Cimarex Energy Co. has announced that fourth-quarter 2008 oil and gas production volumes averaged 493.7 million cubic feet equivalent per day (MMcfe/d), up 5% from the fourth-quarter 2007 average of 471.1 MMcfe/d.
Fourth-quarter 2008 oil production grew 10% over last year's fourth-quarter to an average of 23,907 barrels per day. Gas production in the latest quarter averaged 350.3 million cubic feet per day (MMcf/d), an increase of 3% from the fourth-quarter 2007 average of 341.1 MMcf/d.
Full-year 2008 production volumes averaged 485.8 MMcfe/d, an 8% increase over 2007 average of 451.0 MMcfe/d. After adjusting for 2007 property sales, reported 2008 production represented a 10% increase over 2007. Oil production increased 12% to 22,937 barrels per day and gas production grew 6% to 348.2 MMcf/d. Production grew as a result of successful drilling in Permian Basin horizontal oil plays and Mid-Continent gas plays.
Fourth-quarter 2008 realized prices are expected to be in the range of $5.00 to $5.10 per thousand cubic feet of gas and $55.75 to $56.25 per barrel of oil. Oil and gas prices fell sharply through the fourth-quarter.
Year-end 2008 oil and gas prices dropped significantly as compared to third-quarter 2008 and year-end 2007. Average prices used in determining the present value of proved reserves, or the standardized measure(1), fell 61% for oil and 18% for gas from year-end 2007 to year-end 2008. Because of the significant decrease in commodity prices, the Company's preliminary analysis has determined that the proved properties book-value exceeds the full cost ceiling limit(2) by $985-$1,050 million after tax.
Also as previously announced, Cimarex is required to record a $120 million ($75 million after-tax) litigation charge for a ruling in Tulsa, Oklahoma County District Court in the H.B. Krug, et al. royalty dispute. Cimarex is in the process of appealing the case.
Proved Reserves
Year-end 2008 proved reserves totaled 1.34 trillion cubic feet equivalent (Tcfe) as compared to 1.47 Tcfe at year-end 2007. Proved reserves are 82% developed at year-end 2008 as compared to 79% at year-end 2007. Reserves added from extensions and discoveries totaled 214.9 Bcfe, replacing 121% of production.
The drop in product prices during 2008 had a substantial impact on total proved reserves. Negative revisions of previous estimates totaled 157 Bcfe, of which 145 Bcfe was due to lower prices. Reduced prices also precluded the addition of 107 Bcfe associated with new proven undeveloped locations. Combined, total negative price related revisions totaled 252 Bcfe. Excluding the effect of total price related revisions, proved reserves would have increased 8% over year-end 2007.
Year-end 2008 proved reserves include 58 Bcfe in the western Oklahoma, Anadarko-Woodford Shale play, comprised of 34 Bcfe of proved developed and 24 Bcfe of proven undeveloped reserves. Yet to be classified as proved are 400-500 potential drilling locations (based on 160-acre spacing) associated with our 88,000 net acre position in the play. We estimate the net risked potential of these future drilling locations to be 2.0-3.0 Tcfe.
2009 Outlook
Full-year 2009 exploration and development (E&D) capital investment is targeted to be generally within cash flow. With the major drop in commodity prices, Cimarex have significantly cut back their drilling activity. By the end of the first quarter of 2009 Cimarex expect to have five operated rigs drilling as compared to a third-quarter 2008 peak of 42 rigs and a year-end 2008 count of 21 rigs. Depending on service costs and commodity prices the company may choose to increase their drilling activity or continue to defer.
Based on current market prices and service costs Cimarex would expect that 2009 capital expenditures may range from $400-$600 million. We have a large inventory of drilling opportunities and limited lease expirations. The company will continue to monitor industry conditions and adjust their drilling plans accordingly.
With a slowdown in our activity, first-quarter 2009 production is projected to range between 476-488 MMcfe/d. With the anticipated effect of continued deferred drilling, full-year 2009 production is projected to be in the range of 440-460 MMcfe/d.
Exploration and Development Activity
Cimarex drilled 450 gross (277 net) wells during 2008, completing 94% as producers. Exploration and development (E&D) capital investment for 2008 totaled $1.4 billion.
Mid-Continent
Cimarex drilled 256 gross (138 net) wells in the twelve months ended December 31, 2008, completing 96% as producers. Mid-Continent capital investment of $648 million accounted for 45% of total E&D capital. Fourth-quarter 2008 Mid-Continent production averaged 237.6 MMcfe/d, an increase of 14% over fourth-quarter 2007.
Texas Panhandle
Granite Wash drilling totaled 118 gross (84 net) wells with 96% completed as producers. Notable wells commencing production in the fourth quarter include Earp 60-13 (100% working interest) at 3.4 MMcfe/d, Washita Ranch 19-1H (34% working interest) at 2.2 MMcfe/d and the Byrum 27-25 (75% working interest) at 1.7 MMcfe/d.
Western Oklahoma
Anadarko Basin drilling totaled 81 gross (22 net) wells with 95% being completed as producers. A significant portion of the drilling occurred in the Anadarko-Woodford Shale play where Cimarex drilled or participated in a total of 22 gross (10 net) wells.
The company's activities began in this area in 2007, and their early success in drilling led to leasing a significant land position. Cimarex have approximately 88,000 net acres in the play, which includes the purchase of 38,000 net acres in the fourth quarter of 2008 for $180 million.
The Anadarko-Woodford shale formation varies in thickness from 120-280 feet at depths of 11,000-15,000 feet throughout the company's acreage. At year-end 2008, production from the company's initial wells drilled in the play was over 50 MMcfe per day gross.
Initial thirty-day production rates on recent operated wells include the Golden 1-3H (72% working interest) at 6.5 million cubic feet per day (MMcf/d), the Holman Farms 2-32H (52% working interest) at 6.1 MMcf/d and the Hebert 1-14H (59% WI) at 4.3 MMcf/d.
Permian Basin
Permian Basin drilling for 2008 totaled 164 gross (117 net) wells, 98% of which were completed as producers. Full-year 2008 capital investment in this area totaled $549 million, or 38% of total E&D capital. Fourth-quarter 2008 Permian Basin production averaged 166.2 MMcfe/d, a 16% increase over the fourth quarter of 2007. Oil production reached another record high of 14,210 barrels per day, 39% greater than the fourth quarter of 2007. Increased oil production is a result of successful horizontal drilling programs in southeast New Mexico and West Texas.
Southeast New Mexico drilling, mainly targeting the Morrow, Cherry Canyon, Abo and Wolfcamp formations, totaled 82 gross (58 net) wells with 95% being completed as producers. Recent horizontal Wolfcamp and Abo wells brought on production include the Enterprise 11 State 3H (50% working interest) at 622 barrels oil equivalent per day (BOE/d), Crow Flats 16 State 4H (62% working interest) at 523 BOE/d and the Saratoga 30 State 1H (100% working interest) at 270 BOE/d.
A total of 82 gross (59 net) wells were drilled in West Texas, of which 100% were completed as producers. Third Bone Spring horizontal oil drilling totaled 30 gross (25 net) wells. Recent Bone Spring wells brought on production include the Barnes 33-23 2H (88% working interest) at 647 BOE/d, Fields 33-25 1H (88% working interest) at 558 BOE/d and the KHC 33-26 2H (88% working interest) at 545 BOE/d.
Gulf Coast/Gulf of Mexico
Cimarex drilled 28 gross (21 net) Gulf Coast wells in 2008, completing 54% as producers. Gulf Coast capital investment of $210 million accounted for 15% of total E&D expenditures. Fourth-quarter 2008 Gulf Coast production volumes averaged 68.4 MMcfe/d, an 8% decrease over fourth-quarter 2007. Fluctuations in Gulf Coast production volumes are attributable to timing of exploration success relative to natural reservoir declines.
Offshore production volumes averaged 7.3 MMcfe/d, as compared to 30.9 MMcfe/d in the fourth quarter of 2007. Lower offshore production is a result of an inactive drilling program, natural reservoir depletion, deferred production from hurricanes and the December 2007 sale of operated Main Pass properties.
South Texas, Yegua/Cook Mountain drilling totaled 18 gross (15 net) wells with a 50% success rate. Cimarex currently has no operated rigs drilling onshore Gulf Coast, but expects to begin drilling Yegua/Cook Mountain prospects in the second-quarter.