ITEM 1. - Financial Statements
CIMAREX ENERGY CO.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,930
|
|
|
$
|
800,666
|
|
Accounts receivable, net of allowance:
|
|
|
|
|
|
|
Trade
|
|
123,192
|
|
|
122,065
|
|
Oil and gas sales
|
|
329,661
|
|
|
315,063
|
|
Gas gathering, processing, and marketing
|
|
13,049
|
|
|
17,072
|
|
Oil and gas well equipment and supplies
|
|
62,600
|
|
|
55,553
|
|
Derivative instruments
|
|
35,830
|
|
|
101,939
|
|
Prepaid expenses
|
|
8,135
|
|
|
7,554
|
|
Other current assets
|
|
2,811
|
|
|
4,227
|
|
Total current assets
|
|
596,208
|
|
|
1,424,139
|
|
Oil and gas properties at cost, using the full cost method of accounting:
|
|
|
|
|
|
|
Proved properties
|
|
19,410,269
|
|
|
18,566,757
|
|
Unproved properties and properties under development, not being amortized
|
|
1,707,089
|
|
|
436,325
|
|
|
|
21,117,358
|
|
|
19,003,082
|
|
Less—accumulated depreciation, depletion, amortization, and impairment
|
|
(15,462,464
|
)
|
|
(15,287,752
|
)
|
Net oil and gas properties
|
|
5,654,894
|
|
|
3,715,330
|
|
Fixed assets, net of accumulated depreciation of $340,147 and $324,631, respectively
|
|
509,554
|
|
|
257,686
|
|
Goodwill
|
|
727,573
|
|
|
620,232
|
|
Derivative instruments
|
|
626
|
|
|
9,246
|
|
Other assets
|
|
68,337
|
|
|
35,451
|
|
|
|
$
|
7,557,192
|
|
|
$
|
6,062,084
|
|
Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable:
|
|
|
|
|
|
Trade
|
|
$
|
65,664
|
|
|
$
|
76,927
|
|
Gas gathering, processing, and marketing
|
|
25,190
|
|
|
29,887
|
|
Accrued liabilities:
|
|
|
|
|
|
|
Exploration and development
|
|
183,940
|
|
|
124,674
|
|
Taxes other than income
|
|
32,084
|
|
|
33,622
|
|
Other
|
|
247,041
|
|
|
221,159
|
|
Derivative instruments
|
|
77,557
|
|
|
27,627
|
|
Revenue payable
|
|
215,613
|
|
|
194,811
|
|
Operating leases
|
|
62,825
|
|
|
—
|
|
Total current liabilities
|
|
909,914
|
|
|
708,707
|
|
Senior notes principal
|
|
2,000,000
|
|
|
1,500,000
|
|
Less—senior notes unamortized debt issuance costs and discounts
|
|
(16,273
|
)
|
|
(11,446
|
)
|
Senior notes, net
|
|
1,983,727
|
|
|
1,488,554
|
|
Deferred income taxes
|
|
405,294
|
|
|
334,473
|
|
Asset retirement obligation
|
|
165,529
|
|
|
152,758
|
|
Derivative instruments
|
|
756
|
|
|
2,267
|
|
Operating leases
|
|
186,356
|
|
|
—
|
|
Other liabilities
|
|
62,634
|
|
|
45,539
|
|
Total liabilities
|
|
3,714,210
|
|
|
2,732,298
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
Redeemable preferred stock - 8.125% Series A Cumulative Perpetual Convertible Preferred Stock, $0.01 par value, 62,500 shares authorized and issued and no shares authorized and issued, respectively (Note 5)
|
|
81,620
|
|
|
—
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
Common stock, $0.01 par value, 200,000,000 shares authorized, 101,407,583 and 95,755,797 shares issued, respectively
|
|
1,014
|
|
|
958
|
|
Additional paid-in capital
|
|
3,210,818
|
|
|
2,785,188
|
|
Retained earnings
|
|
547,626
|
|
|
542,885
|
|
Accumulated other comprehensive income
|
|
1,904
|
|
|
755
|
|
Total stockholders’ equity
|
|
3,761,362
|
|
|
3,329,786
|
|
|
|
$
|
7,557,192
|
|
|
$
|
6,062,084
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
CIMAREX ENERGY CO.
Condensed Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share information)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
|
|
|
Oil sales
|
|
$
|
349,306
|
|
|
$
|
351,723
|
|
Gas and NGL sales
|
|
217,915
|
|
|
203,718
|
|
Gas gathering and other
|
|
10,262
|
|
|
11,452
|
|
Gas marketing
|
|
(526
|
)
|
|
241
|
|
|
|
576,957
|
|
|
567,134
|
|
Costs and expenses:
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
190,417
|
|
|
132,859
|
|
Asset retirement obligation
|
|
2,049
|
|
|
1,060
|
|
Production
|
|
77,233
|
|
|
71,271
|
|
Transportation, processing, and other operating
|
|
53,608
|
|
|
45,165
|
|
Gas gathering and other
|
|
12,320
|
|
|
9,823
|
|
Taxes other than income
|
|
33,694
|
|
|
30,188
|
|
General and administrative
|
|
29,084
|
|
|
23,321
|
|
Stock compensation
|
|
6,713
|
|
|
6,730
|
|
Loss (gain) on derivative instruments, net
|
|
115,452
|
|
|
(4,159
|
)
|
Other operating expense, net
|
|
8,326
|
|
|
203
|
|
|
|
528,896
|
|
|
316,461
|
|
Operating income
|
|
48,061
|
|
|
250,673
|
|
Other (income) and expense:
|
|
|
|
|
|
|
Interest expense
|
|
20,405
|
|
|
16,783
|
|
Capitalized interest
|
|
(8,742
|
)
|
|
(4,810
|
)
|
Loss on early extinguishment of debt
|
|
4,250
|
|
|
—
|
|
Other, net
|
|
(2,241
|
)
|
|
(4,567
|
)
|
Income before income tax
|
|
34,389
|
|
|
243,267
|
|
Income tax expense
|
|
8,073
|
|
|
56,949
|
|
Net income
|
|
$
|
26,316
|
|
|
$
|
186,318
|
|
|
|
|
|
|
Earnings per share to common stockholders:
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
|
$
|
1.96
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
1.96
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
Net income
|
|
$
|
26,316
|
|
|
$
|
186,318
|
|
Other comprehensive income:
|
|
|
|
|
|
|
Change in fair value of investments, net of tax of $339 and ($56), respectively
|
|
1,149
|
|
|
(190
|
)
|
Total comprehensive income
|
|
$
|
27,465
|
|
|
$
|
186,128
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
CIMAREX ENERGY CO.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
26,316
|
|
|
$
|
186,318
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
190,417
|
|
|
132,859
|
|
Asset retirement obligation
|
|
2,049
|
|
|
1,060
|
|
Deferred income taxes
|
|
8,073
|
|
|
56,949
|
|
Stock compensation
|
|
6,713
|
|
|
6,730
|
|
Loss (gain) on derivative instruments, net
|
|
115,452
|
|
|
(4,159
|
)
|
Settlements on derivative instruments
|
|
(9,051
|
)
|
|
(12,389
|
)
|
Loss on early extinguishment of debt
|
|
4,250
|
|
|
—
|
|
Amortization of debt issuance costs and discounts
|
|
719
|
|
|
729
|
|
Changes in non-current assets and liabilities
|
|
2,148
|
|
|
(900
|
)
|
Other, net
|
|
3,976
|
|
|
37
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
33,976
|
|
|
44,722
|
|
Other current assets
|
|
350
|
|
|
1,603
|
|
Accounts payable and other current liabilities
|
|
(135,297
|
)
|
|
(30,466
|
)
|
Net cash provided by operating activities
|
|
250,091
|
|
|
383,093
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Acquisition of Resolute Energy, net of cash acquired (Note 13)
|
|
(284,441
|
)
|
|
—
|
|
Oil and gas capital expenditures
|
|
(332,742
|
)
|
|
(323,455
|
)
|
Other capital expenditures
|
|
(17,828
|
)
|
|
(19,056
|
)
|
Sales of oil and gas assets
|
|
5,000
|
|
|
29,824
|
|
Sales of other assets
|
|
200
|
|
|
432
|
|
Net cash used by investing activities
|
|
(629,811
|
)
|
|
(312,255
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
1,182,310
|
|
|
—
|
|
Repayments of long-term debt
|
|
(1,553,000
|
)
|
|
—
|
|
Financing, underwriting, and debt redemption fees
|
|
(10,938
|
)
|
|
—
|
|
Finance lease payments
|
|
(635
|
)
|
|
—
|
|
Dividends paid
|
|
(17,179
|
)
|
|
(7,602
|
)
|
Employee withholding taxes paid upon the net settlement of equity-classified stock awards
|
|
(654
|
)
|
|
(305
|
)
|
Proceeds from exercise of stock options
|
|
80
|
|
|
345
|
|
Net cash used by financing activities
|
|
(400,016
|
)
|
|
(7,562
|
)
|
Net change in cash and cash equivalents
|
|
(779,736
|
)
|
|
63,276
|
|
Cash and cash equivalents at beginning of period
|
|
800,666
|
|
|
400,534
|
|
Cash and cash equivalents at end of period
|
|
$
|
20,930
|
|
|
$
|
463,810
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
CIMAREX ENERGY CO.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
Stockholders’
Equity
|
|
Common Stock
|
|
Shares
|
|
Amount
|
Balance, December 31, 2018
|
|
95,756
|
|
|
$
|
958
|
|
|
$
|
2,785,188
|
|
|
$
|
542,885
|
|
|
$
|
755
|
|
|
$
|
3,329,786
|
|
Dividends paid on stock awards subsequently forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Dividends declared on common stock ($0.20 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,308
|
)
|
|
—
|
|
|
(20,308
|
)
|
Dividends declared on redeemable preferred stock ($20.31 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,269
|
)
|
|
—
|
|
|
(1,269
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,316
|
|
|
—
|
|
|
26,316
|
|
Issuance of stock for Resolute Energy acquisition (Note 13)
|
|
5,652
|
|
|
56
|
|
|
412,959
|
|
|
—
|
|
|
—
|
|
|
413,015
|
|
Unrealized change in fair value of investments, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,149
|
|
|
1,149
|
|
Issuance of restricted stock awards
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common stock reacquired and retired
|
|
(10
|
)
|
|
—
|
|
|
(654
|
)
|
|
—
|
|
|
—
|
|
|
(654
|
)
|
Restricted stock forfeited and retired
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
|
3
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
—
|
|
|
80
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
13,245
|
|
|
—
|
|
|
—
|
|
|
13,245
|
|
Balance, March 31, 2019
|
|
101,408
|
|
|
$
|
1,014
|
|
|
$
|
3,210,818
|
|
|
$
|
547,626
|
|
|
$
|
1,904
|
|
|
$
|
3,761,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital
|
|
Retained
Earnings
(Accumulated Deficit)
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
Stockholders’
Equity
|
|
Common Stock
|
|
Shares
|
|
Amount
|
Balance, December 31, 2017
|
|
95,437
|
|
|
$
|
954
|
|
|
$
|
2,764,384
|
|
|
$
|
(199,259
|
)
|
|
$
|
2,199
|
|
|
$
|
2,568,278
|
|
Dividends paid on stock awards subsequently forfeited
|
|
—
|
|
|
—
|
|
|
3
|
|
|
4
|
|
|
—
|
|
|
7
|
|
Dividends declared on common stock ($0.16 per share)
|
|
—
|
|
|
—
|
|
|
(15,271
|
)
|
|
—
|
|
|
—
|
|
|
(15,271
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186,318
|
|
|
—
|
|
|
186,318
|
|
Unrealized change in fair value of investments, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(190
|
)
|
|
(190
|
)
|
Issuance of restricted stock awards
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common stock reacquired and retired
|
|
(3
|
)
|
|
—
|
|
|
(305
|
)
|
|
—
|
|
|
—
|
|
|
(305
|
)
|
Restricted stock forfeited and retired
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
|
4
|
|
|
—
|
|
|
345
|
|
|
—
|
|
|
—
|
|
|
345
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
12,411
|
|
|
—
|
|
|
—
|
|
|
12,411
|
|
Balance, March 31, 2018
|
|
95,433
|
|
|
$
|
954
|
|
|
$
|
2,761,567
|
|
|
$
|
(12,937
|
)
|
|
$
|
2,009
|
|
|
$
|
2,751,593
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
Cimarex Energy Co. (“Cimarex,” “we,” or “us”), a Delaware corporation, is an independent oil and gas exploration and production company. Our operations are mainly located in Texas, Oklahoma, and New Mexico. The accompanying unaudited financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures required by accounting principles generally accepted in the United States and normally included in Annual Reports on Form 10-K have been omitted. Although management believes that our disclosures in these interim financial statements are adequate, they should be read in conjunction with the financial statements, summary of significant accounting policies, and footnotes included in our Annual Report on Form 10-K for the year ended
December 31, 2018
.
In the opinion of management, the accompanying financial statements reflect all adjustments necessary to fairly present our financial position, results of operations, and cash flows for the periods and as of the dates shown. The accounts of Cimarex and its subsidiaries are presented in the accompanying financial statements, with intercompany balances and transactions eliminated in consolidation. Certain amounts in the prior year financial statements have been reclassified to conform to the
2019
financial statement presentation.
On
March 1, 2019
, we acquired Resolute Energy Corporation (“Resolute”) in a cash and stock transaction. The results of Resolute’s operations have been included in our consolidated financial statements since the
March 1, 2019
acquisition date. See Note 13 for more information on this transaction.
Use of Estimates
Areas of significance requiring the use of management’s judgments include the estimation of proved oil and gas reserves used in calculating depletion, the estimation of future net revenues used in computing ceiling test limitations, the estimation of future abandonment obligations used in recording asset retirement obligations, and the assessment of goodwill. Estimates and judgments also are required in determining allowances for doubtful accounts, impairments of unproved properties and other assets, valuation of deferred tax assets, fair value measurements, and contingencies.
Oil and Gas Well Equipment and Supplies
Our oil and gas well equipment and supplies are valued at the lower of cost and net realizable value, where net realizable value is estimated selling prices in the ordinary course of business, less reasonably predictable costs of disposal and transportation. Declines in the price of oil and gas well equipment and supplies in future periods could cause us to recognize impairments on these assets. An impairment would not affect cash flow from operating activities, but would adversely affect our net income and stockholders’ equity.
Oil and Gas Properties
We use the full cost method of accounting for our oil and gas operations. All costs associated with property acquisition, exploration, and development activities are capitalized. Under the full cost method of accounting, we are required to perform a quarterly ceiling test calculation to test our oil and gas properties for possible impairment. If the net capitalized cost of our oil and gas properties, as adjusted for income taxes, exceeds the ceiling limitation, the excess is charged to expense. The ceiling limitation is equal to the sum of: (i) the present value discounted at
10%
of estimated future net revenues from proved reserves, (ii) the cost of properties not being amortized, and (iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, as adjusted for income taxes. We currently do not have any unproven properties that are being amortized. Estimated future net revenues are determined based on trailing twelve-month average commodity prices and estimated proved reserve quantities, operating costs, and capital expenditures. The calculated ceiling limitation is not intended to be indicative of the fair market
value of our proved reserves or future results.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
We did not recognize a ceiling test impairment during the three months ended
March 31, 2019
and
2018
because the net capitalized cost of our oil and gas properties, as adjusted for income taxes, did not exceed the ceiling limitation. If pricing conditions deteriorate, including the further widening of local market basis differentials, or if there is a negative impact on one or more of the other components of the calculation, we may incur full cost ceiling test impairments in future quarters. Impairment charges do not affect cash flow from operating activities, but do adversely affect our net income and various components of our balance sheet. Any impairment of oil and gas properties is not reversible at a later date.
Revenue Recognition
Oil, Gas, and NGL Sales
Revenue is recognized from the sales of oil, gas, and NGLs when the customer obtains control of the product, when we have no further obligations to perform related to the sale, and when collectability is probable. All of our sales of oil, gas, and NGLs are made under contracts with customers, which typically include variable consideration based on monthly pricing tied to local indices and monthly volumes delivered. The nature of our contracts with customers does not require us to constrain that variable consideration or to estimate the amount of transaction price attributable to future performance obligations for accounting purposes. As of
March 31, 2019
, we had open contracts with customers with terms of
one
month to multiple years, as well as “evergreen” contracts that renew on a periodic basis if not canceled by us or the customer. Performance obligations under our contracts with customers are typically satisfied at a point-in-time through monthly delivery of oil, gas, and/or NGLs. Our contracts with customers typically require payment within one month of delivery.
Our gas and NGLs are sold under a limited number of contract structure types common in our industry. Under these contracts the gas and its components, including NGLs, may be sold to a single purchaser or the residue gas and NGLs may be sold to separate purchasers. Regardless of the contract structure type, the terms of these contracts compensate us for the value of the residue gas and NGLs at current market prices for each product. Our oil typically is sold at specific delivery points under contract terms that also are common in our industry.
Gas Gathering
When we transport and/or process third-party gas associated with our equity gas, we recognize revenue for the fees charged to third-parties for such services.
Gas Marketing
When we market and sell gas for working interest owners, we act as agent under short-term sales and supply agreements and may earn a fee for such services. Revenues from such services are recognized as gas is delivered.
Gas Imbalances
Revenue from the sale of gas is recorded on the basis of gas actually sold by us. If our aggregate sales volumes for a well are greater (or less) than our proportionate share of production from the well, a liability (or receivable) is established to the extent there are insufficient proved reserves available to make-up the overproduced (or underproduced) imbalance. Imbalances have not been significant in the periods presented.
Lease Accounting
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases
(“Topic 842”). The FASB subsequently issued various ASUs which provided additional implementation guidance. Topic 842 requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for contracts that provide lessees with the right to control the use of identified assets for a period of time. The
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
scope of Topic 842 excludes leases to explore for or use minerals, oil, natural gas, and similar nonregenerative resources. We adopted Topic 842 effective January 1, 2019, using the modified retrospective method applied to all leases that existed on that date, which resulted in the recognition of lease liabilities of
$276.9 million
and right-of-use assets of
$265.0 million
. In connection with adoption we made use of the following practical expedients, which are provided in Topic 842:
|
|
•
|
a package of practical expedients to not reassess: 1) whether expired or existing contracts are or contain a lease, 2) lease classification for expired or existing leases, and 3) initial direct costs for existing leases;
|
|
|
•
|
an election not to apply the recognition requirements in Topic 842 to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise);
|
|
|
•
|
a practical expedient that permits combining lease and nonlease components in a contract and accounting for the combination as a lease (elected by asset class); and
|
|
|
•
|
a practical expedient to not reassess certain land easements in existence prior to January 1, 2019.
|
Long-term debt at
March 31, 2019
and
December 31, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
(in thousands)
|
|
Principal
|
|
Unamortized Debt
Issuance Costs
and Discounts
(1)
|
|
Long-term
Debt, net
|
|
Principal
|
|
Unamortized Debt
Issuance Costs
and Discount
(1)
|
|
Long-term
Debt, net
|
4.375% Notes due 2024
|
|
$
|
750,000
|
|
|
$
|
(4,209
|
)
|
|
$
|
745,791
|
|
|
$
|
750,000
|
|
|
$
|
(4,439
|
)
|
|
$
|
745,561
|
|
3.90% Notes due 2027
|
|
750,000
|
|
|
(6,831
|
)
|
|
743,169
|
|
|
750,000
|
|
|
(7,007
|
)
|
|
742,993
|
|
4.375% Notes due 2029
|
|
500,000
|
|
|
(5,233
|
)
|
|
494,767
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
2,000,000
|
|
|
$
|
(16,273
|
)
|
|
$
|
1,983,727
|
|
|
$
|
1,500,000
|
|
|
$
|
(11,446
|
)
|
|
$
|
1,488,554
|
|
________________________________________
|
|
(1)
|
At
March 31, 2019
, the unamortized debt issuance costs and discount related to the
3.90%
Notes due 2027 were
$5.3 million
and
$1.6 million
, respectively. At
December 31, 2018
, the unamortized debt issuance costs and discount related to the
3.90%
Notes due 2027 were
$5.4 million
and
$1.6 million
, respectively. At
March 31, 2019
, the unamortized debt issuance costs and discount related to the
4.375%
Notes due 2029 were
$4.5 million
and
$0.7 million
, respectively. The
4.375%
Notes due 2024 were issued at par.
|
Bank Debt
On
February 5, 2019
, we entered into an Amended and Restated Credit Agreement for our senior unsecured revolving credit facility (“Credit Facility”). Among other things, the amended and restated credit facility increased the aggregate commitments to
$1.25 billion
with an option for us to increase the aggregate commitments to
$1.5 billion
, and extended the maturity date to
February 5, 2024
. As of
March 31, 2019
, we had
no
bank borrowings outstanding under the Credit Facility, leaving an unused borrowing availability of
$1.25 billion
.
At our option, borrowings under the Credit Facility may bear interest at either (a) LIBOR plus
1.125
–
2.0%
based on the credit rating for our senior unsecured long-term debt, or (b) a base rate (as defined in the credit agreement) plus
0.125
–
1.0%
, based on the credit rating for our senior unsecured long-term debt. Unused borrowings are subject to a commitment fee of
0.125
–
0.35%
, based on the credit rating for our senior unsecured long-term debt.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
The Credit Facility contains representations, warranties, covenants, and events of default that are customary for investment grade, senior unsecured bank credit agreements, including a financial covenant for the maintenance of a defined total debt-to-capital ratio of no greater than
65%
. As of
March 31, 2019
, we were in compliance with all of the financial covenants.
At
March 31, 2019
and
December 31, 2018
, we had
$4.9 million
and
$2.2 million
, respectively, of unamortized debt issuance costs associated with our Credit Facility, which were recorded as assets and included in Other assets on our Condensed Consolidated Balance Sheets. These costs are being amortized to interest expense ratably over the life of the Credit Facility. We incurred
$3.0 million
in additional debt issuance costs in amending our Credit Facility.
Senior Notes
On
March 8, 2019
, we issued
$500 million
aggregate principal amount of
4.375%
senior unsecured notes due
March 15, 2029
at
99.862%
of par to yield
4.392%
per annum. We received
$494.7 million
in net cash proceeds, after deducting underwriters’ fees, discount, and debt issuance costs. The notes bear an annual interest rate of
4.375%
and interest is payable semiannually on
March 15
and
September 15
, with the first payment occurring
September 15, 2019
. We used the net proceeds to repay borrowings that were outstanding under our Credit Facility that were used to help fund the Resolute acquisition on
March 1, 2019
. The effective interest rate on these notes, including the amortization of debt issuance costs and discount, is
4.50%
.
In April 2017, we issued
$750 million
aggregate principal amount of
3.90%
senior unsecured notes at
99.748%
of par to yield
3.93%
per annum. These notes are due
May 15, 2027
and interest is payable semiannually on May 15 and November 15. The effective interest rate on these notes, including the amortization of debt issuance costs and discount, is
4.01%
.
In June 2014, we issued
$750 million
aggregate principal amount of
4.375%
senior unsecured notes at par. These notes are due June 1, 2024 and interest is payable semiannually on June 1 and December 1. The effective interest rate on these notes, including the amortization of debt issuance costs, is
4.50%
.
Our senior unsecured notes are governed by indentures containing certain covenants, events of default, and other restrictive provisions with which we were in compliance as of
March 31, 2019
.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
|
|
3.
|
DERIVATIVE INSTRUMENTS
|
We periodically use derivative instruments to mitigate volatility in commodity prices. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future cash flow from favorable price changes. Depending on changes in oil and gas futures markets and management’s view of underlying supply and demand trends, we may increase or decrease our derivative positions from current levels.
As of
March 31, 2019
, we have entered into oil and gas collars, oil basis swaps, oil and gas fixed price swaps, and sold oil calls. Under our collars, we receive the difference between the published index price and a floor price if the index price is below the floor price or we pay the difference between the ceiling price and the index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and the ceiling prices. By using a collar, we have fixed the minimum and maximum prices we can receive on the underlying production. Our basis swaps are settled based on the difference between a published index price plus or minus a fixed differential, as applicable, and the applicable local index price under which the underlying production is sold. By using a basis swap, we have fixed the differential between the published index price and certain of our physical pricing points. For our Permian oil production, the basis swaps fix the price differential between the WTI NYMEX (Cushing Oklahoma) price and the WTI Midland price. For our Permian and Mid-Continent gas production, the contract prices in our collars are consistent with the index prices used to sell our production. Under our fixed price swaps, we receive the difference between the fixed price and the published index price if the published index price is below the fixed price and we pay the difference between the fixed price and the published index price if the published index price is above the fixed price. Under our sold oil calls, we pay the difference between the fixed price and the published index price if the published index price is above the fixed price. The following tables summarize our outstanding derivative contracts as of
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Collars
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
WTI
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
—
|
|
|
3,094,000
|
|
|
2,944,000
|
|
|
2,208,000
|
|
|
8,246,000
|
|
Weighted Avg Price - Floor
|
|
$
|
—
|
|
|
$
|
53.68
|
|
|
$
|
54.81
|
|
|
$
|
56.42
|
|
|
$
|
54.82
|
|
Weighted Avg Price - Ceiling
|
|
$
|
—
|
|
|
$
|
66.57
|
|
|
$
|
68.60
|
|
|
$
|
69.40
|
|
|
$
|
68.05
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
WTI
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
1,456,000
|
|
|
728,000
|
|
|
—
|
|
|
—
|
|
|
2,184,000
|
|
Weighted Avg Price - Floor
|
|
$
|
56.13
|
|
|
$
|
52.25
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
54.83
|
|
Weighted Avg Price - Ceiling
|
|
$
|
70.08
|
|
|
$
|
64.31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68.15
|
|
________________________________________
|
|
(1)
|
The index price for these collars is West Texas Intermediate (“WTI”) as quoted on the New York Mercantile Exchange (“NYMEX”).
|
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Collars
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
2019:
|
|
|
|
|
|
|
|
|
|
|
PEPL
(1)
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
—
|
|
|
13,650,000
|
|
|
11,040,000
|
|
|
8,280,000
|
|
|
32,970,000
|
|
Weighted Avg Price - Floor
|
|
$
|
—
|
|
|
$
|
2.03
|
|
|
$
|
1.94
|
|
|
$
|
1.94
|
|
|
$
|
1.98
|
|
Weighted Avg Price - Ceiling
|
|
$
|
—
|
|
|
$
|
2.39
|
|
|
$
|
2.32
|
|
|
$
|
2.37
|
|
|
$
|
2.36
|
|
Perm EP
(2)
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
—
|
|
|
8,190,000
|
|
|
6,440,000
|
|
|
3,680,000
|
|
|
18,310,000
|
|
Weighted Avg Price - Floor
|
|
$
|
—
|
|
|
$
|
1.67
|
|
|
$
|
1.49
|
|
|
$
|
1.40
|
|
|
$
|
1.55
|
|
Weighted Avg Price - Ceiling
|
|
$
|
—
|
|
|
$
|
1.95
|
|
|
$
|
1.79
|
|
|
$
|
1.73
|
|
|
$
|
1.85
|
|
Waha
(3)
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
—
|
|
|
3,640,000
|
|
|
5,520,000
|
|
|
5,520,000
|
|
|
14,680,000
|
|
Weighted Avg Price - Floor
|
|
$
|
—
|
|
|
$
|
1.41
|
|
|
$
|
1.48
|
|
|
$
|
1.48
|
|
|
$
|
1.46
|
|
Weighted Avg Price - Ceiling
|
|
$
|
—
|
|
|
$
|
1.73
|
|
|
$
|
1.82
|
|
|
$
|
1.82
|
|
|
$
|
1.80
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
PEPL
(1)
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
5,460,000
|
|
|
2,730,000
|
|
|
—
|
|
|
—
|
|
|
8,190,000
|
|
Weighted Avg Price - Floor
|
|
$
|
1.96
|
|
|
$
|
1.95
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.96
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.38
|
|
|
$
|
2.26
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.34
|
|
Perm EP
(2)
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
1,820,000
|
|
|
910,000
|
|
|
—
|
|
|
—
|
|
|
2,730,000
|
|
Weighted Avg Price - Floor
|
|
$
|
1.45
|
|
|
$
|
1.50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.47
|
|
Weighted Avg Price - Ceiling
|
|
$
|
1.92
|
|
|
$
|
2.13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.99
|
|
Waha
(3)
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
4,550,000
|
|
|
2,730,000
|
|
|
—
|
|
|
—
|
|
|
7,280,000
|
|
Weighted Avg Price - Floor
|
|
$
|
1.50
|
|
|
$
|
1.57
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.53
|
|
Weighted Avg Price - Ceiling
|
|
$
|
1.87
|
|
|
$
|
1.97
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.91
|
|
________________________________________
|
|
(1)
|
The index price for these collars is Panhandle Eastern Pipe Line, Tex/OK Mid-Continent Index (“PEPL”) as quoted in Platt’s Inside FERC.
|
|
|
(2)
|
The index price for these collars is El Paso Natural Gas Company, Permian Basin Index (“Perm EP”) as quoted in Platt’s Inside FERC.
|
|
|
(3)
|
The index price for these collars is Waha West Texas Natural Gas Index (“Waha”) as quoted in Platt’s Inside FERC.
|
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Basis Swaps
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
WTI Midland
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
—
|
|
|
3,685,500
|
|
|
3,266,000
|
|
|
2,530,000
|
|
|
9,481,500
|
|
Weighted Avg Differential (2)
|
|
$
|
—
|
|
|
$
|
(6.51
|
)
|
|
$
|
(7.36
|
)
|
|
$
|
(8.36
|
)
|
|
$
|
(7.30
|
)
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
WTI Midland
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
1,001,000
|
|
|
637,000
|
|
|
—
|
|
|
—
|
|
|
1,638,000
|
|
Weighted Avg Differential (2)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.26
|
)
|
________________________________________
|
|
(1)
|
The index price we pay under these basis swaps is WTI Midland as quoted by Argus Americas Crude.
|
|
|
(2)
|
The index price we receive under these basis swaps is WTI as quoted on the NYMEX less the weighted average differential shown in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Swaps
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
WTI
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
—
|
|
|
455,000
|
|
|
460,000
|
|
|
460,000
|
|
|
1,375,000
|
|
Weighted Avg Price
|
|
$
|
—
|
|
|
$
|
64.54
|
|
|
$
|
64.54
|
|
|
$
|
64.54
|
|
|
$
|
64.54
|
|
________________________________________
|
|
(1)
|
The fixed price on these swaps is NYMEX WTI.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Swaps
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
Henry Hub
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
—
|
|
|
3,185,000
|
|
|
3,220,000
|
|
|
3,220,000
|
|
|
9,625,000
|
|
Weighted Avg Price
|
|
$
|
—
|
|
|
$
|
3.00
|
|
|
$
|
3.00
|
|
|
$
|
3.00
|
|
|
$
|
3.00
|
|
________________________________________
|
|
(1)
|
The fixed price on these swaps is NYMEX Henry Hub.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold Oil Calls
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
WTI
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
—
|
|
|
333,970
|
|
|
337,640
|
|
|
337,640
|
|
|
1,009,250
|
|
Weighted Avg Call Price
|
|
$
|
—
|
|
|
$
|
64.36
|
|
|
$
|
64.36
|
|
|
$
|
64.36
|
|
|
$
|
64.36
|
|
________________________________________
|
|
(1)
|
The index on these sold calls is NYMEX WTI.
|
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
The following table summarizes our derivative contracts entered into subsequent to
March 31, 2019
through May 7, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Basis Swaps
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
WTI Midland
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
364,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
364,000
|
|
Weighted Avg Differential (2)
|
|
$
|
(0.03
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.03
|
)
|
________________________________________
|
|
(1)
|
The index price we pay under these basis swaps is WTI Midland as quoted by Argus Americas Crude.
|
|
|
(2)
|
The index price we receive under these basis swaps is WTI as quoted on the NYMEX less the weighted average differential shown in the table.
|
Derivative Gains and Losses
Net gains and losses on our derivative instruments are a function of fluctuations in the underlying commodity index prices as compared to the contracted prices and the monthly cash settlements (if any) of the instruments. We have elected not to designate our derivatives as hedging instruments for accounting purposes and, therefore, we do not apply hedge accounting treatment to our derivative instruments. Consequently, changes in the fair value of our derivative instruments and cash settlements on the instruments are included as a component of operating costs and expenses as either a net gain or loss on derivative instruments. Cash settlements of our contracts are included in cash flows from operating activities in our statements of cash flows. The following table presents the components of Loss (gain) on derivative instruments, net for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Decrease (increase) in fair value of derivative instruments, net:
|
|
|
|
|
|
|
Gas contracts
|
|
$
|
(9,846
|
)
|
|
$
|
(11,789
|
)
|
Oil contracts
|
|
116,247
|
|
|
(4,759
|
)
|
|
|
106,401
|
|
|
(16,548
|
)
|
Cash (receipts) payments on derivative instruments, net:
|
|
|
|
|
|
|
Gas contracts
|
|
3,764
|
|
|
(5,119
|
)
|
Oil contracts
|
|
5,287
|
|
|
17,508
|
|
|
|
9,051
|
|
|
12,389
|
|
Loss (gain) on derivative instruments, net
|
|
$
|
115,452
|
|
|
$
|
(4,159
|
)
|
Derivative Fair Value
Our derivative contracts are carried at their fair value on our balance sheet using Level 2 inputs and are subject to master netting arrangements, which allow us to offset recognized asset and liability fair value amounts on contracts with the same counterparty. Our accounting policy is to not offset asset and liability positions in our balance sheets.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
The following tables present the amounts and classifications of our derivative assets and liabilities as of
March 31, 2019
and
December 31, 2018
, as well as the potential effect of netting arrangements on our recognized derivative asset and liability amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(in thousands)
|
|
Balance Sheet Location
|
|
Asset
|
|
Liability
|
Oil contracts
|
|
Current assets — Derivative instruments
|
|
$
|
19,328
|
|
|
$
|
—
|
|
Gas contracts
|
|
Current assets — Derivative instruments
|
|
16,502
|
|
|
—
|
|
Oil contracts
|
|
Non-current assets — Derivative instruments
|
|
222
|
|
|
—
|
|
Gas contracts
|
|
Non-current assets — Derivative instruments
|
|
404
|
|
|
—
|
|
Oil contracts
|
|
Current liabilities — Derivative instruments
|
|
—
|
|
|
73,517
|
|
Gas contracts
|
|
Current liabilities — Derivative instruments
|
|
—
|
|
|
4,040
|
|
Oil contracts
|
|
Non-current liabilities — Derivative instruments
|
|
—
|
|
|
749
|
|
Gas contracts
|
|
Non-current liabilities — Derivative instruments
|
|
—
|
|
|
7
|
|
Total gross amounts presented in the balance sheet
|
|
36,456
|
|
|
78,313
|
|
Less: gross amounts not offset in the balance sheet
|
|
(26,283
|
)
|
|
(26,283
|
)
|
Net amount
|
|
$
|
10,173
|
|
|
$
|
52,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(in thousands)
|
|
Balance Sheet Location
|
|
Asset
|
|
Liability
|
Oil contracts
|
|
Current assets — Derivative instruments
|
|
$
|
94,240
|
|
|
$
|
—
|
|
Gas contracts
|
|
Current assets — Derivative instruments
|
|
7,699
|
|
|
—
|
|
Oil contracts
|
|
Non-current assets — Derivative instruments
|
|
9,246
|
|
|
—
|
|
Oil contracts
|
|
Current liabilities — Derivative instruments
|
|
—
|
|
|
23,378
|
|
Gas contracts
|
|
Current liabilities — Derivative instruments
|
|
—
|
|
|
4,249
|
|
Oil contracts
|
|
Non-current liabilities — Derivative instruments
|
|
—
|
|
|
311
|
|
Gas contracts
|
|
Non-current liabilities — Derivative instruments
|
|
—
|
|
|
1,956
|
|
Total gross amounts presented in the balance sheet
|
|
111,185
|
|
|
29,894
|
|
Less: gross amounts not offset in the balance sheet
|
|
(29,894
|
)
|
|
(29,894
|
)
|
Net amount
|
|
$
|
81,291
|
|
|
$
|
—
|
|
We are exposed to financial risks associated with our derivative contracts from non-performance by our counterparties. We mitigate our exposure to any single counterparty by contracting with a number of financial institutions, each of which has a high credit rating and is a member of our bank credit facility. Our member banks do not require us to post collateral for our derivative liability positions, nor do we require our counterparties to post collateral for our benefit. In the future we may enter into derivative instruments with counterparties outside our bank group to obtain competitive terms and to spread counterparty risk.
|
|
4.
|
FAIR VALUE MEASUREMENTS
|
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The FASB has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
The following table provides fair value measurement information for certain assets and liabilities as of
March 31, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
(in thousands)
|
|
Book
Value
|
|
Fair
Value
|
|
Book
Value
|
|
Fair
Value
|
Financial Assets (Liabilities):
|
|
|
|
|
|
|
|
|
|
|
4.375% Notes due 2024
|
|
$
|
(750,000
|
)
|
|
$
|
(779,340
|
)
|
|
$
|
(750,000
|
)
|
|
$
|
(744,578
|
)
|
3.90% Notes due 2027
|
|
$
|
(750,000
|
)
|
|
$
|
(748,620
|
)
|
|
$
|
(750,000
|
)
|
|
$
|
(701,273
|
)
|
4.375% Notes due 2029
|
|
$
|
(500,000
|
)
|
|
$
|
(514,380
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative instruments — assets
|
|
$
|
36,456
|
|
|
$
|
36,456
|
|
|
$
|
111,185
|
|
|
$
|
111,185
|
|
Derivative instruments — liabilities
|
|
$
|
(78,313
|
)
|
|
$
|
(78,313
|
)
|
|
$
|
(29,894
|
)
|
|
$
|
(29,894
|
)
|
Assessing the significance of a particular input to the fair value measurement requires judgment, including the consideration of factors specific to the asset or liability. The fair value (Level 1) of our fixed rate notes was based on their last traded value before period end. The fair value of our derivative instruments (Level 2) was estimated using option pricing models. These models use certain variables including forward price and volatility curves and the strike prices for the instruments. The fair value estimates are adjusted relative to non-performance risk as appropriate. See Note 3 for further information on the fair value of our derivative instruments.
Other Financial Instruments
The carrying amounts of our cash, cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short-term maturities and/or liquid nature of these assets and liabilities. Included in “Accrued liabilities — Other” at
March 31, 2019
were accrued operating expenses of approximately
$84.0 million
. Included in “Accrued liabilities — Other” at
December 31, 2018
were: (i) accrued operating expenses of approximately
$69.1 million
, (ii) accrued general and administrative, primarily payroll-related, costs of approximately
$47.4 million
, and (iii) an accrual of approximately
$35.8 million
representing the amount by which checks issued, but not yet presented to our banks, exceeded balances in applicable bank accounts.
Most of our accounts receivable balances are uncollateralized and result from transactions with other companies in the oil and gas industry. Concentration of customers may impact our overall credit risk because our customers may be similarly affected by changes in economic or other conditions within the industry.
We conduct credit analyses prior to making any sales to new customers or increasing credit for existing customers and may require parent company guarantees, letters of credit, or prepayments when deemed necessary.
We routinely assess the recoverability of all material accounts receivable to determine their collectability. We accrue a reserve to the allowance for doubtful accounts when it is probable that a receivable will not be collected and the amount of the reserve may be reasonably estimated. At
March 31, 2019
and
December 31, 2018
, the allowance for doubtful accounts was
$2.7 million
and
$2.7 million
, respectively.
Authorized capital stock consists of
200 million
shares of common stock and
15 million
shares of preferred stock. At
March 31, 2019
, there were
101.4 million
shares of common stock outstanding.
From the
15 million
shares of preferred stock authorized, our Board of Directors created a series of preferred stock designated as
8.125%
Series A Cumulative Perpetual Convertible Preferred Stock and authorized
62.5 thousand
shares. In March 2019, in conjunction with the Resolute acquisition (see Note 13), we issued
62.5 thousand
shares of
8.125%
Series A Cumulative Perpetual Convertible Preferred Stock, par value
$0.01
per share (the “Convertible
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
Preferred Stock”). Holders of the Convertible Preferred Stock are entitled to receive, when, as, and if declared by the Board out of funds of Cimarex legally available for payment, cumulative cash dividends at the annual rate of
8.125%
of each share’s liquidation preference of
$1,000
. Dividends on the preferred stock will be payable quarterly in arrears and shall accumulate from the most recent date as to which dividends have been paid. In the event of any liquidation, winding up, or dissolution of Cimarex, whether voluntary or involuntary, each holder will be entitled to receive in respect of its shares and to be paid out of the assets of Cimarex legally available for distribution to its stockholders, after satisfaction of liabilities to Cimarex’s creditors and any senior stock (of which there is currently none) and before any payment or distribution is made to holders of junior stock (including common stock), the liquidation preference of
$1,000
per share, with the total liquidation preference being
$62.5 million
in the aggregate. Each holder has the right at any time, at its option, to convert any or all of such holder’s shares of Convertible Preferred Stock at an initial conversion rate of
8.0421
shares of fully paid and nonassessable shares of our common stock and
$471.40
in cash per share of Convertible Preferred Stock. Additionally, at any time on or after October 15, 2021, we shall have the right, at our option, if the closing sale price of our common stock meets certain criteria, to elect to cause all, and not part, of the outstanding shares of Convertible Preferred Stock to be automatically converted into that number of shares of Cimarex common stock for each share of Convertible Preferred Stock equal to the conversion rate in effect on the mandatory conversion date as such terms are defined in the Certificate of Designations for the Convertible Preferred Stock and
$471.40
in cash per share of Convertible Preferred Stock. As a result of the cash redemption features included in the Convertible Preferred Stock conversion option, with such conversion not solely within our control, the instruments are classified as Redeemable preferred stock in temporary equity on the Condensed Consolidated Balance Sheet.
Dividends
Common Stock
In
February 2019
, our Board of Directors declared a cash dividend of
$0.20
per share of common stock. The dividend is payable on or before
May 31, 2019
to stockholders of record on
May 15, 2019
. Dividends declared are recorded as a reduction of retained earnings to the extent retained earnings are available at the close of the period prior to the date of the declared dividend. Dividends in excess of retained earnings are recorded as a reduction of additional paid-in capital. The
$20.3 million
dividend declared during the first quarter
2019
was recorded as a reduction of retained earnings and is included as a payable in “Accrued liabilities — Other” on the Condensed Consolidated Balance Sheet. Nonforfeitable dividends paid on stock awards that subsequently forfeit are reclassified out of retained earnings or additional paid-in capital, as applicable, to stock compensation expense in the period in which the forfeitures occur. Future dividend payments will depend on our level of earnings, financial requirements, and other factors considered relevant by our Board of Directors.
Preferred Stock
In
March 2019
, our Board of Directors declared a cash dividend of
$20.31
per share of Convertible Preferred Stock. The dividend was paid in
April
to stockholders of record on
April 1, 2019
. The
$1.3 million
dividend declared during the first quarter
2019
was recorded as a reduction of retained earnings and is included as a payable in “Accrued liabilities — Other” on the Condensed Consolidated Balance Sheet.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
|
|
6.
|
STOCK-BASED COMPENSATION
|
We have recognized stock-based compensation cost as shown below for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Restricted stock awards:
|
|
|
|
|
Performance stock awards
|
|
$
|
5,394
|
|
|
$
|
6,729
|
|
Service-based stock awards
|
|
7,231
|
|
|
5,072
|
|
|
|
12,625
|
|
|
11,801
|
|
Stock option awards
|
|
622
|
|
|
617
|
|
Total stock compensation cost
|
|
13,247
|
|
|
12,418
|
|
Less amounts capitalized to oil and gas properties
|
|
(6,534
|
)
|
|
(5,688
|
)
|
Stock compensation expense
|
|
$
|
6,713
|
|
|
$
|
6,730
|
|
Periodic stock compensation expense will fluctuate based on the grant-date fair value of awards, the number of awards, the requisite service period of the awards, employee forfeitures, and the timing of the awards. Our accounting policy is to account for forfeitures in compensation cost when they occur.
|
|
7.
|
ASSET RETIREMENT OBLIGATIONS
|
We recognize the present value of the fair value of liabilities for retirement obligations associated with tangible long-lived assets in the period in which there is a legal obligation associated with the retirement of such assets and the amount can be reasonably estimated. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This liability includes costs related to the plugging and abandonment of wells, the removal of facilities and equipment, and site restorations. Subsequent to initial measurement, the asset retirement liability is accreted each period. If there is a change in the estimated cost or timing of retirement, a revision is recorded to both the asset retirement obligation and the asset retirement capitalized cost. Capitalized costs are included as a component of the depreciation and depletion calculations.
The following table reflects the components of the change in the carrying amount of the asset retirement obligation for the
three months ended March 31, 2019
:
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended
March 31, 2019
|
Asset retirement obligation at January 1, 2019
|
|
$
|
166,904
|
|
Liabilities incurred
|
|
10,009
|
|
Liability settlements and disposals
|
|
(1,361
|
)
|
Accretion expense
|
|
1,793
|
|
Revisions of estimated liabilities
|
|
1,912
|
|
Asset retirement obligation at March 31, 2019
|
|
179,257
|
|
Less current obligation
|
|
(13,728
|
)
|
Long-term asset retirement obligation
|
|
$
|
165,529
|
|
For the
three months ended March 31, 2019
, liabilities incurred included
$9.4 million
for the Resolute acquisition.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
The calculations of basic and diluted net earnings per common share under the two-class method are presented below for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
(in thousands, except per share information)
|
|
Income (Numerator)
|
|
Shares (Denominator)
|
|
Per-Share Amount
|
|
Income (Numerator)
|
|
Shares (Denominator)
|
|
Per-Share Amount
|
Net income
|
|
$
|
26,316
|
|
|
|
|
|
|
|
$
|
186,318
|
|
|
|
|
|
Less: net income attributable to participating securities
|
|
(445
|
)
|
|
|
|
|
|
(2,666
|
)
|
|
|
|
|
Less: preferred stock dividends
|
|
(1,269
|
)
|
|
|
|
|
|
—
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
24,602
|
|
|
95,922
|
|
|
$
|
0.26
|
|
|
183,652
|
|
|
93,699
|
|
|
$
|
1.96
|
|
Effects of dilutive securities
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
—
|
|
|
10
|
|
|
|
|
—
|
|
|
38
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders and assumed conversions
|
|
$
|
24,602
|
|
|
95,932
|
|
|
$
|
0.26
|
|
|
$
|
183,652
|
|
|
93,737
|
|
|
$
|
1.96
|
|
________________________________________
|
|
(1)
|
Inclusion of certain potential common shares would have an anti-dilutive effect, therefore, these shares were excluded from the calculations of diluted earnings per share. Excluded from the
March 31, 2019
calculation were
388.6 thousand
potential common shares from the assumed exercise of employee stock options and
502.6 thousand
potential common shares from the assumed conversion of the Convertible Preferred Stock. Excluded from the
March 31, 2018
calculation were
295.6 thousand
potential common shares from the assumed exercise of employee stock options.
|
The components of our provision for income taxes and our combined federal and state effective income tax rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Deferred tax expense
|
|
$
|
8,073
|
|
|
$
|
56,949
|
|
|
|
|
|
|
Combined federal and state effective income tax rate
|
|
23.5
|
%
|
|
23.4
|
%
|
At
December 31, 2018
, we had a U.S. net tax operating loss carryforward of approximately
$1.16 billion
, which will expire in tax years 2032 through 2037. We believe that the carryforward will be utilized before it expires. We also had enhanced oil recovery and marginal well credits of
$3.5 million
at December 31, 2018.
On
March 1, 2019
, the Company completed its acquisition of Resolute. For federal income tax purposes, the acquisition was a tax-free merger whereby the Company acquired carryover tax basis in Resolute’s assets and liabilities. As of
March 1, 2019
, the Company recorded a net deferred tax liability of
$62.4 million
associated with the acquired
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
assets. The net deferred tax liability includes certain deferred tax assets net of valuation allowances. The acquired tax attributes include federal net operating loss, capital loss, and enhanced oil recovery tax credit carryforwards. The carryforwards are subject to an annual limitation under Internal Revenue Code Section 382.
At
March 31, 2019
, we had
no
unrecognized tax benefits that would impact our effective tax rate and have made
no
provisions for interest or penalties related to uncertain tax positions. The tax years
2016
through
2018
remain open to examination by the Internal Revenue Service of the United States. We file tax returns with various state taxing authorities, which remain open to examination for tax years
2015
through
2018
.
Our combined federal and state effective income tax rates differ from the U.S. federal statutory rate of
21%
primarily due to state income taxes and non-deductible expenses.
|
|
10.
|
COMMITMENTS AND CONTINGENCIES
|
Lease Commitments
Effective January 1, 2019, we began accounting for leases in accordance with Topic 842, which requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for contracts that provide lessees with the right to control the use of identified assets for periods of greater than 12 months. Prior to January 1, 2019, we accounted for leases in accordance with ASC Topic 840,
Leases
, under which operating leases were not recorded on the balance sheet.
Real Estate Leases
We have operating leases for office space in various locations that provide us the right to control the use of the specified office space over the term of the contract. These leases require us to make monthly “base rent” payments, as well as “additional payments” for our share of operating expenses and taxes incurred by the landlord. At our option, the terms of these leases can be renewed for varying periods, and in some cases may be terminated early at our option. As of
March 31, 2019
, these leases had remaining lease terms ranging from
5.2
to
7.4
years. These leases do not contain residual value guarantees, options to purchase the underlying office space, or terms or covenants that impose restrictions on our ability to pay dividends, incur debt, or enter into additional leases. We have no subleases of office space.
Lease liabilities associated with our real estate leases were recorded at the present value of the future lease payments, after considering the following:
|
|
•
|
“Base rent” payments are considered fixed lease payments, while “additional payments” are considered variable lease payments.
|
|
|
•
|
At commencement of each real estate lease we were not reasonably certain to exercise the option to renew or terminate such lease.
|
|
|
•
|
The discount rate used to calculate each lease liability was based on our incremental borrowing rate, which was estimated utilizing trading metrics for our senior unsecured notes as adjusted using relevant market factors to develop a synthetic secured yield curve.
|
|
|
•
|
As an accounting policy we have elected not to separate nonlease components from lease components for our real estate class of assets.
|
|
|
•
|
Where applicable, we determined that the effect of accounting for the right to use land separately from other lease components would be insignificant.
|
Production-Related Leases
We have operating leases for equipment used in connection with our oil and gas production operations, including well-head compressors, pipeline compressors, and artificial lift mechanisms. These leases provide us the right to control the use of explicitly or implicitly identified equipment during the term of the contract. These leases
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
often include an “evergreen” provision that allows the contract term to continue on a month-to-month basis following expiration of the initial term stated in the contract. As of
March 31, 2019
, these leases had remaining lease terms ranging from
one
month to
11.3
years. These leases require us to make monthly payments of fixed amounts, which cover the cost of renting the equipment and, in some cases, the cost of maintaining the leased equipment. These leases do not typically require us to make variable lease payments. These leases do not contain residual value guarantees, options to purchase the underlying equipment, or terms or covenants that impose restrictions on our ability to pay dividends, incur debt, or enter into additional leases. We have no subleases of production-related equipment.
We have one finance lease, which results from a gathering agreement (the “Gathering Agreement”) on a gathering system. Under terms of the Gathering Agreement, we have the option to acquire a portion of the underlying gathering system upon termination of the Gathering Agreement. We make monthly payments under the Gathering Agreement based on the volume of oil gathered and a gathering rate per barrel, which is adjusted periodically. As of
March 31, 2019
, this lease had a remaining term of
6.4
years.
Lease liabilities associated with our production-related operating leases were recorded at the present value of the future lease payments, after considering the following:
|
|
•
|
For leases with an evergreen provision, the term of the lease was determined to be the noncancellable period in the contract plus the period beyond the noncancellable period that we believe it is reasonably certain we will need the equipment for operational purposes, limited to the point in time at which both we and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty.
|
|
|
•
|
The discount rate used to calculate each lease liability was based on our incremental borrowing rate, which was estimated utilizing trading metrics for our senior unsecured notes as adjusted using relevant market factors to develop a synthetic secured yield curve.
|
|
|
•
|
As an accounting policy we have elected not to separate nonlease components from lease components for our production-related class of assets.
|
Exploration and Development-Related Leases
We have operating leases for equipment used in connection with our exploration and development activities, including drilling rigs, pressure pumping equipment, directional drilling tools, well-control devices, and various pieces of support equipment. These leases provide us the right to control the use of explicitly or implicitly identified equipment during the term of the contract. As of
March 31, 2019
, these leases had remaining lease terms of
12
months or less. These leases typically require us to make payments in amounts based on the usage of the underlying equipment. These leases do not contain residual value guarantees, options to purchase the underlying equipment, or terms or covenants that impose restrictions on our ability to pay dividends, incur debt, or enter into additional leases. We have no subleases of exploration and development-related equipment.
As an accounting policy we have elected not to apply the recognition requirements of Topic 842 to our exploration and development-related class of assets with lease terms at commencement of
12
months or less. As such, we have not recorded any lease liabilities associated with our exploration and development-related leases. In addition, as an accounting policy we have elected not to separate nonlease components from lease components for our exploration and development-related class of assets.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
Balance Sheet Presentation
The following tables present the amounts and classifications of our right-of-use assets and lease liabilities as of
March 31, 2019
:
|
|
|
|
|
|
|
|
(in thousands)
|
|
Balance Sheet Location
|
|
March 31, 2019
|
Operating lease right-of-use assets
|
|
Non-current assets — Fixed assets, net
|
|
$
|
233,644
|
|
Finance lease right-of-use assets
|
|
Non-current assets — Other assets
|
|
28,138
|
|
Total right-of-use assets
|
|
$
|
261,782
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Balance Sheet Location
|
|
March 31, 2019
|
Operating lease liabilities — current
|
|
Current liabilities — Operating leases
|
|
$
|
62,825
|
|
Operating lease liabilities — non-current
|
|
Non-current liabilities — Operating leases
|
|
186,356
|
|
Finance lease liability — current
|
|
Current liabilities — Accrued liabilities-Other
|
|
5,936
|
|
Finance lease liability — non-current
|
|
Non-current liabilities — Other liabilities
|
|
23,500
|
|
Total lease liabilities
|
|
$
|
278,617
|
|
Lease Cost and Cash Flows
The following table summarizes total lease cost, which includes amounts recognized in income and amounts capitalized for the indicated period:
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended March 31, 2019
|
Finance lease cost:
|
|
|
Amortization of right-of-use asset
|
|
$
|
1,096
|
|
Interest on lease liability
|
|
486
|
|
Operating lease cost: (1)
|
|
|
Production expense
|
|
3,834
|
|
Gas gathering and other expense
|
|
6,164
|
|
General and administrative expense
|
|
2,299
|
|
Short-term lease cost (2)
|
|
154,710
|
|
Total lease cost
|
|
$
|
168,589
|
|
________________________________________
|
|
(1)
|
Operating lease cost in the table above is composed of costs incurred under real estate and production-related leases. These costs are included in the indicated captions on the Condensed Consolidated Statements of Operations.
|
|
|
(2)
|
Short-term lease cost in the table above is composed of costs incurred under leases with terms of 12 months or less for right-of-use assets used in exploration and development activities. Payments under such leases are typically based on usage of the underlying right-of-use asset and, therefore, are also variable lease payments. These costs are capitalized as part of proved properties on the Condensed Consolidated Balance Sheet.
|
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
The following table summarizes cash paid for our leases for the indicated period:
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended March 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Financing cash outflows from finance lease
|
|
$
|
635
|
|
Operating cash outflows from operating leases
|
|
$
|
12,493
|
|
|
|
|
Cash paid for short-term leases and variable lease payments:
|
|
|
Investing cash outflows from operating leases
|
|
$
|
139,473
|
|
During the
three months ended March 31, 2019
, we recognized
$16.2 million
in right-of-use assets in connection with new operating leases entered into during the period.
Lease Liability Maturity Analysis
The following table presents the weighted-average remaining lease terms and discount rates of our leases as of the indicated date:
|
|
|
|
|
|
|
March 31, 2019
|
Weighted-average remaining lease term (in years):
|
|
|
Finance lease
|
|
6.4
|
|
Operating leases
|
|
4.7
|
|
|
|
|
Weighted-average discount rate:
|
|
|
Finance lease
|
|
6.7
|
%
|
Operating leases
|
|
4.1
|
%
|
The following table reflects the undiscounted future cash flows utilized in the calculation of the lease liabilities recorded at March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
(in thousands)
|
|
Operating Leases
|
|
Finance Lease
|
April 1, 2019 — March 31, 2020
|
|
$
|
71,895
|
|
|
$
|
6,808
|
|
April 1, 2020 — March 31, 2021
|
|
59,020
|
|
|
5,950
|
|
April 1, 2021 — March 31, 2022
|
|
53,649
|
|
|
5,658
|
|
April 1, 2022 — March 31, 2023
|
|
45,801
|
|
|
5,366
|
|
April 1, 2023 — March 31, 2024
|
|
21,665
|
|
|
5,075
|
|
Remaining periods
|
|
21,836
|
|
|
6,690
|
|
Total undiscounted future cash flows
|
|
273,866
|
|
|
35,547
|
|
Less effects of discounting
|
|
(24,685
|
)
|
|
(6,111
|
)
|
Lease liabilities recognized
|
|
$
|
249,181
|
|
|
$
|
29,436
|
|
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
As of December 31, 2018 the following future minimum cash payments were required under leases for office space:
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2018
|
2019
|
|
$
|
9,849
|
|
2020
|
|
10,790
|
|
2021
|
|
11,000
|
|
2022
|
|
11,130
|
|
2023
|
|
11,433
|
|
Remaining periods
|
|
20,831
|
|
Total future minimum lease payments
|
|
$
|
75,033
|
|
In addition, as of December 31, 2018, we had various contractual commitments for compressor equipment under operating lease arrangements totaling
$34.8 million
with lease terms expiring over
1
-
35
months.
Other Commitments
At
March 31, 2019
, we had estimated commitments of approximately: (i)
$447.9 million
to finish drilling, completing, or performing other work on wells and various other infrastructure projects in progress and (ii)
$36.3 million
to finish gathering system construction in progress.
At
March 31, 2019
, we had firm sales contracts to deliver approximately
456.4
Bcf of gas over the next
5.8 years
. If we do not deliver this gas, our estimated financial commitment, calculated using the April 2019 index price, would be approximately
$461.3 million
. The value of this commitment will fluctuate due to price volatility and actual volumes delivered. However, we believe no financial commitment will be due based on our current proved reserves and production levels from which we can fulfill these volumetric obligations.
In connection with gas gathering and processing agreements, we have volume commitments over the next
9.8 years
. If we do not deliver the committed gas or NGLs, as the case may be, the estimated maximum amount that would be payable under these commitments, calculated as of
March 31, 2019
, would be approximately
$662.7 million
. However, we believe no financial commitment will be due based on our current proved reserves and production levels from which we can fulfill these volumetric obligations.
We have minimum volume delivery commitments associated with agreements to reimburse connection costs to various pipelines. If we do not deliver this gas, the estimated maximum amount that would be payable under these commitments, calculated as of
March 31, 2019
, would be approximately
$55.5 million
. Of this total, we have accrued a liability of
$2.7 million
, representing the estimated amount we will have to pay due to insufficient forecasted volumes at particular connection points.
At
March 31, 2019
, we have various firm transportation agreements for gas pipeline capacity with end dates ranging from 2019 - 2025 under which we will have to pay an estimated
$25.6 million
over the remaining terms of the agreements. These agreements were entered into to support our residue gas marketing efforts, and we believe we have sufficient reserves that will utilize this firm transportation.
All of the noted commitments were routine and made in the ordinary course of our business.
Litigation
We have various litigation matters related to the ordinary course of our business. We assess the probability of estimable amounts related to these matters in accordance with guidance established by the FASB and adjust our
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
accruals accordingly. Though some of the related claims may be significant, we believe the resolution of them, individually or in the aggregate, would not have a material adverse effect on our financial condition or results of operations after consideration of current accruals.
|
|
11.
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest (net of capitalized amounts of $740 and $156, respectively) (1)
|
|
$
|
18,588
|
|
|
$
|
389
|
|
Income taxes
|
|
$
|
6
|
|
|
$
|
—
|
|
Cash received for income tax refunds
|
|
$
|
1
|
|
|
$
|
2
|
|
________________________________________
|
|
(1)
|
Includes
$17.6 million
in interest paid upon the redemption of Resolute’s senior notes and credit facility on
March 1, 2019
.
|
|
|
12.
|
RELATED PARTY TRANSACTIONS
|
Helmerich & Payne, Inc. (“H&P”) provides contract drilling services to Cimarex. Cimarex incurred drilling costs of approximately
$24.5 million
and
$23.6 million
related to these services during the
three
months ended
March 31, 2019
and
2018
, respectively. The amount incurred in
2019
is included in the short-term lease costs disclosed in Note 10. Hans Helmerich, a director of Cimarex, is Chairman of the Board of Directors of H&P.
On
March 1, 2019
, we completed the acquisition of Resolute Energy Corporation, an independent oil and gas company focused on the acquisition and development of unconventional oil and gas properties in the Delaware Basin area of the Permian Basin of west Texas. The principal factors considered by management in making this acquisition included: (i) our expectation that the acquired assets’ attractive returns are competitive with those in our existing portfolio, (ii) the opportunity to apply our experience and learnings from already operating in this area to generating productivity gains from the acquired properties, (iii) the ability to increase our acreage position in the Delaware Basin, and (iv) the expectation that the acquisition will be financially accretive.
We acquired
100%
of the outstanding common shares and voting interests of Resolute in a cash and stock transaction. The acquisition date fair value of the consideration transferred totaled
$820.3 million
, which consisted of cash, common stock, and a newly created series of preferred stock (see Note 5 for more information on the preferred stock) as follows:
|
|
|
|
|
|
(in thousands)
|
|
Fair Value of Consideration Transferred
|
Cash
|
|
$
|
325,677
|
|
Common stock (5,652 shares issued)
|
|
413,015
|
|
Preferred stock (63 shares issued)
|
|
81,620
|
|
|
|
$
|
820,312
|
|
The fair value of the common stock issued as part of the consideration was determined on the basis of the closing market price of Cimarex common stock on the acquisition date. The fair value of the preferred stock issued as part of the consideration was determined using a multiple probability simulation model.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
Preliminary Purchase Price Allocation
The Resolute acquisition has been accounted for as a business combination, using the acquisition method. The following table represents the preliminary allocation of the Resolute purchase price to the identifiable assets acquired and liabilities assumed based on the fair values at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded to goodwill. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, ultimate settlement of pre-acquisition working capital balances and completion of the final Resolute tax returns that will provide the underlying tax basis of Resolute’s assets and liabilities, and net operating losses. We expect to complete the purchase price allocation during the
12
-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.
The following table sets forth the preliminary purchase price allocation:
|
|
|
|
|
|
(in thousands)
|
|
March 1, 2019
|
Cash
|
|
$
|
41,236
|
|
Accounts receivable
|
|
50,739
|
|
Other current assets
|
|
13,280
|
|
Proved oil and gas properties
|
|
692,600
|
|
Unproved oil and gas properties
|
|
1,054,200
|
|
Fixed assets
|
|
5,355
|
|
Goodwill
|
|
107,341
|
|
Other assets
|
|
142
|
|
Current liabilities
|
|
(202,735
|
)
|
Long-term debt
|
|
(870,000
|
)
|
Deferred income taxes
|
|
(62,409
|
)
|
Asset retirement obligation
|
|
(9,437
|
)
|
Total identifiable net assets
|
|
$
|
820,312
|
|
In connection with the acquisition, we assumed, and immediately repaid,
$870.0 million
principal amount of long-term debt consisting of
$600.0 million
of senior notes and
$270.0 million
of credit facility borrowings. On
March 1, 2019
, we repaid Resolute’s credit facility borrowings, delivered a notice of optional redemption of Resolute’s senior notes for an
April 1, 2019
redemption date, and irrevocably deposited with a trustee the full amount of funds to repay the aggregate outstanding senior notes principal balance plus accrued and unpaid interest, incurring a
$4.3 million
loss on early extinguishment of debt. The cash consideration transferred and the repayment of Resolute’s long-term debt was funded using cash on hand and borrowings on our Credit Facility. We subsequently repaid the borrowings on our Credit Facility using the net proceeds from the
March 8, 2019
issuance of
$500 million
aggregate principal amount of
4.375%
senior unsecured notes (see Note 2 for more information on our debt issuance).
Goodwill of
$107.3 million
has been recognized principally as a result of recording net deferred tax liabilities arising from the difference between the tax basis and the purchase price allocated to Resolute’s assets and liabilities, and anticipated opportunities for cost savings through administrative and operational synergies. Goodwill is not expected to be deductible for tax purposes.
Acquisition-related costs incurred in 2019 were
$8.3 million
. These costs, which are comprised primarily of advisory, legal, and other professional and consulting fees, are included in the Other operating expense, net line item on our Condensed Consolidated Statements of Operations and Comprehensive Income.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
March 31, 2019
(Unaudited)
The results of Resolute’s operations have been included in our consolidated financial statements since the
March 1, 2019
acquisition date. The amount of revenue and direct operating expenses resulting from the acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income from
March 1, 2019
through
March 31, 2019
is
$24.2 million
and
$5.3 million
, respectively.
Pro Forma Financial Information
The following supplemental pro forma information for the three month periods ended
March 31, 2019
and
2018
has been prepared to give effect to the Resolute acquisition as if it had occurred on January 1, 2018. The information below reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including (i) the depletion of the combined company’s proved oil and gas properties, (ii) the capitalization of interest expense, and (iii) the estimated tax impacts of the pro forma adjustments. Additionally, pro forma earnings were adjusted to exclude acquisition-related costs incurred by Cimarex of
$8.3 million
and transaction-related costs incurred by Resolute of
$60.0 million
, for the three months ended
March 31, 2019
. The pro forma results of operations do not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been or will be incurred by Cimarex to integrate the Resolute assets. The pro forma financial data has not been adjusted to reflect any other acquisitions or dispositions made during the periods presented as their results were not deemed material.
The pro forma information is not necessarily indicative of the results that might have occurred had the transaction actually taken place on January 1, 2018 and is not intended to be a projection of future results. Future results may vary significantly from the results reflected in the following pro forma information because of normal production declines, changes in commodity prices, future acquisitions and divestitures, future development and exploration activities, and other factors.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Revenue
|
|
$
|
630,093
|
|
|
$
|
638,078
|
|
Net income
|
|
$
|
12,617
|
|
|
$
|
187,079
|
|
Net income per share:
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
1.84
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
1.84
|
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Cimarex is an independent oil and gas exploration and production company. Our operations are entirely located in the United States, mainly in Oklahoma, Texas, and New Mexico. Currently our operations are focused in two main areas: the Permian Basin and the Mid-Continent. Our Permian Basin region encompasses west Texas and southeast New Mexico. Our Mid-Continent region consists of Oklahoma and the Texas Panhandle.
Our principal business objective is to increase shareholder value through the profitable long-term growth of our proved reserves and production while seeking to minimize our impact on the communities in which we operate for the long-term. Our strategy centers on maximizing cash flow from producing properties so that we can reinvest in exploration and development opportunities and provide cash returns to shareholders through increasing dividends. We consider merger and acquisition opportunities that enhance our competitive position and we occasionally divest non-core assets.
On
March 1, 2019
, we completed the acquisition of Resolute Energy Corporation (“Resolute”), an independent oil and gas company focused on the acquisition and development of unconventional oil and gas properties in the Delaware Basin area of the Permian Basin of west Texas. The principal factors considered by management in making this acquisition included: (i) our expectation that the acquired assets’ attractive returns are competitive with those in our existing portfolio, (ii) the opportunity to apply our experience and learnings from already operating in this area to generating productivity gains from the acquired properties, (iii) the ability to increase our acreage position in the Delaware Basin, and (iv) the expectation that the acquisition will be financially accretive. The acquisition date fair value of the consideration transferred totaled
$820.3 million
, which consisted of cash, common stock, and preferred stock (see Note 13 to the Condensed Consolidated Financial Statements for more information on the acquisition).
We believe that detailed technical analysis, operational focus, and a disciplined capital investment process mitigate risk and position us to continue to achieve profitable increases in proved reserves and production. Our drilling inventory and limited long-term commitments provide the flexibility to respond quickly to industry volatility. Our investments are generally funded with cash flow provided by operating activities together with cash on hand, bank borrowings, sales of non-core assets, and, from time to time, public financing based on our monitoring of capital markets and our balance sheet.
Market Conditions
The oil and gas industry is cyclical and commodity prices can fluctuate significantly. We expect this volatility to persist. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, inventory storage levels, weather conditions, and other factors.
Market prices for oil have declined and market prices for gas have increased during the first three months of
2019
as compared to the first three months of
2018
. For the 2019 period, average NYMEX oil and gas prices were
$54.90
per barrel and
$3.15
per Mcf, respectively, representing a decrease of
13%
and an increase of
5%
, respectively, from the average NYMEX oil and gas prices for the 2018 period. Local market prices for oil and gas can be impacted by pipeline capacity constraints limiting takeaway and increasing basis differentials. Oil and gas production growth and pipeline constraints in the Permian Basin resulted in higher basis differentials and, therefore, lower realized prices. These factors and lower realized prices have continued beyond
March 31, 2019
. The average prices per barrel of oil and Mcf of gas that we realized were less than the WTI Cushing and Henry Hub indices by the amounts shown in the table below for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Average Price Differentials
|
|
|
First
Quarter 2019
|
|
First
Quarter 2018
|
Permian Basin oil
|
|
$
|
6.90
|
|
|
$
|
3.12
|
|
Mid-Continent oil
|
|
$
|
2.17
|
|
|
$
|
2.34
|
|
Permian Basin gas
|
|
$
|
1.91
|
|
|
$
|
0.78
|
|
Mid-Continent gas
|
|
$
|
0.46
|
|
|
$
|
0.70
|
|
Pipeline expansion projects in the Permian Basin are expected to ease capacity constraints as they come online over the next few years, which is reflected in the current futures markets that show narrowing differentials. However, if pipeline constraints remain, higher differentials will persist or potentially worsen. Our revenue, profitability, and future growth are highly dependent on the prices we receive for our oil and gas production. See
RESULTS OF OPERATIONS
Revenues
below for further information regarding our realized commodity prices.
See “
Risk Factors
” in Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2018
, for a discussion of risk factors that affect our business, financial condition, and results of operations. Also see
CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
in this report for important information about these types of statements.
Summary of Operating and Financial Results for the
Three Months Ended
March 31, 2019
Compared to the
Three Months Ended
March 31, 2018
:
|
|
•
|
Completed the acquisition of Resolute Energy Corporation. Resolute’s results are included in our financial statements since the
March 1, 2019
closing date.
|
|
|
•
|
Total production volumes increased
26%
to
258.9
MBOE per day.
|
|
|
•
|
Oil volumes increased
22%
to
79.4
MBbls per day.
|
|
|
•
|
Gas volumes increased
20%
to
639.1
MMcf per day.
|
|
|
•
|
NGL volumes increased
41%
to
73.0
MBbls per day.
|
|
|
•
|
Total production revenue increased
2%
to
$567.2 million
.
|
|
|
•
|
Cash flow provided by operating activities decreased
35%
to
$250.1 million
.
|
|
|
•
|
Exploration and development expenditures increased
17%
to
$368.0 million
.
|
|
|
•
|
Net income was
$26.3 million
, or
$0.26
per diluted share, for the first
three
months of
2019
, as compared to net income of
$186.3 million
, or
$1.96
per diluted share, for the first
three
months of
2018
.
|
RESULTS OF OPERATIONS
Three
Months Ended
March 31, 2019
vs.
Three
Months Ended
March 31, 2018
Revenues
Our revenues are derived from sales of our oil, gas, and NGL production. Increases or decreases in our revenues, profitability, and future production growth are highly dependent on the commodity prices we receive. Prices are market driven and we expect that future prices will continue to fluctuate due to supply and demand factors, availability of transportation, seasonality, and geopolitical and economic factors. See
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
for more information regarding the sensitivity of our revenues to price
fluctuations.
Production volumes were higher for all products during the three months ended
March 31, 2019
as compared to the three months ended
March 31, 2018
, while realized prices were lower. Our revenue increased
2%
, or
$11.8 million
, during the three months ended
March 31, 2019
as compared to the three months ended
March 31, 2018
. The following tables show our production revenue for the periods indicated as well as the change in revenue due to changes in volumes and prices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
|
Price/Volume Variance
|
Production Revenue
(in thousands)
|
|
2019
|
|
2018
|
|
|
Price
|
|
Volume
|
|
Total
|
Oil sales
|
|
$
|
349,306
|
|
|
$
|
351,723
|
|
|
$
|
(2,417
|
)
|
|
(1)%
|
|
$
|
(79,050
|
)
|
|
$
|
76,633
|
|
|
$
|
(2,417
|
)
|
Gas sales
|
|
109,976
|
|
|
109,721
|
|
|
255
|
|
|
—%
|
|
(21,281
|
)
|
|
21,536
|
|
|
255
|
|
NGL sales
|
|
107,939
|
|
|
93,997
|
|
|
13,942
|
|
|
15%
|
|
(24,623
|
)
|
|
38,565
|
|
|
13,942
|
|
|
|
$
|
567,221
|
|
|
$
|
555,441
|
|
|
$
|
11,780
|
|
|
2%
|
|
$
|
(124,954
|
)
|
|
$
|
136,734
|
|
|
$
|
11,780
|
|
The table below presents our production volumes by region.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
Production Volumes
|
|
2019
|
|
2018
|
Oil (Bbls per day)
|
|
|
|
|
Permian Basin
|
|
64,969
|
|
|
49,845
|
|
Mid-Continent
|
|
14,224
|
|
|
15,225
|
|
Other
|
|
222
|
|
|
142
|
|
|
|
79,415
|
|
|
65,212
|
|
Gas (MMcf per day)
|
|
|
|
|
Permian Basin
|
|
340.6
|
|
|
237.9
|
|
Mid-Continent
|
|
297.2
|
|
|
295.5
|
|
Other
|
|
1.3
|
|
|
1.3
|
|
|
|
639.1
|
|
|
534.7
|
|
NGL (Bbls per day)
|
|
|
|
|
Permian Basin
|
|
46,273
|
|
|
24,725
|
|
Mid-Continent
|
|
26,630
|
|
|
26,959
|
|
Other
|
|
53
|
|
|
35
|
|
|
|
72,956
|
|
|
51,719
|
|
Total (BOE per day)
|
|
|
|
|
Permian Basin
|
|
168,008
|
|
|
114,218
|
|
Mid-Continent
|
|
90,386
|
|
|
91,433
|
|
Other
|
|
488
|
|
|
399
|
|
|
|
258,882
|
|
|
206,050
|
|
Our total production increased
26%
, or
52,832
BOE per day, during the three months ended
March 31, 2019
, as compared to the three months ended
March 31, 2018
. This increase was the result of our ongoing drilling and completion activity, as well as due to our acquisition of Resolute. See
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures
for information on our capital expenditures.
The table below presents our production volumes by commodity, our average realized commodity prices, and certain major U.S. index prices. The sale of our Permian Basin oil production is typically tied to the WTI Midland benchmark price and the sale of our Mid-Continent oil production is typically tied to the WTI Cushing benchmark price. During the
three months ended March 31, 2019
, approximately
82%
of our oil production was in the Permian Basin, up from approximately
76%
during the
three months ended March 31, 2018
. Our realized prices do not include settlements of commodity derivative contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
|
|
2019
|
|
2018
|
|
Oil
|
|
|
|
|
|
|
Total volume — MBbls
|
|
7,147
|
|
|
5,869
|
|
|
22%
|
Total volume — MBbls per day
|
|
79.4
|
|
|
65.2
|
|
|
22%
|
Percentage of total production
|
|
31
|
%
|
|
32
|
%
|
|
|
Average realized price — per barrel
|
|
$
|
48.87
|
|
|
$
|
59.93
|
|
|
(18)%
|
Average WTI Midland price — per barrel
|
|
$
|
50.97
|
|
|
$
|
63.26
|
|
|
(19)%
|
Average WTI Cushing price — per barrel
|
|
$
|
54.90
|
|
|
$
|
62.87
|
|
|
(13)%
|
|
|
|
|
|
|
|
Gas
|
|
|
|
|
|
|
|
|
Total volume — MMcf
|
|
57,516
|
|
|
48,125
|
|
|
20%
|
Total volume — MMcf per day
|
|
639.1
|
|
|
534.7
|
|
|
20%
|
Percentage of total production
|
|
41
|
%
|
|
43
|
%
|
|
|
Average realized price — per Mcf
|
|
$
|
1.91
|
|
|
$
|
2.28
|
|
|
(16)%
|
Average Henry Hub price — per Mcf
|
|
$
|
3.15
|
|
|
$
|
3.01
|
|
|
5%
|
|
|
|
|
|
|
|
NGL
|
|
|
|
|
|
|
|
|
Total volume — MBbls
|
|
6,566
|
|
|
4,655
|
|
|
41%
|
Total volume — MBbls per day
|
|
73.0
|
|
|
51.7
|
|
|
41%
|
Percentage of total production
|
|
28
|
%
|
|
25
|
%
|
|
|
Average realized price — per barrel
|
|
$
|
16.44
|
|
|
$
|
20.19
|
|
|
(19)%
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Total production — MBOE
|
|
23,299
|
|
|
18,545
|
|
|
26%
|
Total production — MBOE per day
|
|
258.9
|
|
|
206.1
|
|
|
26%
|
Average realized price — per BOE
|
|
$
|
24.34
|
|
|
$
|
29.95
|
|
|
(19)%
|
Other revenues
We transport, process, and market some third-party gas that is associated with our equity gas. We market and sell gas for other working interest owners under short-term agreements and may earn a fee for such services. The table below reflects income from third-party gas gathering and processing and our net marketing margin for marketing third-party gas.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
Gas Gathering and Marketing
Revenues
(in thousands)
|
|
2019
|
|
2018
|
|
Gas gathering and other
|
|
$
|
10,262
|
|
|
$
|
11,452
|
|
|
$
|
(1,190
|
)
|
Gas marketing
|
|
$
|
(526
|
)
|
|
$
|
241
|
|
|
$
|
(767
|
)
|
Fluctuations in revenues from gas gathering and gas marketing activities are a function of increases and decreases in volumes, commodity prices, and gathering rate charges.
Operating Costs and Expenses
Costs associated with producing oil and gas are substantial. Among other factors, some of these costs vary with commodity prices, some trend with the volume of production, others are a function of the number of wells we own, some depend on the prices charged by service companies, and some fluctuate based on a combination of the foregoing.
Total operating costs and expenses for the three months ended
March 31, 2019
were higher by
67%
, or
$212.4 million
, compared to the three months ended
March 31, 2018
. The primary reasons for the increase were: (i) the
$119.6 million
increase in net losses on derivative instruments and (ii) the
$57.6 million
increase in depreciation, depletion, and amortization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
|
Per BOE
|
Operating Costs and Expenses
(in thousands, except per BOE)
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
Depreciation, depletion, and amortization
|
|
$
|
190,417
|
|
|
$
|
132,859
|
|
|
$
|
57,558
|
|
|
$
|
8.17
|
|
|
$
|
7.16
|
|
Asset retirement obligation
|
|
2,049
|
|
|
1,060
|
|
|
989
|
|
|
$
|
0.09
|
|
|
$
|
0.06
|
|
Production
|
|
77,233
|
|
|
71,271
|
|
|
5,962
|
|
|
$
|
3.31
|
|
|
$
|
3.84
|
|
Transportation, processing, and other operating
|
|
53,608
|
|
|
45,165
|
|
|
8,443
|
|
|
$
|
2.30
|
|
|
$
|
2.44
|
|
Gas gathering and other
|
|
12,320
|
|
|
9,823
|
|
|
2,497
|
|
|
$
|
0.53
|
|
|
$
|
0.53
|
|
Taxes other than income
|
|
33,694
|
|
|
30,188
|
|
|
3,506
|
|
|
$
|
1.45
|
|
|
$
|
1.63
|
|
General and administrative
|
|
29,084
|
|
|
23,321
|
|
|
5,763
|
|
|
$
|
1.25
|
|
|
$
|
1.26
|
|
Stock compensation
|
|
6,713
|
|
|
6,730
|
|
|
(17
|
)
|
|
$
|
0.29
|
|
|
$
|
0.36
|
|
Loss (gain) on derivative instruments, net
|
|
115,452
|
|
|
(4,159
|
)
|
|
119,611
|
|
|
N/A
|
|
|
N/A
|
|
Other operating expense, net
|
|
8,326
|
|
|
203
|
|
|
8,123
|
|
|
N/A
|
|
|
N/A
|
|
|
|
$
|
528,896
|
|
|
$
|
316,461
|
|
|
$
|
212,435
|
|
|
|
|
|
|
|
Depreciation, Depletion, and Amortization
Depletion of our producing properties is computed using the units-of-production method. The economic life of each producing well depends upon the estimated proved reserves for that well, which in turn depend upon the assumed realized sales price for future production. Therefore, fluctuations in oil and gas prices will impact the level of proved reserves used in the calculation. Higher prices generally have the effect of increasing reserves, which reduces depletion
expense. Conversely, lower prices generally have the effect of decreasing reserves, which increases depletion expense. The cost of replacing production also impacts our depletion expense. In addition, changes in estimates of reserve quantities, estimates of operating and future development costs, reclassifications of properties from unproved to proved, and impairments of oil and gas properties will also impact depletion expense. Our net proved properties, production, and reserves have increased for the
three months ended March 31, 2019
as compared to the
three months ended March 31, 2018
due to our ongoing exploration and development activities as well as due to our acquisition of Resolute. The increase in net properties and production resulted in an overall increase in depletion expense, while the increase in reserves partially offset the increased expense.
Fixed assets consist primarily of gathering and plant facilities, vehicles, airplanes, office furniture, and computer equipment and software. These items are recorded at cost and are depreciated on the straight-line method based on expected lives of the individual assets, which range from 3 to 30 years. Additionally, with the adoption of Topic 842, we depreciate our right-of-use assets. Specifically, the depreciation of our finance lease gathering system right-of-use asset is included in our depreciation expense. The increase in depreciation expense during the
three months ended March 31, 2019
as compared to the
three months ended March 31, 2018
is primarily due to: (i) increased depreciation on our gathering and plant facilities due to ongoing expenditures on this infrastructure and (ii) the depreciation on our gathering system right-of-use asset. Depreciation, depletion, and amortization (“DD&A”) consisted of the following for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between
2019 / 2018
|
|
Per BOE
|
DD&A Expense
(in thousands, except per BOE)
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
Depletion
|
|
$
|
174,712
|
|
|
$
|
120,390
|
|
|
$
|
54,322
|
|
|
$
|
7.50
|
|
|
$
|
6.49
|
|
Depreciation
|
|
15,705
|
|
|
12,469
|
|
|
3,236
|
|
|
0.67
|
|
|
0.67
|
|
|
|
$
|
190,417
|
|
|
$
|
132,859
|
|
|
$
|
57,558
|
|
|
$
|
8.17
|
|
|
$
|
7.16
|
|
Production
Production expense generally consists of costs for labor, equipment, maintenance, saltwater disposal, compression, power, treating, and miscellaneous other costs (lease operating expense). Production expense also includes well workover activity necessary to maintain production from existing wells. Production expense consisted of lease operating expense and workover expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between
2019 / 2018
|
|
Per BOE
|
Production Expense
(in thousands, except per BOE)
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
Lease operating expense
|
|
$
|
62,408
|
|
|
$
|
60,476
|
|
|
$
|
1,932
|
|
|
$
|
2.68
|
|
|
$
|
3.26
|
|
Workover expense
|
|
14,825
|
|
|
10,795
|
|
|
4,030
|
|
|
0.63
|
|
|
0.58
|
|
|
|
$
|
77,233
|
|
|
$
|
71,271
|
|
|
$
|
5,962
|
|
|
$
|
3.31
|
|
|
$
|
3.84
|
|
Lease operating expense in the
first
quarter
2019
increased
3%
, or
$1.9 million
, compared to the
first
quarter of
2018
. The increases have primarily stemmed from the Resolute acquisition and the addition of new wells as a result of our ongoing exploration and development activities. These increases were partially offset by expense reductions related to the sale of non-core properties principally located in Ward County, Texas in August 2018. Additional wells and increased production have primarily increased the following types of expenses between the two quarters: (i) saltwater disposal, (ii) labor, and (iii) equipment rental.
Workover expense in the
first
quarter
2019
increased
37%
, or
$4.0 million
, compared to the
first
quarter of
2018
. During the
three months ended March 31, 2018
, our workover expense was reduced due to receiving approximately
$4.0 million
in insurance proceeds related to the remediation and repairs incurred as a result of a 2015 flooding event.
Transportation, Processing, and Other Operating
Transportation, processing, and other operating costs principally consist of expenditures to prepare and transport production from the wellhead, including gathering, fuel, compression, and processing costs. Costs vary by region and will fluctuate with increases or decreases in production volumes, contractual fees, and changes in fuel and compression costs. Transportation, processing, and other operating costs in the first quarter
2019
were
19%
, or
$8.4 million
,
higher
than the same costs in the first quarter
2018
. The increase in expense is due to our increased production volumes, offset slightly by lower rates. Our production volumes increased by
26%
during the three months ended
March 31, 2019
as compared to the three months ended
March 31, 2018
.
Gas Gathering and Other
Gas gathering and other includes costs associated with operating our gas gathering and processing infrastructure, including product costs and operating and maintenance expenses. Gas gathering and other in the three months ended
March 31, 2019
was
25%
, or
$2.5 million
,
higher
than gas gathering and other in the three months ended
March 31, 2018
. The increase is primarily due to overall increases in operating costs partially offset by lower product costs associated with processing third-party production due primarily to lower volumes and prices. The increase in operating costs was due primarily to an increase in compression costs.
Taxes Other than Income
Taxes other than income consist of production (or severance) taxes, ad valorem taxes, and other taxes. State and local taxing authorities assess these taxes, with production taxes being based on the volume or value of production and ad valorem taxes being based on the value of properties. Production taxes make up the majority of this expense for us, with revenue-based production taxes being the largest component of these taxes. Taxes other than income
increased
$3.5 million
, or
12%
, in the
first
quarter of
2019
as compared to the
first
quarter of
2018
. Production taxes increased by
$4.0 million
in the
first
quarter of
2019
as compared to the
first
quarter of
2018
due to increased production volumes and revenues, however, this increase in expense was nearly offset by an increase of
$3.3 million
in credits for tax refunds, generally for high-cost gas wells in the State of Texas. Ad valorem taxes increased by
$2.9 million
in the
first
quarter of
2019
as compared to the
first
quarter of
2018
due to the addition of new wells as a result of ongoing drilling activities. Taxes other than income was
5.9%
and
5.4%
of production revenues for the three months ended
March 31, 2019
and
2018
, respectively.
General and Administrative
General and administrative (“G&A”) expense consists primarily of salaries and related benefits, office rent, legal and consulting fees, systems costs, and other administrative costs incurred. Our G&A expense is reported net of amounts reimbursed to us by working interest owners of the oil and gas properties we operate and net of amounts capitalized pursuant to the full cost method of accounting. The amount of expense capitalized varies and depends on whether the cost incurred can be directly identified with acquisition, exploration, and development activities. The percentage of gross G&A capitalized ranged from
41%
to
43%
during the periods presented in the table below, which shows our G&A costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
General and Administrative Expense
(in thousands)
|
|
2019
|
|
2018
|
|
Gross G&A
|
|
$
|
49,236
|
|
|
$
|
40,848
|
|
|
$
|
8,388
|
|
Less amounts capitalized to oil and gas properties
|
|
(20,152
|
)
|
|
(17,527
|
)
|
|
(2,625
|
)
|
G&A expense
|
|
$
|
29,084
|
|
|
$
|
23,321
|
|
|
$
|
5,763
|
|
G&A expense for the first quarter of
2019
was
25%
, or
$5.8 million
, higher than G&A expense for the first quarter of
2018
. This increase was primarily due to increased employee-related costs. Included in the increase is
$2.6 million
of severance related to former Resolute employees who performed transition work at Cimarex and then were subsequently terminated.
Stock Compensation
Stock compensation expense consists of non-cash charges resulting from the amortization of the cost of restricted stock and stock option awards, net of amounts capitalized to oil and gas properties. We have recognized stock-based compensation cost as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
Stock Compensation Expense
(in thousands)
|
|
2019
|
|
2018
|
|
Restricted stock awards:
|
|
|
|
|
|
|
Performance stock awards
|
|
$
|
5,394
|
|
|
$
|
6,729
|
|
|
$
|
(1,335
|
)
|
Service-based stock awards
|
|
7,231
|
|
|
5,072
|
|
|
2,159
|
|
|
|
12,625
|
|
|
11,801
|
|
|
824
|
|
Stock option awards
|
|
622
|
|
|
617
|
|
|
5
|
|
Total stock compensation cost
|
|
13,247
|
|
|
12,418
|
|
|
829
|
|
Less amounts capitalized to oil and gas properties
|
|
(6,534
|
)
|
|
(5,688
|
)
|
|
(846
|
)
|
Stock compensation expense
|
|
$
|
6,713
|
|
|
$
|
6,730
|
|
|
$
|
(17
|
)
|
Periodic stock compensation expense will fluctuate based on the grant-date fair value of awards, the number of awards, the requisite service period of the awards, employee forfeitures, and the timing of the awards.
Loss (Gain) on Derivative Instruments, Net
The following table presents the components of Loss (gain) on derivative instruments, net for the periods indicated. See Note 3 to the Condensed Consolidated Financial Statements for additional information regarding our derivative instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
Loss (Gain) on Derivative Instruments, Net
(in thousands)
|
|
2019
|
|
2018
|
|
Decrease (increase) in fair value of derivative instruments, net:
|
|
|
|
|
|
|
|
|
|
Gas contracts
|
|
$
|
(9,846
|
)
|
|
$
|
(11,789
|
)
|
|
$
|
1,943
|
|
Oil contracts
|
|
116,247
|
|
|
(4,759
|
)
|
|
121,006
|
|
|
|
106,401
|
|
|
(16,548
|
)
|
|
122,949
|
|
Cash (receipts) payments on derivative instruments, net:
|
|
|
|
|
|
|
|
|
Gas contracts
|
|
3,764
|
|
|
(5,119
|
)
|
|
8,883
|
|
Oil contracts
|
|
5,287
|
|
|
17,508
|
|
|
(12,221
|
)
|
|
|
9,051
|
|
|
12,389
|
|
|
(3,338
|
)
|
Loss (gain) on derivative instruments, net
|
|
$
|
115,452
|
|
|
$
|
(4,159
|
)
|
|
$
|
119,611
|
|
Other Operating Expense, Net
Other operating expense, net during the
three months ended March 31, 2019
was comprised primarily of
$8.3 million
in acquisition-related costs incurred to effect the Resolute acquisition. These costs consisted primarily of advisory, legal, and other professional and consulting fees.
Other Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
Other Income and Expense
(in thousands)
|
|
2019
|
|
2018
|
|
Interest expense
|
|
$
|
20,405
|
|
|
$
|
16,783
|
|
|
$
|
3,622
|
|
Capitalized interest
|
|
(8,742
|
)
|
|
(4,810
|
)
|
|
(3,932
|
)
|
Loss on early extinguishment of debt
|
|
4,250
|
|
|
—
|
|
|
4,250
|
|
Other, net
|
|
(2,241
|
)
|
|
(4,567
|
)
|
|
2,326
|
|
|
|
$
|
13,672
|
|
|
$
|
7,406
|
|
|
$
|
6,266
|
|
The majority of our interest expense relates to interest on our senior unsecured notes. Also included in interest expense is the amortization of debt issuance costs and discounts as well as miscellaneous interest expense. See
LIQUIDITY AND CAPITAL RESOURCES
Long-term Debt
below for further information regarding our debt. The increase in interest expense in
2019
as compared to
2018
is primarily due to (i) the
March 8, 2019
issuance of
$500 million
aggregate principal amount of
4.375%
senior unsecured notes due
March 15, 2029
at
99.862%
of par to yield
4.392%
per annum, (ii) Credit Facility borrowings we had outstanding to help fund the Resolute acquisition, and (iii) interest expense on our finance lease. The
$4.3 million
loss on early extinguishment of debt incurred during the three months ended
March 31, 2019
was associated with the
$600 million
of 8.5% senior notes we acquired with Resolute and elected to immediately repay. The maturity date of the Resolute notes was May 1, 2020.
We capitalize interest on non-producing leasehold costs, the in-progress costs of drilling and completing wells, and constructing midstream assets. Capitalized interest will fluctuate based on the rates applicable to borrowings outstanding during the period and the amount of costs subject to interest capitalization. The amount of costs subject to interest capitalization was higher in the three months ended
March 31, 2019
as compared to the three months ended
March 31, 2018
, primarily due to the Resolute acquisition, which increased our non-producing leasehold costs by
$1.05 billion
. Additionally, our average interest rate on borrowings outstanding was higher during the 2019 period as compared to the 2018 period due to the debt issuance discussed above.
Components of Other, net consist of miscellaneous income and expense items that vary from period to period, including interest income, gain or loss related to the sale or value of oil and gas well equipment and supplies, gain or loss on miscellaneous asset sales, and income and expense associated with other non-operating activities.
Income Tax Expense
The components of our provision for income taxes and our combined federal and state effective income tax rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Variance Between 2019 / 2018
|
Income Tax Expense
(in thousands)
|
|
2019
|
|
2018
|
|
Deferred tax expense
|
|
$
|
8,073
|
|
|
$
|
56,949
|
|
|
$
|
(48,876
|
)
|
|
|
|
|
|
|
|
Combined federal and state effective income tax rate
|
|
23.5
|
%
|
|
23.4
|
%
|
|
|
Our combined federal and state effective income tax rates differ from the U.S. federal statutory rate of
21%
primarily due to state income taxes and non-deductible expenses. See Note 9 to the Condensed Consolidated Financial Statements for additional information regarding our income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We strive to maintain an adequate liquidity level to address volatility and risk. Sources of liquidity include our cash flow from operations, cash on hand, available borrowing capacity under our revolving credit facility, proceeds from sales of non-core assets, and, from time to time, public financings based on our monitoring of capital markets and our balance sheet.
Our liquidity is highly dependent on prices we receive for the oil, gas, and NGLs we produce. Prices we receive are determined by prevailing market conditions and greatly influence our revenue, cash flow, profitability, access to capital, and future rate of growth. See
RESULTS OF OPERATIONS
Revenues
above for further information regarding the impact realized prices have had on our earnings.
We deal with volatility in commodity prices primarily by maintaining flexibility in our capital investment program. We have a balanced and abundant drilling inventory and limited long-term commitments, which enables us to respond quickly to industry volatility. Based on current economic conditions, our 2019 exploration and development (“E&D”) expenditures are projected to range from
$1.35 billion
to
$1.45 billion
. Investments in gathering, processing, and other infrastructure are projected to be an additional
$60 million
to
$70 million
for 2019. See
Capital Expenditures
below for information regarding our E&D activities for the
three months ended March 31, 2019
and
2018
.
We periodically use derivative instruments to mitigate volatility in commodity prices. At
March 31, 2019
, we had derivative contracts covering a portion of our 2019 - 2020 production. Depending on changes in oil and gas futures markets and management’s view of underlying supply and demand trends, we may increase or decrease our derivative positions from current levels. See Note 3 to the Condensed Consolidated Financial Statements for information regarding our derivative instruments.
Cash and cash equivalents at
March 31, 2019
were
$20.9 million
. At
March 31, 2019
, our long-term debt consisted of
$2.0 billion
of senior unsecured notes, with
$750 million
4.375%
notes due in 2024,
$750 million
3.90%
notes due in 2027, and
$500 million
4.375%
notes due in
2029
. At
March 31, 2019
, we had no borrowings outstanding under our credit facility, leaving an unused borrowing availability of
$1.25 billion
. See
Long-term Debt
below for more information regarding our debt.
Our debt to total capitalization ratio at
March 31, 2019
was
36%
, up from
31%
at
December 31, 2018
. This ratio is calculated by dividing the sum of (i) the principal amount of senior notes and (ii) redeemable preferred stock by the sum of (i) the principal amount of senior notes, (ii) redeemable preferred stock, and (iii) total stockholders’ equity, with all numbers coming directly from the Condensed Consolidated Balance Sheet. Management uses this ratio as one indicator of our financial condition and believes professional research analysts and rating agencies use this ratio for this purpose and to compare our financial condition to other companies’ financial conditions.
We may, from time to time, seek to repurchase our outstanding preferred stock through cash repurchases and/or exchanges for equity securities, privately negotiated transactions, or otherwise. Such activities, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors.
We expect our operating cash flow and other capital resources to be adequate to meet our needs for planned capital expenditures, working capital, debt service, and dividends declared for the next twelve months.
Analysis of Cash Flow Changes
The following table presents the totals of the major cash flow classification categories from our Condensed Consolidated Statements of Cash Flows for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Net cash provided by operating activities
|
|
$
|
250,091
|
|
|
$
|
383,093
|
|
Net cash used by investing activities
|
|
$
|
(629,811
|
)
|
|
$
|
(312,255
|
)
|
Net cash used by financing activities
|
|
$
|
(400,016
|
)
|
|
$
|
(7,562
|
)
|
Net cash provided by operating activities for the three months ended
March 31, 2019
was
$250.1 million
, down
$133.0 million
, or
35%
, from
$383.1 million
for the three months ended
March 31, 2018
. The
$133.0 million
decrease resulted primarily from increased cash outflows related to changes in working capital. Also contributing to the decrease was an increase in operating costs and expenses. Increased revenues and decreased cash outflows for settlements of derivative instruments partially offset the overall decrease in net cash provided by operating activities. See
RESULTS OF OPERATIONS
above for more information regarding the changes in revenue and operating expenses.
Net cash used by investing activities for the three months ended
March 31, 2019
and
2018
was
$629.8 million
and
$312.3 million
, respectively. The majority of our cash flows used by investing activities are for E&D expenditures, which totaled
$332.7 million
and
$323.5 million
for the three months ended
March 31, 2019
and
2018
, respectively. Cash used by investing activities in the three months ended
March 31, 2019
includes the
$325.7 million
in cash paid for the Resolute acquisition, net of the
$41.2 million
in cash acquired with Resolute. The remaining investing cash outflows are primarily for midstream asset expenditures. Included in net cash used by investing activities are the proceeds of miscellaneous asset sales, including non-core oil and gas properties.
Net cash used by financing activities was
$400.0 million
and
$7.6 million
during the three months ended
March 31, 2019
and
2018
, respectively. During the three months ended
March 31, 2019
, we issued
$500 million
aggregate principal amount of
4.375%
senior unsecured notes due
March 15, 2029
at
99.862%
of par for proceeds of
$499.3 million
, paying
$3.7 million
in underwriting fees and financing costs. Additionally, we borrowed and repaid
$683.0 million
on our credit facility during the three months ended
March 31, 2019
to assist in funding the Resolute acquisition. During the three months ended
March 31, 2019
, we amended our credit facility, paying
$2.9 million
in financing costs. In connection with the acquisition of Resolute, we assumed
$870.0 million
in principal amount of long-term debt that we immediately repaid, incurring a redemption fee of
$4.3 million
. Net cash used by financing activities during both periods included: (i) the payment of dividends on our common stock, (ii) the payment of income tax withholdings made on behalf of our employees upon the net settlement of employee stock awards, and (iii) the receipt of proceeds from exercises of stock options. During the three months ended
March 31, 2019
, we paid an $0.18 per share dividend on our common stock totaling
$17.2 million
, and during the three months ended
March 31, 2018
, we paid an $0.08 per share dividend on our common stock totaling
$7.6 million
. Future dividend payments will depend on our level of earnings, financial requirements, and other factors considered relevant by our Board of Directors.
Capital Expenditures
The following table presents capitalized expenditures for oil and gas acquisition, exploration, and development activities and property sales, net of applicable purchase price adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(in thousands)
|
|
2019
|
|
2018
|
Acquisitions:
|
|
|
|
|
Proved
|
|
$
|
692,600
|
|
|
$
|
62
|
|
Unproved
|
|
1,050,782
|
|
|
2,159
|
|
|
|
1,743,382
|
|
|
2,221
|
|
Exploration and development:
|
|
|
|
|
|
Land and seismic
|
|
9,527
|
|
|
10,097
|
|
Exploration and development
|
|
358,491
|
|
|
303,372
|
|
|
|
368,018
|
|
|
313,469
|
|
Property sales:
|
|
|
|
|
Proved
|
|
4,030
|
|
|
(24,964
|
)
|
Unproved
|
|
(3,501
|
)
|
|
(4,860
|
)
|
|
|
529
|
|
|
(29,824
|
)
|
|
|
$
|
2,111,929
|
|
|
$
|
285,866
|
|
Amounts in the table above are presented on an accrual basis. The Condensed Consolidated Statements of Cash Flows reflect activities on a cash basis, when payments are made and proceeds received.
On
March 1, 2019
, we completed the acquisition of Resolute Energy Corporation, an independent oil and gas company focused on the acquisition and development of unconventional oil and gas properties in the Delaware Basin area of the Permian Basin of west Texas. The fair value of the proved and unproved properties added through this acquisition was
$692.6 million
and
$1.05 billion
, respectively.
Our 2019 E&D capital investment is projected to range from
$1.35 billion
to
$1.45 billion
, with the majority expected to be invested in the Permian Basin. As has been our historical practice, we regularly review our capital expenditures throughout the year and will adjust our investments based on increases or decreases in commodity prices, service costs, and drilling success. We have the flexibility to adjust our capital expenditures based upon market conditions.
We intend to continue to fund our 2019 capital investment program with cash flow from our operating activities, cash on hand, and borrowings under our credit facility. Sales of non-core assets and possible capital markets transactions may also be used to supplement funding of capital expenditures and acquisitions. The timing of capital expenditures and the receipt of cash flows do not necessarily match, which may cause us to borrow and repay funds under our credit facility from time to time. See
Long-term Debt
—
Bank Debt
below for further information regarding our credit facility.
The following table reflects wells completed by region during the periods indicated.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
Gross wells
|
|
|
|
|
Permian Basin
|
|
12
|
|
|
17
|
|
Mid-Continent
|
|
26
|
|
|
37
|
|
|
|
38
|
|
|
54
|
|
Net wells
|
|
|
|
|
Permian Basin
|
|
5
|
|
|
9
|
|
Mid-Continent
|
|
3
|
|
|
6
|
|
|
|
8
|
|
|
15
|
|
As of
March 31, 2019
, we had
33
gross (
9
net) wells in the process of being drilled:
19
gross (
7
net) in the Permian Basin and
14
gross (
2
net) in the Mid-Continent region. As of
March 31, 2019
, there were
131
gross (
52
net) wells waiting on completion:
56
gross (
40
net) in the Permian Basin and
75
gross (
12
net) in the Mid-Continent region. As of
March 31, 2019
, we had
9
operated rigs running:
8
in the Permian Basin and
1
in the Mid-Continent region.
We have made, and will continue to make, expenditures to comply with environmental and safety regulations and requirements. These costs are considered a normal recurring cost of our ongoing operations. While we expect current pending legislation or regulations to increase the cost of business, we do not anticipate that we will be required to expend amounts that will have a material adverse effect on our financial position or operations, nor are we aware of any pending regulatory changes that would have a material impact, based on current laws and regulations. However, compliance with new legislation or regulations could increase our costs or adversely affect demand for oil or gas and result in a material adverse effect on our financial position or operations. See our Form 10-K for the year ended
December 31, 2018
, Item 1A Risk Factors, for a description of risks related to current and potential future environmental and safety regulations and requirements that could adversely affect our operations and financial condition.
Long-term Debt
Long-term debt at
March 31, 2019
and
December 31, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
(in thousands)
|
|
Principal
|
|
Unamortized Debt
Issuance Costs
and Discounts
(1)
|
|
Long-term
Debt, net
|
|
Principal
|
|
Unamortized Debt
Issuance Costs
and Discount
(1)
|
|
Long-term
Debt, net
|
4.375% Notes due 2024
|
|
$
|
750,000
|
|
|
$
|
(4,209
|
)
|
|
$
|
745,791
|
|
|
$
|
750,000
|
|
|
$
|
(4,439
|
)
|
|
$
|
745,561
|
|
3.90% Notes
due 2027
|
|
750,000
|
|
|
(6,831
|
)
|
|
743,169
|
|
|
750,000
|
|
|
(7,007
|
)
|
|
742,993
|
|
4.375% Notes due 2029
|
|
500,000
|
|
|
(5,233
|
)
|
|
494,767
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
2,000,000
|
|
|
$
|
(16,273
|
)
|
|
$
|
1,983,727
|
|
|
$
|
1,500,000
|
|
|
$
|
(11,446
|
)
|
|
$
|
1,488,554
|
|
________________________________________
|
|
(1)
|
At
March 31, 2019
, the unamortized debt issuance costs and discount related to the
3.90%
Notes due 2027 were
$5.3 million
and
$1.6 million
, respectively. At
December 31, 2018
, the unamortized debt issuance costs and discount related to the
3.90%
Notes due 2027 were
$5.4 million
and
$1.6 million
, respectively. At
March 31, 2019
, the unamortized debt issuance costs and discount related to the
4.375%
Notes due 2029 were
$4.5 million
and
$0.7 million
, respectively. The
4.375%
Notes due 2024 were issued at par.
|
Bank Debt
On
February 5, 2019
, we entered into an Amended and Restated Credit Agreement for our senior unsecured revolving credit facility (“Credit Facility”). Among other things, the amended and restated credit facility increased the aggregate commitments to
$1.25 billion
with an option for us to increase the aggregate commitments to
$1.5 billion
, and extended the maturity date to
February 5, 2024
. As of
March 31, 2019
, we had
no
bank borrowings outstanding under the Credit Facility, leaving an unused borrowing availability of
$1.25 billion
.
At our option, borrowings under the Credit Facility may bear interest at either (a) LIBOR plus
1.125
–
2.0%
based on the credit rating for our senior unsecured long-term debt, or (b) a base rate (as defined in the credit agreement) plus
0.125
–
1.0%
, based on the credit rating for our senior unsecured long-term debt. Unused borrowings are subject to a commitment fee of
0.125
–
0.35%
, based on the credit rating for our senior unsecured long-term debt.
The Credit Facility contains representations, warranties, covenants, and events of default that are customary for investment grade, senior unsecured bank credit agreements, including a financial covenant for the maintenance of a defined total debt-to-capital ratio of no greater than
65%
. As of
March 31, 2019
, we were in compliance with all of the financial covenants.
At
March 31, 2019
and
December 31, 2018
, we had
$4.9 million
and
$2.2 million
, respectively, of unamortized debt issuance costs associated with our Credit Facility, which were recorded as assets and included in Other assets on our Condensed Consolidated Balance Sheets. These costs are being amortized to interest expense ratably over the life of the Credit Facility. We incurred
$3.0 million
in additional debt issuance costs in amending our Credit Facility.
Senior Notes
On
March 8, 2019
, we issued
$500 million
aggregate principal amount of
4.375%
senior unsecured notes due
March 15, 2029
at
99.862%
of par to yield
4.392%
per annum. We received
$494.7 million
in net cash proceeds, after deducting underwriters’ fees, discount, and debt issuance costs. The notes bear an annual interest rate of
4.375%
and interest is payable semiannually on
March 15
and
September 15
, with the first payment occurring
September 15, 2019
. We used the net proceeds to repay borrowings under our Credit Facility. The effective interest rate on these notes, including the amortization of debt issuance costs and discount, is
4.50%
.
In April 2017, we issued
$750 million
aggregate principal amount of
3.90%
senior unsecured notes at
99.748%
of par to yield
3.93%
per annum. These notes are due
May 15, 2027
and interest is payable semiannually on May 15 and November 15. The effective interest rate on these notes, including the amortization of debt issuance costs and discount, is
4.01%
.
In June 2014, we issued
$750 million
aggregate principal amount of
4.375%
senior unsecured notes at par. These notes are due June 1, 2024 and interest is payable semiannually on June 1 and December 1. The effective interest rate on these notes, including the amortization of debt issuance costs, is
4.50%
.
Our senior unsecured notes are governed by indentures containing certain covenants, events of default, and other restrictive provisions with which we were in compliance as of
March 31, 2019
.
Working Capital Analysis
Our working capital fluctuates primarily as a result of our realized commodity prices, increases or decreases in our production volumes, changes in receivables and payables related to our operating and E&D activities, changes in our oil and gas well equipment and supplies, and changes in the fair value of our derivative instruments.
At
March 31, 2019
, we had a working capital deficit of
$313.7 million
, a decrease of
$1.03 billion
or
144%
from a working capital surplus of
$715.4 million
at
December 31, 2018
.
Our working capital decreased primarily due to the decrease in Cash and cash equivalents of
$779.7 million
, which was a result of our acquisition of Resolute and subsequent repayment of Resolute’s long-term debt. See Note 13 to the Condensed Consolidated Financial Statements for more information regarding the acquisition. In addition to the decrease in cash, other significant changes to working capital consisted primarily of the following decreases:
|
|
•
|
Our net current derivative instrument position decreased by
$116.0 million
from an asset at
December 31, 2018
to a liability at
March 31, 2019
.
|
|
|
•
|
The adoption of Topic 842 increased our current liabilities by
$68.8 million
, representing lease liabilities, primarily for office space, well-head compressors, pipeline compressors, and artificial lift mechanisms. See Note 10 to the Condensed Consolidated Financial Statements for more information regarding our lease liabilities and the adoption of Topic 842.
|
|
|
•
|
Accrued liabilities related to our E&D expenditures increased by
$59.3 million
.
|
Accounts receivable are a major component of our working capital and include amounts due from a diverse group of companies comprised of major energy companies, pipeline companies, local distribution companies, and other end-users. Historically, losses associated with uncollectible receivables have not been significant. The fair value of derivative instruments fluctuates based on changes in the underlying price indices as compared to the contracted prices.
Dividends
A quarterly cash dividend has been paid on our common stock every quarter since the first quarter of 2006. In
February 2019
, our Board of Directors declared a
$0.20
per common share dividend, totaling
$20.3 million
, which is payable on or before
May 31, 2019
to stockholders of record on
May 15, 2019
. In March 2019, in conjunction with the Resolute acquisition, we issued
62.5 thousand
shares of 8.125% Series A Cumulative Perpetual Convertible Preferred Stock, par value
$0.01
per share. In
March 2019
, our Board of Directors declared a cash dividend of
$20.31
per preferred share, totaling
$1.3 million
. The dividend was paid in
April
to preferred stockholders of record on
April 1, 2019
. Future dividend payments will depend on our level of earnings, financial requirements, and other factors considered relevant by our Board of Directors. See Note 5 to the Condensed Consolidated Financial Statements for further information regarding our stock and Note 13 to the Condensed Consolidated Financial Statements for further information regarding the Resolute acquisition.
Off-Balance Sheet Arrangements
We may enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations. As of
March 31, 2019
, our material off-balance sheet arrangements consisted of operating lease agreements with lease terms at commencement of
12
months or less. As an accounting policy we have elected not to apply the recognition requirements of Topic 842 to these leases. As such, we have not recorded any lease liabilities associated with these leases.
Contractual Obligations and Material Commitments
At
March 31, 2019
, we had the following contractual obligations and material commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Contractual obligations
(in thousands)
|
|
Total
|
|
4/1/19 - 3/31/20
|
|
4/1/20 - 3/31/22
|
|
4/1/22 - 3/31/24
|
|
4/1/24 and Thereafter
|
|
Long-term debt—principal (1)
|
|
$
|
2,000,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,000,000
|
|
|
Long-term debt—interest (1)
|
|
648,344
|
|
|
82,307
|
|
|
167,875
|
|
|
167,875
|
|
|
230,287
|
|
|
Operating leases (2)
|
|
105,058
|
|
|
24,404
|
|
|
40,015
|
|
|
22,716
|
|
|
17,923
|
|
|
Unconditional purchase obligations (3)
|
|
58,274
|
|
|
22,874
|
|
|
23,898
|
|
|
6,901
|
|
|
4,601
|
|
|
Derivative liabilities
|
|
78,313
|
|
|
77,557
|
|
|
756
|
|
|
—
|
|
|
—
|
|
|
Asset retirement obligation (4)
|
|
179,257
|
|
|
13,728
|
|
|
—
|
|
(4)
|
—
|
|
(4)
|
—
|
|
(4)
|
Other long-term liabilities (5)
|
|
39,631
|
|
|
2,623
|
|
|
3,237
|
|
|
5,182
|
|
|
28,589
|
|
|
|
|
$
|
3,108,877
|
|
|
$
|
223,493
|
|
|
$
|
235,781
|
|
|
$
|
202,674
|
|
|
$
|
2,281,400
|
|
|
________________________________________
|
|
(1)
|
The interest payments presented above include the accrued interest payable on our long-term debt as of
March 31, 2019
as well as future payments calculated using the long-term debt’s fixed rates, stated maturity dates, and principal amounts outstanding as of
March 31, 2019
. See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding our debt.
|
|
|
(2)
|
Operating leases include the remaining contractual payments under lease agreements as of
March 31, 2019
. These lease agreements are primarily comprised of leases for commercial real estate, which consists primarily of office space, and compressor equipment.
|
|
|
(3)
|
Of the total unconditional purchase obligations,
$32.1 million
represents obligations for the purchase of sand for well completions and
$25.6 million
represents obligations for firm transportation agreements for gas pipeline capacity.
|
|
|
(4)
|
We have excluded the presentation of the timing of the cash flows associated with our long-term asset retirement obligations because we cannot make a reasonably reliable estimate of the future period of cash settlement. The long-term asset retirement obligation is included in the total asset retirement obligation presented.
|
|
|
(5)
|
Other long-term liabilities include contractual obligations associated with our employee supplemental savings plan, gas balancing liabilities, and other miscellaneous liabilities. All of these liabilities are accrued on our Condensed Consolidated Balance Sheet. The current portion associated with these long-term liabilities is also presented in the table above.
|
The following discusses various commercial commitments that we have made that may include potential future cash payments if we fail to meet various performance obligations. These are not reflected in the table above.
At
March 31, 2019
, we had estimated commitments of approximately: (i)
$447.9 million
to finish drilling, completing, or performing other work on wells and various other infrastructure projects in progress and (ii)
$36.3 million
to finish gathering system construction in progress.
At
March 31, 2019
, we had firm sales contracts to deliver approximately
456.4
Bcf of gas over the next
5.8 years
. If we do not deliver this gas, our estimated financial commitment, calculated using the April 2019 index price, would be approximately
$461.3 million
. The value of this commitment will fluctuate due to price volatility and actual volumes delivered. However, we believe no financial commitment will be due based on our current proved reserves and production levels from which we can fulfill these volumetric obligations.
In connection with gas gathering and processing agreements, we have volume commitments over the next
9.8 years
. If we do not deliver the committed gas or NGLs, as the case may be, the estimated maximum amount that would be payable under these commitments, calculated as of
March 31, 2019
, would be approximately
$662.7 million
. However, we believe no financial commitment will be due based on our current proved reserves and production levels from which we can fulfill these volumetric obligations.
We have minimum volume delivery commitments associated with agreements to reimburse connection costs to various pipelines. If we do not deliver this gas, the estimated maximum amount that would be payable under these commitments, calculated as of
March 31, 2019
, would be approximately
$55.5 million
. Of this total, we have accrued a liability of
$2.7 million
representing the estimated amount we will have to pay due to insufficient forecasted volumes at particular connection points.
All of the noted commitments were routine and made in the ordinary course of our business.
Taking into account current commodity prices and anticipated levels of production, we believe that our net cash flow generated from operations and our other capital resources will be adequate to meet future obligations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We consider accounting policies and estimates related to oil and gas reserves, full cost accounting, and income taxes to be critical accounting policies and estimates. These are summarized in “
Management’s Discussion and Analysis of Financial Condition and Results of Operations
” in Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2018
.