Onshore-focused explorers Cimarex Energy Co., Laredo Petroleum Inc. and Diamondback Energy Inc. each reported increased oil production in 2017 and in some cases broke company records, and all three plan to operate within cash flows in 2018.
Denver-based Cimarex said its 4Q2017 production averaged 1.2 Bcfe/d (200,729 boe/d), a 25.5% increase year/year from the 959.7 MMcfe/d (160,000 boe/d). For the full-year, the company reported production of 1.14 Bcfe/d (190,354 boe/d), an 18.5% increase from the 963.4 MMcfe/d (160,555 boe/d) produced in 2016.
Oil production grew 35.6% year/year in 4Q2017 to 61,771 b/d from 45,567 b/d. Full-year oil production also grew from 2016 by 26.6%, increasing to 57,153 b/d from 45,158 b/d.
Cimarex spent $1.28 billion on exploration and development costs last year, with 59% of devoted to the Permian Basin and 39% in the Midcontinent. Another $45 million was invested in midstream operations.
The company completed 117 gross (24 net) wells in 4Q2017, of which 32 (14 net) were in the Permian and 85 (10 net) were in the Midcontinent. By comparison, Cimarex completed 55 gross (25 net) wells in the year-ago quarter, which included 11 gross (8 net) wells in the Permian and 44 (17 net) wells in the Midcontinent.
For the full-year 2017, the company completed 319 gross (98 net) wells, compared to 153 (61 net) in 2016. Cimarex had 91 gross (34 net) wells awaiting completion at the end of 2017. Of those, 60 gross (16 net) wells were in the Midcontinent and 31 (18 net) were in the Permian.
Cimarex currently operates 10 rigs in the Permian and four in the Midcontinent. It plans to spend $1.6-1.7 billion on capital expenditures (capex) in 2018, which includes $1.3-1.4 billion on drilling and completion (D&C). Nearly 70% of the D&C would be devoted to the Delaware sub-basin of the Permian, with the remainder to wells in the Midcontinent.
The company plans to complete 127 net wells by year’s end. Of those, 84 are to be in the Permian with 43 will be in the Midcontinent. The company estimates it will have 81 gross (47 net) wells awaiting completion by the end of 2018.
Specifically, in the Permian, Cimarex plans to continue focusing on its long lateral programs targeting the Wolfcamp formation in the West Texas counties of Culberson and Reeves, and in Lea County, NM. Additional investments are planned in the Avalon and Bone Spring formations. In the Midcontinent, Cimarex plans to focus on D&C activities in the Anadarko Basin, targeting the Woodford formation in the Lone Rock area and further delineating the Meramec play.
CEO Tom Jorden said Cimarex expects to deliver 11-16% total production growth in 2018, with 21-26% oil production growth. Oil sales are expected to account for 62% of the company’s revenue for the year, he said, followed by natural gas liquids (19%) and residue gas (18%).
“Once again, as in 2017, we plan to achieve these results within cash flow and cash on hand,” Jorden said during an earnings call Thursday. “Our ongoing emphasis on the Delaware Basin and the liquids-rich portions of the Woodford and Meramec plays will continue to balance our exposure to swings in commodity prices.”
The company is projecting that production in 2018 will average 211,000-221,000 boe/d, a 14% increase from the midpoint of 2017 production. Cimarex expects 1Q2018 production will average 198,000-207,000 boe/d.
Cimarex posted net income of $174.7 million in 4Q2017 ($1.83/share), compared with $47.8 million (50 cents) in the year-ago quarter. The company reported net earnings of $494.3 million ($5.19/share) for the full-year 2017, compared with a net loss of $408.8 million (minus $4.38) in 2016.
Laredo Planning Fourth Rig
Tulsa-based Laredo, a pure-play Permian operator, broke production records in the fourth quarter and for the full year. The company said production averaged 61,922 boe/d (43% oil) in 4Q2017, a 16.5% increase from the year-ago quarter (53,141 boe/d, 46% oil). For the full-year, Laredo produced a record 58,273 boe/d (45% oil) in 2017, up 17.5% from 2016 (49,586 boe/d, 47% oil).
The company completed 18 horizontal wells in 4Q2017, with average 9,500-foot laterals. Laredo completed 62 horizontal development wells in 2017.
Laredo unveiled a capex budget of $555 million for 2018, of which $470 million would be devoted to D&C costs and the remaining $85 million for facilities and other capitalized costs. The company plans to operate three to four horizontal rigs and complete 60-65 net wells in 2018, nearly all of which would target the Upper and Middle Wolfcamp formations of the Permian.
“Currently we plan to add a fourth rig around mid-year 2018, and expect to add additional rigs at a measured pace beyond 2018, although with the goal to operate within or close to cash flow,” CEO Randy Foutch said during an earnings call Thursday. “At current commodity prices, we believe that will be the case for 2018.”
The company expects to grow production by at least 10% in 2018. In the first quarter, Laredo expects to produce 62,000 boe/d, including 27,000 b/d of oil.
Laredo reported net income of $408.6 million in 4Q2017 ($1.71/share), compared with a year-ago net loss of $18.4 million (minus 8 cents). For the full-year, the company reported net earnings of $549 million ($2.30/share) versus a 2016 net loss of $260.7 million (minus $1.16). Earnings for 2017 included a $405.9 million gain on the sale of its stake in the Medallion-Midland Basin pipeline system.
Diamondback Initiates Cash Dividend
Permian pure-play Diamondback said oil and gas production climbed 79% year/year (y/y) during the fourth quarter and rose 9% sequentially, even as cash costs came down by 10%.
Fourth quarter output, 74% weighted to oil, averaged 92,900 boe/d, with full-year production climbing 84% from 2016 to average 79,200 boe/d.
Based on results to date, the Midland, TX-based independent has set 2018 guidance of 109,000-116,000 boe/d, which would be up more than 40% y/y from the midpoint, based on current commodity prices.
“In a year where investor focus shifted from resource capture to resource execution and capital discipline in the Permian Basin, Diamondback delivered on its promises by achieving 84% y/y production growth within cash flow,” said CEO Travis Stice.
“After successfully integrating multiple large acquisitions and doubling our asset base, we decreased cash costs by over 10% y/y and increased proved reserves by over 60% while maintaining peer-leading capital efficiency.”
During 4Q2017, Diamondback drilled 46 horizontal wells (gross) and turned 38 operated horizontals to production.
The average completed lateral length for the Permian wells was 10,091 feet, up from 9,603 feet in 3Q2017. Diamondback completed 19 Lower Spraberry wells, 15 Wolfcamp A wells and four Wolfcamp B wells. It operated 10 rigs and four dedicated fracture spreads during the quarter.
The company now is operating 10 horizontal rigs and plans to operate 10-12 this year, with plans to turn online 170-190 gross operated wells.
Diamondback’s return on average capital employed nearly doubled in 2017 and is expected to continue to rise “given current commodity prices and our continued development of undeveloped acreage,” Stice said.
The operator also has initiated a 50-cent annual cash dividend, its first in its five-year history, which is to be paid quarterly beginning with 1Q2018.
Diamondback’s net income in 4Q2017 was of $114.6 million ($1.16/share), compared with $25.6 million (32 cents) in the year-ago period. Earnings for 2017 totaled $482.3 million ($4.95/share), reversing a 2016 loss of $165 million (minus $2.20).
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