Cimarex Energy (XEC) Q4 Results - Feb 21

[dan_s]

My comments are in blue. - Dan.

4Q daily production above guidance averaging 251.3 MBOE; 79,904 barrels of oil < Total production was 13,800 BOE per day above my Q4 forecast and crude oil production was 4,904 BOPD above my forecast.
Daily production for the full year averaged 221.9 MBOE; 67,699 barrels of oil
2018 E&D expenditures below guidance at $1.57 billion
Cimarex sold assets in Ward County, Texas, and reinvested in assets in Reeves County, Texas through the pending acquisition of Resolute Energy Corporation (expected to close March 1) < Closing the acquisition a month earlier than I forecast will give Q1 production a nice boost.

Cimarex Energy Co. (NYSE: XEC) today reported fourth quarter 2018 net income of $316.2 million, or $3.32 per share, compared to $174.7 million, or $1.83 per share, in the same period a year ago. Fourth quarter adjusted net income (non-GAAP) was $189.7 million, or $1.98 per share, compared to fourth quarter 2017 adjusted net income (non-GAAP) of $140.0 million, or $1.47 per share. < Adjusted Net Income compares to my forecast of $192.6 million or $2.01 per share.

Net cash provided by operating activities was $393.2 million in the fourth quarter of 2018 compared to $340.8 million in the same period a year ago. Adjusted cash flow from operations (non-GAAP) was $428.2 million in the fourth quarter of 2018 compared to $357.1 million in the fourth quarter a year ago. < This is more important than net income. My cash flow from operations forecast for Q4 was $403.6 million, or $4.22 per share.

Driven by solid execution, total company volumes for the fourth quarter averaged 251.3 thousand barrels of oil equivalent (MBOE) per day. Oil production averaged 79,904 barrels (bbls) per day, up 29 percent from the same period a year ago and up 25 percent from third quarter 2018 levels.

Realized oil prices averaged $49.30 per barrel on the fourth quarter, down 5 percent from the $51.68 per barrel received in the fourth quarter of 2017 and realized natural gas prices averaged $2.16 per thousand cubic feet (Mcf) down 16 percent from the fourth quarter 2017 average of $2.58 per Mcf. NGL prices averaged $20.71 per barrel, down 20 percent from the $25.88 per barrel received in the fourth quarter of 2017. For the full year, Cimarex realized $56.61 per barrel of oil, up 20 percent from 2017, $1.99 per Mcf of natural gas and $22.28 per barrel of NGLs sold.

During 2018, both oil and natural gas prices were negatively impacted by local price differentials. Our realized Permian oil differential to WTI Cushing averaged $(9.82) per barrel in 2018. Cimarex's average differential on its Permian natural gas production was $(1.40) per Mcf below Henry Hub in 2018 and, in the Mid-Continent region, realized gas prices were $(0.86) per Mcf below the Henry Hub index. < Q4 2018 s/b the low point for these very high differentials. By 2H 2019 most of the takeaway capacity issues in West Texas will be resolved.

Cimarex invested $1.57 billion in exploration and development (E&D) in 2018, including $380 million in the fourth quarter. Investments made in 2018 were funded with cash flow from operations and cash on the balance sheet. Total debt at December 31, 2018, consisted of $1.5 billion of long-term notes. Cimarex had no borrowings under its revolving credit facility and a cash balance of $800.7 million at year-end. Debt was 31 percent of total capitalization. < Cimarex has a SUPER STRONG BALANCE SHEET.

Proved reserves at December 31, 2018, totaled 591 million barrels of oil equivalent (MMBOE), up six percent year over year. Proved developed reserves increased eight percent to 501 MMBOE. Cimarex added 159 MMBOE through extensions and discoveries and deducted 23 MMBOE through net revisions resulting in reserve replacement of 168 percent of 2018 production. Proved reserves are 85 percent proved developed.

On August 31, 2018, we closed on the sale of properties in Ward County, Texas, and have received $534.6 million in net cash proceeds adjusted for the resolution of all asserted defects as of December 31, 2018. On November 18, 2018, Cimarex entered into a merger agreement to acquire Resolute Energy Corporation in a cash and stock transaction valued at $1.6 billion, including the assumption of Resolute's long-term debt, which was approximately $710 million. The transaction is expected to close on March 1, 2019, and is subject to the approval of the Resolute shareholders and the satisfaction of certain regulatory approvals and other closing conditions.

Operations Update
Cimarex invested $1.57 billion in E&D in 2018--70 percent in the Permian region and 30 percent in the Mid-Continent. An additional $103 million was invested in midstream operations and other infrastructure in 2018. Of the $1.57 billion of E&D investment in 2018, $1.35 billion (86 percent) went toward the drilling and completion of new wells.

During 2018, Cimarex participated in the drilling and completion of 349 gross (122 net) wells. At year-end, 83 gross (28 net) wells were waiting on completion, of which 48 gross (8 net) were in the Mid-Continent and 35 gross (20 net) were in the Permian. Cimarex currently operates 11 drilling rigs.

[dan_s]

Guidance for 2019: As you read this, keep in mind that Cimarex is super conservative and has a long history of "Under-Promising and Over-Delivering" when it comes to guidance. As noted above, their Q4 2018 production was way above the company's guidance. So...I use the high end of their production guidance in my forecast/valuation model. - Dan

DENVER, Feb. 20, 2019 /PRNewswire/ --

Exploration & development capital investment estimated at $1.35 - 1.45 billion
Includes drilling and completion capital of $1.1-1.2 billion
Generates year-over-year production growth of 13-22%
Led by oil growth of 15-30%
Cash flow neutral at $50 oil; $52.50 including dividend
Cimarex Energy Co. (NYSE: XEC) today announced its projected 2019 exploration and development (E&D) capital investment of $1.35 - 1.45 billion, an 11 percent decrease from 2018 levels at the midpoint. The company estimates $60-70 million of additional capital for midstream and other infrastructure. All projections in this release assume closing of the pending Resolute Energy Corporation acquisition on March 1, 2019.

Total company production for 2019 is projected to average 250 - 270 thousand barrels of oil equivalent (MBOE) per day, with oil production expected to average 78-88 thousand barrels of oil (MBO) per day.

Tom Jorden, Cimarex Chairman and CEO, said, "Cimarex is using a $50 to $55 per barrel NYMEX oil price sensitivity for planning capital investments in 2019 and beyond. As we see it today, our planned activity for 2019 results in Cimarex being cash flow neutral at $52.50 per barrel NYMEX including the payment of our dividend. More importantly, the level of spending planned for this year puts us in a strong position to generate free cash flow at $50 per barrel of oil including payment of the dividend in 2020-21." Mr. Jorden went on to say, "We continue to seek out capital efficiencies and are determined to execute our 2019 capital plans, including the payment of our dividend, within cash flow. Of course, oil prices and associated price differentials have the largest impact on our cash flow and our ability to achieve this goal, but we have other levers to pull as well. As has been the case, our continued success will be the result of the things at which we excel--thorough evaluation, careful planning and solid execution."

Following the large production ramp Cimarex experienced in the fourth quarter of 2018, first quarter 2019 output is expected to average 245-257 MBOE per day, essentially flat with fourth quarter levels. Oil production in the first quarter is expected to decrease slightly and average 75-81 MBO per day.

Cimarex intends to invest $1.1-1.2 billion on the drilling and completion of 83 net wells during 2019. Approximately 85 percent of the D&C capital will be invested in the Permian region with the remainder in the Mid-Continent. Permian activities will continue to focus on our long lateral Wolfcamp programs in Culberson and Reeves counties in Texas, and in Lea County, New Mexico. Avalon and Bone Spring activities round out the remainder of our investments in the region.