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 share¹.  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 ago¹.

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 capitalization².

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:

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).

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:

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:

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.

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.

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 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.

SOURCE Cimarex Energy Co.