Cimarex Energy (NYSE:XEC) plans to target the development of crude oil and wet gas plays in the Mid Continent and West Texas areas in 2012. The company is putting the majority of its capital into the Cana Woodford Shale and various emerging plays in the Permian Basin.
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2012 Capital Budget
Cimarex Energy has set an exploration and development capital budget between $1.4 billion and $1.6 billion for 2012, roughly flat with the $1.58 billion expended in 2011. The company estimates that 2012 production volumes will average between 615 million and 650 million cubic feet of natural gas equivalents per day, representing 4 to 10% growth over 2011.

The production of oil and liquids from properties in the Permian Basin and Mid-Continent areas are expected to grow at a much faster rate. The company estimates that production growth from these areas will range from 19 to 25% over 2011.

Other operators have announced major reductions in capital spending relative to 2011. Quicksilver Resources (NYSE:KWK) has budgeted approximately $302 million for drilling and completion activities in 2012. In 2011, the company spent $410 million on these operations.

Rex Energy (Nasdaq:REXX) also slashed its capital budget for 2012, and now plans to spend a total of $155.3 million in capital during the year. This is below its original 2012 capital plan of $189.7 million and 2011 capital spending of $302 million. (For related reading, see A Guide To Investing In Oil Markets.)

Permian Basin
Cimarex Energy's Permian Basin program will receive $775 million in capital in 2012, up from $771 million last year. This will enable the company to drill and complete 150 gross wells here during the year.

It is active mostly in the Delaware sub Basin in New Mexico and Texas, and will operate from 11 to 15 rigs in 2012. The company is targeting numerous formations during the year including the Bone Spring, Wolfcamp and Avalon Shale.

Cana Woodford Shale
The company has allocated $625 million in capital for its Mid-Continent area in 2012, down from $771 million in 2011. Most of the funds will be devoted to the development of the Cana Woodford Shale, where the company will operate between 10 and 12 rigs in 2012.

It has 120,000 net acres exposed to the Cana Woodford Shale and categorizes just over half of this acreage as part of the core of the play. The average well in the core area has a liquid content in excess of 35% and earns higher returns for the company.

The company plans to conduct infill drilling in the core of the Cana Woodford Shale in 2012 and has budgeted for 110 wells during the year. Another 20 wells are planned for areas outside of the core.

Devon Energy (NYSE:DVN) is also making the Cana Woodford Shale play a major focus in 2012, and has allocated $870 million in capital to drill approximately 200 wells during the year.

The Bottom Line
Cimarex Energy is one of the many exploration and production companies that are pursuing the higher returns generated through the development of crude oil and liquids plays. The company has successfully established positions in the Permian Basin and Mid Continent and plans to aggressively put its capital to work here over the next few years. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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