Cimarex Energy CEO Discusses Q3 2010 Results – Earnings Call Transcript
Cimarex Energy Co. (
)
Q3 2010 Earnings Call Transcript
November 3, 2010 1:00 pm ET
Executives
Mark Burford – Director, Capital Markets
Mick Merelli – Chairman and CEO
Tom Jorden – EVP, Exploration
Joe Albi – EVP, Operations
Paul Korus – VP, CFO and Treasurer
Analysts
Matt Portillo – Tudor, Pickering, Holt
John Freeman – Raymond James
Mitch Wurschmidt – KeyBanc Capital
David Deckelbaum – UBS
Garrett Woodford – Canaccord
Jeff Robertson – Barclays
Ronny Eisemann – JPMorgan
Eric Hagen – Lazard Capital
Andrew Coleman – Madison Williams
Presentation
Operator
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Cimarex Energy Co. Q3 2009 Earnings Call Transcript
Good afternoon. My name is, Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cimarex third quarter 2010 financial and operating results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will a question-and-answer session. (Operator instructions)
Thank you. I would now like to turn the call over to your host Mr. Mark Burford. Sir, you may begin.
Mark Burford
Thank you very much, Casey, and welcome, everyone, and thanks for joining us today on our third quarter conference call. We issued our earnings release this morning, and a copy of which can be found on our Web site, and we will be making forward-looking statements today in this call. So, I refer you to the end of our press release for a disclaimer regarding forward-looking statements.
Here in Denver on today’s call, we have Mick Merelli, Chairman and CEO; Tom Jorden, Executive Vice President of Exploration; Joe Albi, Executive Vice President of Operations; Paul Korus, VP and CFO; and Jim Shonsey, VP and Controller, and we have quite a bit to cover today, so I’ll go ahead and just turn the call over to Mick Merelli.
Mick
Merelli
Thank you for joining us today on today’s call. We had another very strong quarter. We had net income of $128.2 million or $1.50 per share to the quarter. Cash flow from operations for the quarter totaled $297 million and year-to-date has totaled $896 million. We grew production 36% over last year, hitting a record 600 million cubic feet equivalent per day.
Third quarter volumes made up of 41,250 barrels a day of liquids and 352.5 million cubic feet of gas. Our production is a mix of 59% gas and 41% liquids on a volumetric basis using 6 to 1 conversion ratio. On a revenue basis, liquids comprised 60% and natural gas was 40% of our total sales.
We have a strong liquids contribution from our three core areas which are, as you probably know, Cana, the Permian Basin and the Gulf Coast area. Our third quarter exploration and development capital was $296 million, bringing our capital year-to-date to $725 million.
Returns from this year’s drilling program looked very solid. Our cash flow year-to-date of $896 million was slightly outpaced by our exploration and development capital, and as a result we exited the quarter with a $148 million of cash and no bank debt. For 2010 for the year, we expect our capital program total to be about $1 billion and it will continue to be funded by our cash flow.
Looking towards 2011, we expect again to reinvest at least our cash flow. Our current multi-year drilling inventory is the largest and most diverse that we’ve ever had.
We are picking up the pace in the Permian Basin where our liquids-rich drilling program yields good returns. Our Cana-Woodford gas weighted program will probably be steady at something like our current activity levels. However, gas markets could influence that activity in Cana up or down. Our Gulf Coast drilling program will continue to be active.
In summary, we find ourselves in very good financial shape, with a highly productive crude reserve base and a large diverse drilling portfolio that is on a leasehold, that is not significantly impacted with term explorations.
So heading into 2011, we have a lot of opportunity and flexibility, but most importantly, as we look forward we will continue to focus on our day-to-day job of drilling good wells.
With that, I am going to hand it over to Tom and he can talk about our exploration program.
Tom Jorden
Thanks, Mick. I will take a few minutes to cover the highlights of our drilling program. As Mick said, we have a great balance of opportunities between our Mid-Continent, Permian Basin and Gulf Coast. We have 24 operator rigs currently drilling; 11 of those are in the Mid-Continent, 12 were in the Permian and one is onshore Gulf Coast.
As we’ve said over the course of years, we like that diversity in our program. We don’t have a crystal ball that predicts commodity pricing, obviously oil projects are rising to the top currently and we have a nice inventory. We have a nice Permian asset that allows us the flexibility to adjust our program with conditions, service cost and commodity price and opportunity set.
Right now, we find ourselves, our three core businesses in the Mid-Continent, Permian and Gif Coast are all generating great returns and we really like that diversity that we’ve taken to our program over time.
I’ll walk through our areas, our exploration development activity year-to-date. We have drilled and completed 152 gross or 91.9 net wells, of which a 143 gross or 85.7 net were successful. At quarter end, 42 gross or 22 net wells were in the process of being completed or were waiting on completion.
Our net uncompleted wells increased 5.6 net wells from the end of the second quarter, most of that increase was from the Permian and reflects the tightness around the fractures. Not only do we increased productivity in the Permian but as most of you are well aware, hydraulic pumping is in high demand at the Permian and you have to get in line as we wait to have many of these wells completed.
Year-to-date as Mick said, our exploration and development investment has totaled $725 million and that spread amongst our three core regions, about 45% of that is Mid-Continent and of that 45%, 39% is Cana and about 6% of that total capital is other Mid-Continent projects, which would be Texas Panhandle and some Southern projects. Permian Basin is 41% of our total capital and Gulf Coast is 13% of our total capital.
So I’d like to walk through our three core operating areas and give you some highlights starting with the Mid-Continent. In the Mid-Continent, we’ve drilled and completed 80 gross or 34.5 net Mid-Continent wells during the first nine months of the year, of which 77 gross or 33.3 net were successful.
At quarter end, we had 24 gross or 7.7 net wells in the process of being completed or awaiting completion. Our Mid-Continent exploration and development capital year-to-date through the third quarter totaled $328 million which I said was 45% of our total capital.
In our Cana play in Western Oklahoma, our Cana-Woodford Shale play, we drilled and completed 57 gross or 23.9 net wells during the first three quarters of 2010. At quarter-end, there were 24 gross or 7.7 net wells being completed or awaiting on completion. So that’s a mix of operated and non-operated, so we still have a fairly significant backlog wells that we are completing at our Cana play.
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