2006 drilling investment in this area totaled $331 million, or 32% of total E&D capital. Fourth-quarter 2006 Permian Basin production volumes averaged 133 MMcfe/d, a 2% increase as compared to the fourth quarter of 2005.
For the year, southeast New Mexico drilling totaled 69 gross (47 net) wells with 94% being completed as producers. Primary formations include the Morrow, Atoka and Strawn at depths of 11,500-14,000 feet. Recent wells brought on production in Eddy County, New Mexico include the Trinity 20 Federal (63% working interest) at 4.0 MMcfe/d, Henshaw 15 (78% working interest) at 1.6 MMcfe/d and the Taos Federal 1 (100% working interest) at 1.2 MMcfe/d.
A total of 98 gross (72 net) wells were drilled in West Texas, of which 98% were successful. Included in the West Texas program is exploitation of the Westbrook Unit (90% working interest) where 44 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 Spring and Spraberry. Cimarex has drilled or participated in 21 (seven net) Devonian wells in the Arbol de Nada field, five gross (five net) Ellenburger wells in the Will-O field, and six gross (2.7 net) Bone Spring wells in the War-Wink field. Noteworthy wells and their production rates include the War-Wink University 18-35 B 2H (50% working interest) 660 barrels of oil equivalent per day and the War-Wink University 18-33 B2H (50% working interest) 450 barrels of oil equivalent per day.
Cimarex has 11 operated rigs drilling in the Permian Basin, eight in southeast New Mexico and three in West Texas.
Cimarex drilled 49 gross (28 net) Gulf Coast wells during 2006, completing 65% as producers. Gulf Coast fourth-quarter 2006 production volumes averaged 69 MMcfe/d versus 90 MMcfe/d in the fourth quarter of 2005. Lower Gulf Coast production volumes are attributable to natural reservoir decline which was only partially offset by new exploration success.
The majority of this year's Gulf Coast drilling occurred in Liberty County, Texas; south Louisiana; south Texas; and Mississippi. The Liberty County program targets the Yegua and Cook Mountain formations at approximately 10,500 feet. In 2006, Cimarex drilled 14 gross (nine net) wells in this project realizing a 64% success rate. Four Kate Dishman wells (83% average working interest) commenced production in the fourth quarter at the allowable limit of 350 barrels of oil per day each. In December 2006, Cimarex purchased additional interests in the Kate Dishman area increasing its average working interest from 60% to 83%. The purchase price was $18 million, which added 0.5 million barrels of proved reserves and an additional 0.5 million barrels of potential reserves from secondary oil recovery and future drilling.
Cimarex has two operated rigs drilling in the Gulf Coast, one in south Texas and one in the Louisiana state waters.
Gulf of Mexico
Gulf of Mexico 2006 drilling consisted of 16 gross (6.7 net) wells, of which 44% were successful. Fourth-quarter Gulf of Mexico production volumes averaged 46 MMcfe/d, as compared to 27 MMcfe/d in the fourth quarter of 2005.
Fourth quarter 2005 production levels were reduced by 41-45 MMcfe/d from hurricane and other storm-related effects. These volumes were brought back online throughout 2006 and by the fourth quarter of 2006 less than 1 MMcfe/d was shut-in from the 2005 hurricane activity.
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.
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