Cimarex Energy Co. Q2 2010 Earnings Call Transcript

Cimarex Energy Co. Q2 2010 Earnings Call Transcript
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Cimarex Energy Co. (XEC)

Q2 2010 Earnings Call

August 04, 2010 1:00 p.m. ET

Executives

Mark Burford - Director, Capital Markets

Mick Merelli - President & CEO

Tom Jorden - EVP, Exploration

Joe Albi - EVP, Operations

Paul Korus - VP & CFO

Analysts

Mitch Wurschmidt - Keybanc Capital Markets.

Nicholas Pope - Dahlman Rose

Gil Yang - Bank of America Merrill Lynch

Ray Deacon - Pritchard Capital

[Ronny Iceman] - JPMorgan

Eric Hagen - Lazard Capital Market

Presentation

Operator

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Previous Statements by XEC
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Good afternoon. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Cimarex Second Quarter 2010 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will a question-and-answer session. (Operator Instructions).

Thank you. I would now like to turn the conference over to Mr. Mark Burford, Director of Capital Markets. Sir, you may begin your conference.

Mark Burford

Thank you very much Regina, appreciate it and welcome everyone and thank you for joining us today for our second quarter conference call. We did issue our earnings release this morning, a copy of which can be found in our website and I will refer it to you.

We'll be making forward looking statements in this conference call. So I will refer you to the end of that press release for our disclaimer regarding forward looking statements. And here in Denver on today's call we have Mick Merelli, our Chairman, & CEO; Tom Jorden, EVP of Exploration; Joseph Albi, EVP of Operations; Paul Korus, Vice President & CFO and Jim Shonsey, VP & Controller.

So with those introductions over, let's just go and jump into the call. I'm turning the call over to Mick Merelli.

Mick Merelli

Yeah, thanks. Thanks for joining us today on the call. We had a solid second quarter. We grew production 31% over last year, hitting a record of 594 million cubic feet equivalent per day. Second quarter volumes were made up of 37,000,173 barrels per day of liquids and 371 million cubic feet a day of gas. Our production mix is 62% gas and 38% liquids and that's using 6:1 conversion. Our gas versus liquids on a revenue basis is 41% gas and 59% liquids.

We do have a strong liquids contribution in our Cana play in the Gulf Coast and of course our Permian activities. We reported second quarter earnings of a $125 million or about a $1.46 per share and cash flow from operations totaled $260 million. Our exploration and development capital investment in the quarter was $247 million.

Our six month E&D capital has totaled $430 million. For the full year 2010 the capital program will likely fall within a range if 900 million to a $1 billion. We extent to continue to fund this capital and investment for that program out of our operating cash flow.

The range is up from our previous range of 700 to 900 million. We continue to have very good results in our Permian Basin drilling and we are getting more active there. Our rig count is up. We've been acquiring acreage. We've acquired about 45,000 net acres in our Delaware basin activities so far this year; probably acquire more as the year goes on.

So we're expanding in that area. So our capital is moving ahead. We're having a good year. Of course we define that based on getting good returns on our capital invested and we like the returns that we're getting so far.

Now I'm going to pass it off to Tom and Joe and let them cover our drilling and production in more detail. And with that Tom, tell us about the drilling program.

Tom

Jorden

Thanks Mick and good morning or good afternoon to everyone. As Mick said, operationally our second quarter was a very good one for Cimarex and we're feeling quiet positive about the remainder of the year and in actual future years.

All of our areas are continuing to perform very well as we've highlighted in the past. Just to recap, our three core areas are the mid-continent which is essentially our resource gas play; our Permian, which is essentially horizontal oil drilling and our onshore Gulf Coast.

We have a great balance of opportunities and as we always remind you, we are ready to return focus, but right now with the high relative value of oil, we are adding capital towards our higher return Permian Basin horizontal drilling.

Our current guidance estimate for capital is between 900 and a $1 billion would break down to about equal 45% between Mid-Continent and Permian, and then approximately 10% of that total capital should be spent in our Gulf Coast. So, that's change from prior. The most significant change there is our Permian capital has ramped up over previous estimates and really is going toe-to-toe with our Mid-Continent, Cana and another obligations that we're pursuing aggressively.

So, I'll cover and summarize some of our drilling activity. Our overall exploration and development activity for quarter, we drilled and completed 89 gross or 55 net wells in the first half of 2010, of which 84 gross or 52 net were successful. At quarter end, we had 33 gross or 16.5 net wells that were in the process of being completed or awaiting on completion. So we still have a fair backlog of completion activity.

In the Mid-Continent, we drilled and completed 49 gross or 24.2 net Mid-Continent wells during the first six months of 2010 and 100% of those were producers. At quarter end, we had 17 gross or 6.7 net wells that were in the process of being completed or were awaiting on completion. For the Mid-Continent, first half 2010 exploration development capital totaled 200 million or about 46% of our projected total capital.

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