Cimarex Reports First Quarter 2020 Results; Issues Abridged Guidance
DENVER, May 6, 2020 /PRNewswire/ --
-- Q1 Oil production averaged 89.8 MBbls/d
-- Invested $274 million in the first quarter
Cimarex Energy Co. (NYSE: XEC) today reported a first quarter 2020 net loss of $774.3 million, or $7.77 per share, compared to net income of $26.3 million, or $0.26 per share, in the same period a year ago. First quarter results were negatively impacted by non-cash charges related to the impairment of oil and gas properties and the impairment of goodwill. First quarter adjusted net income (non-GAAP) was $59.7 million, or $0.58 per share, compared to first quarter 2019 adjusted net income (non-GAAP) of $117.3 million, or $1.20 per share(1). Net cash provided by operating activities was $308.8 million in the first quarter of 2020 compared to $250.1 million in the same period a year ago. Adjusted cash flow from operations (non-GAAP) was $306.4 million in the first quarter of 2020 compared to $351.1 million in the first quarter a year ago(1).
Oil production averaged 89.8 thousand barrels (MBbls) per day, up 13 percent from the same period a year ago and down two percent sequentially. Total company production volumes for the quarter averaged 276.6 thousand barrels of oil equivalent (MBOE) per day.
Realized product prices were down in the first quarter compared to the same quarter a year ago. Realized oil prices averaged $44.18 per barrel, down 10 percent from the $48.87 per barrel received in the first quarter of 2019. Realized natural gas prices averaged $0.55 per thousand cubic feet (Mcf), down 71 percent from the first quarter 2019 average of $1.91 per Mcf. NGL prices averaged $9.84 per barrel, down 40 percent from the $16.44 per barrel received in the first quarter of 2019.
Natural gas prices were negatively impacted by local price differentials. Cimarex's average differential to Henry Hub on its Permian natural gas production was $1.85 per Mcf in the first quarter of 2020 compared to $1.91 per Mcf in the first quarter of 2019 and $1.67 in the fourth quarter of 2019. In the Mid-Continent region, the company's average differential to Henry Hub was $0.57 per Mcf versus $0.46 per Mcf in the first quarter of 2019 and $0.74 in the fourth quarter of 2019. Our realized Permian oil differential to WTI Cushing improved and averaged $2.00 per barrel in the quarter, compared to $6.90 per barrel in the first quarter of 2019 and $2.18 per barrel in the fourth quarter of 2019.
Cimarex invested a total of $274 million during the first quarter, of which $214 million was attributable to drilling and completion activities, $18 million to saltwater disposal assets, and $9 million to midstream assets. First quarter investments were funded with cash flow from operating activities. Total debt at March 31, 2020 consisted of $2.0 billion of long-term notes, with no debt maturities until 2024. Cimarex had no borrowings under its revolving credit facility and a cash balance of $89 million at quarter end. Debt was 43 percent of total capitalization(2).
Outlook
Cimarex has taken a number of steps to protect employees in the wake of the COVID-19 pandemic including the implementation of remote work for all office staff and the adoption of COVID-19 protocols for field staff. In addition to the health crisis, the pandemic has caused extreme weakness in oil prices due to lower demand. Because of price uncertainty and resultant production curtailments, Cimarex will forgo quarterly and annual production guidance as well as guidance on per unit operating costs. The company withdraws any previous guidance on these measures.
Cimarex Chairman and CEO, Tom Jorden, said, "Investors expect us to be good stewards of capital. As stated in our April 15th press release, Cimarex's current outlook for capital investment in 2020 is down 55-60% from original plans and expected to be $500 - 600 million." The table below shows a breakdown of the projected capital by category:
Capital Investment ($MM) Updated 2020E Guidance
Drilling and Completion (D&C)
$300 - $400
Midstream/Saltwater Disposal (SWD)
~ $40
Other*
~ $160
Total Capital Investment
$500 - $600
*Capitalized overhead, production, NPL, and technology
Mr. Jorden continued, "The low end of our investment range assumes deferring well completions for the remainder of the year and limited drilling activity. Under this scenario, we estimate Cimarex will have 47 net wells in progress as we enter 2021. Should conditions warrant, we are prepared to complete additional wells in 2020."
"Our top priorities continue to be the health and safety of our employees, commitment to our balance sheet, and returning capital to shareholders through our dividend. At current prices, with the benefit of our hedge position, Cimarex will generate free cash in 2020. Our immediate actions were and will continue to be focused on the things we can control to protect our company during these unprecedented times. In addition to deferring completions and the slowdown in drilling activity, and with final nominations in, we have curtailed approximately 20 percent of our May oil production. Curtailments will continue should commodity prices remain depressed."
"Another top priority at Cimarex is environmental stewardship including, but not limited to, the reduction of methane emissions and reducing flaring intensity. These measures are now part of the formula used for determining executive compensation."
He went on to say, "We continue to focus on cost control. We recently initiated an Early Retirement Incentive Plan which will result in a ten percent reduction to our staff and ultimately save $25 million on an annual basis when completed. We will continue to reduce costs through the redeployment of our workforce, including replacing field contract labor with company employees. In addition, we have lowered executive salaries and the cash retainer fees paid to our board of directors--a provisionary action in the event the situation improves."
Cimarex previously announced the retirement of Joe Albi, executive vice president and chief operating officer, from the company and as a member of the Board of Directors effective July 1, 2020. At the board's request, in order to have ongoing access to his deep knowledge of the industry and of Cimarex operations, Mr. Albi has agreed to serve out the remainder of his board term, which expires May 2021. At that time, he will not stand for nomination and will retire from the board.
Operations Update
Cimarex invested $274 million during the first quarter, 93 percent in the Permian Basin and 7 percent in the Mid-Continent. Cimarex brought 54 gross (20 net) wells on production during the quarter. At March 31, 98 gross (35 net) wells were waiting on completion. Cimarex is currently running two drilling rigs (dropping to one by mid-May).
WELLS BROUGHT ON PRODUCTION BY REGION
Three Months Ended
March 31,
2020 2019
Gross wells
Permian Basin 35 12
Mid-Continent 19 26
54 38
Net wells
Permian Basin 20 5
Mid-Continent 3
20 8
Permian Region
Production from the Permian region averaged 203.4 MBOE per day in the first quarter, a 21 percent increase from first quarter 2019. Oil volumes averaged 79.6 MBbls per day, a 23 percent increase from first quarter 2019 and up two percent sequentially.
Cimarex brought 35 gross (20 net) wells on production in the Permian region during the first quarter. There were 51 gross (33 net) wells waiting on completion at March 31. Cimarex currently operates two drilling rigs (dropping to one by mid-May) but no completion crews in the region.
Mid-Continent Region
Production from the Mid-Continent averaged 72.7 MBOE per day for the first quarter, down 20 percent from first quarter 2019 and down 15 percent sequentially.
During the first quarter, Cimarex brought 19 gross (0 net) wells on production in the Mid-Continent region. At the end of the quarter, 47 gross (2 net) wells were waiting on completion. Cimarex does not currently operate drilling rigs or completion crews in the Mid-Continent.
Cimarex's average daily production and commodity price by region is summarized below:
DAILY PRODUCTION BY REGION
Three Months Ended
March 31,
2020 2019
Permian Basin
Gas (MMcf) 449.0 340.6
Oil (Bbls) 79,606 64,969
NGL (Bbls) 48,932 46,273
Total Equivalent (MBOE) 203.4 168.0
Mid-Continent
Gas (MMcf) 244.1 297.2
Oil (Bbls) 9,941 14,224
NGL (Bbls) 22,110 26,630
Total Equivalent (MBOE) 72.7 90.4
Total Company
Gas (MMcf) 694.3 639.1
Oil (Bbls) 89,791 79,415
NGL (Bbls) 71,099 72,956
Total Equivalent (MBOE) 276.6 258.9
AVERAGE REALIZED PRICE BY REGION
Three Months Ended
March 31,
2020 2019
Permian Basin
Gas ($ per Mcf) 0.10 1.24
Oil ($ per Bbl) 44.17 48.00
NGL ($ per Bbl) 8.84 15.81
Mid-Continent
Gas ($ per Mcf) 1.38 2.69
Oil ($ per Bbl) 44.15 52.73
NGL ($ per Bbl) 12.03 17.52
Total Company
Gas ($ per Mcf) 0.55 1.91
Oil ($ per Bbl) 44.18 48.87
NGL ($ per Bbl) 9.84 16.44
Other
Cimarex received cash settlements of $11.7 million related to its gas hedges during the quarter. Settlement of oil hedges resulted in cash receipts of $31.4 million.
The following table summarizes the company's current open hedge positions:
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
Gas Collars:
PEPL (3)
Volume (MMBtu/d) 63,297 80,000 80,000 60,000 50,000 30,000 30,000
Wtd Avg Floor $
1.89 $
1.75 $
1.75 $
1.72 $
1.69 $
1.73 $
1.73
Wtd Avg Ceiling $
2.28 $
2.17 $
2.17 $
2.12 $
2.08 $
2.14 $
2.14
El Paso Perm (3)
Volume (MMBtu/d) 33,297 70,000 70,000 50,000 50,000 30,000 30,000
Wtd Avg Floor $
1.41 $
1.36 $
1.36 $
1.36 $
1.36 $
1.51 $
1.51
Wtd Avg Ceiling $
1.82 $
1.64 $
1.64 $
1.63 $
1.63 $
1.80 $
1.80
Waha (3)
Volume (MMBtu/d) 33,297 50,000 50,000 50,000 50,000 30,000 30,000
Wtd Avg Floor $
1.56 $
1.32 $
1.32 $
1.32 $
1.32 $
1.50 $
1.50
Wtd Avg Ceiling $
1.95 $
1.58 $
1.58 $
1.58 $
1.58 $
1.75 $
1.75
Oil Collars:
WTI (4)
Volume (Bbl/d) 34,341 41,000 41,000 33,000 23,000 14,000 14,000
Wtd Avg Floor $
48.29 $
40.91 $
40.91 $
38.71 $
34.00 $
29.71 $
29.71
Wtd Avg Ceiling $
58.96 $
49.84 $
49.84 $
46.70 $
41.33 $
36.86 $
36.86
Oil Basis Swaps:
WTI Midland (5)
Volume (Bbl/d) 27,648 32,000 32,000 24,000 18,000 13,000 13,000
Wtd Avg Differential $
0.38 $
0.18 $
0.18
$ $
(0.19) $
(0.65) $
(0.65)
Oil Swaps:
WTI (4)
Volume (Bbl/d) 4,692
Wtd Avg Fixed $
20.73
$
$
$
$
$
$
Conference call and webcast
Cimarex will host a conference call tomorrow, May 7, at 11:00 a.m. EDT (9:00 a.m. MDT). The call will be webcast and accessible on the Cimarex website at www.cimarex.com. To join the live, interactive call, please dial 866-367-3053 ten minutes before the scheduled start time (callers in Canada dial 855-669-9657 and international callers dial 412-902-4216). A replay will be available on the company's website.
Investor Presentation
For more details on Cimarex's first quarter 2020 results, please refer to the company's investor presentation available at www.cimarex.com.
About Cimarex Energy
Denver-based Cimarex Energy Co. is an independent oil and gas exploration and production company with principal operations in the Permian Basin and Mid-Continent areas of the U.S.
This press release contains forward-looking statements, including statements regarding projected results and future events. In particular, the disclosures under the heading "Outlook" contain projections for certain 2020 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, 2019, 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 levels and volatility, including those resulting from demand destruction from the COVID-19 pandemic; disruptions to the availability of workers and contractors due to illness and stay at home orders related to the COVID-19 pandemic; disruptions to gathering, pipeline, refining, transportation and other midstream and downstream activities due to the COVID-19 pandemic; disruptions to supply chains and availability of critical equipment and supplies due to the COVID-19 pandemic; the effectiveness of controls over financial reporting; declines in the values of our oil and gas properties resulting in impairments; impairments of goodwill; higher than expected costs and expenses, including the availability and cost of services and materials; our ability to successfully integrate the March 2019 acquisition of Resolute Energy Corporation; compliance with environmental and other regulations; costs and availability of third party facilities for gathering, processing, refining and transportation; risks associated with concentration of operations in one major geographic area; environmental liabilities; 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; regulatory approvals, including regulatory restrictions on federal lands; legislative or regulatory changes, including initiatives related to hydraulic fracturing, emissions and disposal of produced water; unexpected future capital expenditures; economic and competitive conditions; the availability and cost of capital; 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; changes in estimates of proved reserves; derivative and hedging activities; the success of the company's risk management activities; title to properties; litigation; the ability to complete property sales or other transactions; 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 below for reconciliations of the related GAAP amounts.
2 Debt to total capitalization is calculated by dividing the sum of (i) the principal amount of
senior notes and (ii) redeemable preferred stock by the sum of (x) the principal amount of
senior notes, (y) redeemable preferred stock, and (z) total stockholders' equity.
3 PEPL refers to Panhandle Eastern Pipe Line Tex/OK Mid-Continent index, El Paso Perm refers
to El Paso Permian Basin index, and Waha refers to West Texas (Waha) Index, all as quoted in
Platt's Inside FERC.
4 WTI refers to West Texas Intermediate oil price as quoted on the New York Mercantile Exchange.
5 Index price on basis swaps is WTI NYMEX less the weighted average WTI Midland differential, as
quoted by Argus Americas Crude.
RECONCILIATION OF ADJUSTED NET INCOME
The following reconciles net (loss) income as reported under generally accepted accounting principles (GAAP) to adjusted net income (non-GAAP) for the periods indicated.
Three Months Ended
March 31,
2020 2019
(in thousands, except per share data)
Net (loss) income $
(774,282) $
26,316
Impairment of oil and gas
properties (1) 333,651
Impairment of goodwill 714,447
Mark-to-market (gain)
loss on open derivative
positions (183,826) 106,401
Loss on early
extinguishment of debt 4,250
Acquisition related costs 8,318
Asset retirement obligation 2,800
Tax impact (2) (33,120) (27,958)
Adjusted net income $
59,670 $
117,327
Diluted earnings per share $
(7.77) $
0.26
Adjusted diluted earnings
per share* $
0.58 $
1.20
Weighted-average number of
shares outstanding:
Adjusted diluted** 102,131 97,715
______________________________________
(1) An additional ceiling test
impairment is anticipated in the
second quarter.
(2) Because the goodwill impairment is
not deductible for tax purposes,
the tax impact in the 2020 period
is calculated using an effective
tax rate determined by excluding
goodwill from the effective tax
rate calculation.
Adjusted net income and adjusted diluted earnings per share exclude the noted items
because management believes these items affect the comparability of operating results.
The company discloses these non-GAAP financial measures as a useful adjunct to GAAP
measures because:
a) Management uses adjusted net income to evaluate the company's operating
performance between periods and to compare the company's performance to other
oil and gas exploration and production companies.
b) Adjusted net income is more comparable to earnings estimates provided by
research analysts.
* Does not include adjustments resulting from application of the "two-class method"
used to determine earnings per share under GAAP.
** Reflects the weighted-average number of common shares outstanding during the period
as adjusted for the dilutive effects of outstanding stock options.
RECONCILIATION OF ADJUSTED CASH FLOW FROM OPERATIONS, FREE CASH FLOW AND
FREE CASH FLOW AFTER DIVIDEND
The following table provides a reconciliation from generally accepted accounting principles (GAAP) measures of net cash provided by operating activities to adjusted cash flows from operations (non-GAAP), free cash flow (non-GAAP) and free cash flow after dividend (non-GAAP) for the periods indicated.
Three Months Ended
March 31,
2020 2019
(in thousands)
Net
cash
provided
by
operating
activities $
308,791 $
250,091
Change
in
operating
assets
and
liabilities (2,370) 100,971
Adjusted
cash
flow
from
operations 306,421 351,062
Oil
and
gas
expenditures (266,070) (332,742)
Other
capital
expenditures (26,425) (17,828)
Free
cash
flow 13,926 492
Dividends
paid (21,593) (17,179)
Free
cash
flow
after
dividend $
(7,667) $
(16,687)
Management uses the non-GAAP financial measures of adjusted cash flow from operations, free cash flow and free cash flow aver dividend as means of measuring our ability to fund our capital program and dividends, without fluctuations caused by changes in current assets and liabilities, which are included in the GAAP measure of net cash provided by operating activities. Management believes these non-GAAP financial measures provide useful information to investors for the same reason, and that they are also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.
OIL AND GAS CAPITALIZED EXPENDITURES
Three Months Ended
March 31,
2020 2019
(in thousands)
Acquisitions:
Proved $
7,250 $
692,600
Unproved 1,050,782
7,250 1,743,382
Exploration
and
development:
Land
and
seismic 13,924 9,527
Exploration
and
development 234,728 358,491
248,652 368,018
Property
sales:
Proved 4,030
Unproved (830) (3,501)
(830) 529
$
255,072 $
2,111,929
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited)
Three Months Ended
March 31,
2020 2019
(in thousands, except per
share information)
Revenues:
Oil sales $
360,980 $
349,306
Gas and NGL sales 98,481 217,915
Gas gathering and other 13,369 9,736
472,830 576,957
Costs and expenses:
Impairment of oil and gas
properties 333,651
Depreciation, depletion,
amortization, and accretion 219,810 192,466
Impairment of goodwill 714,447
Production 87,236 78,404
Transportation, processing,
and other operating 54,922 59,575
Gas gathering and other 8,298 5,182
Taxes other than income 30,961 33,694
General and administrative 25,509 29,084
Stock compensation 6,394 6,713
(Gain) loss on derivative
instruments, net (226,940) 115,452
Other operating expense, net 251 8,326
1,254,539 528,896
Operating (loss) income (781,709) 48,061
Other (income) and expense:
Interest expense 23,181 20,405
Capitalized interest (13,182) (8,742)
Loss on early extinguishment
of debt 4,250
Other, net (871) (2,241)
(Loss) income before income
tax (790,837) 34,389
Income tax (benefit) expense (16,555) 8,073
Net (loss) income $
(774,282) $
26,316
Earnings (loss) per share to
common stockholders:
Basic $
(7.77) $
0.26
Diluted $
(7.77) $
0.26
Dividends declared per
common share $
0.22 $
0.20
Weighted-average number of
shares outstanding:
Basic 99,842 95,922
Diluted 99,842 95,932
Comprehensive (loss) income:
Net (loss) income $
(774,282) $
26,316
Other comprehensive income:
Change in fair value of
investments, net of tax of
$0 and $339, respectively 1,149
Total comprehensive (loss)
income $
(774,282) $
27,465
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended
March 31,
2020 2019
(in thousands)
Cash flows from operating activities:
Net (loss) income $
(774,282) $
26,316
Adjustments to reconcile net (loss)
income to net cash
provided by operating activities:
Impairment of oil and gas properties 333,651
Depreciation, depletion,
amortization, and accretion 219,810 192,466
Impairment of goodwill 714,447
Deferred income taxes (16,357) 8,073
Stock compensation 6,394 6,713
(Gain) loss on derivative
instruments, net (226,940) 115,452
Settlements on derivative instruments 43,114 (9,051)
Loss on early extinguishment of debt 4,250
Amortization of debt issuance costs
and discounts 784 719
Changes in non-current assets and
liabilities 2,410 2,148
Other, net 3,390 3,976
Changes in operating assets and
liabilities:
Accounts receivable 119,605 33,976
Other current assets (24) 350
Accounts payable and other current
liabilities (117,211) (135,297)
Net cash provided by operating
activities 308,791 250,091
Cash flows from investing activities:
Acquisition of Resolute Energy, net
of cash acquired (284,441)
Oil and gas capital expenditures (266,070) (332,742)
Other capital expenditures (26,425) (17,828)
Sales of oil and gas assets 830 5,000
Sales of other assets 181 200
Net cash used by investing activities (291,484) (629,811)
Cash flows from financing activities:
Borrowings of long-term debt 101,000 1,182,310
Repayments of long-term debt (101,000) (1,553,000)
Financing, underwriting, and debt
redemption fees (100) (10,938)
Finance lease payments (1,465) (635)
Dividends paid (21,593) (17,179)
Employee withholding taxes paid upon
the net settlement of equity-
classified stock awards (165) (654)
Proceeds from exercise of stock
options 80
Net cash used by financing activities (23,323) (400,016)
Net change in cash and cash
equivalents (6,016) (779,736)
Cash and cash equivalents at
beginning of period 94,722 800,666
Cash and cash equivalents at end of
period $
88,706 $
20,930
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, December 31,
2020 2019
Assets
(in thousands, except share and
per share information)
Current assets:
Cash and cash equivalents $
88,706 $
94,722
Accounts receivable, net of allowance 329,977 448,584
Oil and gas well equipment and supplies 45,108 47,893
Derivative instruments 200,537 17,944
Other current assets 12,263 12,343
Total current assets 676,591 621,486
Oil and gas properties at cost, using
the full cost method of accounting:
Proved properties 20,894,962 20,678,334
Unproved properties and properties under
development, not being amortized 1,297,493 1,255,908
22,192,455 21,934,242
Less - accumulated depreciation,
depletion, amortization, and impairment (17,255,321) (16,723,544)
Net oil and gas properties 4,937,134 5,210,698
Fixed assets, net of accumulated
depreciation of $406,388 and $389,458,
respectively 527,652 519,291
Goodwill 716,865
Derivative instruments 7,121 580
Other assets 69,848 71,109
$
6,218,346 $
7,140,029
Liabilities, Redeemable Preferred Stock, and Stockholders' Equity
Current liabilities:
Accounts payable $
56,500 $
49,020
Accrued liabilities 360,790 418,978
Derivative instruments 6,772 16,681
Revenue payable 135,079 207,939
Operating leases 65,958 66,003
Total current liabilities 625,099 758,621
Long-term debt principal 2,000,000 2,000,000
Less-unamortized debt issuance costs
and discounts (14,242) (14,754)
Long-term debt, net 1,985,758 1,985,246
Deferred income taxes 322,067 338,424
Derivative instruments 16,235 1,018
Operating leases 182,590 184,172
Other liabilities 215,477 214,787
Total liabilities 3,347,226 3,482,268
Redeemable preferred stock -8.125%
Series A Cumulative Perpetual
Convertible Preferred Stock, $0.01 par
value, 62,500 shares authorized and
issued 81,620 81,620
Stockholders' equity:
Common stock, $0.01 par value,
200,000,000 shares authorized,
102,101,878 and 102,144,577 shares
issued, respectively 1,021 1,021
Additional paid-in capital 3,254,760 3,243,325
(Accumulated deficit) retained earnings (466,281) 331,795
Total stockholders' equity 2,789,500 3,576,141
$
6,218,346 $
7,140,029
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SOURCE Cimarex Energy Co.
