Cimarex Reports Second-Quarter 2010 Net Income of $124.6 Million

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Aug 04, 2010, 06:00 ET

DENVER, Aug. 4 /PRNewswire-FirstCall/ -- Cimarex Energy Co. (NYSE: XEC) today reported second-quarter 2010 net income of $124.6 million, or $1.46 per diluted share. This compares to second-quarter 2009 earnings of $38.8 million, or $0.46 per diluted share.

Revenues from gas, oil and natural gas liquids (NGLs) sales in the second quarter of 2010 were $364.9 million, a 71% increase compared to $213.4 million in the same period of 2009. Second-quarter 2010 cash flow from operations totaled $259.9 million versus $153.1 million a year ago(1).

The increase in second-quarter 2010 revenues is a result of higher commodity prices and increasing production. Second-quarter 2010 gas prices increased 29% to $4.48 per thousand cubic feet (Mcf) and oil improved 36% to $75.26 per barrel as compared to the same period of 2009.

Second-quarter 2010 production volumes averaged 594.4 million cubic feet equivalent per day (MMcfe/d), comprised of 371.4 million cubic feet of gas, 10,792 barrels of NGLs and 26,381 barrels of oil.

Second-quarter 2010 production grew 31% from the second-quarter 2009 average of 453.9 MMcfe/d. Production increases reflect solid drilling results in southeast Texas and western Oklahoma.

For the six month period ended June 30, 2010, net income totaled $329.0 million, or $3.84 per diluted share, as compared to a loss of $455.3 million, or $5.58 per share, for the first six months of 2009. The 2009 period was impacted by a $502 million ($6.15 per share) after-tax full-cost ceiling test write-down.

First-half 2010 cash flow from operations totaled $573.1 million versus $290.8 million in the same period of 2009(1).

Outlook

Third-quarter 2010 production is projected to be in the range of 585-615 MMcfe/d. Full-year 2010 production is now projected to be in the range of 585-605 MMcfe/d, a 26-31% increase over 2009. The previous production guidance was 570-595 MMcfe/d. Increased activity in Permian Basin horizontal oil projects are playing a key role in the higher guidance.

Expenses for 2010 are expected to fall within the following ranges:


Expenses ($/Mcfe):
	Production expense	$0.80 - $1.00
	Transportation expense	0.19 - 0.24
	DD&A and ARO accretion	1.30 - 1.60
	General and administrative expense	0.22 - 0.28
	Taxes other than income (% of oil and gas revenue)	7.5% - 8.5%

Exploration and Development (E&D) Capital

Second-quarter 2010 E&D capital investment totaled $237.5 million, as compared to $98.7 million in the second quarter of 2009. First-half 2010 E&D capital totaled $430.0 million versus $240.7 in the comparable period of 2009. Cimarex drilled and completed 89 gross (55.5 net) wells in the first half of 2010, of which 84 gross (52.2 net) were successful. At quarter-end 33 gross (16.5 net) wells were in the process of being completed or were awaiting completion.

Full-year 2010 E&D capital investment is now projected to be in the range of $900 million to $1 billion, which we expect to be less than 2010 operating cash flow. This is an increase from the previous E&D capital investment estimate of $700-$900 million. The additional investment is a result of greater drilling and leasing activity in Permian Basin oil plays.

First-half 2010 land and seismic investment totaled $63.2 million, of which $44 million or nearly 70% was in the Permian Basin. The operated rig count in the Permian Basin has also increased from five at the end of the first quarter to 12 currently. With the increased rig count we expect to drill approximately 100 net wells in 2010, a 33% increase over the previous estimate of 75 net wells.

Other

Cimarex has oil and natural gas contracts for July 2010 through December 2011. Calendar 2010 hedges are unchanged. Mid-Continent gas swaps covering 20,000 MMBtu per day for calendar 2011 were entered into since the end of the first quarter. The following tables summarize the current commodity hedge position:

Natural Gas Contracts
				Weighted Average Price
Period	Type	Volume (2)	Index(3)	Floor		Ceiling			Swap
Jul 10 - Dec 10	Collar	100,000	PEPL	$	5.00		$	6.62	$	-
Jul 10 - Dec 10	Swap	40,000	PEPL	$	-		$	-	$	5.18
Jul 10 - Dec 10	Collar	20,000	HSC	$	5.00		$	6.85	$	-
		160,000

Jan 11 – Dec 11	Swap	20,000	PEPL	$	-		$	-	$	5.05

Oil Contracts
				Weighted Average Price
Period	Type	Volume (2)	Index(3)	Floor		Ceiling		Put
Jul 10 – Dec 10	Collar	10,000	WTI	$	60.03	$	92.07	$	-
Jul 10 – Dec 10	Put/Floor	1,000	WTI	$	-	$	-	$	60.00
		11,000

Jan 11 – Dec 11	Collar	8,000	WTI	$	65.00	$	105.81	$	-

Cimarex accounts for these commodity contracts using the mark-to-market (through income) accounting method. Second-quarter 2010 net cash settlements for natural gas hedge contracts were $17 million. There were no settlements for oil.

Long-term debt at June 30, 2010 was $350 million. Debt to total capitalization ratio at quarter-end was 13% (4).

Subsequent to quarter end, all remaining holders of our floating rate convertible senior notes elected to convert. In July 2010, the holders received $20.5 million (principal of $19.5 million and $1.0 million for fractional shares) and 408,450 shares. As of June 30, 2010, the notes are classified as a current liability and the stock is included in fully diluted shares.

Conference call and web cast

Cimarex will also host a conference call today at 11:00 a.m. Mountain Time (1:00 p.m. Eastern Time). To access the live, interactive call, please dial (888) 558-6372 and reference call ID # 89216681 ten minutes before the scheduled start time. A digital replay will be available for one week following the live broadcast at (800) 642-1687 and by using the conference ID # 89216681. The listen-only web cast of the call will be accessible via 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 Mid-Continent, Permian Basin and Gulf Coast areas of the U.S.

This communication contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are more fully described in SEC reports filed by Cimarex. While Cimarex makes these forward-looking statements in good faith, management cannot guarantee that anticipated future results will be achieved. Cimarex assumes no obligation and expressly disclaims any duty to update the information contained herein except as required by law.

(1) Cash flow from operations is a non-GAAP financial measure. See below for a reconciliation of the related amounts.

(2) Gas volume in MMBtu per day and oil volume in barrels per day.

(3) PEPL refers to Panhandle Eastern Pipe Line, Tex/Ok Mid-Continent index and HSC stands for Houston Ship Channel Gulf Coast index both as quoted in Platt's Inside FERC. WTI refers to West Texas Intermediate oil price as quoted on the New York Mercantile Exchange.

(4) Reconciliation of debt to total capitalization, which is a non-GAAP measure, is long-term debt of $350 million divided by long-term debt of $350 million plus stockholders' equity of $2,368 million.

RECONCILIATION OF CASH FLOW FROM OPERATIONS

			For the Three Months Ended				For the Six Months Ended
			June 30,				June 30,
			2010		2009		2010		2009
			(in thousands)				(in thousands)
Net cash provided by operating activities		$	273,153	$	111,790	$	572,260	$	194,346
	Change in operating assets
	and liabilities		(13,259)		41,318		841		96,408

Cash flow from operations		$	259,894	$	153,108	$	573,101	$	290,754

Management believes that the non-GAAP measure of cash flow from operations is useful information for investors because it is used internally and is accepted by the investment community as a means of measuring the company's ability to fund its capital program. It is also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.

PRICE AND PRODUCTION DATA

		For the Three Months Ended		For the Six Months Ended
		June 30,		June 30,
		2010	2009	2010	2009
	Total gas production - Mcf	33,792,812	28,909,821	68,967,732	59,375,158
	Gas volume - Mcf per day	371,350	317,690	381,037	328,040
	Gas price - per Mcf	$4.48	$3.48	$5.47	$3.66

	Total oil production - barrels	2,400,661	2,005,675	4,917,701	4,218,034
	Oil volume - barrels per day	26,381	22,040	27,170	23,304
	Oil price - per barrel	$75.26	$55.27	$75.69	$45.09

	Total NGL production - barrels	982,040	60,544	1,370,242	105,902
	NGL volume - barrels per day *	10,792	665	7,570	585
	NGL price - per barrel	$33.45	$32.69	$35.07	$30.66

* NGL production volumes are recorded based on where title transfer occurs. The increase in barrels per day of NGL production compared to the same periods of 2009 relates primarily to our western Oklahoma, Cana-Woodford shale play and the Yegua/Cook Mountain southeast Texas Gulf Coast production.

OIL AND GAS CAPITALIZED EXPENDITURES

			For the Three Months Ended				For the Six Months Ended
			June 30,				June 30,
			2010		2009		2010		2009
			(in thousands)				(in thousands)
	Acquisitions:
	Proved	$	6,630	$	49	$	13,786	$	124
	Unproved		4,022		—		20,066		—
			10,652		49		33,852		124
	Exploration and development:
	Land and Seismic		38,258		10,757		63,161		27,036
	Exploration and development		199,200		87,948		366,886		213,700
			237,458		98,705		430,047		240,736
	Sale proceeds:
	Proved		(24,861)		(14,664)		(24,861)		(15,394)
	Unproved		(3,917)		—		(3,917)		(3,034)
			(28,778)		(14,664)		(28,778)		(18,428)

		$	219,332	$	84,090	$	435,121	$	222,432

CONDENSED STATEMENTS OF OPERATIONS (unaudited)

			For the Three Months Ended				For the Six Months Ended
			June 30,				June 30,
			2010		2009		2010		2009
			(In thousands, except per share data)

Revenues:
	Gas sales	$	151,375	$	100,539	$	377,012	$	217,163
	Oil sales		180,664		110,850		372,224		190,187
	NGL sales		32,851		1,979		48,060		3,247
	Gas gathering, processing and other		13,602		9,363		29,452		20,433
	Gas marketing, net		9		(46)		323		834
			378,501		222,685		827,071		431,864
Costs and expenses:
	Impairment of oil and gas properties		—		—		—		791,137
	Depreciation, depletion, amortization and accretion		74,787		58,981		147,141		151,192
	Production		45,356		46,031		87,339		96,445
	Transportation		10,825		7,764		21,992		16,473
	Gas gathering and processing		6,100		4,411		12,605		9,517
	Taxes other than income		28,410		15,252		60,768		30,797
	General and administrative		11,817		9,519		24,862		17,281
	Stock compensation, net		2,993		2,097		5,771		4,354
	(Gain) Loss on derivative instruments, net		(3,289)		358		(55,886)		256
	Other operating, net		1,876		6,091		30		16,183
			178,875		150,504		304,622		1,133,635

Operating income (loss)			199,626		72,181		522,449		(701,771)

Other (income) and expense:
	Interest expense		7,387		9,737		15,133		17,693
	Amortization of deferred financing costs		1,714		1,517		3,430		1,828
	Capitalized interest		(7,285)		(5,422)		(14,709)		(10,935)
	Other, net		1,851		5,535		(79)		7,890

Income (loss) before income tax			195,959		60,814		518,674		(718,247)
Income tax expense (benefit)			71,339		22,007		189,693		(262,954)

Net income (loss)		$	124,620	$	38,807	$	328,981	$	(455,293)

Earnings (loss) per share to common stockholders:
	Basic	$	1.47	$	0.46	$	3.88	$	(5.58)
	Diluted	$	1.46	$	0.46	$	3.84	$	(5.58)

Dividends per share		$	0.08	$	0.06	$	0.16	$	0.12

Shares attributable to common stockholders:
	Unrestricted Common shares outstanding		82,352		81,701		82,352		81,701
	Diluted common shares		83,251		82,047		83,242		81,701

Shares attributable to common stockholders and participating securities:
	Basic shares outstanding		84,742		84,053		84,742		84,053
	Fully diluted shares		85,641		84,399		85,632		84,053

CONDENSED CASH FLOW STATEMENTS (unaudited)

								For the Three Months Ended				For the Six Months Ended
								June 30,				June 30,
								2010		2009		2010		2009
								(In thousands)				(In thousands)
Cash flows from operating activities:
	Net income (loss)						$	124,620	$	38,807	$	328,981	$	(455,293)
	Adjustment to reconcile net income (loss) to net cash
		provided by operating activities:
			Impairments and other valuation losses					-		6,343		-		801,905
			Depreciation, depletion, amortization and accretion					74,787		58,981		147,141		151,192
			Deferred income taxes					40,313		35,632		125,303		(234,120)
			Stock compensation, net					2,993		2,097		5,771		4,354
			Derivative instruments, net					13,281		3,727		(38,775)		3,625
			Changes in non-current assets and liabilities					2,513		1,453		5,614		5,879
			Amortization of deferred financing costs
				and other, net				1,387		6,068		(934)		13,212
	Changes in operating assets and liabilities:
			(Increase) decrease in receivables, net					49,544		(10,925)		10,049		76,306
			(Increase) decrease in other current assets					(1,908)		(2,256)		16,587		(26,000)
			Decrease in accounts payable and
				accrued liabilities				(34,377)		(28,137)		(27,477)		(146,714)
					Net cash provided by operating activities			273,153		111,790		572,260		194,346
Cash flows from investing activities:
	Oil and gas expenditures							(223,259)		(95,193)		(426,941)		(292,742)
	Sales of oil and gas and other assets							28,850		14,739		28,905		18,563
	Sales of short-term investments							-		307		-		1,230
	Other expenditures							(6,986)		(2,760)		(14,808)		(10,727)
					Net cash used by investing activities			(201,395)		(82,907)		(412,844)		(283,676)
Cash flows from financing activities:
	Net increase (decrease) in bank debt							-		(6,000)		(25,000)		119,000
	Financing costs incurred							(100)		(17,959)		(100)		(17,961)
	Dividends paid							(6,766)		(5,036)		(11,835)		(10,076)
	Issuance of common stock and other							14,623		114		17,032		114
					Net cash provided by (used in)
						financing activities		7,757		(28,881)		(19,903)		91,077
Net change in cash and cash equivalents								79,515		2		139,513		1,747
Cash and cash equivalents at beginning of period								62,542		2,958		2,544		1,213
Cash and cash equivalents at end of period							$	142,057	$	2,960	$	142,057	$	2,960

BALANCE SHEETS (unaudited)

				June 30,		December 31,
Assets				2010		2009
				(In thousands, except share data)
Current assets:
	Cash and cash equivalents		$	142,057	$	2,544
	Restricted cash			659		593
	Receivables, net			217,822		227,896
	Oil and gas well equipment and supplies			111,143		145,153
	Deferred income taxes			—		15,837
	Derivative instruments			23,570		1,238
	Other current assets			32,308		13,997
		Total current assets		527,559		407,258
Oil and gas properties at cost, using the full cost method of accounting:
	Proved properties			7,909,086		7,549,861
	Unproved properties and properties under development,
		not being amortized		475,899		399,724
				8,384,985		7,949,585
	Less – accumulated depreciation, depletion and amortization			(5,896,323)		(5,764,669)
		Net oil and gas properties		2,488,662		2,184,916
Fixed assets, net				130,722		127,237
Goodwill				691,432		691,432
Other assets, net				32,258		33,694
			$	3,870,633	$	3,444,537
Liabilities and Stockholders’ Equity
Current liabilities:
	Current maturities of long-term debt		$	17,871	$	—
	Accounts payable			38,437		30,214
	Accrued liabilities			251,630		235,815
	Derivative instruments			109		13,902
	Revenue payable			113,430		108,832
		Total current liabilities		421,477		388,763
Long-term debt				350,000		392,793
Deferred income taxes				455,987		348,897
Other liabilities				275,517		275,978
Stockholders’ equity:
	Preferred stock, $0.01 par value, 15,000,000 shares
		authorized, no shares issued		—		—
	Common stock, $0.01 par value, 200,000,000 shares authorized,
		84,094,582 and 83,541,995 shares issued, respectively		841		835
	Paid-in capital			1,873,414		1,859,255
	Retained earnings			493,565		178,035
	Accumulated other comprehensive loss			(168)		(19)
				2,367,652		2,038,106
			$	3,870,633	$	3,444,537