ITEM 1. Financial Statements
CIMAREX ENERGY CO.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(Unaudited)
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June 30,
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December 31,
|
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2020
|
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2019
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|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,842
|
|
|
$
|
94,722
|
|
|
Accounts receivable, net of allowance:
|
|
|
|
|
|
Trade
|
|
58,572
|
|
|
57,879
|
|
|
Oil and gas sales
|
|
180,912
|
|
|
384,707
|
|
|
Gas gathering, processing, and marketing
|
|
5,342
|
|
|
5,998
|
|
|
Oil and gas well equipment and supplies
|
|
51,184
|
|
|
47,893
|
|
|
Derivative instruments
|
|
71,590
|
|
|
17,944
|
|
|
Prepaid expenses
|
|
10,250
|
|
|
10,759
|
|
|
Other current assets
|
|
2,410
|
|
|
1,584
|
|
|
Total current assets
|
|
424,102
|
|
|
621,486
|
|
|
Oil and gas properties at cost, using the full cost method of accounting:
|
|
|
|
|
|
Proved properties
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|
21,014,098
|
|
|
20,678,334
|
|
|
Unproved properties and properties under development, not being amortized
|
|
1,258,002
|
|
|
1,255,908
|
|
|
|
|
22,272,100
|
|
|
21,934,242
|
|
|
Less—accumulated depreciation, depletion, amortization, and impairment
|
|
(18,373,655)
|
|
|
(16,723,544)
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|
|
Net oil and gas properties
|
|
3,898,445
|
|
|
5,210,698
|
|
|
Fixed assets, net of accumulated depreciation of $423,873 and $389,458, respectively
|
|
478,553
|
|
|
519,291
|
|
|
Goodwill
|
|
—
|
|
|
716,865
|
|
|
Derivative instruments
|
|
—
|
|
|
580
|
|
|
|
|
|
|
|
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Other assets
|
|
68,688
|
|
|
71,109
|
|
|
|
|
$
|
4,869,788
|
|
|
$
|
7,140,029
|
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|
Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity
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Current liabilities:
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|
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Accounts payable:
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Trade
|
|
$
|
13,746
|
|
|
$
|
36,280
|
|
|
Gas gathering, processing, and marketing
|
|
11,286
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|
|
12,740
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|
|
Accrued liabilities:
|
|
|
|
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Exploration and development
|
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30,205
|
|
|
112,228
|
|
|
Taxes other than income
|
|
33,427
|
|
|
54,446
|
|
|
Other
|
|
204,830
|
|
|
252,304
|
|
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Derivative instruments
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|
51,556
|
|
|
16,681
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|
Revenue payable
|
|
102,824
|
|
|
207,939
|
|
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Operating leases
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|
56,901
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|
|
66,003
|
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|
Total current liabilities
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|
504,775
|
|
|
758,621
|
|
|
Long-term debt principal
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|
2,000,000
|
|
|
2,000,000
|
|
|
Less—unamortized debt issuance costs and discounts
|
|
(13,729)
|
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|
(14,754)
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Long-term debt, net
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|
1,986,271
|
|
|
1,985,246
|
|
|
|
|
|
|
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Deferred income taxes
|
|
50,524
|
|
|
338,424
|
|
|
Asset retirement obligation
|
|
150,374
|
|
|
154,045
|
|
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Derivative instruments
|
|
23,210
|
|
|
1,018
|
|
|
Operating leases
|
|
155,023
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|
184,172
|
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Other liabilities
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|
67,144
|
|
|
60,742
|
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|
Total liabilities
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|
2,937,321
|
|
|
3,482,268
|
|
|
Commitments and contingencies (Note 10)
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|
Redeemable preferred stock - 8.125% Series A Cumulative Perpetual Convertible Preferred Stock, $0.01 par value, 62,500 shares authorized and issued (Note 5)
|
|
81,620
|
|
|
81,620
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Common stock, $0.01 par value, 200,000,000 shares authorized, 102,151,096 and 102,144,577 shares issued, respectively
|
|
1,022
|
|
|
1,021
|
|
|
Additional paid-in capital
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|
3,241,244
|
|
|
3,243,325
|
|
|
(Accumulated deficit) retained earnings
|
|
(1,391,419)
|
|
|
331,795
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
1,850,847
|
|
|
3,576,141
|
|
|
|
|
$
|
4,869,788
|
|
|
$
|
7,140,029
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|
See accompanying Notes to Condensed Consolidated Financial Statements.
CIMAREX ENERGY CO.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share information)
(Unaudited)
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Three Months Ended
June 30,
|
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|
Six Months Ended
June 30,
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|
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2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
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|
Oil sales
|
|
$
|
138,817
|
|
|
$
|
411,766
|
|
|
$
|
499,797
|
|
|
$
|
761,072
|
|
|
Gas and NGL sales
|
|
100,261
|
|
|
126,044
|
|
|
198,742
|
|
|
343,959
|
|
|
Gas gathering and other
|
|
11,589
|
|
|
9,769
|
|
|
25,172
|
|
|
20,031
|
|
|
Gas marketing
|
|
(1,284)
|
|
|
(1,116)
|
|
|
(1,498)
|
|
|
(1,642)
|
|
|
|
|
249,383
|
|
|
546,463
|
|
|
722,213
|
|
|
1,123,420
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Impairment of oil and gas properties
|
|
941,198
|
|
|
—
|
|
|
1,274,849
|
|
|
—
|
|
|
Depreciation, depletion, and amortization
|
|
194,954
|
|
|
213,327
|
|
|
410,040
|
|
|
403,744
|
|
|
Asset retirement obligation
|
|
1,661
|
|
|
2,157
|
|
|
6,385
|
|
|
4,206
|
|
|
Impairment of goodwill
|
|
—
|
|
|
—
|
|
|
714,447
|
|
|
—
|
|
|
Production
|
|
64,337
|
|
|
88,995
|
|
|
151,573
|
|
|
167,399
|
|
|
Transportation, processing, and other operating
|
|
53,282
|
|
|
54,107
|
|
|
108,204
|
|
|
113,682
|
|
|
Gas gathering and other
|
|
3,526
|
|
|
6,560
|
|
|
11,824
|
|
|
11,742
|
|
|
Taxes other than income
|
|
16,486
|
|
|
41,033
|
|
|
47,447
|
|
|
74,727
|
|
|
General and administrative
|
|
26,226
|
|
|
24,911
|
|
|
51,735
|
|
|
53,995
|
|
|
Stock compensation
|
|
6,747
|
|
|
6,494
|
|
|
13,141
|
|
|
13,207
|
|
|
Loss (gain) on derivative instruments, net
|
|
123,885
|
|
|
(40,768)
|
|
|
(103,055)
|
|
|
74,684
|
|
|
Other operating expense, net
|
|
130
|
|
|
590
|
|
|
381
|
|
|
8,916
|
|
|
|
|
1,432,432
|
|
|
397,406
|
|
|
2,686,971
|
|
|
926,302
|
|
|
Operating (loss) income
|
|
(1,183,049)
|
|
|
149,057
|
|
|
(1,964,758)
|
|
|
197,118
|
|
|
Other (income) and expense:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
23,047
|
|
|
24,674
|
|
|
46,228
|
|
|
45,079
|
|
|
Capitalized interest
|
|
(12,939)
|
|
|
(16,805)
|
|
|
(26,121)
|
|
|
(25,547)
|
|
|
Loss on early extinguishment of debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,250
|
|
|
Other, net
|
|
3,496
|
|
|
(2,167)
|
|
|
2,625
|
|
|
(4,408)
|
|
|
(Loss) income before income tax
|
|
(1,196,653)
|
|
|
143,355
|
|
|
(1,987,490)
|
|
|
177,744
|
|
|
Income tax (benefit) expense
|
|
(271,506)
|
|
|
34,046
|
|
|
(288,061)
|
|
|
42,119
|
|
|
Net (loss) income
|
|
$
|
(925,147)
|
|
|
$
|
109,309
|
|
|
$
|
(1,699,429)
|
|
|
$
|
135,625
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share to common stockholders:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(9.28)
|
|
|
$
|
1.07
|
|
|
$
|
(17.05)
|
|
|
$
|
1.34
|
|
|
Diluted
|
|
$
|
(9.28)
|
|
|
$
|
1.07
|
|
|
$
|
(17.05)
|
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(925,147)
|
|
|
$
|
109,309
|
|
|
$
|
(1,699,429)
|
|
|
$
|
135,625
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Change in fair value of investments, net of tax of $0, $89, $0 and $428, respectively
|
|
—
|
|
|
304
|
|
|
—
|
|
|
1,453
|
|
|
Total comprehensive (loss) income
|
|
$
|
(925,147)
|
|
|
$
|
109,613
|
|
|
$
|
(1,699,429)
|
|
|
$
|
137,078
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
CIMAREX ENERGY CO.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,699,429)
|
|
|
$
|
135,625
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
Impairment of oil and gas properties
|
|
1,274,849
|
|
|
—
|
|
|
Depreciation, depletion, and amortization
|
|
410,040
|
|
|
403,744
|
|
|
Asset retirement obligation
|
|
6,385
|
|
|
4,206
|
|
|
Impairment of goodwill
|
|
714,447
|
|
|
—
|
|
|
Deferred income taxes
|
|
(287,900)
|
|
|
42,119
|
|
|
Stock compensation
|
|
13,141
|
|
|
13,207
|
|
|
(Gain) loss on derivative instruments, net
|
|
(103,055)
|
|
|
74,684
|
|
|
Settlements on derivative instruments
|
|
107,055
|
|
|
(2,814)
|
|
|
Loss on early extinguishment of debt
|
|
—
|
|
|
4,250
|
|
|
Amortization of debt issuance costs and discounts
|
|
1,602
|
|
|
1,502
|
|
|
Changes in non-current assets and liabilities
|
|
7,019
|
|
|
2,749
|
|
|
Other, net
|
|
6,795
|
|
|
8,152
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
204,615
|
|
|
117,692
|
|
|
Other current assets
|
|
1,495
|
|
|
(761)
|
|
|
Accounts payable and other current liabilities
|
|
(203,562)
|
|
|
(140,272)
|
|
|
Net cash provided by operating activities
|
|
453,497
|
|
|
664,083
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Acquisition of Resolute Energy, net of cash acquired (Note 13)
|
|
—
|
|
|
(284,441)
|
|
|
Oil and gas capital expenditures
|
|
(418,580)
|
|
|
(711,757)
|
|
|
Other capital expenditures
|
|
(38,052)
|
|
|
(40,141)
|
|
|
Sales of oil and gas assets
|
|
830
|
|
|
13,233
|
|
|
Sales of other assets
|
|
1,188
|
|
|
434
|
|
|
Net cash used by investing activities
|
|
(454,614)
|
|
|
(1,022,672)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Borrowings of long-term debt
|
|
161,000
|
|
|
1,710,310
|
|
|
Repayments of long-term debt
|
|
(161,000)
|
|
|
(2,081,000)
|
|
|
Financing, underwriting, and debt redemption fees
|
|
(1,557)
|
|
|
(11,791)
|
|
|
Finance lease payments
|
|
(2,808)
|
|
|
(1,555)
|
|
|
Dividends paid
|
|
(45,209)
|
|
|
(38,647)
|
|
|
Employee withholding taxes paid upon the net settlement of equity-classified stock awards
|
|
(189)
|
|
|
(654)
|
|
|
Proceeds from exercise of stock options
|
|
—
|
|
|
674
|
|
|
Net cash used by financing activities
|
|
(49,763)
|
|
|
(422,663)
|
|
|
Net change in cash and cash equivalents
|
|
(50,880)
|
|
|
(781,252)
|
|
|
Cash and cash equivalents at beginning of period
|
|
94,722
|
|
|
800,666
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
43,842
|
|
|
$
|
19,414
|
|
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
Deficit)
|
|
|
|
Total
Stockholders’
Equity
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
102,145
|
|
|
$
|
1,021
|
|
|
$
|
3,243,325
|
|
|
$
|
331,795
|
|
|
|
|
$
|
3,576,141
|
|
|
Dividends paid on stock awards subsequently forfeited
|
|
—
|
|
|
—
|
|
|
6
|
|
|
23
|
|
|
|
|
29
|
|
|
Dividends declared on common stock ($0.22 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,548)
|
|
|
|
|
(22,548)
|
|
|
Dividends declared on redeemable preferred stock ($20.3125 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,269)
|
|
|
|
|
(1,269)
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(774,282)
|
|
|
|
|
(774,282)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock reacquired and retired
|
|
(12)
|
|
|
—
|
|
|
(165)
|
|
|
—
|
|
|
|
|
(165)
|
|
|
Restricted stock forfeited and retired
|
|
(31)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
11,594
|
|
|
—
|
|
|
|
|
11,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
102,102
|
|
|
$
|
1,021
|
|
|
$
|
3,254,760
|
|
|
$
|
(466,281)
|
|
|
|
|
$
|
2,789,500
|
|
|
Dividends paid on stock awards subsequently forfeited
|
|
—
|
|
|
—
|
|
|
1
|
|
|
7
|
|
|
|
|
8
|
|
|
Dividends declared on common stock ($0.22 per share)
|
|
—
|
|
|
—
|
|
|
(22,561)
|
|
|
2
|
|
|
|
|
(22,559)
|
|
|
Dividends declared on redeemable preferred stock ($20.3125 per share)
|
|
—
|
|
|
—
|
|
|
(1,269)
|
|
|
—
|
|
|
|
|
(1,269)
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(925,147)
|
|
|
|
|
(925,147)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock awards
|
|
66
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
|
|
—
|
|
|
Common stock reacquired and retired
|
|
(2)
|
|
|
—
|
|
|
(24)
|
|
|
—
|
|
|
|
|
(24)
|
|
|
Restricted stock forfeited and retired
|
|
(15)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
10,338
|
|
|
—
|
|
|
|
|
10,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
102,151
|
|
|
$
|
1,022
|
|
|
$
|
3,241,244
|
|
|
$
|
(1,391,419)
|
|
|
|
|
$
|
1,850,847
|
|
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 ($20.3125 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
|
|
|
Dividends paid on stock awards subsequently forfeited
|
|
—
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
5
|
|
|
Dividends declared on common stock ($0.20 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,330)
|
|
|
—
|
|
|
(20,330)
|
|
|
Dividends declared on redeemable preferred stock ($20.3125 per share)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,270)
|
|
|
—
|
|
|
(1,270)
|
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
109,309
|
|
|
—
|
|
|
109,309
|
|
|
Unrealized change in fair value of investments, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
304
|
|
|
304
|
|
|
Issuance of restricted stock awards
|
|
54
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Restricted stock forfeited and retired
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercise of stock options
|
|
15
|
|
|
—
|
|
|
594
|
|
|
—
|
|
|
—
|
|
|
594
|
|
|
Stock-based compensation
|
|
—
|
|
|
—
|
|
|
11,919
|
|
|
—
|
|
|
—
|
|
|
11,919
|
|
|
Balance, June 30, 2019
|
|
101,473
|
|
|
$
|
1,015
|
|
|
$
|
3,223,331
|
|
|
$
|
635,339
|
|
|
$
|
2,208
|
|
|
$
|
3,861,893
|
|
See accompanying Notes to Condensed Consolidated Financial Statements.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
1.BASIS OF PRESENTATION
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, 2019.
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.
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, lease liabilities, and contingencies.
Prior Year Reclassifications
Certain amounts in the prior year financial statements have been reclassified to conform to the 2020 financial statement presentation. These reclassifications include reclassifying certain “Gas gathering and other” expenses to “Transportation, processing, and other operating” expense and “Production” expense. These reclassifications were made to reflect an allocation of the costs incurred to operate our gas gathering facilities as a cost to transport our equity share of gas produced and operate our wells. The following table shows the reclassifications made:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
(in thousands)
|
|
Prior
Year Presentation
|
|
Current
Year Reclassifications
|
|
Current Year Presentation
|
|
Prior
Year Presentation
|
|
Current
Year Reclassifications
|
|
Current Year Presentation
|
|
Production
|
|
$
|
87,726
|
|
|
$
|
1,269
|
|
|
$
|
88,995
|
|
|
$
|
164,959
|
|
|
$
|
2,440
|
|
|
$
|
167,399
|
|
|
Transportation, processing, and other operating
|
|
$
|
48,331
|
|
|
5,776
|
|
|
$
|
54,107
|
|
|
$
|
101,939
|
|
|
11,743
|
|
|
$
|
113,682
|
|
|
Gas gathering and other
|
|
$
|
13,605
|
|
|
(7,045)
|
|
|
$
|
6,560
|
|
|
$
|
25,925
|
|
|
(14,183)
|
|
|
$
|
11,742
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
—
|
|
|
|
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
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 quarterly ceiling test is primarily impacted by commodity prices, changes in estimated reserve quantities, overall exploration and development costs, and deferred taxes. If pricing conditions decline, or if there is a negative impact on one or more of the other components of the calculation, we may incur a full cost ceiling test impairment. The calculated ceiling limitation is not intended to be indicative of the fair market value of our proved reserves or future results. 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.
For the six months ended June 30, 2020, we incurred ceiling test impairments totaling $1.275 billion ($941.2 million for the three months ended June 30, 2020 and $333.7 million for the three months ended March 31, 2020). These impairments resulted primarily from the impact of decreases in the 12-month average trailing prices for oil, gas, and NGLs as well as significant basis differentials utilized in determining the estimated future net cash flows from proved reserves. We expect these conditions to continue at least through September 30, 2020 and possibly beyond and, therefore, expect to incur another ceiling test impairment at September 30, 2020.
Goodwill
Goodwill represents the excess of the purchase price of business combinations over the fair value of the net assets acquired and is tested for impairment at least annually. In performing the goodwill test, we compare the fair value of our reporting unit with its carrying amount. If the carrying amount of the reporting unit were to exceed its fair value, an impairment charge would be recognized in the amount of this excess, limited to the total amount of goodwill allocated to that reporting unit. We evaluate our goodwill for impairment in the fourth quarter of each year and whenever events or changes in circumstances indicate the possibility that goodwill may be impaired. Based upon our assessment as of October 31, 2019, goodwill was not impaired. However, during the three months ended March 31, 2020 the company’s market capitalization declined significantly, caused by macroeconomic and geopolitical conditions including the collapse of oil prices driven by surplus supply and decreased demand caused by the COVID-19 pandemic. In addition, the uncertainty related to oil demand significantly impacted our investment and operating decisions. Based on those events, we concluded that a triggering event had occurred, which required us to perform an interim quantitative impairment test for goodwill as of March 31, 2020. As a result of that quantitative impairment test, which utilized quoted market prices for our common stock as a basis for determining fair value, we concluded that goodwill was fully impaired at March 31, 2020.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
The following table reflects components of the change in the carrying amount of goodwill for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Six Months Ended
June 30, 2020
|
|
Goodwill balance at January 1, 2020
|
|
$
|
716,865
|
|
|
Resolute acquisition purchase price adjustments (Note 13)
|
|
(2,418)
|
|
|
Impairment
|
|
(714,447)
|
|
|
Goodwill balance at June 30, 2020
|
|
$
|
—
|
|
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 June 30, 2020, 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 is sold under various contracts. Under these contracts the gas and its components, including residue gas and NGLs, may be sold to a single purchaser or separate purchasers. Regardless of the contract, we are compensated for the value of the residue gas and NGLs at current market prices for each product. Depending on the specific contract terms, certain gathering, treating, transportation, processing, and other charges may be deducted against the prices we receive for the products. 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 other 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 or for 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.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
2.LONG-TERM DEBT
Long-term debt at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
(in thousands)
|
|
Principal
|
|
Unamortized Debt
Issuance Costs
and Discounts (1)
|
|
Long-term
Debt, net
|
|
Principal
|
|
Unamortized Debt
Issuance Costs
and Discounts (1)
|
|
Long-term
Debt, net
|
|
4.375% Notes due 2024
|
|
$
|
750,000
|
|
|
$
|
(3,099)
|
|
|
$
|
746,901
|
|
|
$
|
750,000
|
|
|
$
|
(3,535)
|
|
|
$
|
746,465
|
|
|
3.90% Notes due 2027
|
|
750,000
|
|
|
(5,919)
|
|
|
744,081
|
|
|
750,000
|
|
|
(6,289)
|
|
|
743,711
|
|
|
4.375% Notes due 2029
|
|
500,000
|
|
|
(4,711)
|
|
|
495,289
|
|
|
500,000
|
|
|
(4,930)
|
|
|
495,070
|
|
|
|
|
$
|
2,000,000
|
|
|
$
|
(13,729)
|
|
|
$
|
1,986,271
|
|
|
$
|
2,000,000
|
|
|
$
|
(14,754)
|
|
|
$
|
1,985,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________________
(1)The 4.375% Notes due 2024 were issued at par, therefore, the amounts shown in the table are for unamortized debt issuance costs only. At June 30, 2020, the unamortized debt issuance costs and discount related to the 3.90% Notes due 2027 were $4.6 million and $1.4 million, respectively. At June 30, 2020, the unamortized debt issuance costs and discount related to the 4.375% Notes due 2029 were $4.1 million and $0.6 million, respectively. At December 31, 2019, the unamortized debt issuance costs and discount related to the 3.90% Notes due 2027 were $4.8 million and $1.5 million, respectively. At December 31, 2019, the unamortized debt issuance costs and discount related to the 4.375% Notes due 2029 were $4.3 million and $0.6 million, respectively.
Bank Debt
On June 3, 2020, we entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”) dated as of February 5, 2019 for our senior unsecured revolving credit facility (“Credit Facility”). The Credit Facility has aggregate commitments of $1.25 billion with an option for us to increase the aggregate commitments to $1.5 billion, and matures on February 5, 2024. There is no borrowing base subject to the discretion of the lenders based on the value of our proved reserves under the Credit Facility. The First Amendment, among other things: (i) allows up to $3.5 billion of non-cash impairment charge add-backs to Shareholders’ Equity for covenant calculation purposes, (ii) institutes traditional anti-cash hoarding provisions at a consolidated cash threshold of $175.0 million, (iii) reduces the priority lien debt basket from 15% of Consolidated Net Tangible Assets (as defined in the credit agreement) to a $50.0 million cap, and (iv) adds an acknowledgement and consent to European Union bail-in legislation. As of June 30, 2020, we had no bank borrowings outstanding under the Credit Facility, but did have letters of credit of $2.5 million outstanding, leaving an unused borrowing availability of $1.248 billion. During the three and six months ended June 30, 2020, we borrowed and repaid an aggregate of $60.0 million and $161.0 million, respectively, on the Credit Facility to meet cash requirements as needed.
At our option, borrowings under the Credit Facility may bear interest at either (a) LIBOR (or an alternate rate determined by the administrative agent for the Credit Facility in accordance with the Credit Facility when LIBOR is no longer available) 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-capitalization ratio of no greater than 65%. As of June 30, 2020, we were in compliance with all of the financial covenants.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
At June 30, 2020 and December 31, 2019, we had $5.0 million and $4.0 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. During the three months ended June 30, 2020, we incurred $1.5 million in fees paid to the creditor and third-party costs for the First Amendment. These costs are being amortized to interest expense ratably over the life of the 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 made on September 15, 2019. We used the net proceeds to repay borrowings 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 June 30, 2020.
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 June 30, 2020, we have entered into oil and gas collars, oil basis swaps, and oil “roll differential” swaps. We also occasionally enter into fixed price swaps. 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. Our oil roll differential swaps are settled based on the difference between the monthly roll differential and a fixed price per Bbl. The monthly roll differential is calculated as the sum of 2/3 of the difference in the WTI NYMEX closing settlement price for the first nearby month futures contract minus the second nearby futures contract and 1/3 of the difference in the WTI NYMEX closing settlement price for the first nearby
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
month futures contract minus the third nearby month futures contract. By using a roll differential swap, we have fixed the differential in pricing between the WTI NYMEX calendar month average and the physical crude oil delivery month. 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. The following tables summarize our outstanding derivative contracts as of June 30, 2020:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Collars
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
WTI (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
—
|
|
|
—
|
|
|
3,772,000
|
|
|
3,772,000
|
|
|
7,544,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40.91
|
|
|
$
|
40.91
|
|
|
$
|
40.91
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49.84
|
|
|
$
|
49.84
|
|
|
$
|
49.84
|
|
|
2021:
|
|
|
|
|
|
|
|
|
|
|
|
WTI (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
3,600,000
|
|
|
2,730,000
|
|
|
1,932,000
|
|
|
1,932,000
|
|
|
10,194,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
38.06
|
|
|
$
|
34.23
|
|
|
$
|
31.48
|
|
|
$
|
31.48
|
|
|
$
|
34.54
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
46.45
|
|
|
$
|
42.25
|
|
|
$
|
39.67
|
|
|
$
|
39.67
|
|
|
$
|
42.75
|
|
|
2022:
|
|
|
|
|
|
|
|
|
|
|
|
WTI (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
630,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
630,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
35.00
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35.00
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
45.28
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45.28
|
|
________________________________________
(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
June 30, 2020
(Unaudited)
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Collars
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
PEPL (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
—
|
|
|
—
|
|
|
9,200,000
|
|
|
9,200,000
|
|
|
18,400,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.78
|
|
|
$
|
1.78
|
|
|
$
|
1.78
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.21
|
|
|
$
|
2.21
|
|
|
$
|
2.21
|
|
|
Perm EP (2)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
—
|
|
|
—
|
|
|
6,440,000
|
|
|
6,440,000
|
|
|
12,880,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.36
|
|
|
$
|
1.36
|
|
|
$
|
1.36
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.64
|
|
|
$
|
1.64
|
|
|
$
|
1.64
|
|
|
Waha (3)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
—
|
|
|
—
|
|
|
6,440,000
|
|
|
6,440,000
|
|
|
12,880,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.43
|
|
|
$
|
1.43
|
|
|
$
|
1.43
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.73
|
|
|
$
|
1.73
|
|
|
$
|
1.73
|
|
|
2021:
|
|
|
|
|
|
|
|
|
|
|
|
PEPL (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
7,200,000
|
|
|
6,370,000
|
|
|
4,600,000
|
|
|
4,600,000
|
|
|
22,770,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.76
|
|
|
$
|
1.75
|
|
|
$
|
1.80
|
|
|
$
|
1.80
|
|
|
$
|
1.77
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.18
|
|
|
$
|
2.16
|
|
|
$
|
2.23
|
|
|
$
|
2.23
|
|
|
$
|
2.19
|
|
|
Perm EP (2)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
5,400,000
|
|
|
5,460,000
|
|
|
3,680,000
|
|
|
3,680,000
|
|
|
18,220,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.44
|
|
|
$
|
1.44
|
|
|
$
|
1.58
|
|
|
$
|
1.58
|
|
|
$
|
1.49
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
1.72
|
|
|
$
|
1.72
|
|
|
$
|
1.90
|
|
|
$
|
1.90
|
|
|
$
|
1.79
|
|
|
Waha (3)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
6,300,000
|
|
|
6,370,000
|
|
|
4,600,000
|
|
|
4,600,000
|
|
|
21,870,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.43
|
|
|
$
|
1.43
|
|
|
$
|
1.58
|
|
|
$
|
1.58
|
|
|
$
|
1.49
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
1.73
|
|
|
$
|
1.73
|
|
|
$
|
1.89
|
|
|
$
|
1.89
|
|
|
$
|
1.80
|
|
|
2022:
|
|
|
|
|
|
|
|
|
|
|
|
PEPL (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
1,800,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,800,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.90
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.90
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.36
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.36
|
|
|
Perm EP (2)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
900,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
900,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.80
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.80
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.19
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.19
|
|
|
Waha (3)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
1,800,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,800,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.70
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.70
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.10
|
|
________________________________________
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Basis Swaps
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
WTI Midland (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
—
|
|
|
—
|
|
|
2,944,000
|
|
|
2,944,000
|
|
|
5,888,000
|
|
|
Weighted Avg Differential (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
2021:
|
|
|
|
|
|
|
|
|
|
|
|
WTI Midland (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
2,790,000
|
|
|
2,275,000
|
|
|
1,840,000
|
|
|
1,840,000
|
|
|
8,745,000
|
|
|
Weighted Avg Differential (2)
|
|
$
|
0.03
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.38)
|
|
|
$
|
(0.38)
|
|
|
$
|
(0.18)
|
|
|
2022:
|
|
|
|
|
|
|
|
|
|
|
|
WTI Midland (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
630,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
630,000
|
|
|
Weighted Avg Differential (2)
|
|
$
|
0.11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________________
(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 plus or minus, as applicable, the weighted average differential shown in the table.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Roll Differential Swaps
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
|
2021:
|
|
|
|
|
|
|
|
|
|
|
|
WTI (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
630,000
|
|
|
637,000
|
|
|
644,000
|
|
|
644,000
|
|
|
2,555,000
|
|
|
Weighted Avg Price
|
|
$
|
(0.24)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.24)
|
|
|
$
|
(0.24)
|
|
|
2022:
|
|
|
|
|
|
|
|
|
|
|
|
WTI (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbls)
|
|
630,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
630,000
|
|
|
Weighted Avg Price
|
|
$
|
(0.24)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.24)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________________
(1)The index price used to determine the settlement “roll” is WTI as quoted on the NYMEX.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
The following tables summarize our derivative contracts entered into subsequent to June 30, 2020 through July 31, 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Collars
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021:
|
|
|
|
|
|
|
|
|
|
|
|
PEPL (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
1,800,000
|
|
|
1,820,000
|
|
|
1,840,000
|
|
|
1,840,000
|
|
|
7,300,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
2.10
|
|
|
$
|
2.10
|
|
|
$
|
2.10
|
|
|
$
|
2.10
|
|
|
$
|
2.10
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.44
|
|
|
$
|
2.44
|
|
|
$
|
2.44
|
|
|
$
|
2.44
|
|
|
$
|
2.44
|
|
|
Perm EP (2)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
900,000
|
|
|
910,000
|
|
|
920,000
|
|
|
920,000
|
|
|
3,650,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.90
|
|
|
$
|
1.90
|
|
|
$
|
1.90
|
|
|
$
|
1.90
|
|
|
$
|
1.90
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.18
|
|
|
$
|
2.18
|
|
|
$
|
2.18
|
|
|
$
|
2.18
|
|
|
$
|
2.18
|
|
|
Waha (3)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
1,800,000
|
|
|
1,820,000
|
|
|
1,840,000
|
|
|
1,840,000
|
|
|
7,300,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.84
|
|
|
$
|
1.84
|
|
|
$
|
1.84
|
|
|
$
|
1.84
|
|
|
$
|
1.84
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.20
|
|
|
$
|
2.20
|
|
|
$
|
2.20
|
|
|
$
|
2.20
|
|
|
$
|
2.20
|
|
|
2022:
|
|
|
|
|
|
|
|
|
|
|
|
PEPL (1)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
1,800,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,800,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
2.10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.10
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.44
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.44
|
|
|
Perm EP (2)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
900,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
900,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.90
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.90
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.18
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.18
|
|
|
Waha (3)
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu)
|
|
1,800,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,800,000
|
|
|
Weighted Avg Price - Floor
|
|
$
|
1.84
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.84
|
|
|
Weighted Avg Price - Ceiling
|
|
$
|
2.20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.20
|
|
________________________________________
(1)The index price for these collars is PEPL as quoted in Platt’s Inside FERC.
(2)The index price for these collars is Perm EP as quoted in Platt’s Inside FERC.
(3)The index price for these collars is Waha as quoted in Platt’s Inside FERC.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
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
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Decrease (increase) in fair value of derivative instruments, net:
|
|
|
|
|
|
|
|
|
|
Gas contracts
|
|
$
|
19,826
|
|
|
$
|
(6,370)
|
|
|
$
|
32,319
|
|
|
$
|
(16,216)
|
|
|
Oil contracts
|
|
168,000
|
|
|
(28,161)
|
|
|
(28,319)
|
|
|
88,086
|
|
|
|
|
187,826
|
|
|
(34,531)
|
|
|
4,000
|
|
|
71,870
|
|
|
Cash (receipts) payments on derivative instruments, net:
|
|
|
|
|
|
|
|
|
|
Gas contracts
|
|
(5,870)
|
|
|
(21,176)
|
|
|
(17,589)
|
|
|
(17,412)
|
|
|
Oil contracts
|
|
(58,071)
|
|
|
14,939
|
|
|
(89,466)
|
|
|
20,226
|
|
|
|
|
(63,941)
|
|
|
(6,237)
|
|
|
(107,055)
|
|
|
2,814
|
|
|
Loss (gain) on derivative instruments, net
|
|
$
|
123,885
|
|
|
$
|
(40,768)
|
|
|
$
|
(103,055)
|
|
|
$
|
74,684
|
|
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
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.
The following tables present the amounts and classifications of our derivative assets and liabilities as of June 30, 2020 and December 31, 2019, as well as the potential effect of netting arrangements on our recognized derivative asset and liability amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
(in thousands)
|
|
Balance Sheet Location
|
|
Asset
|
|
Liability
|
|
Oil contracts
|
|
Current assets — Derivative instruments
|
|
$
|
69,208
|
|
|
$
|
—
|
|
|
Gas contracts
|
|
Current assets — Derivative instruments
|
|
2,382
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil contracts
|
|
Current liabilities — Derivative instruments
|
|
—
|
|
|
38,443
|
|
|
Gas contracts
|
|
Current liabilities — Derivative instruments
|
|
—
|
|
|
13,113
|
|
|
Oil contracts
|
|
Non-current liabilities — Derivative instruments
|
|
—
|
|
|
17,747
|
|
|
Gas contracts
|
|
Non-current liabilities — Derivative instruments
|
|
—
|
|
|
5,463
|
|
|
Total gross amounts presented in the balance sheet
|
|
|
|
71,590
|
|
|
74,766
|
|
|
Less: gross amounts not offset in the balance sheet
|
|
|
|
(57,678)
|
|
|
(57,678)
|
|
|
Net amount
|
|
|
|
$
|
13,912
|
|
|
$
|
17,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
(in thousands)
|
|
Balance Sheet Location
|
|
Asset
|
|
Liability
|
|
Oil contracts
|
|
Current assets — Derivative instruments
|
|
$
|
1,624
|
|
|
$
|
—
|
|
|
Gas contracts
|
|
Current assets — Derivative instruments
|
|
16,320
|
|
|
—
|
|
|
Oil contracts
|
|
Non-current assets — Derivative instruments
|
|
580
|
|
|
—
|
|
|
Oil contracts
|
|
Current liabilities — Derivative instruments
|
|
—
|
|
|
16,681
|
|
|
|
|
|
|
|
|
|
|
Oil contracts
|
|
Non-current liabilities — Derivative instruments
|
|
—
|
|
|
824
|
|
|
Gas contracts
|
|
Non-current liabilities — Derivative instruments
|
|
—
|
|
|
194
|
|
|
Total gross amounts presented in the balance sheet
|
|
|
|
18,524
|
|
|
17,699
|
|
|
Less: gross amounts not offset in the balance sheet
|
|
|
|
(9,865)
|
|
|
(9,865)
|
|
|
Net amount
|
|
|
|
$
|
8,659
|
|
|
$
|
7,834
|
|
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.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
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. Authoritative accounting guidance 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 inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable.
The following table provides fair value measurement information for certain assets and liabilities as of June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
(in thousands)
|
|
Book
Value
|
|
Fair
Value
|
|
Book
Value
|
|
Fair
Value
|
|
Financial Assets (Liabilities):
|
|
|
|
|
|
|
|
|
|
4.375% Notes due 2024
|
|
$
|
(750,000)
|
|
|
$
|
(791,175)
|
|
|
$
|
(750,000)
|
|
|
$
|
(792,225)
|
|
|
3.90% Notes due 2027
|
|
$
|
(750,000)
|
|
|
$
|
(758,850)
|
|
|
$
|
(750,000)
|
|
|
$
|
(778,050)
|
|
|
4.375% Notes due 2029
|
|
$
|
(500,000)
|
|
|
$
|
(513,900)
|
|
|
$
|
(500,000)
|
|
|
$
|
(530,400)
|
|
|
Derivative instruments — assets
|
|
$
|
71,590
|
|
|
$
|
71,590
|
|
|
$
|
18,524
|
|
|
$
|
18,524
|
|
|
Derivative instruments — liabilities
|
|
$
|
(74,766)
|
|
|
$
|
(74,766)
|
|
|
$
|
(17,699)
|
|
|
$
|
(17,699)
|
|
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 quoted market prices. The fair value of our derivative instruments (Level 2) was estimated using discounted cash flow and option pricing models. These models use certain observable variables including forward prices, volatility curves, interest rates, and credit ratings and spreads. 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 June 30, 2020 are accrued operating expenses (e.g. production, transportation, and gathering expenses) of approximately $70.3 million. Included in “Accrued liabilities — Other” at December 31, 2019 are: (i) accrued operating expenses (e.g. production, transportation, and gathering expenses) of approximately $74.7 million and (ii) accrued general and administrative costs, primarily payroll-related, of approximately $43.3 million.
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. Pursuant to the operating agreements we have with the co-owners of our operated properties, we have the right to realize amounts due to us from the co-owners by netting the co-owners’ production revenues from those properties.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
We routinely assess the recoverability of all material accounts receivable and accrue a reserve to the allowance for doubtful accounts based on our estimation of expected losses over the life of the receivables. At June 30, 2020 and December 31, 2019, the allowance for doubtful accounts was $4.0 million and $3.6 million, respectively.
5.CAPITAL STOCK
Authorized capital stock consists of 200 million shares of common stock and 15 million shares of preferred stock. At June 30, 2020, there were 102.2 million shares of common stock outstanding and 62.5 thousand shares of 8.125% Series A Cumulative Perpetual Convertible Preferred Stock outstanding (the “Convertible Preferred Stock”). Holders of the Convertible Preferred Stock are entitled to receive, when, as, and if declared by the Board, cumulative cash dividends at an annual rate of 8.125% of each share’s liquidation preference of $1,000. In the event of any liquidation, winding up, or dissolution of Cimarex, each holder will be entitled to receive in respect of its shares, up to each share’s liquidation preference, with the total liquidation preference being $62.5 million in the aggregate, after satisfaction of liabilities and any senior stock (of which there is currently none) and before any payment or distribution to holders of junior stock (including common stock). 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 into a certain number of shares of Cimarex common stock based on a conversion rate that adjusts upon the occurrence of certain events, including the payment of cash dividends to common shareholders, plus $471.40 in cash per share of Convertible Preferred Stock. The June 30, 2020 conversion rate was 8.25315 shares of common stock for each share of Convertible Preferred Stock. As a result of the cash component included in the redemption feature of 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 Sheets.
Dividends
Common Stock
In May 2020, our Board of Directors declared a cash dividend of $0.22 per share of common stock. The dividend is payable on or before September 1, 2020 to stockholders of record on August 14, 2020. 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 $22.6 million dividend declared during the second quarter 2020 was recorded as a reduction of additional paid-in capital and is included as a payable in “Accrued liabilities — Other” on the Condensed Consolidated Balance Sheet at June 30, 2020. 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 May 2020, our Board of Directors declared a cash dividend of $20.3125 per share of Convertible Preferred Stock. The dividend was paid in July to stockholders of record on July 1, 2020. This $1.3 million dividend was recorded as a reduction of additional paid-in capital and is included as a payable in “Accrued liabilities — Other” on the Condensed Consolidated Balance Sheet at June 30, 2020.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
6.STOCK-BASED COMPENSATION
We have recognized stock-based compensation cost as shown below for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Restricted stock awards:
|
|
|
|
|
|
|
|
|
|
Performance stock awards
|
|
$
|
4,059
|
|
|
$
|
5,535
|
|
|
$
|
8,119
|
|
|
$
|
10,929
|
|
|
Service-based stock awards
|
|
6,585
|
|
|
5,993
|
|
|
13,962
|
|
|
13,224
|
|
|
|
|
10,644
|
|
|
11,528
|
|
|
22,081
|
|
|
24,153
|
|
|
Stock option awards
|
|
416
|
|
|
396
|
|
|
914
|
|
|
1,018
|
|
|
Total stock compensation cost
|
|
11,060
|
|
|
11,924
|
|
|
22,995
|
|
|
25,171
|
|
|
Less amounts capitalized to oil and gas properties
|
|
(4,313)
|
|
|
(5,430)
|
|
|
(9,854)
|
|
|
(11,964)
|
|
|
Stock compensation expense
|
|
$
|
6,747
|
|
|
$
|
6,494
|
|
|
$
|
13,141
|
|
|
$
|
13,207
|
|
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 capitalized asset retirement 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 six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Six Months Ended
June 30, 2020
|
|
Asset retirement obligation at January 1, 2020
|
|
$
|
181,869
|
|
|
Liabilities incurred
|
|
2,088
|
|
|
Liability settlements and disposals
|
|
(21,935)
|
|
|
Accretion expense
|
|
3,796
|
|
|
Revisions of estimated liabilities
|
|
2,800
|
|
|
Asset retirement obligation at June 30, 2020
|
|
168,618
|
|
|
Less current obligation
|
|
(18,244)
|
|
|
Long-term asset retirement obligation
|
|
$
|
150,374
|
|
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
8.EARNINGS (LOSS) PER SHARE
The calculations of basic and diluted net earnings (loss) per common share under the two-class method are presented below for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
2019
|
|
|
|
|
|
(in thousands, except per share information)
|
|
Income (Numerator)
|
|
Shares (Denominator)
|
|
Per-Share Amount
|
|
Income (Numerator)
|
|
Shares (Denominator)
|
|
Per-Share Amount
|
|
Net (loss) income
|
|
$
|
(925,147)
|
|
|
|
|
|
|
$
|
109,309
|
|
|
|
|
|
|
Less: dividends and net income attributable to participating securities (1)
|
|
(569)
|
|
|
|
|
|
|
(1,596)
|
|
|
|
|
|
|
Less: preferred stock dividends
|
|
(1,269)
|
|
|
|
|
|
|
(1,270)
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income available to common stockholders
|
|
(926,985)
|
|
|
99,880
|
|
|
$
|
(9.28)
|
|
|
106,443
|
|
|
99,658
|
|
|
$
|
1.07
|
|
|
Effects of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options (2)
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
7
|
|
|
|
|
Diluted (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income available to common stockholders and assumed conversions
|
|
$
|
(926,985)
|
|
|
99,880
|
|
|
$
|
(9.28)
|
|
|
$
|
106,443
|
|
|
99,665
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
2019
|
|
|
|
|
|
(in thousands, except per share information)
|
|
Income (Numerator)
|
|
Shares (Denominator)
|
|
Per-Share Amount
|
|
Income (Numerator)
|
|
Shares (Denominator)
|
|
Per-Share Amount
|
|
Net (loss) income
|
|
$
|
(1,699,429)
|
|
|
|
|
|
|
$
|
135,625
|
|
|
|
|
|
|
Less: dividends and net income attributable to participating securities (1)
|
|
(1,119)
|
|
|
|
|
|
|
(2,067)
|
|
|
|
|
|
|
Less: preferred stock dividends
|
|
(2,538)
|
|
|
|
|
|
|
(2,539)
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income available to common stockholders
|
|
(1,703,086)
|
|
|
99,861
|
|
|
$
|
(17.05)
|
|
|
131,019
|
|
|
97,800
|
|
|
$
|
1.34
|
|
|
Effects of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options (2)
|
|
$
|
—
|
|
|
—
|
|
|
|
|
$
|
—
|
|
|
9
|
|
|
|
|
Diluted (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income available to common stockholders and assumed conversions
|
|
$
|
(1,703,086)
|
|
|
99,861
|
|
|
$
|
(17.05)
|
|
|
$
|
131,019
|
|
|
97,809
|
|
|
$
|
1.34
|
|
________________________________________
(1)Participating securities do not have a contractual obligation to share in the losses of the entity, therefore, net losses are not attributable to participating securities.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
(2)Inclusion of certain potential common shares would have an anti-dilutive effect, therefore, these shares were excluded from the calculations of diluted earnings (loss) per share. Excluded from the calculation for the three months ended June 30, 2020 were 456.6 thousand potential common shares from the assumed exercise of employee stock options, 515.8 thousand potential common shares from the assumed conversion of the Convertible Preferred Stock, and 8.8 thousand potential common shares from the assumed vesting of incremental shares of unvested restricted stock awards. Excluded from the calculation for the three months ended June 30, 2019 were 387.5 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 calculation for the six months ended June 30, 2020 were 456.6 thousand potential common shares from the assumed exercise of employee stock options, 515.8 thousand potential common shares from the assumed conversion of the Convertible Preferred Stock, and 8.8 thousand potential common shares from the assumed vesting of incremental shares of unvested restricted stock awards. Excluded from the calculation for the six months ended June 30, 2019 were 391.1 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.
9.INCOME TAXES
The components of our provision for income taxes and our combined federal and state effective income tax rates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Current tax expense (benefit)
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
(161)
|
|
|
$
|
—
|
|
|
Deferred tax (benefit) expense
|
|
(271,543)
|
|
|
34,046
|
|
|
(287,900)
|
|
|
42,119
|
|
|
|
|
$
|
(271,506)
|
|
|
$
|
34,046
|
|
|
$
|
(288,061)
|
|
|
$
|
42,119
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined federal and state effective income tax rate
|
|
22.7
|
%
|
|
23.7
|
%
|
|
14.5
|
%
|
|
23.7
|
%
|
At December 31, 2019, we had a U.S. net tax operating loss carryforward of approximately $1.93 billion; $1.79 billion of which will expire in tax years 2032 through 2039 and $140.0 million of which that will not expire. We believe that the carryforward will be utilized before it expires. We also had enhanced oil recovery and marginal well credits of $3.9 million at December 31, 2019.
On March 1, 2019, we completed the acquisition of Resolute. For federal income tax purposes, the acquisition was a tax-free merger whereby Cimarex acquired carryover tax basis in Resolute’s tax assets and liabilities. As of December 31, 2019, we recorded a net deferred tax liability of $31.1 million to reflect the difference between the fair value of Resolute’s assets and liabilities recorded in the acquisition and the income tax basis of the assets and liabilities assumed. See Note 13 for more information regarding the purchase price allocation. 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 June 30, 2020, 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.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
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. The combined federal and state effective income tax rate for the six months ended June 30, 2020 is impacted by the tax effects of the impairment of the non-deductible goodwill recorded as a discrete item during the first quarter 2020. As such, we believe our effective tax rate will be higher in subsequent periods. In addition, if future ceiling test impairments cause our deferred tax balance to change from a net deferred tax liability to a net deferred tax asset, we may be required to establish a valuation allowance against the net deferred tax asset at that time.
10.COMMITMENTS AND CONTINGENCIES
At June 30, 2020, we had estimated commitments of approximately: (i) $209.5 million to finish drilling, completing, or performing other work on wells and various other infrastructure projects in progress and (ii) $6.8 million to finish gathering system and water facilities construction in progress.
At June 30, 2020, we had firm sales contracts to deliver approximately 522.5 Bcf of gas over the next 11.0 years. If we do not deliver this gas, our estimated financial commitment, calculated using July 2020 index prices, would be approximately $499.3 million. The value of this commitment will fluctuate due to price volatility and actual volumes delivered.
In connection with gas gathering and processing agreements, we have volume commitments over the next 8.5 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 June 30, 2020, would be approximately $676.6 million.
We have minimum volume delivery commitments associated with agreements to reimburse connection costs to various pipelines. If we do not deliver this gas or oil, as the case may be, the estimated maximum amount that would be payable under these commitments, calculated as of June 30, 2020, would be approximately $106.6 million. Of this total, we have accrued a liability of $4.3 million, representing the estimated amount we will have to pay due to insufficient forecasted volumes at particular connection points.
At June 30, 2020, we have various firm transportation agreements for gas and oil pipeline capacity with end dates ranging from 2021 - 2025 under which we will have to pay an estimated $20.9 million over the remaining terms of the agreements.
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 authoritative accounting guidance and adjust our 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.
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
11. SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest (net of capitalized amounts of $18,145, $19,381, $25,473 and $20,121, respectively) (1)
|
|
$
|
14,050
|
|
|
$
|
14,396
|
|
|
$
|
19,609
|
|
|
32,984
|
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
1,200
|
|
|
$
|
—
|
|
|
$
|
1,206
|
|
|
Cash received for income tax refunds
|
|
$
|
280
|
|
|
$
|
335
|
|
|
$
|
484
|
|
|
$
|
336
|
|
________________________________________
(1)The six months ended June 30, 2019 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 $7.8 million and $23.4 million related to these services during the three and six months ended June 30, 2020 and $22.1 million and $46.6 million during the three and six months ended June 30, 2019. Hans Helmerich, a director of Cimarex, is Chairman of the Board of Directors of H&P.
13.ACQUISITIONS
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 Resolute’s 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 Resolute’s 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
June 30, 2020
(Unaudited)
Purchase Price Allocation
The Resolute acquisition has been accounted for as a business combination, using the acquisition method. The following table presents the 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. The table also presents the adjustments made to the purchase price allocation during the 12-month period following the acquisition date. The purchase price allocation was finalized during the three months ended March 31, 2020. The most significant adjustment was made to reduce the fair value of the unproved oil and gas properties acquired by $30.3 million based on the finalization of the quantity of acres acquired. The tax effect of this adjustment reduced the related deferred income taxes by $6.9 million. The completion of the final Resolute tax returns provided the underlying tax basis of Resolute’s assets and liabilities and net operating losses and resulted in a reduction of the deferred tax liability of $24.4 million. The remaining adjustments were related to finalization of working capital balances. The offset to all of the adjustments was goodwill.
The following table sets forth the purchase price allocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 1, 2019
|
|
Adjustments
|
|
March 1, 2020
|
|
Cash
|
|
$
|
41,236
|
|
|
$
|
—
|
|
|
$
|
41,236
|
|
|
Accounts receivable
|
|
50,739
|
|
|
11,521
|
|
|
62,260
|
|
|
Other current assets
|
|
13,280
|
|
|
(1,176)
|
|
|
12,104
|
|
|
Proved oil and gas properties
|
|
692,600
|
|
|
—
|
|
|
692,600
|
|
|
Unproved oil and gas properties
|
|
1,054,200
|
|
|
(30,314)
|
|
|
1,023,886
|
|
|
Fixed assets
|
|
5,355
|
|
|
(32)
|
|
|
5,323
|
|
|
Goodwill
|
|
107,341
|
|
|
(13,126)
|
|
|
94,215
|
|
|
Other assets
|
|
142
|
|
|
—
|
|
|
142
|
|
|
Current liabilities
|
|
(202,735)
|
|
|
1,790
|
|
|
(200,945)
|
|
|
Long-term debt
|
|
(870,000)
|
|
|
—
|
|
|
(870,000)
|
|
|
Deferred income taxes
|
|
(62,409)
|
|
|
31,337
|
|
|
(31,072)
|
|
|
Asset retirement obligation
|
|
(9,437)
|
|
|
—
|
|
|
(9,437)
|
|
|
Total identifiable net assets
|
|
$
|
820,312
|
|
|
$
|
—
|
|
|
$
|
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.
Goodwill of $94.2 million was recognized in the purchase price allocation 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. We concluded that goodwill was impaired at March 31, 2020 (see Note 1 for more information regarding the goodwill impairment).
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
Acquisition-related costs incurred in the three and six months ended June 30, 2019 were $0.1 million and $8.4 million, respectively. These costs, which were comprised primarily of advisory and legal fees, are included in the “Other operating expense, net” line item in the Condensed Consolidated Statement of Operations and Comprehensive Income.
Pro Forma Financial Information
The results of Resolute’s operations have been included in our consolidated financial statements since the March 1, 2019 acquisition date. The following supplemental pro forma information for the three and six months ended June 30, 2019 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 $8.4 million and transaction-related costs incurred by Resolute of $60.0 million. 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 period 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share information)
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
|
Revenue
|
|
$
|
546,463
|
|
|
$
|
1,176,556
|
|
|
Net income
|
|
$
|
109,365
|
|
|
$
|
121,909
|
|
|
Net income per common share:
|
|
|
|
|
|
Basic
|
|
$
|
1.07
|
|
|
$
|
1.18
|
|
|
Diluted
|
|
$
|
1.07
|
|
|
$
|
1.18
|
|
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 Texas, New Mexico, and Oklahoma. 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 dividends. We consider merger and acquisition opportunities that enhance our competitive position and we occasionally divest non-strategic 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. 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-strategic 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. Local market prices for oil and gas can be impacted by pipeline capacity constraints limiting takeaway and increasing basis differentials.
The reduction in economic activity from the COVID-19 pandemic resulted in unprecedented demand destruction and inventory increases for oil and natural gas liquids. WTI oil prices dropped from an average of $57.53 per barrel in January 2020 to $16.70 per barrel in April 2020. Since April 2020, average oil prices have risen to $38.31 per barrel in June 2020. The oil price improvement and or stabilization has coincided with some recovery of global economic activity, lower supply from major oil producing countries, and moderating inventory levels.
In response to the decline in oil prices in the second quarter 2020, we took immediate steps to reduce our capital investment, including releasing all but one drilling rig by mid-May and deferring completion activity. This resulted in a reduction in capital investments from $248.7 million in the first quarter of 2020 to $83.8 million in the second quarter of 2020. Further, as a result of low oil prices we curtailed approximately 20% of our production in the month of May; however, with the subsequent improvement in oil prices we did not curtail volumes in June, and we are not currently curtailing volumes. At current price levels we have added two drilling rigs and expect to add one additional rig over the remainder of the year, exiting 2020 with four rigs. We also expect to begin completing wells starting in September with two completion crews. As a result, total capital expenditures for 2020 are expected to be approximately $600 million.
The table below shows average NYMEX prices and our company-wide average realized prices and price differentials for the periods indicated. Our average realized prices have declined for all products in the 2020 periods as compared to the 2019 periods, with the exception of the average realized gas price in the second quarter of 2020. Average NYMEX prices have declined for all products in the 2020 periods as compared to the 2019 periods. However, our price differentials have improved for all products in the 2020 periods as compared to the 2019 periods, with the exception of our oil price differential in the second quarter of 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Average NYMEX price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil — per barrel
|
|
$
|
27.85
|
|
|
$
|
59.82
|
|
|
(53)%
|
|
$
|
37.01
|
|
|
$
|
57.36
|
|
|
(35)%
|
|
Gas — per Mcf
|
|
$
|
1.71
|
|
|
$
|
2.64
|
|
|
(35)%
|
|
$
|
1.83
|
|
|
$
|
2.90
|
|
|
(37)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average realized price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil — per barrel
|
|
$
|
19.57
|
|
|
$
|
54.24
|
|
|
(64)%
|
|
$
|
32.74
|
|
|
$
|
51.64
|
|
|
(37)%
|
|
Gas — per Mcf
|
|
$
|
0.91
|
|
|
$
|
0.50
|
|
|
82%
|
|
$
|
0.72
|
|
|
$
|
1.19
|
|
|
(39)%
|
|
NGL — per barrel
|
|
$
|
7.52
|
|
|
$
|
13.08
|
|
|
(43)%
|
|
$
|
8.71
|
|
|
$
|
14.67
|
|
|
(41)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price differential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil — per barrel
|
|
$
|
(8.28)
|
|
|
$
|
(5.58)
|
|
|
(48)%
|
|
$
|
(4.27)
|
|
|
$
|
(5.72)
|
|
|
25%
|
|
Gas — per Mcf
|
|
$
|
(0.80)
|
|
|
$
|
(2.14)
|
|
|
63%
|
|
$
|
(1.11)
|
|
|
$
|
(1.71)
|
|
|
35%
|
The average price differentials that we realized in our two primary areas of operation are shown in the table below for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Price Differentials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date
|
|
|
|
|
|
|
|
Second
Quarter
|
|
First
Quarter
|
|
Year
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permian Basin
|
|
$
|
(4.17)
|
|
|
|
|
|
|
|
|
$
|
(8.12)
|
|
|
$
|
(2.00)
|
|
|
$
|
(4.48)
|
|
|
$
|
(2.18)
|
|
|
$
|
(3.76)
|
|
|
$
|
(5.80)
|
|
|
$
|
(6.90)
|
|
|
Mid-Continent
|
|
$
|
(5.18)
|
|
|
|
|
|
|
|
|
$
|
(9.53)
|
|
|
$
|
(2.02)
|
|
|
$
|
(3.14)
|
|
|
$
|
(2.05)
|
|
|
$
|
(3.72)
|
|
|
$
|
(4.39)
|
|
|
$
|
(2.17)
|
|
|
Total Company
|
|
$
|
(4.27)
|
|
|
|
|
|
|
|
|
$
|
(8.28)
|
|
|
$
|
(1.99)
|
|
|
$
|
(4.26)
|
|
|
$
|
(2.16)
|
|
|
$
|
(3.74)
|
|
|
$
|
(5.58)
|
|
|
$
|
(6.03)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permian Basin
|
|
$
|
(1.48)
|
|
|
|
|
|
|
|
|
$
|
(1.09)
|
|
|
$
|
(1.85)
|
|
|
$
|
(2.14)
|
|
|
$
|
(1.67)
|
|
|
$
|
(1.83)
|
|
|
$
|
(3.10)
|
|
|
$
|
(1.91)
|
|
|
Mid-Continent
|
|
$
|
(0.44)
|
|
|
|
|
|
|
|
|
$
|
(0.31)
|
|
|
$
|
(0.57)
|
|
|
$
|
(0.68)
|
|
|
$
|
(0.74)
|
|
|
$
|
(0.66)
|
|
|
$
|
(0.86)
|
|
|
$
|
(0.46)
|
|
|
Total Company
|
|
$
|
(1.11)
|
|
|
|
|
|
|
|
|
$
|
(0.80)
|
|
|
$
|
(1.40)
|
|
|
$
|
(1.52)
|
|
|
$
|
(1.31)
|
|
|
$
|
(1.35)
|
|
|
$
|
(2.14)
|
|
|
$
|
(1.24)
|
|
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. In addition, as a result of current market expectations for lower near-term production volumes from the basin, gas differentials have recently improved. However, if pipeline projects are delayed or canceled, production resumes or increases faster than capacity increases, the basin experiences pipeline disruptions or other constraints, 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 and can be adversely affected by realized price decreases. See RESULTS OF OPERATIONS Revenues below for further information regarding our realized commodity prices.
See RISK FACTORS in Item 1A of this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019, 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 Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019:
•Total production volumes remained flat at 48.3 MMBOE.
•Oil volumes increased 3% to 83.9 MBbls per day.
•Gas volumes increased 3% to 675.2 MMcf per day.
•NGL volumes decreased 10% to 69.3 MBbls per day.
•Total production revenue decreased 37%, or $406.5 million, to $698.5 million.
•Cash flow provided by operating activities decreased 32%, or $210.6 million, to $453.5 million.
•Exploration and development expenditures decreased 52%, or $360.6 million, to $332.4 million.
•Net loss was $1.699 billion, or $17.05 per diluted share, for the first six months of 2020, as compared to net income of $135.6 million, or $1.34 per diluted share, for the first six months of 2019.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2020 Compared to Three and Six Months Ended June 30, 2019
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 lower for all products during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. This was due to strategic curtailment or shut in of production in certain areas during the three months ended June 30, 2020 as a result of the unprecedented demand destruction and inventory increases for oil and NGLs, and resulting severe price decreases, stemming from the COVID-19 pandemic. Realized prices were lower for oil and NGLs, while realized prices for gas were higher during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Gas price differentials improved during the 2020 period as compared to the 2019 period. For the six months ended June 30, 2020, average realized prices were lower for all products as compared to average realized prices for the six months ended June 30, 2019, while production volumes for oil and gas were higher and production volumes for NGLs were lower. Our revenue decreased 56%, or $298.7 million, during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Our revenue decreased 37%, or $406.5 million, during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. 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
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
|
|
Price/Volume Variance
|
|
|
|
|
|
Production Revenue
(in thousands)
|
|
2020
|
|
2019
|
|
|
|
|
|
Price
|
|
Volume
|
|
Total
|
|
Oil sales
|
|
$
|
138,817
|
|
|
$
|
411,766
|
|
|
$
|
(272,949)
|
|
|
(66)%
|
|
$
|
(245,949)
|
|
|
$
|
(27,000)
|
|
|
$
|
(272,949)
|
|
|
Gas sales
|
|
54,154
|
|
|
30,362
|
|
|
23,792
|
|
|
78%
|
|
24,474
|
|
|
(682)
|
|
|
23,792
|
|
|
NGL sales
|
|
46,107
|
|
|
95,682
|
|
|
(49,575)
|
|
|
(52)%
|
|
(34,103)
|
|
|
(15,472)
|
|
|
(49,575)
|
|
|
|
|
$
|
239,078
|
|
|
$
|
537,810
|
|
|
$
|
(298,732)
|
|
|
(56)%
|
|
$
|
(255,578)
|
|
|
$
|
(43,154)
|
|
|
$
|
(298,732)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
|
|
Price/Volume Variance
|
|
|
|
|
|
Production Revenue
(in thousands)
|
|
2020
|
|
2019
|
|
|
|
|
|
Price
|
|
Volume
|
|
Total
|
|
Oil sales
|
|
$
|
499,797
|
|
|
$
|
761,072
|
|
|
$
|
(261,275)
|
|
|
(34)%
|
|
$
|
(288,508)
|
|
|
$
|
27,233
|
|
|
$
|
(261,275)
|
|
|
Gas sales
|
|
88,984
|
|
|
140,338
|
|
|
(51,354)
|
|
|
(37)%
|
|
(57,752)
|
|
|
6,398
|
|
|
(51,354)
|
|
|
NGL sales
|
|
109,758
|
|
|
203,621
|
|
|
(93,863)
|
|
|
(46)%
|
|
(75,118)
|
|
|
(18,745)
|
|
|
(93,863)
|
|
|
|
|
$
|
698,539
|
|
|
$
|
1,105,031
|
|
|
$
|
(406,492)
|
|
|
(37)%
|
|
$
|
(421,378)
|
|
|
$
|
14,886
|
|
|
$
|
(406,492)
|
|
The table below presents our production volumes by region.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Production Volumes
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Oil (Bbls per day)
|
|
|
|
|
|
|
|
|
|
Permian Basin
|
|
68,791
|
|
|
70,669
|
|
|
74,198
|
|
|
67,835
|
|
|
Mid-Continent
|
|
9,063
|
|
|
12,623
|
|
|
9,502
|
|
|
13,419
|
|
|
Other
|
|
102
|
|
|
138
|
|
|
173
|
|
|
179
|
|
|
|
|
77,956
|
|
|
83,430
|
|
|
83,873
|
|
|
81,433
|
|
|
Gas (MMcf per day)
|
|
|
|
|
|
|
|
|
|
Permian Basin
|
|
417.8
|
|
|
379.3
|
|
|
433.4
|
|
|
360.1
|
|
|
Mid-Continent
|
|
237.3
|
|
|
285.5
|
|
|
240.7
|
|
|
291.3
|
|
|
Other
|
|
0.9
|
|
|
1.0
|
|
|
1.1
|
|
|
1.1
|
|
|
|
|
656.0
|
|
|
665.8
|
|
|
675.2
|
|
|
652.5
|
|
|
NGL (Bbls per day)
|
|
|
|
|
|
|
|
|
|
Permian Basin
|
|
47,291
|
|
|
54,813
|
|
|
48,111
|
|
|
50,567
|
|
|
Mid-Continent
|
|
20,068
|
|
|
25,496
|
|
|
21,089
|
|
|
26,060
|
|
|
Other
|
|
43
|
|
|
53
|
|
|
51
|
|
|
53
|
|
|
|
|
67,402
|
|
|
80,362
|
|
|
69,251
|
|
|
76,680
|
|
|
Total (BOE per day)
|
|
|
|
|
|
|
|
|
|
Permian Basin
|
|
185,717
|
|
|
188,703
|
|
|
194,548
|
|
|
178,413
|
|
|
Mid-Continent
|
|
68,675
|
|
|
85,696
|
|
|
70,705
|
|
|
88,028
|
|
|
Other
|
|
295
|
|
|
368
|
|
|
396
|
|
|
427
|
|
|
|
|
254,687
|
|
|
274,767
|
|
|
265,649
|
|
|
266,868
|
|
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 six months ended June 30, 2020, approximately 88% of our oil production was in the Permian Basin, up from approximately 83% during the six months ended June 30, 2019. Our realized prices do not include settlements of commodity derivative contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume — MBbls
|
|
7,094
|
|
|
7,592
|
|
|
(7)%
|
|
15,265
|
|
|
14,739
|
|
|
4%
|
|
Total volume — MBbls per day
|
|
78.0
|
|
|
83.4
|
|
|
(7)%
|
|
83.9
|
|
|
81.4
|
|
|
3%
|
|
Percentage of total production
|
|
31
|
%
|
|
30
|
%
|
|
|
|
32
|
%
|
|
30
|
%
|
|
|
|
Average realized price — per barrel
|
|
$
|
19.57
|
|
|
$
|
54.24
|
|
|
(64)%
|
|
$
|
32.74
|
|
|
$
|
51.64
|
|
|
(37)%
|
|
Average WTI Midland price — per barrel
|
|
$
|
28.06
|
|
|
$
|
57.72
|
|
|
(51)%
|
|
$
|
37.55
|
|
|
$
|
54.35
|
|
|
(31)%
|
|
Average WTI Cushing price — per barrel
|
|
$
|
27.85
|
|
|
$
|
59.82
|
|
|
(53)%
|
|
$
|
37.01
|
|
|
$
|
57.36
|
|
|
(35)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume — MMcf
|
|
59,694
|
|
|
60,592
|
|
|
(1)%
|
|
122,877
|
|
|
118,108
|
|
|
4%
|
|
Total volume — MMcf per day
|
|
656.0
|
|
|
665.8
|
|
|
(1)%
|
|
675.2
|
|
|
652.5
|
|
|
3%
|
|
Percentage of total production
|
|
43
|
%
|
|
41
|
%
|
|
|
|
42
|
%
|
|
41
|
%
|
|
|
|
Average realized price — per Mcf
|
|
$
|
0.91
|
|
|
$
|
0.50
|
|
|
82%
|
|
$
|
0.72
|
|
|
$
|
1.19
|
|
|
(39)%
|
|
Average Henry Hub price — per Mcf
|
|
$
|
1.71
|
|
|
$
|
2.64
|
|
|
(35)%
|
|
$
|
1.83
|
|
|
$
|
2.90
|
|
|
(37)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume — MBbls
|
|
6,134
|
|
|
7,313
|
|
|
(16)%
|
|
12,604
|
|
|
13,879
|
|
|
(9)%
|
|
Total volume — MBbls per day
|
|
67.4
|
|
|
80.4
|
|
|
(16)%
|
|
69.3
|
|
|
76.7
|
|
|
(10)%
|
|
Percentage of total production
|
|
26
|
%
|
|
29
|
%
|
|
|
|
26
|
%
|
|
29
|
%
|
|
|
|
Average realized price — per barrel
|
|
$
|
7.52
|
|
|
$
|
13.08
|
|
|
(43)%
|
|
$
|
8.71
|
|
|
$
|
14.67
|
|
|
(41)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production — MBOE
|
|
23,177
|
|
|
25,004
|
|
|
(7)%
|
|
48,348
|
|
|
48,303
|
|
|
—%
|
|
Total production — MBOE per day
|
|
254.7
|
|
|
274.8
|
|
|
(7)%
|
|
265.6
|
|
|
266.9
|
|
|
—%
|
|
Average realized price — per BOE
|
|
$
|
10.32
|
|
|
$
|
21.51
|
|
|
(52)%
|
|
$
|
14.45
|
|
|
$
|
22.88
|
|
|
(37)%
|
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 revenues from third-party gas gathering and processing and our net marketing margin for marketing third-party gas.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Gas Gathering and Marketing Revenues (in thousands)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Gas gathering and other
|
|
$
|
11,589
|
|
|
$
|
9,769
|
|
|
$
|
1,820
|
|
|
$
|
25,172
|
|
|
$
|
20,031
|
|
|
$
|
5,141
|
|
|
Gas marketing
|
|
$
|
(1,284)
|
|
|
$
|
(1,116)
|
|
|
$
|
(168)
|
|
|
$
|
(1,498)
|
|
|
$
|
(1,642)
|
|
|
$
|
144
|
|
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, some 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 June 30, 2020 were higher by 260%, or $1.035 billion, compared to the three months ended June 30, 2019. The primary reasons for the increase were: (i) the $941.2 million ceiling test impairment incurred during the three months ended June 30, 2020 and (ii) the $164.7 million increase in net losses on derivative instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Per BOE
|
|
|
|
Operating Costs and Expenses
(in thousands, except per BOE)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
Impairment of oil and gas properties
|
|
$
|
941,198
|
|
|
$
|
—
|
|
|
$
|
941,198
|
|
|
N/A
|
|
N/A
|
|
Depreciation, depletion, and amortization
|
|
194,954
|
|
|
213,327
|
|
|
(18,373)
|
|
|
$
|
8.41
|
|
|
$
|
8.53
|
|
|
Asset retirement obligation
|
|
1,661
|
|
|
2,157
|
|
|
(496)
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production (1)
|
|
64,337
|
|
|
88,995
|
|
|
(24,658)
|
|
|
$
|
2.78
|
|
|
$
|
3.56
|
|
|
Transportation, processing, and other operating (1)
|
|
53,282
|
|
|
54,107
|
|
|
(825)
|
|
|
$
|
2.30
|
|
|
$
|
2.16
|
|
|
Gas gathering and other (1)
|
|
3,526
|
|
|
6,560
|
|
|
(3,034)
|
|
|
$
|
0.15
|
|
|
$
|
0.26
|
|
|
Taxes other than income
|
|
16,486
|
|
|
41,033
|
|
|
(24,547)
|
|
|
$
|
0.71
|
|
|
$
|
1.64
|
|
|
General and administrative
|
|
26,226
|
|
|
24,911
|
|
|
1,315
|
|
|
$
|
1.13
|
|
|
$
|
1.00
|
|
|
Stock compensation
|
|
6,747
|
|
|
6,494
|
|
|
253
|
|
|
$
|
0.29
|
|
|
$
|
0.26
|
|
|
Loss (gain) on derivative instruments, net
|
|
123,885
|
|
|
(40,768)
|
|
|
164,653
|
|
|
N/A
|
|
N/A
|
|
Other operating expense, net
|
|
130
|
|
|
590
|
|
|
(460)
|
|
|
N/A
|
|
N/A
|
|
|
|
$
|
1,432,432
|
|
|
$
|
397,406
|
|
|
$
|
1,035,026
|
|
|
|
|
|
________________________________________
(1) In order to conform with the 2020 presentation, the 2019 amount presented reflects the reclassification of certain “Gas gathering and other” expenses to “Transportation, processing, and other operating” expenses and “Production” expense. These reclassifications were made to reflect an allocation of the costs incurred to operate our gas gathering facilities as a cost to transport our equity share of gas produced and operate our wells. See
Note 1 to the Condensed Consolidated Financial Statements for further information regarding these prior year reclassifications.
Total operating costs and expenses for the six months ended June 30, 2020 were higher by 190%, or $1.761 billion, compared to the six months ended June 30, 2019. The primary reasons for the increase were: (i) the $1.275 billion in ceiling test impairments incurred during the six months ended June 30, 2020 and (ii) the $714.4 million impairment of goodwill incurred during the six months ended June 30, 2020, partially offset by (iii) the $177.7 million increase in net gains on derivative instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Per BOE
|
|
|
|
Operating Costs and Expenses
(in thousands, except per BOE)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
Impairment of oil and gas properties
|
|
$
|
1,274,849
|
|
|
$
|
—
|
|
|
$
|
1,274,849
|
|
|
N/A
|
|
N/A
|
|
Depreciation, depletion, and amortization
|
|
410,040
|
|
|
403,744
|
|
|
6,296
|
|
|
$
|
8.48
|
|
|
$
|
8.36
|
|
|
Asset retirement obligation
|
|
6,385
|
|
|
4,206
|
|
|
2,179
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
|
Impairment of goodwill
|
|
714,447
|
|
|
—
|
|
|
714,447
|
|
|
N/A
|
|
N/A
|
|
Production (1)
|
|
151,573
|
|
|
167,399
|
|
|
(15,826)
|
|
|
$
|
3.14
|
|
|
$
|
3.47
|
|
|
Transportation, processing, and other operating (1)
|
|
108,204
|
|
|
113,682
|
|
|
(5,478)
|
|
|
$
|
2.24
|
|
|
$
|
2.35
|
|
|
Gas gathering and other (1)
|
|
11,824
|
|
|
11,742
|
|
|
82
|
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
Taxes other than income
|
|
47,447
|
|
|
74,727
|
|
|
(27,280)
|
|
|
$
|
0.98
|
|
|
$
|
1.55
|
|
|
General and administrative
|
|
51,735
|
|
|
53,995
|
|
|
(2,260)
|
|
|
$
|
1.07
|
|
|
$
|
1.12
|
|
|
Stock compensation
|
|
13,141
|
|
|
13,207
|
|
|
(66)
|
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
|
(Gain) loss on derivative instruments, net
|
|
(103,055)
|
|
|
74,684
|
|
|
(177,739)
|
|
|
N/A
|
|
N/A
|
|
Other operating expense, net
|
|
381
|
|
|
8,916
|
|
|
(8,535)
|
|
|
N/A
|
|
N/A
|
|
|
|
$
|
2,686,971
|
|
|
$
|
926,302
|
|
|
$
|
1,760,669
|
|
|
|
|
|
________________________________________
(1) In order to conform with the 2020 presentation, the 2019 amount presented reflects the reclassification of certain “Gas gathering and other” expenses to “Transportation, processing, and other operating” expenses and “Production” expense. These reclassifications were made to reflect an allocation of the costs incurred to operate our gas gathering facilities as a cost to transport our equity share of gas produced and operate our wells. See Note 1 to the Condensed Consolidated Financial Statements for further information regarding these prior year reclassifications.
Impairment of Oil and Gas Properties
We use the full cost method of accounting for our oil and gas operations. Under this method, we are required to perform quarterly ceiling test calculations 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 quarterly ceiling test is primarily impacted by commodity prices, changes in estimated reserve quantities, reserves produced, overall exploration and development costs, depletion expense, and deferred taxes. If pricing conditions decline, or if there is a negative impact on one or more of the other components of the calculation, we may incur a full cost ceiling test impairment. The calculated ceiling limitation is not intended to be indicative of the fair market value of our proved reserves or future results. 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.
For the six months ended June 30, 2020, we incurred ceiling test impairments totaling $1.275 billion ($941.2 million for the three months ended June 30, 2020 and $333.7 million for the three months ended March 31, 2020). These impairments resulted primarily from the impact of decreases in the 12-month average trailing prices for oil, gas, and NGLs as well as significant basis differentials utilized in determining the estimated future net cash flows from proved reserves. We expect these conditions to continue at least through September 30, 2020 and possibly beyond and, therefore, expect to incur another ceiling test impairment at September 30, 2020.
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 depletion expense decreased during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 primarily due to a decrease in our depletable basis mostly due to ceiling test impairments recognized at December 31, 2019 and March 31, 2020 and secondarily due to a decrease in our production as a result of strategic curtailments and shut ins in the three months ended June 30, 2020 stemming from the demand destruction and inventory buildups caused by the COVID-19 pandemic. These causes for decreased depletion were partially offset by a decrease in our reserves primarily due to a decrease in the trailing twelve month prices used to calculate reserves. Depletion expense increased slightly during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. This is primarily due to the decrease in our reserves as a result of a decrease in the trailing twelve month prices, mostly offset by a decreased depletable basis, primarily as a result of ceiling test impairments recognized at December 31, 2019 and March 31, 2020.
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 to depreciation expense on the straight-line method based on the expected lives of the individual assets, which range from 3 to 30 years. Also included in our depreciation expense is the depreciation of our finance lease gathering system right-of-use asset. The increase in depreciation expense during the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019 is primarily due to increased depreciation on our gathering and plant facilities due to ongoing expenditures on this infrastructure. Depreciation, depletion, and amortization (“DD&A”) consisted of the following for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between
2020 / 2019
|
|
Per BOE
|
|
|
|
DD&A Expense (in thousands, except per BOE)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
Depletion
|
|
$
|
177,136
|
|
|
$
|
196,899
|
|
|
$
|
(19,763)
|
|
|
$
|
7.64
|
|
|
$
|
7.87
|
|
|
Depreciation
|
|
17,818
|
|
|
16,428
|
|
|
1,390
|
|
|
0.77
|
|
|
0.66
|
|
|
|
|
$
|
194,954
|
|
|
$
|
213,327
|
|
|
$
|
(18,373)
|
|
|
$
|
8.41
|
|
|
$
|
8.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between
2020 / 2019
|
|
Per BOE
|
|
|
|
DD&A Expense (in thousands, except per BOE)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
Depletion
|
|
$
|
375,262
|
|
|
$
|
371,611
|
|
|
$
|
3,651
|
|
|
$
|
7.76
|
|
|
$
|
7.69
|
|
|
Depreciation
|
|
34,778
|
|
|
32,133
|
|
|
2,645
|
|
|
0.72
|
|
|
0.67
|
|
|
|
|
$
|
410,040
|
|
|
$
|
403,744
|
|
|
$
|
6,296
|
|
|
$
|
8.48
|
|
|
$
|
8.36
|
|
Impairment of Goodwill
We concluded that goodwill was impaired at March 31, 2020 and expensed the entire balance of $714.4 million at that time. See Note 1 to the Condensed Consolidated Financial Statements for additional information regarding the impairment of goodwill.
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between
2020 / 2019
|
|
Per BOE
|
|
|
|
Production Expense (in thousands, except per BOE)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
Lease operating expense
|
|
$
|
58,427
|
|
|
$
|
73,047
|
|
|
$
|
(14,620)
|
|
|
$
|
2.52
|
|
|
$
|
2.92
|
|
|
Workover expense
|
|
5,910
|
|
|
15,948
|
|
|
(10,038)
|
|
|
0.26
|
|
|
0.64
|
|
|
|
|
$
|
64,337
|
|
|
$
|
88,995
|
|
|
$
|
(24,658)
|
|
|
$
|
2.78
|
|
|
$
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between
2020 / 2019
|
|
Per BOE
|
|
|
|
Production Expense (in thousands, except per BOE)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
Lease operating expense
|
|
$
|
132,896
|
|
|
$
|
136,626
|
|
|
$
|
(3,730)
|
|
|
$
|
2.75
|
|
|
$
|
2.83
|
|
|
Workover expense
|
|
18,677
|
|
|
30,773
|
|
|
(12,096)
|
|
|
0.39
|
|
|
0.64
|
|
|
|
|
$
|
151,573
|
|
|
$
|
167,399
|
|
|
$
|
(15,826)
|
|
|
$
|
3.14
|
|
|
$
|
3.47
|
|
Lease operating expense for the second quarter of 2020 decreased 20%, or $14.6 million, compared to the second quarter of 2019. Lease operating expense for the six months ended June 30, 2020 decreased 3%, or $3.7 million, compared to the six months ended June 30, 2019. The decreases in the 2020 periods as compared to the 2019 periods are primarily related to the reduction in activity, which has reduced: (i) saltwater disposal costs due to the reduction in production as a result of shut ins and decreased drilling and completion, (ii) labor costs, due to releasing contract workers as well as employees volunteering for an early retirement incentive program, (iii) rental equipment costs due to decreased drilling and completion, and (iv) repair and maintenance costs as non-essential work has been delayed.
Workover expense for the second quarter of 2020 decreased 63%, or $10.0 million, compared to the second quarter of 2019. Workover expense for the six months ended June 30, 2020 decreased 39%, or $12.1 million, compared to the six months ended June 30, 2019. We had fewer workover projects during the 2020 periods as compared to the 2019 periods as a result of a concerted effort to reduce activity and delay non-essential work. We expect workover expense to increase from the second quarter of 2020 levels going forward in 2020.
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, changes in fuel and compression costs, and the structure of sales contracts. If the sales contract transfers control of the product at the wellhead, transportation and processing costs are included as a reduction in the revenue we record and are not included in transportation, processing, and other operating costs. Transportation, processing, and other operating costs for the second quarter of 2020 were 2%, or $0.8 million, lower than the same costs in the second quarter of 2019. Transportation, processing, and other operating costs for the six months ended June 30, 2020 were 5%, or $5.5 million, lower than the same costs in the six months ended June 30, 2019.
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. A portion of these costs are reclassified to “Transportation, processing, and other operating” expense and “Production” expense in order to reflect an allocation of the costs incurred to operate our gas gathering facilities as a cost of transporting our equity share of gas produced and operating our wells. Gas gathering and other in the three months ended June 30, 2020 was 46%, or $3.0 million, lower than gas gathering and other in the three months ended June 30, 2019 resulting primarily from decreases in compression and other third-party costs. Gas gathering and other in the six months ended June 30, 2020 was consistent with gas gathering and other in the six months ended June 30, 2019.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Taxes Other than Income (in thousands)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Production
|
|
$
|
6,868
|
|
|
$
|
29,648
|
|
|
$
|
(22,780)
|
|
|
$
|
28,455
|
|
|
$
|
56,739
|
|
|
$
|
(28,284)
|
|
|
Ad valorem
|
|
9,232
|
|
|
11,093
|
|
|
(1,861)
|
|
|
18,451
|
|
|
17,534
|
|
|
917
|
|
|
Other
|
|
386
|
|
|
292
|
|
|
94
|
|
|
541
|
|
|
454
|
|
|
87
|
|
|
|
|
$
|
16,486
|
|
|
$
|
41,033
|
|
|
$
|
(24,547)
|
|
|
$
|
47,447
|
|
|
$
|
74,727
|
|
|
$
|
(27,280)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income as a percentage of production revenue
|
|
6.9
|
%
|
|
7.6
|
%
|
|
|
|
6.8
|
%
|
|
6.8
|
%
|
|
|
Taxes other than income decreased $24.5 million, or 60%, in the second quarter of 2020 as compared to the second quarter of 2019 and decreased $27.3 million, or 37%, in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Production taxes typically make up the majority of our taxes other than income and they decreased significantly primarily due to decreased revenues as a result of decreased prices and volumes. Ad valorem tax accruals are based on the most recent actual taxes paid with adjustments made based on expected valuations and as better information, including actual valuations, is received. Other taxes other than income are comprised of franchise and consumer use and sales taxes.
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 35% to 47% during the periods presented in the table below, which shows our G&A costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 /2019
|
|
General and Administrative Expense (in thousands)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Gross G&A
|
|
$
|
40,466
|
|
|
$
|
46,930
|
|
|
$
|
(6,464)
|
|
|
$
|
83,267
|
|
|
$
|
96,166
|
|
|
$
|
(12,899)
|
|
|
Less amounts capitalized to oil and gas properties
|
|
(14,240)
|
|
|
(22,019)
|
|
|
7,779
|
|
|
(31,532)
|
|
|
(42,171)
|
|
|
10,639
|
|
|
G&A expense
|
|
$
|
26,226
|
|
|
$
|
24,911
|
|
|
$
|
1,315
|
|
|
$
|
51,735
|
|
|
$
|
53,995
|
|
|
$
|
(2,260)
|
|
G&A expense for the second quarter of 2020 was 5%, or $1.3 million, higher than G&A expense for the second quarter of 2019. G&A expense for the six months ended June 30, 2020 was 4%, or $2.3 million, lower than G&A expense for the six months ended June 30, 2019. Salaries and wages, annual bonus accrual expense, and profit sharing accrual expense are lower in the 2020 periods as compared to the 2019 periods. In January and March 2020, we offered employees who met certain eligibility criteria the opportunity to participate in a voluntary early retirement incentive program. As a result of this program, we recognized severance expense of $3.6 million and $14.5 million in G&A expense during the three and six months ended June 30, 2020, respectively. We expect to recognize a total of $17.0 million in severance expense for this program. In response to current low oil prices, we have reduced our acquisition, exploration, and development activities, and, therefore, the percentage of gross G&A capitalized has decreased from prior periods and we expect this trend to continue in future quarters until activity increases.
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
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Stock Compensation Expense (in thousands)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Restricted stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance stock awards
|
|
$
|
4,059
|
|
|
$
|
5,535
|
|
|
$
|
(1,476)
|
|
|
$
|
8,119
|
|
|
$
|
10,929
|
|
|
$
|
(2,810)
|
|
|
Service-based stock awards
|
|
6,585
|
|
|
5,993
|
|
|
592
|
|
|
13,962
|
|
|
13,224
|
|
|
738
|
|
|
|
|
10,644
|
|
|
11,528
|
|
|
(884)
|
|
|
22,081
|
|
|
24,153
|
|
|
(2,072)
|
|
|
Stock option awards
|
|
416
|
|
|
396
|
|
|
20
|
|
|
914
|
|
|
1,018
|
|
|
(104)
|
|
|
Total stock compensation cost
|
|
11,060
|
|
|
11,924
|
|
|
(864)
|
|
|
22,995
|
|
|
25,171
|
|
|
(2,176)
|
|
|
Less amounts capitalized to oil and gas properties
|
|
(4,313)
|
|
|
(5,430)
|
|
|
1,117
|
|
|
(9,854)
|
|
|
(11,964)
|
|
|
2,110
|
|
|
Stock compensation expense
|
|
$
|
6,747
|
|
|
$
|
6,494
|
|
|
$
|
253
|
|
|
$
|
13,141
|
|
|
$
|
13,207
|
|
|
$
|
(66)
|
|
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
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Loss (Gain) on Derivative Instruments, Net (in thousands)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Decrease (increase) in fair value of derivative instruments, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas contracts
|
|
$
|
19,826
|
|
|
$
|
(6,370)
|
|
|
$
|
26,196
|
|
|
$
|
32,319
|
|
|
$
|
(16,216)
|
|
|
$
|
48,535
|
|
|
Oil contracts
|
|
168,000
|
|
|
(28,161)
|
|
|
196,161
|
|
|
(28,319)
|
|
|
88,086
|
|
|
(116,405)
|
|
|
|
|
187,826
|
|
|
(34,531)
|
|
|
222,357
|
|
|
4,000
|
|
|
71,870
|
|
|
(67,870)
|
|
|
Cash (receipts) payments on derivative instruments, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas contracts
|
|
(5,870)
|
|
|
(21,176)
|
|
|
15,306
|
|
|
(17,589)
|
|
|
(17,412)
|
|
|
(177)
|
|
|
Oil contracts
|
|
(58,071)
|
|
|
14,939
|
|
|
(73,010)
|
|
|
(89,466)
|
|
|
20,226
|
|
|
(109,692)
|
|
|
|
|
(63,941)
|
|
|
(6,237)
|
|
|
(57,704)
|
|
|
(107,055)
|
|
|
2,814
|
|
|
(109,869)
|
|
|
Loss (gain) on derivative instruments, net
|
|
$
|
123,885
|
|
|
$
|
(40,768)
|
|
|
$
|
164,653
|
|
|
$
|
(103,055)
|
|
|
$
|
74,684
|
|
|
$
|
(177,739)
|
|
Other Operating Expense, Net
Other operating expense, net during the six months ended June 30, 2019 included $8.4 million in acquisition-related costs incurred to effect the Resolute acquisition. These costs consisted primarily of advisory and legal fees.
Other Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Other Income and Expense (in thousands)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Interest expense
|
|
$
|
23,047
|
|
|
$
|
24,674
|
|
|
$
|
(1,627)
|
|
|
$
|
46,228
|
|
|
$
|
45,079
|
|
|
$
|
1,149
|
|
|
Capitalized interest
|
|
(12,939)
|
|
|
(16,805)
|
|
|
3,866
|
|
|
(26,121)
|
|
|
(25,547)
|
|
|
(574)
|
|
|
Loss on early extinguishment of debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,250
|
|
|
(4,250)
|
|
|
Other, net
|
|
3,496
|
|
|
(2,167)
|
|
|
5,663
|
|
|
2,625
|
|
|
(4,408)
|
|
|
7,033
|
|
|
|
|
$
|
13,604
|
|
|
$
|
5,702
|
|
|
$
|
7,902
|
|
|
$
|
22,732
|
|
|
$
|
19,374
|
|
|
$
|
3,358
|
|
The majority of our interest expense relates to interest on our senior unsecured notes. Also included in interest expense is interest expense on our Credit Facility borrowings, the amortization of debt issuance costs and discounts, and miscellaneous interest expense. See LIQUIDITY AND CAPITAL RESOURCES Long-term Debt below for further information regarding our debt. The $4.3 million loss on early extinguishment of debt incurred during the six months ended June 30, 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 and water facility assets. Capitalized interest will fluctuate based primarily on the amount of costs subject to interest capitalization and based on the rates applicable to borrowings outstanding during the period. The amount of interest capitalized was lower for the three months ended June 30, 2020 than it was for the three months ended June 30, 2019 due to a decrease in costs subject to interest capitalization primarily as a result of a decrease in the balance of non-producing leasehold acquired in the Resolute acquisition. Since the March 1, 2019 acquisition, the balance of these assets has declined due to purchase price adjustments and transfers to proved properties. The amount of interest capitalized was slightly higher for the six months ended June 30, 2020 than it was for the six months ended June 30, 2019 due to an increase in costs subject to interest capitalization primarily as a result of the balance of non-producing leasehold acquired in the Resolute acquisition being subject to capitalization for the entirety of the six months ended June 30, 2020 as compared to four months of the six months ended June 30, 2019. This increase in costs subject to capitalization was partially offset by reduced in-progress costs of drilling and completing wells during 2020 as compared to 2019.
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 (Benefit) 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
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Six Months Ended
June 30,
|
|
|
|
Variance Between 2020 / 2019
|
|
Income Tax (Benefit) Expense (in thousands)
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
Current tax expense (benefit)
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
(161)
|
|
|
$
|
—
|
|
|
$
|
(161)
|
|
|
Deferred tax (benefit) expense
|
|
(271,543)
|
|
|
34,046
|
|
|
(305,589)
|
|
|
(287,900)
|
|
|
42,119
|
|
|
(330,019)
|
|
|
|
|
$
|
(271,506)
|
|
|
$
|
34,046
|
|
|
$
|
(305,552)
|
|
|
$
|
(288,061)
|
|
|
$
|
42,119
|
|
|
$
|
(330,180)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined federal and state effective income tax rate
|
|
22.7
|
%
|
|
23.7
|
%
|
|
|
|
14.5
|
%
|
|
23.7
|
%
|
|
|
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. The combined federal and state effective income tax rate for the six months ended June 30, 2020 is impacted by the tax effects of the impairment of the non-deductible goodwill recorded as a discrete item during the first quarter 2020. As such, we believe our effective tax rate will be higher in subsequent periods. In addition, if future ceiling test impairments cause our deferred tax balance to change from a net deferred tax liability to a net deferred tax asset, we may be required to establish a valuation allowance against the net deferred tax asset at that time. 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-strategic 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. Low oil prices will lead to lower production revenues and could lead to payment being required where we fail to deliver oil, gas, and NGLs to meet minimum volume commitments.
We address 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. In response to the decline in oil prices in the second quarter 2020, we took immediate steps to reduce our capital investment, including releasing all but one drilling rig by mid-May and deferring completion activity. However, with the subsequent improvement in oil prices we have added two drilling rigs and expect to add one additional rig over the remainder of the year, exiting 2020 with four rigs. We also expect to begin completing wells starting in September with two completion crews. As a result, total capital expenditures for 2020 are expected to be approximately $600 million. See Capital Expenditures below for information regarding our E&D activities for the three and six months ended June 30, 2020 and 2019 and our plans to fund 2020 capital expenditures.
We periodically use derivative instruments to mitigate volatility in commodity prices. At June 30, 2020, we had derivative contracts covering a portion of our 2020 - 2022 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 June 30, 2020 were $43.8 million. At June 30, 2020, 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 June 30, 2020, we had no borrowings and $2.5 million in letters of credit outstanding under our credit facility, leaving an unused borrowing availability of $1.248 billion. See Long-term Debt below for more information regarding our debt.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
Net cash provided by operating activities
|
|
$
|
453,497
|
|
|
$
|
664,083
|
|
|
Net cash used by investing activities
|
|
$
|
(454,614)
|
|
|
$
|
(1,022,672)
|
|
|
Net cash used by financing activities
|
|
$
|
(49,763)
|
|
|
$
|
(422,663)
|
|
Net cash provided by operating activities for the six months ended June 30, 2020 was $453.5 million, down $210.6 million, or 32%, from $664.1 million for the six months ended June 30, 2019. The $210.6 million decrease resulted primarily from a decrease in revenues in the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 due to the price collapses and demand destruction seen in 2020 as a result of the COVID-19 pandemic and actions of the Organization of Petroleum Exporting Countries (“OPEC”) and other countries in the first quarter of 2020. This decrease was partially offset by increased cash inflows for settlements of derivative instruments, decreased operating expenses, and a decreased investment in working capital during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. See RESULTS OF OPERATIONS above for more information regarding the changes in revenues and expenses.
Net cash used by investing activities for the six months ended June 30, 2020 and 2019 was $454.6 million and $1.023 billion, respectively. The majority of our cash flows used by investing activities are for oil and gas capital expenditures, which totaled $418.6 million and $711.8 million for the six months ended June 30, 2020 and 2019, respectively. Net cash used by investing activities in the six months ended June 30, 2019 included the $325.7 million cash portion of the consideration 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-strategic oil and gas properties.
Net cash used by financing activities was $49.8 million and $422.7 million during the six months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020, we borrowed and repaid an aggregate of $161.0 million on our credit facility to meet cash requirements as needed. During the six months ended June 30, 2020, we amended our credit facility, paying $1.5 million in financing costs. During the six months ended June 30, 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 $4.6 million in underwriting fees and financing costs. Additionally, we borrowed and repaid an aggregate of $1.211 billion on our credit facility during the six months ended June 30, 2019 to assist in funding the Resolute acquisition. 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. During the six months ended June 30, 2019, we amended our credit facility, paying $3.0 million in financing costs. Net cash used by financing activities during both periods included: (i) the payment of dividends, (ii) the payment of income tax withholdings made on behalf of our employees upon the net settlement of employee stock awards, and (iii) finance lease payments. During the six months ended June 30, 2020, we paid one $0.20 per share dividend and one $0.22 per share dividend on our common stock and two $20.3125 per share dividends on our preferred stock, totaling $45.2 million. During the six months ended June 30, 2019, we paid one $0.18 per share dividend and one $0.20 per share dividend on our common stock and one $20.3125 per share dividend on our preferred stock, totaling $38.6 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. The table also presents the amounts, net of applicable purchase price adjustments, removed from our oil and gas properties balance due to property sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
—
|
|
|
$
|
1,200
|
|
|
$
|
7,250
|
|
|
$
|
693,800
|
|
|
Unproved
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
1,051,782
|
|
|
|
|
—
|
|
|
2,200
|
|
|
7,250
|
|
|
1,745,582
|
|
|
Exploration and development:
|
|
|
|
|
|
|
|
|
|
Land and seismic
|
|
12,116
|
|
|
14,552
|
|
|
26,040
|
|
|
24,079
|
|
|
Exploration and development
|
|
71,666
|
|
|
310,428
|
|
|
306,394
|
|
|
668,919
|
|
|
|
|
83,782
|
|
|
324,980
|
|
|
332,434
|
|
|
692,998
|
|
|
Property sales:
|
|
|
|
|
|
|
|
|
|
Proved
|
|
—
|
|
|
(22,058)
|
|
|
—
|
|
|
(18,028)
|
|
|
Unproved
|
|
—
|
|
|
(6,253)
|
|
|
(830)
|
|
|
(9,754)
|
|
|
|
|
—
|
|
|
(28,311)
|
|
|
(830)
|
|
|
(27,782)
|
|
|
|
|
$
|
83,782
|
|
|
$
|
298,869
|
|
|
$
|
338,854
|
|
|
$
|
2,410,798
|
|
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 recorded in the preliminary purchase price allocation for this acquisition as of June 30, 2019 was $692.6 million and $1.05 billion, respectively, as included in the table above.
Our 2020 total capital expenditures were originally projected to range from $1.25-$1.35 billion, with the majority expected to be invested in the Permian Basin. In response to the decline in oil prices in the second quarter 2020, we took immediate steps to reduce our capital investment, including releasing all but one drilling rig by mid-May and deferring completion activity. However, with the subsequent improvement in oil prices we have added two drilling rigs and expect to add one additional rig over the remainder of the year, exiting 2020 with four rigs. We also expect to begin completing wells starting in September with two completion crews. As a result, total capital expenditures for 2020 are expected to be approximately $600 million. 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 2020 capital investment program with cash flow from our operating activities, cash on hand, and periodic borrowings under our credit facility. Sales of non-strategic 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
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Gross wells
|
|
|
|
|
|
|
|
|
|
Permian Basin
|
|
17
|
|
|
44
|
|
|
52
|
|
|
56
|
|
|
Mid-Continent
|
|
20
|
|
|
66
|
|
|
39
|
|
|
92
|
|
|
|
|
37
|
|
|
110
|
|
|
91
|
|
|
148
|
|
|
Net wells
|
|
|
|
|
|
|
|
|
|
Permian Basin
|
|
11.1
|
|
|
31.9
|
|
|
30.9
|
|
|
36.9
|
|
|
Mid-Continent
|
|
1.4
|
|
|
7.8
|
|
|
1.7
|
|
|
10.7
|
|
|
|
|
12.5
|
|
|
39.7
|
|
|
32.6
|
|
|
47.6
|
|
As of June 30, 2020, we had 1 gross (0.9 net) well in the process of being drilled. This well is in the Permian Basin. As of June 30, 2020, we had 73 gross (31.1 net) wells waiting on completion: 47 gross (31.1 net) in the Permian Basin and 26 gross (less than 1 net) in the Mid-Continent region. By mid-May 2020, we had released all but one rig and placed completion activities on hold due to economic conditions at the time. Since that time, we have added two drilling rigs and expect to add one additional rig over the remainder of the year, exiting 2020 with four rigs. We also expect to begin completing wells starting in September with two completion crews. We maintain flexibility to adjust our activity as conditions change.
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, 2019, Item 1A Risk Factors, and Part II, Item 1A, Risk Factors, of this Form 10-Q 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 June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
(in thousands)
|
|
Principal
|
|
Unamortized Debt
Issuance Costs
and Discounts (1)
|
|
Long-term
Debt, net
|
|
Principal
|
|
Unamortized Debt
Issuance Costs
and Discounts (1)
|
|
Long-term
Debt, net
|
|
4.375% Notes due 2024
|
|
$
|
750,000
|
|
|
$
|
(3,099)
|
|
|
$
|
746,901
|
|
|
$
|
750,000
|
|
|
$
|
(3,535)
|
|
|
$
|
746,465
|
|
3.90% Notes
due 2027
|
|
750,000
|
|
|
(5,919)
|
|
|
744,081
|
|
|
750,000
|
|
|
(6,289)
|
|
|
743,711
|
|
|
4.375% Notes due 2029
|
|
500,000
|
|
|
(4,711)
|
|
|
495,289
|
|
|
500,000
|
|
|
(4,930)
|
|
|
495,070
|
|
|
|
|
$
|
2,000,000
|
|
|
$
|
(13,729)
|
|
|
$
|
1,986,271
|
|
|
$
|
2,000,000
|
|
|
$
|
(14,754)
|
|
|
$
|
1,985,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________________
(1)The 4.375% Notes due 2024 were issued at par, therefore, the amounts shown in the table are for unamortized debt issuance costs only. At June 30, 2020, the unamortized debt issuance costs and discount related to the 3.90% Notes due 2027 were $4.6 million and $1.4 million, respectively. At June 30, 2020, the unamortized debt issuance costs and discount related to the 4.375% Notes due 2029 were $4.1 million and $0.6 million, respectively. At December 31, 2019, the unamortized debt issuance costs and discount related to the 3.90% Notes due 2027 were $4.8 million and $1.5 million, respectively. At December 31, 2019, the unamortized debt issuance costs and discount related to the 4.375% Notes due 2029 were $4.3 million and $0.6 million, respectively.
Bank Debt
On June 3, 2020, we entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”) dated as of February 5, 2019 for our senior unsecured revolving credit facility (“Credit Facility”). The Credit Facility has aggregate commitments of $1.25 billion with an option for us to increase the aggregate commitments to $1.5 billion, and matures on February 5, 2024. There is no borrowing base subject to the discretion of the lenders based on the value of our proved reserves under the Credit Facility. The First Amendment, among other things: (i) allows up to $3.5 billion of non-cash impairment charge add-backs to Shareholders’ Equity for covenant calculation purposes, (ii) institutes traditional anti-cash hoarding provisions at a consolidated cash threshold of $175.0 million, (iii) reduces the priority lien debt basket from 15% of Consolidated Net Tangible Assets (as defined in the credit agreement) to a $50.0 million cap, and (iv) adds an acknowledgement and consent to European Union bail-in legislation. As of June 30, 2020, we had no bank borrowings outstanding under the Credit Facility, but did have letters of credit of $2.5 million outstanding, leaving an unused borrowing availability of $1.248 billion. During the three and six months ended June 30, 2020, we borrowed and repaid an aggregate of $60.0 million and $161.0 million, respectively, on the Credit Facility to meet cash requirements as needed.
At our option, borrowings under the Credit Facility may bear interest at either (a) LIBOR (or an alternate rate determined by the administrative agent for the Credit Facility in accordance with the Credit Facility when LIBOR is no longer available) 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-capitalization ratio of no greater than 65%. As of June 30, 2020, we were in compliance with all of the financial covenants.
At June 30, 2020 and December 31, 2019, we had $5.0 million and $4.0 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. We incurred $1.5 million in fees paid to the creditor and third-party costs for the First Amendment. These costs are being amortized to interest expense ratably over the life of the 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 made on September 15, 2019. We used the net proceeds to repay borrowings 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 June 30, 2020.
Working Capital Analysis
At June 30, 2020, we had a working capital deficit of $80.7 million, a decrease of $56.5 million or 41% from a working capital deficit of $137.1 million at December 31, 2019. Our working capital deficit decreased primarily as a result of the following:
Working Capital Increases
•Operations-related accounts payable and accrued liabilities decreased by $192.4 million, primarily due to a decrease in revenue payable due to declines in prices, a decrease in trade accounts payable due to decreased activity, and a decrease in taxes other than income due to ad valorem tax payments made at the beginning of the year and due to declines in prices lowering our production taxes payable;
•A decrease in our exploration and development and midstream capital accruals of $86.3 million as a result of our decision to reduce our capital investment in response to the decline in oil prices in the second quarter 2020;
•An increase of $18.8 million in our net current asset derivative position; and
•A $10.0 million decrease in our lease liabilities.
Working Capital Decreases
•Accounts receivable decreased by $203.8 million, primarily due to declines in prices lowering our oil and gas sales receivable; and
•A $50.9 million decrease in our cash and cash equivalents. See Analysis of Cash Flow Changes above for further information on the change in our cash balance.
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. 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. Pursuant to the operating agreements we have with the co-owners of our operated properties, we have the right to realize amounts due to us from the co-owners by netting the co-owners’ production revenues from those properties. We routinely assess the recoverability of all material accounts receivable and accrue a reserve to the allowance for doubtful accounts based on our estimation of expected losses over the life of the receivables. Historically, losses associated with uncollectible receivables have not been significant. However, 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, such as those currently impacting the industry as a result of the COVID-19 pandemic and low commodity prices.
Dividends
A quarterly cash dividend has been paid on our common stock every quarter since the first quarter of 2006. In May 2020, our Board of Directors declared a cash dividend of $0.22 per common share, totaling $22.6 million, which is payable on or before September 1, 2020 to stockholders of record on August 14, 2020. Also in May 2020, our Board of Directors declared a cash dividend of $20.3125 per preferred share, totaling $1.3 million. The dividend was paid in July to preferred stockholders of record on July 1, 2020. Future dividend payments will depend on our level of earnings, financial requirements, and other factors considered relevant by our Board of Directors.
Off-Balance Sheet Arrangements
We may enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations. As of June 30, 2020, our material off-balance sheet arrangements consisted of operating lease agreements with lease terms at commencement of 12 months or less. As an accounting policy, we have elected not to apply the recognition requirements of Topic 842 to these leases. As such, we have not recorded any lease liabilities associated with these leases.
Contractual Obligations and Material Commitments
At June 30, 2020, we had the following contractual obligations and material commitments:
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Payments Due by Period
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Contractual obligations (in thousands)
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Total
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07/01/20 -
06/30/21
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07/01/21 - 06/30/23
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07/01/23 - 06/30/25
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07/01/25 and Thereafter
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Long-term debt—principal (1)
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$
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2,000,000
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$
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—
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$
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—
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$
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750,000
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$
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1,250,000
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Long-term debt—interest (1)
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532,937
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81,868
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167,875
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135,063
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148,131
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Operating leases (2)
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80,319
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20,443
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24,875
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22,641
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12,360
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Unconditional purchase obligations (3)
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23,408
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10,711
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6,273
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6,167
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257
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Derivative liabilities
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74,766
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51,556
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23,210
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—
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—
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Asset retirement obligation (4)
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168,618
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18,244
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—
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(4)
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—
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(4)
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—
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(4)
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Other long-term liabilities (5)
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45,249
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3,695
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9,124
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3,500
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28,930
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$
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2,925,297
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$
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186,517
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$
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231,357
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$
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917,371
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$
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1,439,678
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________________________________________
(1)The interest payments presented above include the accrued interest payable on our long-term debt as of June 30, 2020 as well as future payments calculated using the long-term debt’s fixed rates, stated maturity dates, and principal amounts outstanding as of June 30, 2020. See Note 2 to the Condensed Consolidated Financial Statements for additional information regarding our debt.
(2)Operating leases include the estimated remaining contractual payments under lease agreements as of June 30, 2020. 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, $20.9 million represents obligations for firm transportation agreements for gas and oil 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, unless otherwise noted.
At June 30, 2020, we had estimated commitments of approximately: (i) $209.5 million to finish drilling, completing, or performing other work on wells and various other infrastructure projects in progress and (ii) $6.8 million to finish gathering system and water facilities construction in progress.
At June 30, 2020, we had firm sales contracts to deliver approximately 522.5 Bcf of gas over the next 11.0 years. If we do not deliver this gas, our estimated financial commitment, calculated using July 2020 index prices, would be approximately $499.3 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 and our ability to make market purchases to fulfill these volumetric obligations.
In connection with gas gathering and processing agreements, we have volume commitments over the next 8.5 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 June 30, 2020, would be approximately $676.6 million.
With the current commodity price environment we curtailed some production and reduced drilling activity during the second quarter 2020 and may again curtail production and further reduce drilling activity in the future; however, at this time we do not believe any financial commitment resulting from potential future volume commitment shortfalls will be material.
We have minimum volume delivery commitments associated with agreements to reimburse connection costs to various pipelines. If we do not deliver this gas, or oil, as the case may be, the estimated maximum amount that would be payable under these commitments, calculated as of June 30, 2020, would be approximately $106.6 million. Of this total, we have accrued a liability of $4.3 million representing the estimated amount we will have to pay due to insufficient forecasted volumes at particular connection points. This accrual is reflected in the table above in Other long-term liabilities. With the current commodity price environment we curtailed some production and reduced drilling activity during the second quarter 2020 and may again curtail production and further reduce drilling activity in the future; however, at this time we do not believe any financial commitment resulting from potential future minimum volume delivery commitment shortfalls will be material.
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, 2019.