Cimarex Reports Second Quarter 2020 Results

DENVER, Aug. 5, 2020 /PRNewswire/ --

• Generated Cash from Operating Activities of $145 million in the quarter
• Invested $84 millionin the second quarter
• $26 million in free cash flow after dividend
• Oil production averaged 78,000 barrels per day

Cimarex Energy Co. (NYSE: XEC) today reported a second quarter 2020 net loss of $925.1 million, or $9.28 per share, compared to net income of $109.3 million, or $1.07 per share, in the same period a year ago.  Second quarter results were negatively impacted by non-cash charges related to the impairment of oil and gas properties.  Second quarter adjusted net income (non-GAAP) was $(52.4) million, or $(0.51) per share, compared to second quarter 2019 adjusted net income (non-GAAP) of $83.0 million, or $0.82 per share¹.  Net cash provided by operating activities was $144.7 million in the second quarter of 2020 compared to $414.0 million in the same period a year ago.  Adjusted cash flow from operations (non-GAAP) was $144.5 million in the second quarter of 2020 compared to $336.4 million in the second quarter a year ago¹. 

Oil production averaged 78.0 thousand barrels (MBbls) per day. Total company production volumes for the quarter averaged 254.7 thousand barrels of oil equivalent (MBOE) per day.  Second quarter production volumes were impacted by the operational slow down announced in March and a 20 percent temporary curtailment of May production related to the extreme fluctuation in oil prices caused by the COVID-19 pandemic and the actions of OPEC and other countries during the quarter.

Realized oil prices averaged $19.57 per barrel, down 64 percent from the $54.24 per barrel received in the second quarter of 2019.  Realized natural gas prices averaged $0.91 per thousand cubic feet (Mcf), up 82 percent from the second quarter 2019 average of $0.50 per Mcf.  NGL prices averaged $7.52 per barrel, down 43 percent from the $13.08 barrel received in the second quarter of 2019.

Cimarex's realized oil price was impacted by a negative differential to WTI of $8.28 per barrel in the quarter from $1.99 per barrel in the previous quarter, with a negative oil price differential in the Permian of $8.12 per barrel in the second quarter, $2.00 per barrel sequentially. Our realized local natural gas price differentials improved in both regions.  The company realized a negative differential to Henry Hub on its Permian natural gas production of $1.09 per Mcf in the second quarter of 2020 compared to $3.10 per Mcf in the second quarter of 2019 and $1.85 in the first quarter of 2020.  In the Mid-Continent region, the company's average negative differential to Henry Hub was $0.31 per Mcf versus $0.86 per Mcf in the second quarter of 2019 and $0.57 in the first quarter of 2020. 

Cimarex invested a total of $84 million during the second quarter, of which $49 million was attributable to drilling and completion activities.  Second quarter investments were funded with cash flow from operating activities.  Total debt at June 30, 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 $44 million at quarter end. 

Outlook

Cimarex Chairman and CEO, Tom Jorden, said, "The second quarter required drastic and prudent action.  Our response to the challenging price environment included a significant decrease in activity and curtailing May production volumes.  With improved oil prices we have elected to resume activity.  We are bringing three additional drilling rigs back to work in the third quarter and will begin completing wells again in September with two completion crews on the schedule.  As a result, we expect capital investment for the year to total approximately $600 million, in line with expectations of an operational restart from our previous guidance range."  The table below shows a breakdown of the projected capital by category:

Cimarex is also giving production and expense guidance for the remainder of 2020.  Third quarter 2020 production volumes are expected to average 230 - 250 MBOE per day, with oil volumes estimated to average 69.0 - 74.0 MBbls per day.  Total 2020 daily production volumes are expected to average 240 - 250 MBOE per day, with annual oil volumes estimated to average 75.0 - 78.0 MBbls per day.

Expenses per BOE of production for 2020 are estimated to be:

Mr. Jorden continued, "This activity puts us in a strong position as we enter 2021.  We see Cimarex in a position to generate more than enough free cash flow to fund our dividend in 2021 at $35 WTI, a testament to increasing efficiencies.  Any excess free cash flow would be used to fund dividend increases and grow cash on the balance sheet to retire debt."

"The health and safety of our employees remains top of mind.  Cimarex has taken a number of steps to protect employees in the wake of the COVID-19 pandemic including the implementation of a staggered office schedule and the adoption of COVID-19 protocols for field staff and employees working in the office."

Operations Update

Cimarex invested $84 million during the second quarter, with 88 percent invested in the Permian Basin and 12 percent in the Mid-Continent.  Cimarex brought 37 gross (12.5 net) wells on production during the quarter.  At June 30, 73 gross (31.1 net) wells were waiting on completion. 

Permian Region

Production from the Permian region averaged 185.7 MBOE per day in the second quarter, a two percent decrease from second quarter 2019.  Oil volumes averaged 68.8 MBbls per day, a three percent decrease from second quarter 2019 and down 14 percent sequentially.

Cimarex brought 17 gross (11.1 net) wells on production in the Permian region during the second quarter.  There were 47 gross (31.1 net) wells waiting on completion at June 30.  Cimarex is currently operating three drilling rigs but no completion crews in the region.

Mid-Continent Region

Production from the Mid-Continent averaged 68.7 MBOE per day for the second quarter, down 20 percent from second quarter 2019 and down 6 percent sequentially.

During the second quarter, 20 gross (1.4 net) wells were brought on production in the Mid-Continent region.  At the end of the quarter, 26 gross (<1 net) wells were waiting on completion.  Cimarex is not currently operating drilling rigs or completion crews in the Mid-Continent.

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

Other

Cimarex received cash settlements of $5.9 million related to its gas hedges during the quarter.  Settlement of oil hedges resulted in cash receipts of $58.1 million.

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

Conference call and webcast

Cimarex will host a conference call tomorrow, August 6, 2020 at 11:00 a.m. EST (9:00 a.m. MST).  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 second 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, including as a result of 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, which may be impacted by the COVID-19 pandemic; 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, which may be negatively impacted by COVID-19 restrictions on regulatory personnel who process and approve those matters; 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 which may be negatively impacted by a change in administration; legislative or regulatory changes, including initiatives related to hydraulic fracturing, emissions and disposal of produced water, which may be negatively impacted by a change in administration; 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.

RECONCILIATION OF ADJUSTED NET (LOSS) INCOME

The following reconciles net (loss) income as reported under generally accepted accounting principles (GAAP) to adjusted net (loss) income (non-GAAP) for the periods indicated.

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.

Management uses the non-GAAP financial measures of adjusted cash flow from operations, free cash flow and free cash flow after 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.

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SOURCE Cimarex Energy Co.