Cimarex Energy Company Earnings Call Insights: Oil Production Guidance and Locations

Cimarex Energy Company (NYSE:XEC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Oil Production Guidance

Phillip Jungwirth – BMO Capital Markets: On the oil production guidance for 2013, 32,000 to 33,000 barrels a day seems to be a little lower than the 4Q average you’ve been adjusting for the asset. So, can you address why this would be the case and is it mostly just conservatism on your part given that greater allocation of capital is going towards the Bone Spring and you’ve seen better results there?

Joseph R. Albi – EVP and COO: This is Joe. I’ll answer that. If you look at the slide, it says, A, without the property sales we’re showing 1% to 5% growth. When we throw those back in there’s 7% to 11% growth. Our projections do incorporate risking and if we’re off, I think what it’s basically telling us is that we’ve got a very strong chance of having another year of double-digit production growth. There’s a couple other things at play here too. At any one given point in time, new wells make up 40% to 50% of our total company production, and those new wells, even these Permian wells they can come screaming off pretty hard. So we’re always constantly fighting the snowball effect of new well decline, which can impair the rates of production growth and certainly have an impact on what ends up being the final product of our modeling. But as Tom alluded to earlier in the call, as those of you who’ve known us for all these years, we’re focused on rate of return and it’s all about rate of return, and to the degree that production is a byproduct of that then so be it. Obviously we want our production to go up. All that said, our model’s really shown that we have a very, very good chance of another year of double-digit production growth, and we’re really pretty pleased with that. Being able to have double-digit production growth is not something to not be proud of. So that’s I guess our answer to that question.

Thomas E. Jorden – Chairman, President and CEO: This is Tom. If I could follow that up. Joe has done this for a long time and he has gotten quite astute at making these models. Our business units (sitting down) where think they’re going to do and they time it out, and Joe take that and looks to see what historically they’ve done and in the oil patch things tend to go more wrong than they go right, you have delays in timing, you have delays in equipment, and so Joe factors in what he thinks is our historical average and he risk those business unit models down. That said the business unit model are getting better and better at, they are going to challenge him and if all goes right we are going to beat that number, but we will just have to see as we go through the year. It would be nice to having if all goes right, but it would be our first.