The management team of Denver-based Cimarex Energy Co., whose operations are concentrated in the Permian Basin and Midcontinent, wants to be an active participant in how national policies are set for environmental stewardship, but first it has to walk the walk, CEO Tom Jorden said last week.
Speaking during a fourth quarter conference call, Jorden offered a positive view on how the industry should react to opponents of fossil fuel, noting he has followed the discussion “with great interest and with amazement on how fast the conversation is evolving.”
While rhetoric by fossil fuel opponents “can be a bit extreme, our industry must demonstrate real commitment to a cleaner future, if we're to be taken seriously in energy policy discussions,” he said. “The world needs the products that our industry produces...Demand for our products is on the increase and is expected to continue to increase for decades to come.”
Underinvesting in oil and gas projects today “will lead to long-term bad consequences for our country and for our world,” Jorden said. “But we should never underestimate our ability to make terrible public policy.”
To avoid those unconstructive policies, Jorden urged the industry to become active participants and “earn a seat at the table through our actions on reducing emissions.”
To that end, the board approved 2020 corporate goals that set numerical targets to reduce company emissions and the incidence of flaring.
“Our performance on these goals will directly impact executive team compensation,” Jorden said. “We willingly embrace this challenge.”
He hinted during the call that Cimarex may have tapped into some new landing zones and is “testing some new ideas and modestly leasing on a couple of emerging plays” that management expects to discuss in the future.
Cimarex also is leaning into digital innovation to build better real-time data.
“We have a major effort underway to increase field wide automation, which is a critical element of smart production management, effective safety systems and real-time monitoring of our environmental footprint,” Jorden said. “We have major projects underway on machine learning and are seeing results that are causing us to revisit some long-held assumptions. We
have field tests of these emerging concepts on our 2020 schedule. It's about getting better.”
For the next three years for planning purposes, Cimarex is using a $50/bbl West Texas Intermediate oil price and a $2.25/Mcf Henry Hub average gas price.
“Future commodity pricing is a single biggest variable that drives our multi-year outlook and the amount of free cash that we will generate,” Jorden said. “That said, we manage the company for our owners and make long-term decisions with their interests in mind. We intend to increase our dividend over time. Balance sheet health is a top priority. And to that end, we keep a close eye on the financial markets.”
Realized oil prices averaged $54.80/bbl in the fourth quarter, up 11% year/year, while natural gas prices averaged $1.19/Mcf, down 45%, and natural gas liquids (NGL) prices averaged $14.13/bbl, off 32%. During 2019 Cimarex realized $52.77/bbl of oil, down 7% from 2018; $1.11/Mcf of natural gas and $13.55/bbl of NGLs sold.
Cimarex’s realized Permian oil differential to West Texas Intermediate Cushing averaged minus $4.48/bbl in 2019 compared with minus $9.82 in 2018. The average differential last year on Permian natural gas production was minus $2.14/Mcf compared to the Henry Hub index, while Midcontinent price differences were minus 68 cents/Mcf from Henry.
Costs, Jorden said, have decreased significantly across the operations through a combination of lower oilfield service and material costs and value engineering. Total well cost measured per lateral length decreased 24% year/year in 2019, and further improvements are expected this year.
In total, Cimarex produced 292,700 boe/d in 4Q2019 and averaged 278,500 boe/d. Quarterly oil volumes were sequentially higher, averaging 92,000 b/d, with full-year volumes averaging 86,000 b/d, a 27% increase from 2018.
Capital investments last year totaled $1.32 billion, with 85% directed to the Permian and 15% to the Midcontinent.
During 2019, 92 net wells were drilled, with 32 waiting on completion at year’s end. Of those wells waiting to be tied to sales, 1 net was in the Midcontinent and 31 were in the Permian.
Production from the Permian region averaged 207,1000 boe/d in 4Q2019, which was 71% of total volumes. For 2019, production averaged 190,700 boe, or 68% of the total company volumes. Permian oil also presented 85% of all oil volumes last year.
Cimarex brought 22 net wells on production in the Permian during the final three months of the year, with 76 net wells turned to sales for the year. Cimarex was operating 10 rigs and two completion crews in the region as of late February.
Midcontinent production during the fourth quarter averaged 85,300 boe/d, off 18% year/year and down 3% sequentially. Only one net well was brought online in 42019, bringing the total for the year to 16 net. Activity in the region continues to focus on the Woodford and Meramec plays in Western Oklahoma.
Net losses totaled $384 million (minus $3.87/share) in 4Q2019 versus year-ago net profits of $1.6 million ($3.32). For 2019, net losses totaled $124.6 million (minus $1.33/share) from 2018 income of $792 million ($8.32).