Cimarex shares 56 percent spending increase, sand placement plans

By Luke Geiver | February 22, 2017

Cimarex Energy Co. will spend 56 percent more on exploration and development this year than the operator heavily focused on West Texas and Oklahoma did in 2016. The early plan for fiscal year 2017 involves $1.1 billion to $1.2 billion. Drilling and completion activities will account for $850 million to $900 million of the year’s proposed budget. The Permian region—mainly the Delaware Basin—will receive 66 percent of the D&C budget with the remaining dollars going to operations in Oklahoma.

The ramp-up in activity this year will be paid for from cash generated by operating activities. An additional $60 million is available for potential land or asset purchases or for more drilling, the company said.

By April, Cimarex will be running 8 drilling rigs in the Permian. In Oklahoma, the company is running six rigs to hold acreage or delineate fields in which it operates. By the end of the year, another four drilling rigs will be added. In the Permian, Cimarex has completed well density tests on 8 wells per spacing unit layouts. However, the Texas team will test 16 wells per spacing unit in 2017. Completion activity should remain consistent throughout 2017.

The pricing for drilling services is only slightly increasing, the company said, including the price for tubulars. For completion services, the price increase has been more substantial. Pressure pumping, 100-mesh sand, water sourcing and initial flowback-related services has all gone up anywhere from 5 to 20 percent, according to Cimarex. “Service cost per stage might be up 20 percent from Q3 2016, but other efficiencies are making up for that rise,” said John Lambuth, senior vice president of exploration.

During the company’s Q4 earnings call, Thomas Jorden, CEO, told investors that although there have been service price increases, most operators are already finding ways to deal. “If service costs inflate, we’ll be pressured to find cheaper and cheaper ways to stimulate our wells,” Jorden said. In some cases, that might mean pumping less sand per well. But, less sand pumped into the lateral is not necessarily a bad thing, Jorden told investors. The company does not focus on pounds of sand per foot, but instead analyzes how effective sand is pumped and placed per frack cluster—or entry point—into the horizontal well bore.

First generation fracture jobs may have used more sand per cluster, but today’s wells are more effective at using sand more effectively in more fracture initiation points. From 2014 to 2016, the reduced services costs related to pumping sand helped the team to understand how it could be better fracking its wells. In 2014, Cimarex paid 34 cents per pound of sand to be placed in the reservoir. Last year, however, the company paid only 10 cents per pound. The reduced price allowed the team to experiment with optimal approaches.

“We are really analyzing down to the minute detail. Our understanding really rocketed ahead in 2016,” Jorden said. “We may find that we can go to lower pounds per foot and be more effectively stimulating the rock,” he added in describing why the company does not focus on pounds per foot of sand used in its wells.