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Cimarex Energy Co.

Mon, 1 Dec 2008|



Thank you it's pleasure to be here it's. Not quite cold and memory Everett source -- of Houston -- -- it's. Guys can men if those you are -- were server X -- timber base independent oil and gas company. We are US domestic and more primarily focused on drove major -- Growth of operations like to walk through who we are where we operate and so of our core business philosophies. And also later in the sense of how we're reacting in adapting to you know what we pursues you for a significant downturn industry. We are. You know as -- slide show feature -- -- are just key metrics for about two point eight billion dollar market cap. One of the things that hopefully we'll jump -- -- -- we are relatively under -- for our peer group. We have 500 million dollars told all of that is long term -- termed out. So debt can operate show about twelve and a half percent. We have one -- TCF equivalent of proved reserves. And approximately 78%. Of that is natural gas the balance -- oil. We have nine year reserve life and then and another. Point I'd like you folks on that sliders are trailing twelve month average. You -- or cash or regenerate we have very very profitable reserve base of that one would have TCF for -- reserves has thrown off. One point six billion dollars of free cash flow here in the last -- twelve months -- very very profitable reserve base. That's by larger function affected most of those wells we drove ourselves to our production bases is. Heavily composed of young early life wells. That show -- one million dollars cash. We have used that cache and transaction -- tell you about that was in the third quarter cash on hand. We've been in business -- a management team for about fifteen years it's emirates was formed as a formal entity. About six years ago it was a combination of -- November independent -- -- production company. With your oil and gas assets of the homework and paying the -- Sybase -- company. So we formally formed -- -- in 2002. But as a management team those of us that came from the are the principles -- so we've been together for about fifteen years. Focused on a very few important measures. First and foremost we believe in reinvesting our cash flow -- the highest possible rates return. We believe that production growth finding cost reserve growth those are derivatives. Of good. Cash -- investments. So we run our company around -- very solid investment metrics. Production growth is nice to see as a consequence of that as you can see year over year we have grown our production. We had a nice bill -- production growth last year. Probably won't soon again this year because like so many others were -- our capital. We've also grow and grow our proved reserves. One of the things that you may have picked off my opening slide -- about serving 9% of our reserves are proved developed reserves. We have proved undeveloped reserves that are -- largest single project fits in Wyoming that we've commissioned the gas plant Norton development. So we're very heavily and proved developed we we classically don't book a lot of -- we're drillers and we don't find that to be very useful exercise. Our our strategy -- I -- at the outset is by and large drove it driven growth. -- what we know how to do it's what we love we we've we've in the portfolio approach would take higher risk -- opportunities will take low risk opportunities. We're also are geographically diversified were in a number of different basins were in the number of different play types. That's been a nice way to manage our -- portfolio over the years. You don't always know where the next big opportunities can -- -- so having exposure to multiple basins refined to be very prudent. We we believe an internal generation by a larger company just scientists -- our -- ideas we get we control the land and we give them girl. We believe in maintaining a strong financial position for those you have watched this over the course years you'd -- notice that we've classically been. Relatively under levered you probably never gonna see -- -- -- company that -- -- to. While on -- that we take on and that's by a large because were drillers wouldn't wanna maintain that. Financial leverage. We will do acquisitions and mergers -- makes sense that's probably the time when you see just -- borrowing base for strategic opportunity. But our our core -- is. Be somewhat conservative our balance sheet have a -- for -- risk and focus on -- driven growth. Our business approaches fairly simple to understand we really have. A a couple of key components. We have a producing property base and first and foremost we have an operating group that's tasked with maximizing our production. And maximizing our net income for their property base. We have if a fantastic production organization great marketing group. Very efficient organization of producing -- wells and maximizing. Our cash flow. And there we have an exploration organization. That is involved and in tasked with. Reinvesting that cash flow at the highest -- return we can't. So it's continually churning machine that -- set free cash flow and we reinvested in the business. We -- it's resulted in solid production growth. -- -- And strong returns from its business -- that's served us well we strongly believe it. Let's say we were a diversified we do have a number of different core operating areas the shows -- recorders during the mid continent. The Permian Basin and onshore Gulf of Mexico. And this also shows where our reserves breakdown DC. Almost 80% of our reserves -- mid continent and Permian Basin. And almost 80% of our production is mid continent and Permian Basin. That's been our historical admit -- it's been our our longest historical operating. Area we entered the Permian strongly in 2005 we -- magnum hunter the Irving based acquisition company. And in the Gulf Coast has been a strong part of our program all -- some details on that -- a little bit. One thing -- notice from this slide is the green slices Gulf Coast. It's a small part of our reserves for the relatively larger part of our production. And that's just a graphical way of telling you that the Gulf Coast are onshore Gulf Coast is very very high rates of return. Those projects throw off a lot of production for dollar invested. And it's really very nice -- for portfolio. Our capital spending this shows the last couple years in 2007 we invested just under a billion dollars. And that shows the -- various regions are reported in. The lion's share of it was mid continent and Permian with a pretty solid. Gulf Coast program. In 2008. Will be about one point four billion dollars of total investment and again. About 80% of that is mid continent and Permian. With onshore Gulf Coast a significant piece of that 2009. We're currently pouring our plans for that were committed to live -- in cash flow in 2009 and like so many of our peers -- cash flows down so we will. Probably in through 2009. At a run rate of about 800 million dollars a year total capital. And we'll see -- the year goes were to have plenty of opportunities. To throw forward if if indeed the commodity prices pick out. Our core operating areas and some are key drivers are shown by this slide you know one of the things that. Has been really a pleasure it's emirates the last few years is -- really moved more to project throwing so we have a number -- very sustainable programs. Sustainable projects are confined. Multiple rate lines multiple years of them and Tori -- we have very good acreage position sustain. So not only do we have the ability to internally generated and develop new opportunities. But we control opportunities in areas that can really sustained. Long term project so it's been a pleasure to manage our we have some some great groups have done a fantastic job for these programs together. The -- programs that don't just give you some highlights on the Permian Basin we have an outstanding acreage position. By and large that acreage came from our acquisition magnum -- in 2005. And we have a number of key horizontal plays gas and all the works -- there. In the mid continent region which mid continent justice. Oklahoma and Texas Panhandle. Again we have an actual acreage position and we have some very nice programs both in the Texas Panhandle. And one grocers and be -- on -- Anadarko basin the deep wood from jail. And an onshore Gulf Coast has been arena that we absolutely love that's -- physically driven little different than some of the other programs on the map on the slide. It's 3-D seismic -- driven its direct hydrocarbon indicators. -- rifle shots individual prospects that we identifier with three dimensional seismic data. Highly profitable it's -- -- our best three returns of everything we do. In the Permian Basin nicer we have a number of good plays this is one that's and war to -- -- county in far west Texas. It's a field we picked up from magnum hunter in 2005 Cold War -- For those who that are familiar with the area it's sits. Probably 1015 miles south of -- -- field. That Anadarko interest -- you can develop so student last few years. This is oil this is Permian oil in the third bone spurring formation. Depths of all eleven to thirteen thousand feet. We. Picked up vertical production and started a program we re entered vertical wells going horizontally. And then that spawned in and of itself. Grassroots horizontal drilling it's been very very nice project for us. A garden variety well as is as I said. 11121000. Feet vertical depth. A new drove we'll go -- 4004 laterally. -- we target 250 really to 400000 barrels of oil equivalent per well. A good well -- -- the slides has to learn through her girls for. Good well we drove number rumble like. Four to 600 barrels for -- This is also very tough drilling this is -- this is -- sand interval that's somewhere between sixteen and 25 feet thick. So we're going out 4000 feet lateral and target that's fifteen to thirty feet -- so it's. It's a -- for our operation on the part of -- the geologists that directional company. But we've drove a bunch -- wells here -- go team that's quite good at it. The only. Knock on this is -- land it's very tough this is and an area that. A lot of the Haley players pass through a few years ago -- -- the countryside. Some of those positions are crumbling. It's as play. Gets mature and so were actively trying to acquire more land -- And southeast of Mexico we have a number of outstanding targets and and projects -- require excited about again this. Map shows a lot of yellow by larger picked -- enough -- position American iron 2005. We've grown our Permian staff we have -- very aggressive. The act of office in Midland and they've got some fantastic projects -- -- very excited about we were a great land position as as a slide says 200 and 40000. Acres -- 1065000. Net acres. We have a number of horizontal oil plays wolf care for the -- formation were exporting. There's also a -- gas plays on this now but we really have focused on. -- so wolfcamp a novel oil is a slide shows. We've got a lot of activity a lot of good wells were -- on all the time. A typical well in these plays are somewhere between you know eight and 101000 feet vertical depth we we go out. And you were from two to 4000 feet literally and garden variety well instituted -- -- thousand barrels of -- And -- life. Two to 500 barrels of oil per day but the economics look look very good. And you know we really like that position. We've grown our permanent base in that production that shows both oil and gas. And that's really just a a function of getting our arms around the asset -- picture of magnum hunter in 2005. -- plays established. And we really do have a lot of very nice opportunities -- -- Some of them are waiting on the costs to come down you know what we've seen here last six months since. Product prices are crumbling and -- -- have responded so. Were. Throttling back a little kind of waiting for the market to -- but we have -- -- -- opportunities that will be able to move on. If things come back -- balance. By the Texas Panhandle is another. Area we very much like. Again we put our position together through a couple of deals. -- reform -- -- 2002 we picked up a pretty good. Texas -- you know last and the magnum hunter also had nice Texas -- you know position. This is -- -- rated -- highly predictable. Yeah you know when you look at predicting your reserves. Through drilling cost predicting rates that the wells we'll come on. We can do that to within -- -- point it's. -- also an area where we've targeted -- -- drilling. And it's it's needing a little better gas -- -- saying right now look quite frankly we've we've throttled back -- significantly worse when they -- on the gas. Prices come down. We did have nine rigs running here this time last year in spring of 2008. We've gone down to one written Texas Panhandle -- land positions by and large held by production. We are getting our land ready to go so that with a little help with product price or service cost. We get their recount -- it's an area that we we very much like because of its predictability. Over the last year to we've had a 100% chance successor we've we've completed. Just about -- well we've drilled and we drove her -- your yours so we we like Texas Panhandle. We. We like a little better -- -- -- gasoline do it six. A -- for shell and our pervasiveness of play that we've talked about. Just recently it was their third quarter call and and after that we've talked about for the first time. We entered this play in the spring of 2007 we took -- land position and we drove a number wells while we quietly put our land together. Cyrix historically hasn't been a big shelf player we really have been -- -- resource player. This is the first major foray into resource play we've taken and we very much like what we see there. This is an deepest part of the Anadarko basin so we -- this play. You know most of the word for cheerio that you hear people talk about is -- New York home base and east of us so most of that you -- hear people say what for jail. Typically they're talking eight to 9000 feet. This is the -- Darko -- -- of fairways west of there -- vertical -- here between twelve and 161000 feet vertically. So this is more expensive drilling typically what we do is we drove down 12161000. Feet. And there we go laterally 4000 feet so these are. Just -- current cost these are nine to ten million dollar wells. And we've had very very good results this -- so -- most robust economics of any programs that we currently carry. We've we've made a major land purchase from Chesapeake here. In the last quarter made up their free cash I told -- we on the -- books in the third quarter. And so we currently have a position that's the slide says. They radiate fails makers it's it's getting closer to a 100000 net acres here unions or who would from -- We have five operator rigs running currently. Were increasing 27 and we have commitments ago to nine to eleven depending on market conditions. And just let me give you a bit. It is all -- say all of the 47000 acres we bought. They. I think 4000 -- -- had -- on -- the rest was held by production. That was meaningful because in in an uncertain commodity environment we didn't want to pick up term acreage and today even three year term. Looks very short so we like the fact that acreage is held by production it was a long term investment you know -- if you. Get anything for this presentation. -- that we are -- long term players. And this is something that we felt very strongly about in terms of long term health or drilling program. Everybody's got their -- slide and finally we have -- This this is borrowed from the Deutsche Bank -- to shining -- summary. And we've inserted some of the parameters of our word for -- that compare with some of the other published you know -- for on other shale plays. And again as -- say a word this shows ten to 171000 feet. Good thickness good. -- Good organic content good porosity is. You know recovery factor this play is a little bit still in question I'm sure -- some numbers based on. Four wells per section or -- 160 acres per well. We think we have a strong possibility of doing better than. But that the point for this slide as we believe that the Anadarko the deep -- for shale. Competes heads with. Many if not all of the -- plays that the industry is touted so aggressively here and throughout 2000. In the asset that we -- control received very significant future drilling. You know we're very active -- -- we have that. 9200000. Net Acre position in this play we have five average running currently. We're going to seven here imminently we've commitments to -- to a lot and so on net Acre basis I think he's -- -- that we. You know we're not collectors we acquire land and or -- it and turned -- product stream. Our average well here currently has about five BCF equivalent per well. That well today is 4000 foot lateral level have somewhere between 9/11. For -- -- on it. We are currently modeling a 160 Acre spacing you know we will be doing a pilot program here soon to see if we can get -- wells per section. We think we can but we we we have demonstrated. Will -- that there's a lot of debate internally about. At four wells per section. Our recovery factors -- are very low lower than what others are publishing for like shale -- so. We're gonna run some tests to see if we can down space -- -- eighty Acre spacing and you know different people -- different nomenclature. When I say a 160 Acre I mean for wells per section eight year can be a wells -- -- All of our economics on every every Acre we've -- we've run on a four world perception model. We -- -- -- last has resource potential of one I have to TCF. Equivalent. And completed well cost the slide -- between seven and nine. Yeah -- A new way -- the current costs current steel prices is nine point two million dollars to drill and complete. We think those costs are gonna come down. For two reasons we think that the markets can reset were saying service cost -- -- a little -- already. We also have problem with that number of returning we have a very channel to drilling completion group. And everywhere -- turned them loose with programs is they're just -- -- cost down through operational efficiencies. So we're fairly confident that those costs are gonna come down over time. Did this also shows some recent wells and the rates have come on. We have a number wells that have come on. Their first thirty there -- more than five million cubic feet today for 4000 foot lateral that's kind of -- model and we think that's what -- saying. And there's girls also some recent offer wells and those of thirty day -- So we've -- some good wells in this play. We're doing better so we're were quite optimistic about it. There's got to show some of the metrics -- talked about. The others there's a model decline curve and internal rate of return then. You know is what do you tell on the slide it. If you know you set there and asked me what is I want to take away from the slide. It says. Six dollar gas we can make -- good review term in this play and that's. Art -- downside that's delivered price of about five and quarter at the well head. We're still in teams internal rate of return and that's -- costs. So you know we like this play we we certainly like it a lot better at 89 dollar gas. Six dollar nymex which is a receive prize at the well -- so about five and quarter. We can still make a very good return of capital. And that's occurred cost we think costs are gonna come down so we very we that we like the metrics of this play and we've pursued aggressively. We have a currently five scheduled to go to nine in this slide shows some of the model production growth. This is very predictable very were pupils you know we've we've got a lot of work on this -- modeling production stream. But also -- -- in the pipeline infrastructure so we can move gas base and it's a challenge. It's it's one that was -- -- willingly. With with a little help -- product price and and service cost you'll see it growing aggressive program -- -- -- possibly more. Our net production -- content has grown -- in this has been a function of a number of plays. You know talks a lot about Texas Panhandle have talked a lot about the the oracle -- for were also an ever -- -- of -- we're in southern Oklahoma. It's our it's our back -- we've been -- for a lot of years we love Oklahoma it's very industry friendly environment. And not only are we in -- number of plays have been for years we've got a lot of new play development going on in Texas you know question Oklahoma. We see the opportunity for new and emerging horizontal play so we ought to see significant growth for foreseeable future. As -- at the outset there were also onshore Gulf Coast this is our premier project is in Liberty County which is you know is just northeast of here. This -- like everything else have talked about really our science rifle shots this is a 3-D seismic play we targeted. You're seeing -- what cook mountain formations. They are -- seismic -- identifiable. Oil and gas accumulations so we get 3-D seismic data. We reprocess it using proprietary. Techniques we have in house -- physical experts that model that signature. We -- want a whole lot of effort into -- us. Now we identify hydrocarbon accumulations. And usually -- 125. Well pools. It's been extremely profitable for us it's not an arena that I can show you a lot of production growth -- It's been -- -- sustained effort for us somewhere between one and 200 million dollars -- your investment. But it's our most profitable program internally born. The rates return on these projects are phenomenal. So we are in the process of shooting new data acquiring new data purchasing new data. As you look at -- X this will be a significant par or for controller for the foreseeable future we absolutely love the economics of this -- You know as I said I can't -- a lot of and stellar production growth the onshore Gulf Coast where I can assure good rates -- return. The this is a combination of both the onshore and the offshore. You know as many of you know us know we're currently in the process of accepting the offshore. We have our last bit of -- offshore correlated data package that we hope to find the seller for. Onshore world -- -- for the foreseeable future we've really -- onshore Gulf Coast. So that -- -- as you look at us and and some takeaways on some key investment considerations for you. We are drillers we are. First and foremost explorers and -- we have growing -- -- program. We have excellent position in land to develop new plays we control lot of plays. At this time more than our history we've been together -- management team for fifteen years we really do have depth of opportunities ready to roll. Now we've struggled back you know we were at 42 rigs a year ago -- exit -- year probably about 29 rigs. And we're gonna live with our cash flow. We have the ability to adapt up and down we'll have a lot of locations -- ago. If the industry turns around here. We've got to locations identified we'll get the recount -- certainly organizations hungry for that. And they're clamoring to get the respect and maybe increase in every -- We have a solid base for reserves as you look it's -- saying it's important just underscore the fact that. Our our reserves are rock solid by and large -- proved developed reserves. -- this that are -- are. Mostly one project to Wyoming -- -- gas plan on. We don't believe -- aggressively working -- -- style. We are strong balance sheet relatively low -- -- appears. You know that's not theology with us we we believe it that barring bases there to be used. But if we -- it's going to be for something has strategic long term importance -- we probably won't tell for foreign base just few. Fund our regular -- program. And -- we launch our corrective consistent profitable growth we are. Fairly easy to understand it's a simple business model. And there would love their -- further questions in the breakout room will be in cottonwood room. Down the halls -- thank you very very much for your troops.

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