CIMAREX ENERGY CO - FORM 8-K - EX-99.1

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8-K - CIMAREX ENERGY CO	v221078_8k.htm

Cimarex Reports First-Quarter 2011 Net Income of $118.2 Million

DENVER, May 6, 2011 /PRNewswire/ -- Cimarex Energy Co. (NYSE: XEC) today reported first-quarter 2011 net income of $118.2 million, or $1.37 per diluted share. This compares to first-quarter 2010 earnings of $204.4 million, or $2.39 per diluted share.

First-quarter 2011 net income includes an unrealized non-cash loss on derivative instruments associated with 2011 oil and gas hedges of $12.8 million after-tax, or $0.15 per share. First-quarter 2010 results had a $33 million ($0.39 per share) after-tax non-cash gain on derivative instruments.

Oil, gas and natural gas liquids (NGLs) revenue in the first quarter of 2011 totaled $414.0 million, a 4% decrease compared to $432.4 million in the same period of 2010. First-quarter 2011 cash flow from operations was $304.6 million versus $313.2 million a year ago(1).

The decrease in first-quarter 2011 revenues and cash flow is a result of lower gas prices, which were only partially offset by higher oil prices and production. First-quarter 2011 production volumes averaged 590 million cubic feet equivalent (MMcfe) per day, a 1% increase over first-quarter 2010 output of 584.5 MMcfe per day. First-quarter 2011 production volumes were 56% gas, 27% oil and 17% NGLs.

First-quarter 2011 realized oil prices increased 20% to $91.46 per barrel. Gas prices fell 31% to $4.45 per thousand cubic feet (Mcf) as compared to the same period of 2010.

2011 Outlook

Second-quarter 2011 production is projected to range between 580-600 MMcfe/d. Full-year 2011 production is projected to be in the range of 605-635 MMcfe/d.

Full-year 2011 exploration and development (E&D) capital investment is expected to be principally funded from cash flow. At the present time, based on current market prices and service costs, we expect 2011 capital expenditures to range from $1.3-$1.4 billion. "We remain focused on profitable growth and maximizing our return on investment. We have a large inventory of drilling opportunities and limited lease expirations," said F.H. Merelli, Chairman, President and Chief Executive Officer.

Expenses for 2011 are expected to fall within the following ranges:

Expenses ($/Mcfe):
	Production expense	$1.02 - $1.22
	Transportation expense	0.22 - 0.27
	DD&A and ARO accretion	1.65 - 1.80
	General and administrative expense	0.22 - 0.28
	Taxes other than income (% of oil and gas revenue)	7.5% - 8.5%

Other

Cimarex's commodity hedge position comprised of natural gas swaps and oil collars remains unchanged as summarized below:

Natural Gas Contracts


				Weighted Average
Period	Type	Volume ⁽²⁾	Index⁽³⁾	Swap Price
Apr 11 – Dec 11	Swap	20,000	PEPL		$	5.05

Oil Contracts

Weighted Average Price

Period

Type

Volume ⁽²⁾

Index⁽³⁾

Floor

Ceiling

Apr 11 – Dec 11

Collar

12,000

WTI

65.00

105.44

Cimarex accounts for these commodity contracts using the mark-to-market (through income) accounting method. First-quarter 2011 net cash settlements, or realized gain was $2 million, which was offset by $20.2 million of non-cash unrealized mark-to-market losses, for a net loss of $18.2 million.

Long-term debt at March 31, 2011 was $350 million. Debt to total capitalization ratio at quarter-end was 11% ⁽⁴⁾.

Exploration and Development Activity

Cimarex's drilling activities are conducted within three main areas: Permian Basin, Mid-Continent and Gulf Coast. Permian activity is currently primarily directed to the Delaware Basin of southeast New Mexico and West Texas. Majority of Mid-Continent drilling is in the western Oklahoma Cana-Woodford shale and Texas Panhandle Granite Wash. Gulf Coast operations are currently focused in southeast Texas, near Beaumont.

Cimarex drilled and completed 65 gross (35 net) wells during the first quarter of 2011, investing $337 million on E&D. Of total expenditures, 50% were invested in projects located in the Mid-Continent area; 46% in the Permian Basin; and 4% in the Gulf Coast.

Wells Drilled and Completed by Region
	First Quarter
	2011	2010
Gross wells
Permian Basin	26	11
Mid-Continent	37	22
Gulf Coast	2	4
	65	37
Net wells
Permian Basin	20	9
Mid-Continent	13	10
Gulf Coast	2	4
	35	23

% Gross wells completed as producers	97%	92%

At the end of the first quarter, 31 net wells were awaiting completion: 13 Mid-Continent and 18 Permian Basin. Cimarex currently has 24 operated rigs running; 12 in the Permian Basin, 11 in the Mid-Continent, and one in southeast Texas Gulf Coast.

Permian Basin

Cimarex drilled and completed 26 gross (19.7 net) Permian Basin wells during the first quarter, completing 96% as producers. At quarter-end, 23 gross (18.1 net) wells were in the process of being completed or were awaiting completion. Drilling principally occurred in the Delaware Basin of Texas and southeast New Mexico, mainly targeting Bone Spring, Paddock, Abo and Wolf Camp formations.

Recent notable horizontal Bone Spring wells brought on production (30-day gross average) this quarter include the Southern California 29 Federal 17H (100% working interest) at 680 barrels equivalent per day (Boe/d), Southern California 29 Federal 18H (100% working interest) at 667 barrels equivalent per day and the Johnson 33-21 2H (96% working interest) at 470 barrels equivalent per day.

Cimarex is also in the early evaluation of unconventional liquids rich gas plays targeting Wolfcamp, Avalon and Cisco/Canyon shale formations in the Delaware Basin. We have approximately 125,000 net acres prospective for a combination of some or all of these shale formations.

Mid-Continent

Cimarex drilled and completed 37 gross (13.2 net) Mid-Continent wells during the first quarter, completing 100% as producers. At quarter-end, 32 gross (13 net) wells were in the process of being completed or were awaiting completion.

The majority of the first-quarter activity occurred in the Anadarko Basin, Cana-Woodford shale play, where Cimarex drilled and completed 31 gross (9.6 net) wells. At quarter-end 29 gross (11.1 net) wells were being completed or awaiting completion in this area.

Since the Cana play began in late 2007, Cimarex has participated in 212 gross (79.9 net) wells. Of total wells, 172 gross (63.4 net) were on production at quarter-end and the remainder were either in the process of being drilled or awaiting completion. First-quarter 2011 net production from the Cana play averaged 104 MMcfe/d versus the first-quarter 2010 average of 67 MMcfe/d.

Other first-quarter 2011 Mid-Continent drilling included 5 gross (2.8 net) Granite Wash wells. Recent notable 30-day average production from these wells include the George 17-5H (61% working interest) at 8.6 MMcfe/d, George 17-6H (61% working interest) at 8.0 MMcfe/d and the Kephart 1-4H (91% working interest) at 6.5 MMcfe/d.

Gulf Coast

During the first quarter 2011 Cimarex drilled two gross (1.8 net) Yegua/Cook Mountain wells, of which one gross (1.0 net) was successful. One rig is currently drilling near Beaumont.

Production by Region

Cimarex's average daily production by commodity and region is summarized below:

Production by region

	First Quarter
		2011	2010
Gas (Mcf per day)
Permian Basin		68,836	73,762
Mid-Continent		189,345	188,005
Gulf Coast		68,141	128,065
Other		1,302	1,000
		327,624	390,832
NGL (barrels per day)
Permian Basin		2,941	163
Mid-Continent		7,542	3,947
Gulf Coast		6,463	202
Other		1	1
		16,947	4,313
Oil (barrels per day)
Permian Basin		14,541	13,291
Mid-Continent		5,237	4,519
Gulf Coast		6,993	10,143
Other		17	14
		26,788	27,967
Total Equivalent (Mcfe per day)
Permian Basin		173,728	154,486
Mid-Continent		266,019	238,801
Gulf Coast		148,877	190,135
Other		1,410	1,093
		590,034	584,515

Conference call and web cast

Cimarex will also host a conference call today at 11:00 a.m. Mountain Time (1:00 p.m. Eastern Time). To access the live, interactive call, please dial (877) 789-9039 and reference call ID # 60711411 ten minutes before the scheduled start time. A digital replay will be available for one week following the live broadcast at (800) 642-1687 and by using the conference ID #60711411. The listen-only web cast of the call will be accessible via www.cimarex.com.

About Cimarex Energy

Denver-based Cimarex Energy Co. is an independent oil and gas exploration and production company with principal operations in the Mid-Continent, Permian Basin and Gulf Coast areas of the U.S.

This communication contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are more fully described in SEC reports filed by Cimarex. While Cimarex makes these forward-looking statements in good faith, management cannot guarantee that anticipated future results will be achieved. Cimarex assumes no obligation and expressly disclaims any duty to update the information contained herein except as required by law.



(1) Cash flow from operations is a non-GAAP financial measure. See below for a reconciliation of the related amounts.
(2) Gas volume in MMBtu per day and oil volume in barrels per day.
(3) PEPL refers to Panhandle Eastern Pipe Line, Tex/Ok Mid-Continent index as quoted in Platt's Inside FERC. WTI refers to West Texas Intermediate oil price as quoted on the New York Mercantile Exchange.
(4) Reconciliation of debt to total capitalization, which is a non-GAAP measure, is: long-term debt of $350 million divided by long-term debt of $350 million plus stockholders' equity of $2,722 million.


RECONCILIATION OF CASH FLOW FROM OPERATIONS

			For the Three Months Ended
			March 31,
			2011		2010
			(in thousands)
Net cash provided by operating activities		$	265,277	$	299,107
	Change in operating assets
	and liabilities		39,343		14,100

Cash flow from operations		$	304,620	$	313,207

Management believes that the non-GAAP measure of cash flow from operations is useful information for investors because it is used internally and is accepted by the investment community as a means of measuring the company's ability to fund its capital program. It is also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.

PRICE AND PRODUCTION DATA*

		For the Three Months Ended
		March 31,
		2011	2010

	Total gas production - Mcf	29,486,147	35,174,920
	Gas volume - Mcf per day	327,624	390,832
	Gas price - per Mcf	$4.45	$6.41

	Total oil production - barrels	2,410,919	2,517,040
	Oil volume - barrels per day	26,788	27,967
	Oil price - per barrel	$91.46	$76.11

	Total NGL production - barrels	1,525,226	388,202
	NGL volume - barrels per day	16,947	4,313
	NGL price - per barrel	$40.77	$39.18

*	During the first quarter of 2010, we began separately reporting NGL volumes, based on where title transfers. Separate reporting of additional NGL's continued throughout the year as new contracts were entered into and others were modified to clarify title transfer. As a consequence, reported gas and NGL volumes and prices between periods may not be comparable.


OIL AND GAS CAPITALIZED EXPENDITURES

			For the Three Months Ended
			March 31,
			2011		2010
			(in thousands)
	Acquisitions:
	Proved	$	—	$	7,156
	Unproved		441		16,497
			441		23,653

	Exploration and development:
	Land and Seismic		32,426		24,450
	Exploration and development		304,575		167,628
			337,001		192,078

	Sale proceeds:
	Proved**		(11,354)		58
	Unproved		(494)		—
			(11,848)		58

		$	325,594	$	215,789

**	The positive amount in the first-quarter 2010 proved sales proceeds reflects purchase price adjustments related to dispositions in 2009.

CONDENSED STATEMENTS OF OPERATIONS (unaudited)

			For the Three Months Ended
			March 31,
			2011		2010
			(In thousands, except per share data)

Revenues:
	Gas sales	$	131,323	$	225,637
	Oil sales		220,499		191,560
	NGL sales		62,190		15,209
	Gas gathering, processing and other, net		12,584		16,164
			426,596		448,570
Costs and expenses:
	Depreciation, depletion, amortization and accretion		86,964		72,354
	Production		58,480		41,983
	Transportation		13,446		11,167
	Gas gathering and processing		4,551		6,505
	Taxes other than income		33,597		32,358
	General and administrative		14,727		13,045
	Stock compensation, net		4,750		2,778
	(Gain) loss on derivative instruments, net		18,244		(52,597)
	Other operating, net		3,374		(1,846)
			238,133		125,747

Operating income			188,463		322,823

Other (income) and expense:
	Interest expense		7,275		7,745
	Amortization of deferred financing costs		1,705		1,717
	Capitalized interest		(7,225)		(7,424)
	Other, net		(604)		(1,930)

Income before income tax			187,312		322,715
Income tax expense			69,150		118,354
Net income		$	118,162	$	204,361

Earnings per share to common stockholders:

	Basic	$	1.38	$	2.42
	Diluted	$	1.37	$	2.39

Dividends per share		$	0.10	$	0.08

Shares attributable to common stockholders:
	Unrestricted common shares outstanding		83,546		82,023
	Diluted common shares		83,984		82,870

Shares attributable to common stockholders and participating securities:
	Basic shares outstanding		85,626		84,531
	Fully diluted shares		86,064		85,378

CONDENSED CASH FLOW STATEMENTS (unaudited)

							For the Three Months Ended
							March 31,
							2011		2010
							(In thousands)

Cash flows from operating activities:
	Net income					$	118,162	$	204,361
	Adjustment to reconcile net income to net cash
		provided by operating activities:
			Depreciation, depletion, amortization and accretion				86,964		72,354
			Deferred income taxes				69,698		84,990
			Stock compensation, net				4,750		2,778
			Derivative instruments, net				20,278		(52,056)
			Changes in non-current assets and liabilities				2,738		3,101
			Amortization of deferred financing costs
				and other, net			2,030		(2,321)
	Changes in operating assets and liabilities:
			(Increase) decrease in receivables, net				2,022		(39,495)
			(Increase) decrease in other current assets				(3,005)		18,495
			Increase (decrease) in accounts payable and
				accrued liabilities			(38,360)		6,900
					Net cash provided by operating activities		265,277		299,107
Cash flows from investing activities:
	Oil and gas expenditures						(310,182)		(203,682)
	Sales of oil and gas and other assets						12,037		55
	Other expenditures						(24,506)		(7,822)
					Net cash used by investing activities		(322,651)		(211,449)
Cash flows from financing activities:
	Net decrease in bank debt						—		(25,000)
	Dividends paid						(6,849)		(5,069)
	Issuance of common stock and other						4,243		2,409
					Net cash used by financing activities		(2,606)		(27,660)
Net change in cash and cash equivalents							(59,980)		59,998
Cash and cash equivalents at beginning of period							114,126		2,544
Cash and cash equivalents at end of period						$	54,146	$	62,542

CONDENSED BALANCE SHEETS (unaudited)

				March 31,		December 31,
Assets				2011		2010
				(In thousands, except share data)
Current assets:
	Cash and cash equivalents		$	54,146	$	114,126
	Receivables, net			308,946		310,968
	Oil and gas well equipment and supplies			79,599		81,871
	Deferred income taxes			9,848		4,293
	Derivative instruments			3,975		5,731
	Other current assets			49,356		44,778
		Total current assets		505,870		561,767
Oil and gas properties at cost, using the full cost method of accounting:
	Proved properties			8,698,442		8,421,768
	Unproved properties and properties under development,
		not being amortized		598,656		547,609
				9,297,098		8,969,377
	Less – accumulated depreciation, depletion and amortization			(6,126,581)		(6,047,019)
		Net oil and gas properties		3,170,517		2,922,358
Fixed assets, net				167,546		156,579
Goodwill				691,432		691,432
Other assets, net				34,406		26,111
			$	4,569,771	$	4,358,247
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	47,322	$	47,242
	Accrued liabilities			328,271		320,989
	Derivative instruments			28,109		9,587
	Revenue payable			136,000		134,495
		Total current liabilities		539,702		512,313
Long-term debt				350,000		350,000
Deferred income taxes				694,384		619,040
Other liabilities				264,138		267,062
Stockholders' equity:
	Preferred stock, $0.01 par value, 15,000,000 shares
		authorized, no shares issued		—		—
	Common stock, $0.01 par value, 200,000,000 shares authorized,
		85,539,995 and 85,234,721 shares issued, respectively		855		852
	Paid-in capital			1,885,036		1,883,065
	Retained earnings			835,233		725,651
	Accumulated other comprehensive income			423		264
				2,721,547		2,609,832
			$	4,569,771	$	4,358,247

CONTACT: Cimarex Energy Co., Mark Burford, Vice President – Capital Markets and Planning, +1-303-295-3995, www.cimarex.com

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