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Cimarex Beats 1Q Production Estimates, Drills Deeper into Permian

Cimarex Energy Co. beat its expectations and those of analysts for first quarter production after drilling deeper into the Permian Basin with seven long lateral wells that target the prospective Wolfcamp formation.

The Denver-based company, firmly deployed in the Permian and the Midcontinent, on Monday raised its production guidance for 2015 to average 920-950 MMcfe/d. But it kept unchanged its plans to invest between $900,000 and $1.1 billion on exploration and development in 2015 (see Shale DailyFeb. 19). It is currently running six rigs.

Total production for the first quarter was 946.7 MMcfe/d, a 27.9% increase from the first quarter of 2014 (740.4 MMcfe/d). Natural gas production increased 25.5% year/year from 355.3 MMcf/d to 445.8 MMcf/d, while oil production rose 30.8% from 39,168 b/d to 51,241 b/d. Natural gas liquids (NGL) production climbed by 28.8% from 25,028 b/d to 32,242 b/d.

In the Permian Basin, production averaged 487.8 MMcfe/d, a 40.5% increase from a year earlier when it produced 347 MMcfe/d. Gas production in the basin climbed 46.7% from 102.5 MMcf/d to 150.4 MMcf/d, while oil production rose 36.3% from 31,624 b/d to 43,089 b/d, and NGL production increased 44.2% from 9,124 b/d to 13,156 b/d.

Cimarex said it had completed and brought online 42 gross (30 net) wells in the Permian during 1Q2015, and had another 23 gross (16 net) wells waiting on completion as of March 31. Of the 42 gross wells, 16 targeted the Avalon Shale, 12 were drilled into a second interval of the Bone Spring formation and two targeted the third interval of Bone Spring. Another 12 wells -- six in the Culberson County area and six in neighboring Reeves County, TX -- targeted the Wolfcamp.

The company has seven long-lateral wells targeting the Wolfcamp D interval in Culberson County producing, with an average 30-day gross peak production rate of 2,378 boe/d, which includes 45% natural gas, 29% NGLs and 26% oil. Another four wells in Culberson, each with 7,500-foot laterals, are also producing at an average 30-day peak production rate of 1,266 boe/d (47% oil, 32% gas, 21% NGL).

John Lambuth, vice president for exploration, said a second density pilot program in Culberson County differed slightly from the first program, which was conducted just to the north.

"We are changing the frack [fracture] design some, based on some recent well results," Lambuth said during Tuesday's call. "We're not changing [the] total amount of sand -- we're still at around 6 million pounds over the length of a 5,000-foot lateral. But we're going to do it with fewer stages; instead of 20, we're going to do it with 16. And we're also adding more clusters within each stage.

"We have a few wells that recently came on with this type of design. And although we don't have a lot of production on those wells just yet, the early data that we see from those particular wells is encouraging, and that's why we're making this particular change for this pilot."

During the conference call, CEO Tom Jorden said the longer laterals "have reaffirmed our enthusiasm for the long-term potential of this play."

There was much less drilling activity in the Midcontinent, where Cimarex said it was active in the Cana-Woodford Shale in Western Oklahoma, completing and bringing online seven gross (three net) wells in 1Q2015. It had another 27 gross (11 net) wells awaiting completion at the end of the quarter. But it also completed a well targeting the Meramec formation, and now has seven in production there. Average 30-day peak production from its seven Meramec wells are 10 MMcfe/d, with and oil/gas production ratio ranging from 17 bbl/MMcf to more than 300 bbl/MMcf. The company said it was currently drilling its first 10,000-foot lateral in the Meramec.

Total production in the Midcontinent increased 19.6% year/year in the quarter from 371.3 MMcfe/d to 444.1 MMcfe/d). That included a 17.7% increase in gas production, from 243.8 MMcf/d to 287 MMcf/d, a 22.8% increase in oil production from 6,057 to 7,436 b/d, and a 23.5% increase in NGL output from 15,196 to 18,762 b/d.

Cimarex reported a net loss of $419.8 million (minus $4.84/share) for 1Q2015, compared with net income of $138.5 million ($1.59) in 1Q2014. The adjusted net loss for the quarter was $31.7 million (minus 37 cents/share), compared with year-ago profits of $145.3 million ($1.67) in 1Q2014. The company attributed the one-time losses primarily to charges related to the impairment of its oil and gas properties.

Analysts reacted favorably. Cimarex's 1Q2015 production beat the estimates set forth by BMO Capital Markets Corp. (940 MMcfe/d) and Jefferies LLC. Analysts with Tudor, Pickering, Holt & Co. added that the company's "shorter-term outlook [was] also positive, as the 2Q2015 midpoint of 975 MMcfe/d is 4% above [the] consensus [of] 935 MMcfe/d."

Jefferies added that "the Second Bone Spring provides some of the highest returns anywhere in the Permian currently due to both service cost reductions and responsiveness to enhanced completions, but Cimarex has perhaps 200 locations remaining."

ISSN © 2577-9877 | ISSN © 2158-8023

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