Cimarex Energy (ticker: XEC) is a Denver-based independent oil and gas E&P company with operations in the Mid-Continent and Permian Basin areas of the United States.
On June 24, 2013, Cimarex and Chevron Corporation (ticker: CVX) announced a joint venture covering approximately 104,000 acres of Cimarex’s acreage in Culbertson, County, Texas – deep in the heart of the Delaware Basin. Chevron will contribute acreage and pay Cimarex approximately $60 million for a 50 percent interest in the Cimarex-built Triple Crown gas gathering and processing system and wells drilled on the acreage in 2013.
The contract is set for an eight-year term which gives Chevron access to roads and utilities
Tom Jorden, Cimarex chief executive officer said: “Collaborative development of this ‘checkerboard’ acreage ownership makes perfect sense. Optimal well placement for both Second Bone Spring wells and longer-lateral Wolfcamp shale tests can now be achieved. We look forward to having Chevron as a partner on what will surely be a legacy asset for Cimarex.”
According to Jason Smith, a research analyst at Bank of America Merrill Lynch, Culberson County remains the largest source of potential upside to Cimarex. “We don’t see this deal altering near term drilling plans, although having CVX as a partner could help to accelerate development in future years should initial tests prove successful,” Smith said.
Plans for 2013
While no 2013 development plans were updated or provided specifically for the Culbertson County acreage, Cimarex previously said it will run two rigs to drill approximately 20 wells in the Second Bone Spring and two rigs to drill an additional 15 to 20 wells in the Wolfcamp C and D during 2013. XEC allocated approximately $950 million to its Delaware Basin CAPEX program to run a total of 12 to 14 operated rigs for 2013 in the area. Currently, the company has four wells in the Second Bone Spring and 34 wells in Wolfcamp C and D. Per well first-30 day production rates on all of the Wolfcamp wells drilled in the Culberson County have averaged 6.4 MMcfe per day, comprised of 43 percent gas, 27 percent oil and 30 percent NGLs.
Chevron’s position in the Delaware Basin exceeds 1 million gross acres that is perspective for the Bone Spring, Avalon and Wolfcamp shales. During 2012, CVX drilled 40 gross wells to expand its productive acreage and plans to drill more than 100 gross wells in 2013.
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Final Thoughts on the Deal
We view the joint venture as a positive for both companies as it creates a contiguous block of acreage for both companies that will help with future development efficiencies (i.e., longer laterals, better well locations). For Cimarex, this enhances development opportunities in an area that has already been deemed its most promising acreage. For Chevron, it is a relatively mild investment for convenience purposes that allows the company to grow production and reserves without operating.
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