Is the Worst Over? E&P Raising Funds to Increase Drilling

With weak commodity prices, companies have been scrambling to raise cash through a variety of instruments including debt offerings, divestitures, and equity offerings.  While there have been several companies who have thrown their hat into the ring in the first half of 2015 to issue common stock offerings, Cimarex is one of the latest. The timing of this offering coincides with WTI and Henry seeing relative strength in recent months.

HH & WTI Historical Pricing

After reaching a low of $43.46 on March 17, 2015, WTI has been hovering between $58 and $60 in May.  With significant uncertainty and concerns remaining about whether prices will crash again during the fall maintenance season, producers like Cimarex are seizing the opportunity to go to market to raise capital in the current environment.

Equity Issuances

Cimarex announced that it will be offering 6 million shares of common stock at $109 per share and the net proceeds will fund general expenses, but more importantly, it will support increased drilling and completion activity in 2H2015 and 2016.

Cimarex has acreage in the Permian Basin in Texas and the Cana play in Oklahoma.  Their Permian acreage is located on the west side in the Delaware Basin and their largest position is in Culberson County where they own 100,000+ net acres in a joint development area with Chevron.  In Culberson, they are targeting multiple horizons of the Wolfcamp formation utilizing a combination of 5,000’ laterals and 10,000’ laterals.

Culberson County TC

In Culberson County, TX, Cimarex has some of the best type curves for both oil and gas compared to other operators and is reporting IP rates of 2,500 Boe/d for extended laterals and 1,500 Boe/d for 5,000′ laterals.  On an Boe/d basis, Culberson County as a whole is reporting closer to an average of 1,300 Boe/d in 2014.

May 2015 Cimarex Investor Presentation

Good acreage positions, paired with a strong balance sheet suggests that Cimarex is well positioned to increase completions and drilling in 2H2015 and into 2016.  The remaining question is, are these favorable results transferable and repeatable by other operators in the Delaware Basin?  Do economics support sustained drilling activity in the region or is Cimarex an anomaly?  In next month’s Upstream Outlook BTU Analytics will be highlighting Permian oil and gas production and closely examining regional and producer economics.

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Erika Coombs is Manager of Consulting Services at BTU Analytics. She leads the team to deliver customized energy-market analysis and provides BTU Analytics’ customers with critical information for a variety of energy markets including oil, gas, and NGLs from wellhead to downstream markets. She also leads research on upstream analysis, crude oil midstream infrastructure, breakeven economics, and commodity pricing dynamics for several BTU Analytics’ reports. She holds a M.S. in Mineral and Energy Economics from the Colorado School of Mines.

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