2q19 earnings presentation...xec acreage infrastructure operated swd swd infrastructure wolfcamp...
TRANSCRIPT
2Q19 EARNINGS PRESENTATIONAugust 2019
2FORWARD-LOOKING STATEMENTS
Forward-looking Statements
Contact:
Karen AciernoVice President – Investor Relations
This presentation contains projections and other forward-looking statements within the meaning of Section 27A ofthe U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. These projectionsand statements reflect the Company’s current views with respect to future events and financial performance. Noassurances can be given, however, that these events will occur or that these projections will be achieved, andactual results could differ materially from those projected as a result of certain factors. A discussion of thesefactors is included in the Company’s periodic reports filed with the U.S. Securities and Exchange Commission.
3CIMAREX ENERGY SNAPSHOT
Cimarex Energy Snapshot
NYSE SYMBOL: XEC
MARKET CAP1: $4.6 BILLION
ENTERPRISE VALUE1: $6.6 BILLION
DEBT/EBITDA2: 1.3X
QUARTERLY DIVIDEND: $0.20/SHARE
2019E OIL PRODUCTION GROWTH: 23 - 29%
1 As of August 2, 20192 As of and for the twelve months ended 6/30/19. See Appendix for non-GAAP definitions and reconciliations to nearest comparable GAAP measure.
4CIMAREX ENERGY: MAXIMIZING RETURNS
Cimarex Energy: Maximizing Returns
PREMIER PORTFOLIO
FOCUSED EXECUTION
FINANCIAL DISCIPLINE
Core positions in the Permian and Anadarko Basins
Focused on maximizing ROR and NPV
Strong returns, cash flow growth, liquidity & optionality
IDEA GENERATIONDriven by rigorous technical evaluation
LOOKBACK EVALUATIONImproves economic returns & operational efficiencies
5RECENT HIGHLIGHTS
Recent Highlights
RAISING FULL-YEAR OIL GUIDANCE: 83 – 87 MBO/D
CAPITAL GUIDANCE UNCHANGED
NO ADDITIONAL DEBT
62019 CAPITAL INVESTMENT PROGRAM
2019 Capital Investment Program
E&D CAPITAL OF $1.35 – 1.45 BILLION
D&C CAPITAL $1.10 – 1.20 BILLION• 84% of E&D capital• Permian Basin ~85% • Mid-Continent Region ~15%
ADDITIONAL $70 MILLION BUDGETED FOR MIDSTREAM
CURRENTLY OPERATING EIGHT RIGS & TWO COMPLETION CREWS IN PERMIAN
WOLFCAMP78%
MERAMEC10%
WOODFORD4%
BONE SPRING4%
AVALON2%
OTHER2%
D&C CAPITAL$1.1 – 1.2 BILLION
7CAPITAL INVESTMENT
Capital Investment
1Includes drilling, completion, flowback, batteries, well connections/flowlines and SWD system costs of $38 MM in 1H19; $70 – 80 MM in FY192D&C1 + capitalized overhead, production capital, land, technology
$ MILLIONS 1Q19A 2Q19A 2019E
DRILLING & COMPLETION1 (D&C) $ 319 $ 265 $ 1,100 - 1,200
EXPLORATION & DEVELOPMENT2 (E&D) $ 368 $ 325 $ 1,350 - 1,450
MIDSTREAM 18 22 $ 70
TOTAL CAPITAL INVESTMENT $ 386 $ 347 $ 1,420 - 1,520
82019 NET WELLS ON PRODUCTION BY QUARTER
2019 Net Wells on Production by Quarter
8
40
1715
42
0
10
20
30
40
50
1QA 2QA 3QE 4QE WELLS WAITING ONCOMPLETION AT 12/31/19
NE
T W
EL
L C
OU
NT
MID-CONTINENT PERMIAN BASIN
80 NET WELLS IN 2019
92019 DELAWARE BASIN PLANS
2019 Delaware Basin Plans
WELLS DRILLED BY COUNTY
REEVES
CULBERSON
LEA
EDDY
65 NET WELLS
WOLFCAMP
AVALON
BONE SPRING
$935–$1,020MM
D&CCAPITAL
AVERAGE LATERAL LENGTH BY COUNTY
0
2,000
4,000
6,000
8,000
10,000
CU
LB
ER
SO
N
RE
EV
ES
ED
DY
LE
A
10DELAWARE BASIN – OVERVIEW
Delaware Basin – Overview
259,000 TOTAL NET ACRES
85% OF 2019 D&C BUDGET
CURRENTLY RUNNING 8 RIGS; 2COMPLETION CREWS
STACKED PAY OPPORTUNITIES• Provides multi-zone development opportunities• Upper and Lower Wolfcamp• Second and Third Bone Spring• Avalon
ELEVEN DEVELOPMENTS ON PRODUCTION IN 2019
CIMAREX ACREAGE
WOLFCAMP
BONE SPRING
AVALON
NEW MEXICO
TEXAS
SENTINEL5 WELLS
NEW MEXICO
TEXAS
11DELAWARE BASIN – REEVES COUNTY, TX
Delaware Basin – Reeves County, TX
82,853 NET ACRES
37% OF 2019 D&C CAPITAL
TARGETING UPPER WOLFCAMP
FIVE DEVELOPMENTS ON PRODUCTION IN 2019• Sandlot, Sentinel & Hardscrabble developments on
production• Sky Pilot and Red Lodge on production in 4Q
CIMAREX ACREAGE
OPERATED SWD
UPPER WOLFCAMP
HARDSCRABBLE6 WELLS
SANDLOT4 WELLS
SKY PILOT4 WELLS
RED LODGE6 WELLS
NEW MEXICO
TEXAS
12DELAWARE BASIN – CULBERSON/WHITE CITY
Delaware Basin – Culberson/White City
100,000+ NET ACRES
JDA WITH CHEVRON IN CULBERSON
34% OF 2019 D&C CAPITAL• Targeting Upper Wolfcamp & Bone Spring
FIVE DEVELOPMENTS ON PRODUCTION IN 2019• Sir Barton, Brokers Tip AND Owl Draw on production• Old Rosebud flowing back• Aristides on production in 4Q
CIMAREX ACREAGE
OPERATED SWD
LOWER WOLFCAMP
UPPER WOLFCAMP
OWL DRAW 3 WELLS
SIR BARTON7 WELLS
ARISTIDES6 WELLS
OLD ROSEBUD4 WELLS
BROKERS TIP7 WELLS
13CULBERSON: TOP-TIER OIL WELLS
Culberson: Top-Tier Oil WellsDELAWARE BASIN CUMULATIVE OIL PRODUCTION BY COUNTY
(>8,500 LL, First Prod >2016, Upper Wolfcamp & Bone Spring Formations)
CU
MU
LA
TIV
E O
IL (
MB
O)
MONTHS
ATTRIBUTES OF CULBERSON COUNTY LONG LATERALS• Competitive Oil Production• Shallow Declines• Low Operating Costs (LOE)
COUNTY
CU
MU
LA
TIV
E O
IL (
MB
O)
Note: Decline in cumulative oil production a result of decreasing wells in county average
23 W
EL
LS
147 154 128 282 3919 102 110 78 215 3515 46 69 40 140 280
50
100
150
200
250
300
350
400
XEC CULBERSON LEA LOVING EDDY REEVES WARD
6 MONTH 12 MONTH 18 MONTH
0
50
100
150
200
250
300
350
0 3 6 9 12 15 18
XEC CULBERSON LEA LOVING EDDY REEVES WARD
14CULBERSON: WATER INFRASTRUCTURE DRIVING EFFICIENCIES
Culberson: Water Infrastructure Driving Efficiencies
SALTWATER DISPOSAL (SWD)• Own & operate the system• Improves operating costs• System redundancy reduces downtime• System expanding efficiently with additional
development
WATER REUSE DRIVES EFFICIENCY• On-demand recycled water lowers cost• Wolfcamp completions used 97% recycled
water in 2018 • Saved $1.54/bbl for procured water
ENVIRONMENTAL BENEFITS• Avoids surface storage of produced water• Permanent underground flow helps to
prevent spills• Reduces need for fresh water
RISER: XEC-ENGINEERED ACCESS FOR WATER REUSE
XEC ACREAGE
INFRASTRUCTURE
OPERATED SWD
SWD INFRASTRUCTURE WOLFCAMP FRAC WATER
32%
87%
97% 89%
2016 2017 2018 1H19
RECYCLED PURCHASED
15CULBERSON: STRONG PRODUCTIVITY, LOW LOE
Culberson: Strong Productivity, Low LOE
PAYOUT IN ~11 MONTHS AT $50 OIL
INVESTMENT HAS TRIPLED SINCE 2016
PERMIAN BASIN LOE – YTDFRAC GENERATIONS – INCREASING PRODUCTIVITY
PRODUCTION REGION
0
100
200
300
400
500
600
700
0 200 400 600 800 1,000 1,200 1,400
GEN 1 GEN 2 GEN 3 GEN 4
DAYS ON PRODUCTION
CU
MU
LA
TIV
E O
IL P
RO
DU
CT
ION
(M
BB
L)
*Includes partial LOE expense from Eddy county, not limited to Upper Wolfcamp production
$-
$1.00
$2.00
$3.00
$4.00
CULBERSON* OTHER PERMIAN
$ L
OE
PE
R B
OE
16DELAWARE BASIN – LEA COUNTY, NM
Delaware Basin – Lea County, NM
31,384 NET ACRES
TARGETING:• Upper Wolfcamp• Avalon• Bone Spring
VACA DRAW ON PRODUCTION
NEW MEXICO
TEXAS
CIMAREX ACREAGE
BONE SPRING
AVALON
UPPER WOLFCAMP
VACA DRAW6 WELLS
17MID-CONTINENT – OVERVIEW
Mid-Continent – Overview
326,000 NET ACRES
WOODFORD: 135,625 NET UNDEVELOPED ACRES (HBP)
MERAMEC: 116,500 NET ACRES (>98% HBP)• Billy, Wort & Miss Mary developments on production
15% OF 2019 D&C CAPITAL
CIMAREX ACREAGE
MERAMEC OUTLINE
WOODFORD OUTLINE
OKLAHOMA
2 WELLSBILLY
3 WELLSWORT
5 WELLSMISS MARY
18DISCIPLINED FINANCIAL POSITIONING
Disciplined Financial Positioning
LIQUIDITY• $1.2 billion of liquidity, including $19 MM of cash
(6/30/2019)
CONSERVATIVE LEVERAGE• 1.3x Debt/TTM EBITDA (6/30/19)
INVESTMENT GRADE DEBT• $500 million 4.375% senior unsecured notes due in 2029• $750 million 3.900% senior unsecured notes due in 2027• $750 million 4.375% senior unsecured notes due in 2024
XEC DEBT/TTM EBITDA
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
2014 2015 2016 2017 2018 1Q19 2Q19
DEBT/TTM EBITDA AVERAGE
19IMPROVING CASH COSTS OFFSET LOWER REALIZED PRICE
Improving Cash Costs Offset Lower Realized Price
Cash operating costs include: LOE, Transportation, Production Tax, G&A.Realized prices exclude hedge gain/loss.
CASH OPERATING MARGIN
14.1510.71 9.51 9.55 8.64 8.31 8.08
68%
55%54%
65%
70%
66%
62%
30%
40%
50%
60%
70%
80%
$0
$10
$20
$30
$40
$50
2014 2015 2016 2017 2018 1Q19 2Q19
MA
RG
IN %
$/B
OE
OP
EX
& C
AS
H M
AR
GIN
CASH OPERATING COSTS MARGIN MARGIN %
CREATING VALUEAND GENERATINGTOP-TIER RETURNS
PROVENTRACK
RECORD
20CIMAREX ENERGY OVERVIEW
Cimarex Energy Overview
PREMIER PORTFOLIO
CORE POSITIONS INTHE PERMIAN ANDANADARKO BASINS
ENDURINGCULTURE
MAXIMIZING FULL-CYCLE RETURN ON INVESTED CAPITAL
STRONGFINANCIALPOSITION
LOW LEVERAGE ANDLIQUIDITY PROVIDES
OPPORTUNITIES
21APPENDIX
APPENDIX
222019 GUIDANCE
2019 Guidance
3Q19E FY19E
Production (MBOE/d) 265 – 279 263 – 272
Oil Production (MBO/d) 85.0 – 91.0 83.0 – 87.0
Capital Expenditures ($billion)
E & D $1.35 – 1.45
D & C $1.10 – 1.20
Midstream/Other $0.7
Expenses ($/BOE) 2019
Production $3.30 – 3.65
Transportation, processing & other $1.80 – 2.20
DD&A and ARO accretion $7.75 – 8.75
General and administrative $0.95 – 1.20
Taxes other than income (% of oil and gas revenue) 6.5 – 7.5%
23HITTING OUR STRIDE: GENERATING FREE CASH FLOW*
Hitting Our Stride: Generating Free Cash Flow*
CUMULATIVE FREE CASH FLOW:• ‘19-’21E: $100-$600 MM• ‘16-’18A: $532 MM outspend
AVERAGE ANNUAL OIL GROWTH:• ‘19-’21E: 15%• ‘16-’18A: 11%
AVERAGE ANNUAL TOTAL CAPITAL*:• ‘19-’21E: $1.50 billion• ‘16-’18A: $1.25 billion
PERFORMANCE DRIVERS:• Consistent development program enhancing efficiencies• Increasing well productivity• Leveraging infrastructure • Lowering production and capital costs
CUMULATIVE FREE CASH FLOW ($MM)
*Free Cash Flow = Cash Flow from Operations – CAPEX – Dividend (Annual $0.80); CAPEX = E&D + Midstream + Other
($532)
$100
$600
($600)
($400)
($200)
$0
$200
$400
$600
2016 - 2018A 2019 - 2021E
$53 WTI
$50 WTI $55 WTI
Assumes $2.75 per Mcf and NGL priced at 30% of WTI
24MAXIMIZING VALUE: UNDERSTANDING FRACTURE SURFACE AREA
Maximizing Value: Understanding Fracture Surface Area
20%
30%
40%
50%
60%
70%
80%
90%
$80
$90
$100
$110
$120
$130
$140
$150
8 10 12 13 14 15 16
PR
OJE
CT
RO
R (
%)
CU
MU
LA
TIV
E P
V (
$M
M)
CUMULATIVE PV ($MM) ROR (%)
CUMULATIVE PROJECT: PV vs. ROR
Optimal Spacing – PV: $130-140mm
Increased Interference – Destroying PV: < $130mm
No Interference – Not Maximizing PV: < $130mm
Interference
C
C
B
A
WELLS PER SECTION
B
A
25MAXIMIZING VALUE – PV VS ROR
Maximizing Value – PV vs ROR
-60%
-30%
0%
30%
60%
90%
($4)
($2)
$0
$2
$4
$6INCREMENTAL PV ($MM) ROR (%)
20%
30%
40%
50%
60%
70%
80%
90%
$0
$5
$10
$15
$20
$25
$30
$35
2 4 5 6 7 8 10
CUMULATIVE PV ($MM) ROR (%)
IN SOME RESERVOIRS, JUST ONE INCREMENTAL WELL CAN DESTROY VALUE• Competitive cumulative returns; negative PV and ROR on incremental well
WELLS PER SECTION
PR
OJE
CT
RO
R (
%)
CU
LM
UL
AT
IVE
PV
($M
M)
CUMULATIVE PROJECT: PV vs. ROR
WELLS PER SECTION
PE
R W
EL
L R
OR
(%)
PE
R W
EL
L P
V (
$M
M)
INCREMENTAL WELL: PV vs. ROR
2 4 5 6 7 8
26ANIMAL KINGDOM WELL PERFORMANCE
Animal Kingdom Well Performance
AVERAGE CUMULATIVE PRODUCTION vs TIME
DAYS ON PRODUCTION
EIGHT WELLS ON PRODUCTION FOR 310 DAYS
POSITIVE RESULTS FROM LOWER WOLFCAMP SPACING PILOT• Eight wells tested 14 wells per section
3,669 MBOE PRODUCED IN FIRST 310 DAYS• Wolfcamp C wells average 31% oil• Wolfcamp D wells average 15% oil
LOWER WOLFCAMP DEVELOPMENT PLANS TO BE DETERMINED -
50
100
150
200
250
300
350
400
450
500
550
0 30 60 90 120 150 180 210 240 270 300
MB
OE
WOLFCAMP C, 3 WELLS WOLFCAMP D, 5 WELLS
27PERMIAN BASIN WATER MANAGEMENT
Permian Basin Water Management
OWN AND OPERATE SALT WATER DISPOSAL (SWD) SYSTEMS IN CULBERSON, EDDY AND REEVES • Improves operating costs
RECYCLING PRODUCED WATER FOR COMPLETION OPERATIONS• 53% of total water procured in 2018 was recycled• Cost savings of ~$1.20/bbl of water
CULBERSON WOLFCAMP WELLS USE 97% RECYCLED WATER FOR COMPLETIONS; REEVES WOLFCAMPWELLS USE 48%
SECURED SWD AGREEMENTS IN LEA COUNTY
28PERMIAN BASIN TAKEAWAY
Permian Basin TakeawaySALES AGREEMENTS IN PLACE FOR OIL VOLUMES THROUGH 2019• ~80% of oil production on pipe
STRATEGIC PARTNERSHIPS IN CORE AREAS• Pipelines in place• Purchase obligations• Midland index pricing
GAS SALES AGREEMENTS IN PLACE• 96% of forecasted production through 2019; 75% in 2020• El Paso or Waha index pricing• Committed 125,000 MMBtu per day to Whistler Pipeline
Project; 10 year firm commitment, provides access to Gulf Coast pricing, expected online 2Q21
OWN AND OPERATE TWO GAS GATHERING SYSTEMS • Triple Crown – Culberson/Eddy Counties• Matterhorn – Reeves County• Connected to multiple gas processors with inter- and
intrastate outlets• Long-term sales agreements in place for NGL volumes
CIMAREX ACREAGE
ENERGY TRANSFER PIPELINE
EAGLECLAW
OFFLOADING SITE
PLAINS PIPELINE
PLAINS PIPELINE(UNDER CONSTRUCTION)
292018 GROWTH IN PRODUCTION AND RESERVES
2018 Growth in Production and Reserves
OIL/BOE GROWTH OF 18%/17% Y/Y• Pro Forma Ward sale, Oil/BOE growth of 24%/19%
TOTAL E&D CAPITAL – $1.57 BILLION• D&C capital of $1.34 billion • 122 net wells brought online
482
559 591
0
300
600
2016 2017 2018
OIL NGL NATURAL GAS
PROVED RESERVES (MMBOE)
161
190
222
0
50
100
150
200
250
2016 2017 2018
OIL NGL NATURAL GAS
DAILY PRODUCTION (MBOE)
YE18 PROVED RESERVES: 591 MMBOE • Increase of 6% Y/Y • PDP now 85% of total proved• Reserve replacement of 168% of 2018 production
30OIL HEDGES AS OF AUGUST 5, 2019
Oil Hedges as of August 5, 2019
2019 2020OIL 3Q 4Q 1Q 2Q 3Q 4Q
WTI Oil Collars1
Volume (Bbl/d) 40,000 32,000 24,000 16,000 8,000 8,000
Weighted Average Floor 53.85 54.81 54.08 51.13 50.00 50.00
Weighted Average Ceiling 67.44 67.75 67.65 63.56 62.80 62.80
WTI Oil Basis Swaps2
Volume (Bbl/d) 35,500 35,500 23,000 15,000 8,000 8,000Weighted Average Differential3
(7.36) (6.32) 0.16 0.19 0.71 0.71
WTI Oil Swaps2
Volume (Bbl/d) 5,000 5,000 - - - -
Weighted Average Fixed3 64.54 64.54 - - - -
WTI Oil Sold Call
Volume (Bbl/d) 3,670 3,670 - - - -
Weighted Average Ceiling 64.36 64.36 - - - -
Notes:1 WTI refers to West Texas Intermediate oil prices as quoted on the New York Mercantile Exchange2 Index price on basis swaps is WTI Midland as quoted by Argus Americas Crude 3 Index price on basis swaps is WTI NYMEX less weighted average differential shown in table
31GAS HEDGES AS OF AUGUST 5, 2019
Gas Hedges as of August 5, 2019
2019 2020GAS 3Q 4Q 1Q 2Q 3Q 4Q
PEPL Gas Collars1
Volume (MMBtu/d) 140,000 110,000 80,000 50,000 20,000 20,000
Weighted Average Floor 1.93 1.92 1.93 1.91 1.85 1.85
Weighted Average Ceiling 2.32 2.36 2.36 2.28 2.31 2.31
El Paso Perm Gas Collars2
Volume (MMBtu/d) 90,000 60,000 40,000 30,000 20,000 20,000
Weighted Average Floor 1.46 1.38 1.40 1.40 1.35 1.35
Weighted Average Ceiling 1.76 1.71 1.79 1.82 1.66 1.66
Waha Gas Collars3
Volume (MMBtu/d) 60,000 60,000 50,000 30,000 - -
Weighted Average Floor 1.48 1.48 1.50 1.57 - -
Weighted Average Ceiling 1.82 1.82 1.87 1.97 - -
Total Natural Gas Collars
Volume (MMBtu/d) 290,000 230,000 170,000 110,000 40,000 40,000
Henry Hub Gas Swaps
Volume (MMBtu/d) 35,000 35,000 - - - -
Weighted Average Floor 3.00 3.00 - - - -
Notes:1 PEPL refers to Panhandle Eastern Pipe Line Tex/OK Mid-Continent as quoted on Platt’s Inside FERC 2 El Paso Perm refers to El Paso Permian Basin index as quoted on Platt’s Inside FERC3 Waha refers to West Texas Natural Gas Index (“Waha”) as quoted in Platt’s Inside FERC.
32NON-GAAP RECONCILIATION
Non-GAAP Reconciliation
($ in Millions) 2016 2017 2018 LTM 6/30/19
Net income (loss) $ (409) $ 494 $ 792 $ 600
Income tax expense (benefit) (214) 188 231 174
Interest expense, net of capitalized 62 52 47 43
DD&A and ARO accretion 400 462 598 726
EBITDA (161) 1,196 1,668 1,543
Impairment of oil and gas 758 — — —
Adjusted EBITDA 597 1,196 1,668 1,543
1The above table provides a reconciliation from generally accepted accounting principles (GAAP) net income (loss) to non-GAAP EBITDA and non-GAAP adjusted EBITDA, which excludes ceiling test impairments
2017 2018 LTM6/30/2019
Basic shares outstanding (in 000s) 95,437 95,756 101,473Debt adjusted shares outstanding
YE Debt, net 1,099,466 699,334 1,980,586
TTM stock price 114.00 93.77 77.50
Equivalent shares issued using TTM stock price 9,644 7,458 25,556
Debt adjusted shares using TTM stock price 105,082 103,214 127,029
33NON-GAAP RECONCILIATION
Non-GAAP ReconciliationSix Months Ended
June 30, ($ in Millions) Jun 30, 2019
($ in Millions) 2018 2019
Long-term debt (principal) 2,000
Net cash provided by operating activities $ 704 $ 664 Redeemable preferred stock 82
Change in operating assets and liabilities 12 23 Stockholders equity 3,862
Adjusted cash flow from operations $ 717 $ 687 Total capitalization 5,944
Long-term debt/total capitalization 35%2018
Additions to proved reserves (MMBOE)
Revisions of previous estimates (22.7)
Extensions & discoveries 158.5
Purchase of reserves —
Total Additions (all sources) 135.8
Total Capital ($MM) $ 1,570
F&D Costs (all sources) ($/BOE) $ 11.56
Drilling F&D cost (extensions & discoveries) ($/BOE) $ 9.91
Twelve Months EndedDecember 31, LTM
($ in Millions) 2017 2018 6/30/19
Long-term debt (principal) $1,500 $1,500 $2,000
Adjusted EBITDA 1,196 1,668 1,543
Debt/Adjusted EBITDA 1.3x 0.9x 1.3x
1Management uses the non-GAAP measure of adjusted cash flow from operations as a means of measuring the company's ability to fund its capital program and dividends, without fluctuations caused by changes in current assets and liabilities, which are included in the GAAP measure of cash flow from operating activities. Management believes this non-GAAP measure provides useful information to investors for the same reasons, and that it is also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.