UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 4, 2020
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(303 ) 295-3995
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b–2 of the Securities Exchange Act of 1934 (§ 240.12b–2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
After the close of trading on the New York Stock Exchange on November 4, 2020, Cimarex Energy Co. (“Cimarex”) issued a news release reporting its financial results for the third quarter 2020. The news release is included in this report as Exhibit 99.1.
In accordance with General Instructions B.2. of Form 8-K, the information described in this Item 2.02, including the matters discussed in the conference call and the contents of the investor presentation, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
ITEM 7.01 REGULATION FD DISCLOSURE
After the close of trading on the New York Stock Exchange on November 4, 2020, Cimarex issued a news release reporting its financial results for the third quarter 2020. A copy of the news release is furnished as Exhibit 99.1 to this report.
Cimarex will host a conference call on November 5, 2020 at 11:00 a.m. EST (9:00 a.m. MST). The call will be webcast and accessible on the Cimarex website at www.cimarex.com. To join the live, interactive call, dial 866-367-3053 ten minutes before the scheduled start time (callers in Canada dial 855-669-9657 and international callers dial 412-902-4216). A replay will be available on the company’s website.
For more details on Cimarex’s third quarter 2020 results, please refer to the company’s investor presentation available at www.cimarex.com.
All statements in the news release and presentation and conference call referenced in the earnings news release, other than historical financial information, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC, and other filings including our Current Reports on Form 8-K and Quarterly Reports on Form 10-Q, for a list of certain risk factors that may affect these forward-looking statements.
In accordance with General Instructions B.2. of Form 8-K, the information described in this Item 7.01, including the matters discussed in the conference call and the contents of the investor presentation, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
2
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
D. Exhibits
Exhibit No. Description
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||||
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: November 4, 2020 | |||||
| CIMAREX ENERGY CO. | |||||
| /s/ G. Mark Burford | |||||
| G. Mark Burford | |||||
| Senior Vice President and Chief Financial Officer | |||||
4
| N E W S | ||||||||
Cimarex Energy Co. 1700 Lincoln Street, Suite 3700 Denver, CO 80203 Phone: (303) 295-3995 |  | |||||||
Cimarex Reports Third Quarter 2020 Results
•Generated Net Cash Provided by Operating Activities of $259 million
•Generated $139 million of free cash flow after dividend (Non-GAAP)
•Invested $83 million in the quarter
•Oil production averaged 71,600 barrels per day
DENVER, November 4, 2020 - Cimarex Energy Co. (NYSE: XEC) today reported a third quarter 2020 net loss of $292.7 million, or $2.94 per share, compared to net income of $123.8 million, or $1.21 per share, in the same period a year ago. Third quarter results were negatively impacted by non-cash charges related to the impairment of oil and gas properties. Third quarter adjusted net income (non-GAAP) was $52.4 million, or $0.51 per share, compared to third quarter 2019 adjusted net income (non-GAAP) of $96.0 million, or $0.94 per share1. Net cash provided by operating activities was $259.2 million in the third quarter of 2020 compared to $320.1 million in the same period a year ago. Adjusted cash flow from operations (non-GAAP) was $236.7 million in the third quarter of 2020 compared to $360.7 million in the third quarter a year ago1.
Oil production averaged 71.6 thousand barrels (MBbls) per day. Total company production volumes for the quarter averaged 249.4 thousand barrels of oil equivalent (MBOE) per day.
Realized oil prices averaged $37.94 per barrel, up 94 percent from $19.57 in the previous quarter but down 28 percent from the $52.71 per barrel received in the third quarter of 2019. Realized natural gas prices averaged $1.14 per thousand cubic feet (Mcf), up 25 percent sequentially from $0.91 per Mcf and up 30 percent from the third quarter 2019 average of $0.88 per Mcf. NGL prices averaged $10.89 per barrel, up 45 percent from $7.52 per barrel in the second quarter of 2020 and up one percent from the $10.80 barrel received in the third quarter of 2019.
Cimarex's realized oil price was a negative differential to WTI of $2.99 per barrel in the quarter down from $8.28 per barrel in the previous quarter, with a negative oil price differential in the Permian of $2.71 per barrel in the third quarter, down sequentially from $8.12 per barrel. The company realized a negative differential to Henry Hub on its Permian natural gas production of $1.15 per Mcf in the third quarter of 2020 compared to $1.83 per Mcf in the third quarter of 2019 and $1.09 in the second quarter of 2020. In the Mid-Continent region, the company's average negative differential to Henry Hub was $0.31 per Mcf versus $0.66 per Mcf in the third quarter of 2019 and $0.31 per Mcf in the second quarter of 2020.
1
Cimarex invested a total of $83 million during the quarter, of which $52 million was attributable to drilling and completion activities and $3 million to saltwater disposal assets. Third quarter investments were funded with cash flow from operating activities. Total debt at September 30, 2020 consisted of $2.0 billion of long-term notes, with no debt maturities until 2024. Cimarex had no borrowings under its revolving credit facility and a cash balance of $273 million at quarter end.
The company has reduced staff by 20 percent year to date through a combination of an Early Retirement Program (ERIP), further staff reductions completed in the third quarter, and attrition. Cimarex has incurred $31 million in severance expenses year to date, of which $15 million was expensed in the third quarter. Cost savings are expected to total $40-50 million annually, beginning in 2021.
Outlook
Improved oil prices in the third quarter allowed Cimarex to resume activity. We are currently running four drilling rigs in the Permian basin and have had two completion crews working since September 1. Cimarex continues to expect capital investment for the year to total approximately $600 million, as stated in guidance given in August.
Fourth quarter 2020 production volumes are expected to average 215 - 235 MBOE per day, with oil volumes estimated to average 62.5 - 68.5 MBbls per day. Total 2020 daily production volumes are expected to average 250 - 255 MBOE per day, with annual oil volumes estimated to average 75.5 - 77.5 MBbls per day.
Expenses per BOE of production for 2020 are estimated to be:
| Production expense | $2.90 - $3.10 | |||||||
| Transportation, processing and other expense | 2.10 - 2.40 | |||||||
| DD&A and ARO accretion | 7.50 - 8.00 | |||||||
| General and administrative expense | 1.00 - 1.10 | |||||||
| Taxes other than income (% of oil and gas revenue) | 5.0% - 7.0% | |||||||
2
Operations Update
Cimarex invested $83 million during the third quarter, with 95 percent invested in the Permian Basin and 5 percent in the Mid-Continent. Cimarex brought 11 gross (1.4 net) wells on production during the quarter. At September 30, 74 gross (39.0 net) wells were waiting on completion.
| WELLS BROUGHT ON PRODUCTION BY REGION | ||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Gross wells | ||||||||||||||||||||||||||
| Permian Basin | 7 | 44 | 59 | 100 | ||||||||||||||||||||||
| Mid-Continent | 4 | 52 | 43 | 144 | ||||||||||||||||||||||
| 11 | 96 | 102 | 244 | |||||||||||||||||||||||
| Net wells | ||||||||||||||||||||||||||
| Permian Basin | 1.4 | 16.1 | 32.3 | 53.0 | ||||||||||||||||||||||
| Mid-Continent | nil | 5.4 | 1.7 | 16.1 | ||||||||||||||||||||||
| 1.4 | 21.5 | 34.0 | 69.1 | |||||||||||||||||||||||
Permian Region
Production from the Permian region averaged 180.3 MBOE per day in the third quarter, a nine percent decrease from third quarter 2019. Oil volumes averaged 62.9 MBbls per day, a 16 percent decrease from third quarter 2019 and down nine percent sequentially.
Cimarex brought 7 gross (1.4 net) wells on production in the Permian region during the third quarter. There were 51 gross (38.7 net) wells waiting on completion at September 30. Cimarex currently is operating four drilling rigs and two completion crews in the region.
Mid-Continent Region
Production from the Mid-Continent averaged 68.8 MBOE per day for the third quarter, down 22 percent from third quarter 2019 and in line with the previous quarter.
During the third quarter, 4 gross (nil net) wells were brought on production in the Mid-Continent region. At the end of the quarter, 23 gross (0.3 net) wells were waiting on completion. Cimarex currently is not operating drilling rigs or completion crews in the Mid-Continent.
3
Cimarex’s average daily production and commodity price by region is summarized below:
| DAILY PRODUCTION BY REGION | ||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Permian Basin | ||||||||||||||||||||||||||
| Gas (MMcf) | 380.2 | 422.9 | 415.6 | 381.2 | ||||||||||||||||||||||
| Oil (Bbls) | 62,930 | 74,819 | 70,415 | 70,188 | ||||||||||||||||||||||
| NGL (Bbls) | 53,971 | 53,311 | 50,079 | 51,492 | ||||||||||||||||||||||
| Total Equivalent (MBOE) | 180.3 | 198.6 | 189.8 | 185.2 | ||||||||||||||||||||||
| Mid-Continent | ||||||||||||||||||||||||||
| Gas (MMcf) | 222.3 | 293.7 | 234.5 | 292.1 | ||||||||||||||||||||||
| Oil (Bbls) | 8,523 | 14,788 | 9,173 | 13,880 | ||||||||||||||||||||||
| NGL (Bbls) | 23,249 | 24,338 | 21,814 | 25,480 | ||||||||||||||||||||||
| Total Equivalent (MBOE) | 68.8 | 88.1 | 70.1 | 88.0 | ||||||||||||||||||||||
| Total Company | ||||||||||||||||||||||||||
| Gas (MMcf) | 603.4 | 718.0 | 651.0 | 674.6 | ||||||||||||||||||||||
| Oil (Bbls) | 71,571 | 89,731 | 79,743 | 84,230 | ||||||||||||||||||||||
| NGL (Bbls) | 77,294 | 77,693 | 71,951 | 77,021 | ||||||||||||||||||||||
| Total Equivalent (MBOE) | 249.4 | 287.1 | 260.2 | 273.7 | ||||||||||||||||||||||
| AVERAGE REALIZED PRICE BY REGION | ||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Permian Basin | ||||||||||||||||||||||||||
| Gas ($ per Mcf) | 0.83 | 0.40 | 0.50 | 0.36 | ||||||||||||||||||||||
| Oil ($ per Bbl) | 38.22 | 52.69 | 34.46 | 51.70 | ||||||||||||||||||||||
| NGL ($ per Bbl) | 10.17 | 9.94 | 8.68 | 12.40 | ||||||||||||||||||||||
| Mid-Continent | ||||||||||||||||||||||||||
| Gas ($ per Mcf) | 1.67 | 1.57 | 1.48 | 2.01 | ||||||||||||||||||||||
| Oil ($ per Bbl) | 35.87 | 52.73 | 33.09 | 53.55 | ||||||||||||||||||||||
| NGL ($ per Bbl) | 12.59 | 12.69 | 11.38 | 15.28 | ||||||||||||||||||||||
| Total Company | ||||||||||||||||||||||||||
| Gas ($ per Mcf) | 1.14 | 0.88 | 0.85 | 1.08 | ||||||||||||||||||||||
| Oil ($ per Bbl) | 37.94 | 52.71 | 34.31 | 52.02 | ||||||||||||||||||||||
| NGL ($ per Bbl) | 10.89 | 10.80 | 9.50 | 13.36 | ||||||||||||||||||||||
4
Other
Cimarex received cash settlements of $10.8 million related to its oil hedges during the quarter. Settlement of gas hedges resulted in cash receipts of $2.8 million .
The following table summarizes the company’s current open hedge positions:
| 4Q20 | 1Q21 | 2Q21 | 3Q21 | 4Q21 | 1Q22 | 2Q22 | |||||||||||||||||||||||||||||||||||||||||
| Gas Collars: | PEPL (2) | ||||||||||||||||||||||||||||||||||||||||||||||
| Volume (MMBtu/d) | 100,000 | 100,000 | 100,000 | 90,000 | 90,000 | 60,000 | 20,000 | ||||||||||||||||||||||||||||||||||||||||
| Wtd Avg Floor | $ | 1.78 | $ | 1.83 | $ | 1.89 | $ | 2.00 | $ | 2.00 | $ | 2.13 | $ | 2.40 | |||||||||||||||||||||||||||||||||
| Wtd Avg Ceiling | $ | 2.21 | $ | 2.23 | $ | 2.28 | $ | 2.42 | $ | 2.42 | $ | 2.55 | $ | 2.86 | |||||||||||||||||||||||||||||||||
| El Paso Perm (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Volume (MMBtu/d) | 70,000 | 70,000 | 80,000 | 70,000 | 70,000 | 40,000 | 20,000 | ||||||||||||||||||||||||||||||||||||||||
| Wtd Avg Floor | $ | 1.36 | $ | 1.50 | $ | 1.62 | $ | 1.86 | $ | 1.86 | $ | 2.13 | $ | 2.40 | |||||||||||||||||||||||||||||||||
| Wtd Avg Ceiling | $ | 1.64 | $ | 1.79 | $ | 1.92 | $ | 2.22 | $ | 2.22 | $ | 2.53 | $ | 2.88 | |||||||||||||||||||||||||||||||||
| Waha (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Volume (MMBtu/d) | 70,000 | 90,000 | 100,000 | 90,000 | 90,000 | 60,000 | 20,000 | ||||||||||||||||||||||||||||||||||||||||
| Wtd Avg Floor | $ | 1.43 | $ | 1.52 | $ | 1.61 | $ | 1.82 | $ | 1.82 | $ | 1.98 | $ | 2.40 | |||||||||||||||||||||||||||||||||
| Wtd Avg Ceiling | $ | 1.73 | $ | 1.83 | $ | 1.93 | $ | 2.17 | $ | 2.17 | $ | 2.39 | $ | 2.86 | |||||||||||||||||||||||||||||||||
| Oil Collars: | WTI (3) | ||||||||||||||||||||||||||||||||||||||||||||||
| Volume (Bbl/d) | 41,000 | 40,000 | 34,000 | 25,000 | 25,000 | 11,000 | 4,000 | ||||||||||||||||||||||||||||||||||||||||
| Wtd Avg Floor | $ | 40.91 | $ | 38.06 | $ | 34.62 | $ | 32.44 | $ | 32.44 | $ | 35.91 | $ | 37.50 | |||||||||||||||||||||||||||||||||
| Wtd Avg Ceiling | $ | 49.84 | $ | 46.45 | $ | 43.28 | $ | 41.49 | $ | 41.49 | $ | 47.37 | $ | 51.04 | |||||||||||||||||||||||||||||||||
| Oil Basis Swaps: | WTI Midland (4) | ||||||||||||||||||||||||||||||||||||||||||||||
| Volume (Bbl/d) | 32,000 | 31,000 | 33,000 | 28,000 | 28,000 | 15,000 | 8,000 | ||||||||||||||||||||||||||||||||||||||||
| Wtd Avg Differential | $ | 0.18 | $ | 0.03 | $ | (0.02) | $ | (0.20) | $ | (0.20) | $ | 0.19 | $ | 0.25 | |||||||||||||||||||||||||||||||||
| Oil Roll Differential Swaps: | WTI (3) | ||||||||||||||||||||||||||||||||||||||||||||||
| Volume (Bbl/d) | — | 7,000 | 11,000 | 11,000 | 11,000 | 11,000 | 4,000 | ||||||||||||||||||||||||||||||||||||||||
| Wtd Avg Price | $ | — | $ | (0.24) | $ | (0.22) | $ | (0.22) | $ | (0.22) | $ | (0.22) | $ | (0.20) | |||||||||||||||||||||||||||||||||
Conference call and webcast
Cimarex will host a conference call tomorrow, November 5, 2020 at 11:00 a.m. EST (9:00 a.m. MST). The call will be webcast and accessible on the Cimarex website at www.cimarex.com. To join the live, interactive call, please dial 866-367-3053 ten minutes before the scheduled start time (callers in Canada dial 855-669-9657 and international callers dial 412-902-4216). A replay will be available on the company’s website.
5
Investor Presentation
For more details on Cimarex’s third quarter 2020 results, please refer to the company’s investor presentation available at www.cimarex.com.
About Cimarex Energy
Denver-based Cimarex Energy Co. is an independent oil and gas exploration and production company with principal operations in the Permian Basin and Mid-Continent areas of the U.S.
This press release contains forward-looking statements, including statements regarding projected results and future events. In particular, the disclosures under the heading “Outlook” contain projections for certain 2020 operational and financial metrics. These forward-looking statements are based on management’s judgment as of the date of this press release and include certain risks and uncertainties. Please refer to the company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC, and other filings including our Current Reports on Form 8-K and Quarterly Reports on Form 10-Q, for a list of certain risk factors that may affect these forward-looking statements.
Actual results may differ materially from company projections and other forward-looking statements and can be affected by a variety of factors outside the control of the company including among other things: oil, NGL and natural gas price levels and volatility, including those resulting from demand destruction from the COVID-19 pandemic; disruptions to the availability of workers and contractors due to illness and stay at home orders related to the COVID-19 pandemic; disruptions to gathering, pipeline, refining, transportation and other midstream and downstream activities, including due to the COVID-19 pandemic; disruptions to supply chains and availability of critical equipment and supplies, including as a result of the COVID-19 pandemic; the effectiveness of controls over financial reporting; declines in the values of our oil and gas properties resulting in impairments; impairments of goodwill; higher than expected costs and expenses, including the availability and cost of services and materials, which may be impacted by the COVID-19 pandemic; compliance with environmental and other regulations, including new regulations that may result from a change in federal and state administrations and legislatures; regulatory approvals, including regulatory restrictions on federal lands which may be negatively impacted by a change in administration; legislative or regulatory changes, including initiatives related to hydraulic fracturing, emissions and disposal of produced water, which may be negatively impacted by a change in administration; costs and availability of third party facilities for gathering, processing, refining and transportation; risks associated with concentration of operations in one major geographic area; environmental liabilities; the ability to receive drilling and other permits and rights-of-way in a timely manner, which may be negatively impacted by COVID-19 restrictions on regulatory personnel who process and approve those matters and by changes in federal and state administrations and legislatures; development drilling and testing results; the potential for production decline rates to be greater than expected; performance of acquired properties and newly drilled wells; unexpected future capital expenditures; economic and competitive conditions; the availability and cost of capital; the ability to obtain industry partners to jointly explore certain prospects, and the willingness and ability of those partners to meet capital obligations when requested; changes in estimates of proved reserves; derivative and hedging activities; the success of the company's risk management activities; title to properties; litigation; the ability to complete property sales or other transactions; and other factors discussed in the company's reports filed with the SEC. Cimarex Energy Co. encourages readers to consider the risks and uncertainties associated with projections and other forward-looking statements. In addition, the company assumes no obligation to publicly revise or update any forward-looking statements based on future events or circumstances.
FOR FURTHER INFORMATION CONTACT
Cimarex Energy Co.
Karen Acierno
303-285-4957
www.cimarex.com
1Adjusted net income and adjusted cash flow from operations are non-GAAP financial measures. See below for reconciliations of the related GAAP amounts.
2PEPL refers to Panhandle Eastern Pipe Line Tex/OK Mid-Continent index, El Paso Perm refers to El Paso Permian Basin index, and Waha refers to West Texas (Waha) Index, all as quoted in Platt’s Inside FERC.
3WTI refers to West Texas Intermediate oil price as quoted on the New York Mercantile Exchange.
4Index price on basis swaps is WTI NYMEX less the weighted average WTI Midland differential, as quoted by Argus Americas Crude.
6
RECONCILIATION OF ADJUSTED NET INCOME
The following reconciles net (loss) income as reported under generally accepted accounting principles (GAAP) to adjusted net income (non-GAAP) for the periods indicated.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||||||||
| Net (loss) income | $ | (292,740) | $ | 123,847 | $ | (1,992,169) | $ | 259,472 | ||||||||||||||||||
| Impairment of oil and gas properties (1) | 351,029 | — | 1,625,878 | — | ||||||||||||||||||||||
| Impairment of goodwill | — | — | 714,447 | — | ||||||||||||||||||||||
| Mark-to-market loss (gain) on open derivative positions | 79,281 | (37,039) | 83,281 | 34,831 | ||||||||||||||||||||||
| Loss on early extinguishment of debt | — | — | — | 4,250 | ||||||||||||||||||||||
| Acquisition related costs | — | 13 | — | 8,404 | ||||||||||||||||||||||
| Asset retirement obligation | — | — | 2,800 | — | ||||||||||||||||||||||
| Tax impact (2) | (85,201) | 9,146 | (376,631) | (11,491) | ||||||||||||||||||||||
| Adjusted net income | $ | 52,369 | $ | 95,967 | $ | 57,606 | $ | 295,466 | ||||||||||||||||||
| Diluted (loss) earnings per share | $ | (2.94) | $ | 1.21 | $ | (19.99) | $ | 2.56 | ||||||||||||||||||
| Adjusted diluted earnings per share* | $ | 0.51 | $ | 0.94 | $ | 0.56 | $ | 2.95 | ||||||||||||||||||
| Weighted-average number of shares outstanding: | ||||||||||||||||||||||||||
| Adjusted diluted** | 102,046 | 101,593 | 102,097 | 100,266 | ||||||||||||||||||||||
______________________________________
(1)An additional ceiling test impairment is anticipated in the fourth quarter.
(2)Because the goodwill impairment is not deductible for tax purposes, the tax impact in the 2020 period is calculated using an effective tax rate determined by excluding goodwill from the effective tax rate calculation.
Adjusted net income and adjusted diluted earnings per share exclude the noted items because management believes these items affect the comparability of operating results. The company discloses these non-GAAP financial measures as a useful adjunct to GAAP measures because:
a)Management uses adjusted net income to evaluate the company's operating performance between periods and to compare the company's performance to other oil and gas exploration and production companies.
b)Adjusted net income is more comparable to earnings estimates provided by research analysts.
* Does not include adjustments resulting from application of the "two-class method" used to determine earnings per share under GAAP.
** Reflects the weighted-average number of common shares outstanding during the period as adjusted for the dilutive effects of outstanding stock options.
7
RECONCILIATION OF ADJUSTED CASH FLOW FROM OPERATIONS, FREE CASH FLOW AND
FREE CASH FLOW AFTER DIVIDEND
The following table provides a reconciliation from generally accepted accounting principles (GAAP) measures of net cash provided by operating activities to adjusted cash flows from operations (non-GAAP), free cash flow (non-GAAP) and free cash flow after dividend (non-GAAP) for the periods indicated.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Net cash provided by operating activities | $ | 259,193 | $ | 320,074 | $ | 712,690 | $ | 984,157 | |||||||||||||||
| Change in operating assets and liabilities | (22,529) | 40,655 | (25,077) | 63,996 | |||||||||||||||||||
| Adjusted cash flow from operations | 236,664 | 360,729 | 687,613 | 1,048,153 | |||||||||||||||||||
| Oil and gas expenditures | (70,811) | (286,250) | (482,141) | (999,225) | |||||||||||||||||||
| Other capital expenditures | (1,913) | (18,894) | (39,965) | (59,035) | |||||||||||||||||||
| Change in capital accruals | (1,343) | (2,787) | 84,943 | 11,866 | |||||||||||||||||||
| Free cash flow | 162,597 | 52,798 | 250,450 | 1,759 | |||||||||||||||||||
| Dividends paid | (23,684) | (21,483) | (68,893) | (60,130) | |||||||||||||||||||
| Free cash flow after dividend | $ | 138,913 | $ | 31,315 | $ | 181,557 | $ | (58,371) | |||||||||||||||
Management uses the non-GAAP financial measures of adjusted cash flow from operations, free cash flow and free cash flow after dividend as means of measuring our ability to fund our capital program and dividends, without fluctuations caused by changes in current assets and liabilities, which are included in the GAAP measure of net cash provided by operating activities. Management believes these non-GAAP financial measures provide useful information to investors for the same reason, and that they are also used by professional research analysts in providing investment recommendations pertaining to companies in the oil and gas exploration and production industry.
| OIL AND GAS CAPITALIZED EXPENDITURES | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Acquisitions: | |||||||||||||||||||||||
| Proved | $ | — | $ | 2,373 | $ | 7,250 | $ | 696,173 | |||||||||||||||
| Unproved | — | (30,314) | — | 1,021,468 | |||||||||||||||||||
| — | (27,941) | 7,250 | 1,717,641 | ||||||||||||||||||||
| Exploration and development: | |||||||||||||||||||||||
| Land and seismic | 11,586 | 18,377 | $ | 37,626 | $ | 42,456 | |||||||||||||||||
| Exploration and development | 68,963 | 278,083 | 375,357 | 947,002 | |||||||||||||||||||
| 80,549 | 296,460 | 412,983 | 989,458 | ||||||||||||||||||||
| Property sales: | |||||||||||||||||||||||
| Proved | (67,514) | (9,286) | $ | (67,514) | $ | (27,314) | |||||||||||||||||
| Unproved | — | (81) | (830) | (9,835) | |||||||||||||||||||
| (67,514) | (9,367) | (68,344) | (37,149) | ||||||||||||||||||||
| $ | 13,035 | $ | 259,152 | $ | 351,889 | $ | 2,669,950 | ||||||||||||||||
8
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited) | ||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| (in thousands, except per share information) | ||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Oil sales | $ | 249,826 | $ | 435,094 | $ | 749,623 | $ | 1,196,166 | ||||||||||||||||||
| Gas and NGL sales | 140,761 | 135,483 | 339,503 | 479,442 | ||||||||||||||||||||||
| Gas gathering and other | 11,072 | 11,728 | 34,746 | 30,117 | ||||||||||||||||||||||
| 401,659 | 582,305 | 1,123,872 | 1,705,725 | |||||||||||||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||||
| Impairment of oil and gas properties | 351,029 | — | 1,625,878 | — | ||||||||||||||||||||||
| Depreciation, depletion, amortization, and accretion | 159,626 | 230,172 | 576,051 | 638,122 | ||||||||||||||||||||||
| Impairment of goodwill | — | — | 714,447 | — | ||||||||||||||||||||||
| Production | 62,025 | 89,820 | 213,598 | 257,219 | ||||||||||||||||||||||
| Transportation, processing, and other operating | 53,130 | 59,797 | 161,334 | 173,479 | ||||||||||||||||||||||
| Gas gathering and other | 4,649 | 5,273 | 16,473 | 17,015 | ||||||||||||||||||||||
| Taxes other than income | 22,822 | 30,873 | 70,269 | 105,600 | ||||||||||||||||||||||
| General and administrative | 28,598 | 15,499 | 80,333 | 69,494 | ||||||||||||||||||||||
| Stock compensation | 9,738 | 6,797 | 22,879 | 20,004 | ||||||||||||||||||||||
| Loss (gain) on derivative instruments, net | 65,607 | (38,735) | (37,448) | 35,949 | ||||||||||||||||||||||
| Other operating expense, net | 167 | 10,141 | 548 | 19,057 | ||||||||||||||||||||||
| 757,391 | 409,637 | 3,444,362 | 1,335,939 | |||||||||||||||||||||||
| Operating (loss) income | (355,732) | 172,668 | (2,320,490) | 369,786 | ||||||||||||||||||||||
| Other (income) and expense: | ||||||||||||||||||||||||||
| Interest expense | 23,361 | 24,586 | 69,589 | 69,665 | ||||||||||||||||||||||
| Capitalized interest | (12,286) | (16,264) | (38,407) | (41,811) | ||||||||||||||||||||||
| Loss on early extinguishment of debt | — | — | — | 4,250 | ||||||||||||||||||||||
| Other, net | (1,572) | (140) | 1,053 | (4,548) | ||||||||||||||||||||||
| (Loss) income before income tax | (365,235) | 164,486 | (2,352,725) | 342,230 | ||||||||||||||||||||||
| Income tax (benefit) expense | (72,495) | 40,639 | (360,556) | 82,758 | ||||||||||||||||||||||
| Net (loss) income | $ | (292,740) | $ | 123,847 | $ | (1,992,169) | $ | 259,472 | ||||||||||||||||||
| Earnings (loss) per share to common stockholders: | ||||||||||||||||||||||||||
| Basic | $ | (2.94) | $ | 1.21 | $ | (19.99) | $ | 2.56 | ||||||||||||||||||
| Diluted | $ | (2.94) | $ | 1.21 | $ | (19.99) | $ | 2.56 | ||||||||||||||||||
| Dividends declared per common share | $ | 0.22 | $ | 0.20 | $ | 0.66 | $ | 0.60 | ||||||||||||||||||
| Weighted-average number of shares outstanding: | ||||||||||||||||||||||||||
| Basic | 100,013 | 99,735 | 99,912 | 98,452 | ||||||||||||||||||||||
| Diluted | 100,013 | 99,735 | 99,912 | 98,458 | ||||||||||||||||||||||
| Comprehensive (loss) income: | ||||||||||||||||||||||||||
| Net (loss) income | $ | (292,740) | $ | 123,847 | $ | (1,992,169) | $ | 259,472 | ||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||
| Change in fair value of investments, net of tax of $0, ($648), $0 and ($220), respectively | — | (2,198) | — | (745) | ||||||||||||||||||||||
| Total comprehensive (loss) income | $ | (292,740) | $ | 121,649 | $ | (1,992,169) | $ | 258,727 | ||||||||||||||||||
9
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | ||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||||||||
| Net (loss) income | $ | (292,740) | $ | 123,847 | $ | (1,992,169) | $ | 259,472 | ||||||||||||||||||
| Adjustments to reconcile net (loss) income to net cash | ||||||||||||||||||||||||||
| provided by operating activities: | ||||||||||||||||||||||||||
| Impairment of oil and gas properties | 351,029 | — | 1,625,878 | — | ||||||||||||||||||||||
| Depreciation, depletion, amortization, and accretion | 159,626 | 230,172 | 576,051 | 638,122 | ||||||||||||||||||||||
| Impairment of goodwill | — | — | 714,447 | — | ||||||||||||||||||||||
| Deferred income taxes | (72,495) | 40,639 | (360,395) | 82,758 | ||||||||||||||||||||||
| Stock compensation | 9,738 | 6,797 | 22,879 | 20,004 | ||||||||||||||||||||||
| Loss (gain) on derivative instruments, net | 65,607 | (38,735) | (37,448) | 35,949 | ||||||||||||||||||||||
| Settlements on derivative instruments | 13,674 | 1,696 | 120,729 | (1,118) | ||||||||||||||||||||||
| Loss on early extinguishment of debt | — | — | — | 4,250 | ||||||||||||||||||||||
| Amortization of debt issuance costs and discounts | 886 | 783 | 2,488 | 2,285 | ||||||||||||||||||||||
| Changes in non-current assets and liabilities | (949) | (5,379) | 6,070 | (2,630) | ||||||||||||||||||||||
| Other, net | 2,288 | 909 | 9,083 | 9,061 | ||||||||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||||||||
| Accounts receivable | (24,662) | (37,509) | 179,953 | 80,183 | ||||||||||||||||||||||
| Other current assets | 5,193 | 2,901 | 6,688 | 2,140 | ||||||||||||||||||||||
| Accounts payable and other current liabilities | 41,998 | (6,047) | (161,564) | (146,319) | ||||||||||||||||||||||
| Net cash provided by operating activities | 259,193 | 320,074 | 712,690 | 984,157 | ||||||||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||||||||
| Acquisition of oil and gas properties | — | (2,373) | (7,250) | (285,596) | ||||||||||||||||||||||
| Oil and gas capital expenditures | (70,811) | (286,250) | (482,141) | (999,225) | ||||||||||||||||||||||
| Other capital expenditures | (1,913) | (18,894) | (39,965) | (59,035) | ||||||||||||||||||||||
| Sales of oil and gas assets | 69,006 | 15,314 | 69,836 | 28,547 | ||||||||||||||||||||||
| Sales of other assets | 704 | 425 | 1,892 | 859 | ||||||||||||||||||||||
| Net cash used by investing activities | (3,014) | (291,778) | (457,628) | (1,314,450) | ||||||||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||||||||
| Borrowings of long-term debt | 11,000 | 529,000 | 172,000 | 2,239,310 | ||||||||||||||||||||||
| Repayments of long-term debt | (11,000) | (529,000) | (172,000) | (2,610,000) | ||||||||||||||||||||||
| Financing, underwriting, and debt redemption fees | (9) | (7) | (1,566) | (11,798) | ||||||||||||||||||||||
| Finance lease payments | (1,055) | (1,176) | (3,863) | (2,731) | ||||||||||||||||||||||
| Dividends paid | (23,684) | (21,483) | (68,893) | (60,130) | ||||||||||||||||||||||
| Employee withholding taxes paid upon the net settlement of equity-classified stock awards | (2,316) | (1,752) | (2,505) | (2,406) | ||||||||||||||||||||||
| Proceeds from exercise of stock options | — | 593 | — | 1,267 | ||||||||||||||||||||||
| Net cash used by financing activities | (27,064) | (23,825) | (76,827) | (446,488) | ||||||||||||||||||||||
| Net change in cash and cash equivalents | 229,115 | 4,471 | 178,235 | (776,781) | ||||||||||||||||||||||
| Cash and cash equivalents at beginning of period | 43,842 | 19,414 | 94,722 | 800,666 | ||||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | 272,957 | $ | 23,885 | $ | 272,957 | $ | 23,885 | ||||||||||||||||||
10
| CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | ||||||||||||||
| September 30, 2020 | December 31, 2019 | |||||||||||||
| Assets | (in thousands, except share and per share information) | |||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 272,957 | $ | 94,722 | ||||||||||
| Accounts receivable, net of allowance | 269,440 | 448,584 | ||||||||||||
| Oil and gas well equipment and supplies | 45,959 | 47,893 | ||||||||||||
| Derivative instruments | 39,402 | 17,944 | ||||||||||||
| Other current assets | 6,271 | 12,343 | ||||||||||||
| Total current assets | 634,029 | 621,486 | ||||||||||||
| Oil and gas properties at cost, using the full cost method of accounting: | ||||||||||||||
| Proved properties | 21,076,796 | 20,678,334 | ||||||||||||
| Unproved properties and properties under development, not being amortized | 1,208,733 | 1,255,908 | ||||||||||||
| 22,285,529 | 21,934,242 | |||||||||||||
| Less – accumulated depreciation, depletion, amortization, and impairment | (18,862,339) | (16,723,544) | ||||||||||||
| Net oil and gas properties | 3,423,190 | 5,210,698 | ||||||||||||
| Fixed assets, net of accumulated depreciation of $439,968 and $389,458, respectively | 457,010 | 519,291 | ||||||||||||
| Goodwill | — | 716,865 | ||||||||||||
| Derivative instruments | 952 | 580 | ||||||||||||
| Deferred income taxes | 21,971 | — | ||||||||||||
| Other assets | 68,818 | 71,109 | ||||||||||||
| $ | 4,605,970 | $ | 7,140,029 | |||||||||||
| Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 34,635 | $ | 49,020 | ||||||||||
| Accrued liabilities | 280,861 | 418,978 | ||||||||||||
| Derivative instruments | 96,763 | 16,681 | ||||||||||||
| Revenue payable | 123,705 | 207,939 | ||||||||||||
| Operating leases | 59,989 | 66,003 | ||||||||||||
| Total current liabilities | 595,953 | 758,621 | ||||||||||||
| Long-term debt principal | 2,000,000 | 2,000,000 | ||||||||||||
| Less—unamortized debt issuance costs and discounts | (13,215) | (14,754) | ||||||||||||
| Long-term debt, net | 1,986,785 | 1,985,246 | ||||||||||||
| Deferred income taxes | — | 338,424 | ||||||||||||
| Derivative instruments | 26,048 | 1,018 | ||||||||||||
| Operating leases | 144,755 | 184,172 | ||||||||||||
| Other liabilities | 227,007 | 214,787 | ||||||||||||
| Total liabilities | 2,980,548 | 3,482,268 | ||||||||||||
| Redeemable preferred stock - 8.125% Series A Cumulative Perpetual Convertible Preferred Stock, $0.01 par value, 62,500 shares authorized and issued | 81,620 | 81,620 | ||||||||||||
| Stockholders' equity: | ||||||||||||||
| Common stock, 0.01 par value, 200,000,000 shares authorized, 101,970,811 and 102,144,577 shares issued, respectively | 1,020 | 1,021 | ||||||||||||
| Additional paid-in capital | 3,226,828 | 3,243,325 | ||||||||||||
| (Accumulated deficit) retained earnings | (1,684,046) | 331,795 | ||||||||||||
| Total stockholders' equity | 1,543,802 | 3,576,141 | ||||||||||||
| $ | 4,605,970 | $ | 7,140,029 | |||||||||||
11
