Cimarex Energy Co. has agreed to sell more than 98% of its projected natural gas production in the Permian Basin through October 2019, on concerns that operators will continue to be impacted by increased local price differentials until additional pipeline capacity is brought online.

The Denver-based company, which operates exclusively in the Permian and the Midcontinent, said Tuesday it had “taken a number of steps to ensure the flow of our natural gas production out of the Permian Basin.” It said average realized prices for natural gas were $2.23/Mcf in the Permian and $2.31/Mcf in the Midcontinent in 1Q2018, compared with year-ago rates of $2.89/Mcf for Permian gas and $3.09/Mcf for Midcontinent gas.

Cimarex owns and operates two Permian gas gathering systems: Triple Crown, which covers Culberson County, TX, and Eddy County, NM; and Matterhorn in Reeves County, TX.

“Fortunately with our Triple Crown and our Matterhorn systems in place, we have access to multiple markets, which certainly works in our favor,” COO Joe Albi said during an earnings call Wednesday to discuss 1Q2018 results. “Our focus has been surety of flow, making sure the product gets sold. We sell our residue gas either as gas that we’ve taken in kind on the tailgate of a processing plant, or directly to the purchaser at the tailgate of the processing plant.

“For gas that we can take in kind, we either sell directly to utilities, local distribution companies or end users who have demand and firm transport for that gas,” Albi said. He added that another option is to use “counterparties that either have firm transport out or are purchaser-backed with purchasers who have firm [transport] in their hip pocket to get the gas out of the basin.

“Our goal was to sell to parties that have firm to get the gas out of the basin. We took a look at our projected production profiles, not only of our base wells, but for our 2018 and 2019 drilling programs. We looked at what potential revenue could be either under recovery or rejection off each one of those processing facilities, and we put our forecasted volumes in place that our marketing team was able to line up with purchasers.”

Cimarex reported that production averaged 206,050 boe/d in 1Q2018, which was at the high end of the company’s 198,000-207,000 boe/d guidance, and a 16.3% increase year/year (y/y). Oil production surged 25% to 65,212 bbl from 52,181 bbl in the year-ago quarter.

Broken down by play, production in the Permian averaged 114,218 boe/d in 1Q2018, an 18.8% increase from 1Q2017 (96,140 boe/d). Midcontinent production rose 13.3% y/y to 91,433 boe/d in 1Q2018 from 80,697 boe/d. Oil production increased 21.5% y/y in the Permian to 49,845 bbl from 41,039 bbl and 37.7% in the Midcontinent to 15,225 bbl from 11,053 bbl.

During 1Q2018, the company said it spent $313 million on exploration and development (E&D) costs, 61% of which was devoted to the Permian and 38% to the Midcontinent. Cimarex brought 54 gross (15 net) wells into production in the first quarter, of which 17 gross (nine net) were in the Permian and 37 gross (six net) were in the Midcontinent.

Cimarex said it had 125 gross (48 net) wells awaiting completion at the end of the first quarter. Of those, 52 gross (28 net) were in the Permian and 73 gross (20 net) were in the Midcontinent. The company also said it’s running 13 drilling rigs (10 Permian, three Midcontinent) and has five completion crews deployed (three Permian, two Midcontinent).

In the Permian, the company said it completed nine wells targeting the Wolfcamp and Bone Spring formations and the Avalon Shale during 1Q2018. Of note were two wells targeting the Avalon in Lea County, NM, the Coriander AOC 1-12 State 1H, and the Thyme APY FED 19H. The Coriander averaged peak 30-day initial production rates of 3,333 boe/d (2,233 b/d of oil), while the Thyme averaged 2,059 boe/d (1,420 b/d), respectively.

Full-year production guidance remains unchanged at 211,000-221,000 boe/d, 33% oil, but Cimarex has increased its 2Q2018 guidance to 200,000-209,000 boe/d.

Net income was $186.3 million ($1.96/share) in 1Q2018, compared with net income of $131 million ($1.38) in the year-ago quarter. Revenues totaled $567.1 million, up from to $447.2 million in 1Q2017.