Cimarex Energy Sets Up For 2011

By Eric Fox | February 18, 2011 AAA

Cimarex Energy (NYSE:XEC) will increase its development of various oil and liquid plays in its portfolio in 2011, as the company continues to execute on its multi-year plan to increase the proportion of these hydrocarbons in its production and reserve base.

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Historical
Cimarex Energy has been slowly increasing the level of liquids in its production base over the last few years, moving from 24% in 2006 to 37% through 2010. This includes both oil and natural gas liquids production. Cimarex Energy accomplished this through the development of plays in the Permian Basin and Mid-continent area.

2011 Capital Budget
Cimarex Energy has established an exploration and development budget of between $1.2 billion and $1.4 billion for 2011. The company will put 55% of this into the Permian Basin, where it is active in many different areas. Cimarex Energy plans to put another 38% of its 2011 budget into the Mid-continent area and such developments the Cana Woodford and Granite Wash plays.

Permian Basin
Cimarex Energy plans to drill approximately 140 net wells in the Permian Basin in 2011. The company has development planned for many different horizontal oil plays scattered across this sprawling basin that runs between Texas and New Mexico.

One area slated for capital is the Bone Spring formation in New Mexico, where Cimarex Energy has 38,000 net acres under lease. Here, the company's typical wells had average initial production rate during the first 30 days of 670 barrels of oil equivalent (BOE) per day. Total production from the Bone Spring increased from almost nothing in early 2009 and reached almost 6,000 BOE per day in January 2011.

Another exploration and production company involved with the Bone Spring formation is Concho Resources (NYSE:CXO). The company is currently operating five rigs in the play and plans to drill 50 wells here in 2011.

Clayton Williams Energy (Nasdaq:CWEI) is heavily involved in the Permian Basin and has a large portion of its proved reserves in this basin. The company hasn't disclosed any exposure to the Bone Spring formation, but does have oil exposure from several other formations here.

Mid Continent
Cimarex Energy plans to drill approximately 65 net wells in the Mid-continent area in 2011 and is active mostly in the Cana Woodford Shale, where it will drill 40 of these wells.

Cimarex Energy also has operations in the Texas Panhandle where it is developing various Granite Wash formations on its acreage. Wells from both these areas of the Mid continent produce a mix of natural gas and liquids.

Continental Resources (NYSE:CLR) is developing properties in the Woodford Shale that have liquid content and plans to put $230 million in drilling capital here in 2011.

The Bottom Line
Cimarex Energy has been increasing the company's exposure to oil and other liquid hydrocarbons over the last few years and plans to continue to pursue that strategy in 2011. The company will achieve this goal through the development of properties in the Permian Basin, Cana Woodford and Granite Wash formations. (Long-term energy outlooks suggest a fundamental energy shift to natural gas. To learn more, see Natural Gas Forecast.)

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