Company Quick10K Filing
Quick10K
Cimarex Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$67.46 101 $6,840
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-05 Earnings, Regulation FD, Exhibits
8-K 2019-06-11 Regulation FD
8-K 2019-05-28 Officers, Regulation FD, Exhibits
8-K 2019-05-08 Shareholder Vote, Other Events
8-K 2019-05-08 Earnings, Regulation FD, Exhibits
8-K 2019-03-25 Regulation FD
8-K 2019-03-06 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-02-20 Earnings, Regulation FD, Exhibits
8-K 2019-02-14 Other Events
8-K 2019-02-11 Other Events, Exhibits
8-K 2019-02-05 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-19 Regulation FD, Other Events, Exhibits
8-K 2018-11-18 Enter Agreement, Exhibits
8-K 2018-11-09 Regulation FD
8-K 2018-11-06 Earnings, Regulation FD, Exhibits
8-K 2018-08-31 M&A, Regulation FD, Exhibits
8-K 2018-08-07 Earnings, Regulation FD, Exhibits
8-K 2018-05-25 Regulation FD
8-K 2018-05-23 Enter Agreement, Regulation FD, Exhibits
8-K 2018-05-10 Shareholder Vote
8-K 2018-03-22 Regulation FD
8-K 2018-02-14 Earnings, Regulation FD, Exhibits
AMGN Amgen 105,440
CPB Campbell Soup 11,730
DCPH Deciphera Pharmaceuticals 929
RESI Front Yard Residential 590
FLNT Fluent 540
CHS Chico's FAS 431
ATAI ATA 46
MBOT Microbot Medical 33
PWCO PwrCor 0
MGHL Morgan Group Holding 0
XEC 2019-06-30
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.4 a20190630xecex-104.htm
EX-10.5 a20190630xecex-105.htm
EX-31.1 a20190630xecex-311.htm
EX-31.2 a20190630xecex-312.htm
EX-32.1 a20190630xecex-321.htm
EX-32.2 a20190630xecex-322.htm

Cimarex Energy Earnings 2019-06-30

XEC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
(Mark One)
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period ended
June 30, 2019
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
 Commission File No. 001-31446
CIMAREX ENERGY CO.
(Exact name of registrant as specified in its charter)
 
Delaware
 
45-0466694
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
1700 Lincoln Street, Suite 3700
Denver
Colorado
 
80203
 
(Address of principal executive offices)
 
(Zip Code)
(303) 295-3995
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock ($0.01 par value)
 
XEC
 
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
 
 
 
 
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.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes   No 

The number of shares of Cimarex Energy Co. common stock outstanding as of July 31, 2019 was 101,457,009.


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CIMAREX ENERGY CO.
Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents


GLOSSARY

Bbls—Barrels
Bcf—Billion cubic feet
BOE—Barrels of oil equivalent
Gross Wells—The total wells in which a working interest is owned.
MBbls—Thousand barrels
MBOE—Thousand barrels of oil equivalent
Mcf—Thousand cubic feet
MMBtu—Million British thermal units
MMcf—Million cubic feet
Net Wells—The sum of the fractional working interest owned in gross wells expressed in whole numbers and fractions of whole numbers.
NGL or NGLs—Natural gas liquids

Energy equivalent is determined using the ratio of one barrel of crude oil, condensate, or NGL to six Mcf of natural gas.

CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

Throughout this Form 10-Q, we make statements that may be deemed “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.  These forward-looking statements include, among others, statements concerning our outlook with regard to timing and amount of future production of oil and gas, price realizations, amounts, nature and timing of capital expenditures for exploration and development, plans for funding operations and capital expenditures, drilling of wells, operating costs and other expenses, marketing of oil, gas, and NGLs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts.  The forward-looking statements in this report are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements.

These risks and uncertainties include, but are not limited to, fluctuations in the price we receive for our oil and gas production, full cost ceiling test impairments to the carrying values of our oil and gas properties, reductions in the quantity of, and price received for, oil and gas sold due to decreased industry-wide demand and/or curtailments in production from specific properties or areas due to mechanical, transportation, marketing, weather or other problems, operating and capital expenditures that are either significantly higher or lower than anticipated because the actual cost of identified projects varied from original estimates and/or from the number of exploration and development opportunities being greater or fewer than currently anticipated, increased financing costs due to a significant increase in interest rates, availability of financing, our ability to successfully integrate the business acquired from Resolute Energy Corporation, and the effectiveness of our internal control over financial reporting and our ability to remediate a material weakness in our internal control over financial reporting.  In addition, exploration and development opportunities that we pursue may not result in economic, productive oil and gas properties.  There are also numerous uncertainties inherent in estimating quantities of proved reserves, projecting future rates of production and the timing of development expenditures.  These and other risks and uncertainties affecting us are discussed in greater detail in this report and in our other filings with the Securities and Exchange Commission.




3

Table of Contents


PART I
ITEM 1. Financial Statements
CIMAREX ENERGY CO.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(Unaudited)
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
19,414

 
$
800,666

Accounts receivable, net of allowance:
 
 

 
 

Trade
 
111,745

 
122,065

Oil and gas sales
 
267,821

 
315,063

Gas gathering, processing, and marketing
 
7,796

 
17,072

Oil and gas well equipment and supplies
 
58,306

 
55,553

Derivative instruments
 
42,957

 
101,939

Prepaid expenses
 
8,985

 
7,554

Other current assets
 
3,032

 
4,227

Total current assets
 
520,056

 
1,424,139

Oil and gas properties at cost, using the full cost method of accounting:
 
 

 
 

Proved properties
 
19,846,426

 
18,566,757

Unproved properties and properties under development, not being amortized
 
1,564,074

 
436,325

 
 
21,410,500

 
19,003,082

Less—accumulated depreciation, depletion, amortization, and impairment
 
(15,659,363
)
 
(15,287,752
)
Net oil and gas properties
 
5,751,137

 
3,715,330

Fixed assets, net of accumulated depreciation of $356,631 and $324,631, respectively
 
526,429

 
257,686

Goodwill
 
727,573

 
620,232

Derivative instruments
 
613

 
9,246

Other assets
 
70,126

 
35,451

 
 
$
7,595,934

 
$
6,062,084

Liabilities, Redeemable Preferred Stock, and Stockholders’ Equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable:
 
 
 
 

Trade
 
$
104,142

 
$
76,927

Gas gathering, processing, and marketing
 
14,934

 
29,887

Accrued liabilities:
 
 

 
 

Exploration and development
 
108,299

 
124,674

Taxes other than income
 
38,201

 
33,622

Other
 
250,710

 
221,159

Derivative instruments
 
50,056

 
27,627

Revenue payable
 
186,206

 
194,811

Operating leases
 
62,119

 

Total current liabilities
 
814,667

 
708,707

Long-term debt principal
 
2,000,000

 
1,500,000

Less—unamortized debt issuance costs and discounts
 
(15,770
)
 
(11,446
)
Long-term debt, net
 
1,984,230

 
1,488,554

Deferred income taxes
 
439,429

 
334,473

Asset retirement obligation
 
157,381

 
152,758

Derivative instruments
 
840

 
2,267

Operating leases
 
191,413

 

Other liabilities
 
64,461

 
45,539

Total liabilities
 
3,652,421

 
2,732,298

Commitments and contingencies (Note 10)
 


 


Redeemable preferred stock - 8.125% Series A Cumulative Perpetual Convertible Preferred Stock, $0.01 par value, 62,500 shares authorized and issued and no shares authorized and issued, respectively (Note 5)
 
81,620

 

Stockholders’ equity:
 
 

 
 

Common stock, $0.01 par value, 200,000,000 shares authorized, 101,473,177 and 95,755,797 shares issued, respectively
 
1,015

 
958

Additional paid-in capital
 
3,223,331

 
2,785,188

Retained earnings
 
635,339

 
542,885

Accumulated other comprehensive income
 
2,208

 
755

Total stockholders’ equity
 
3,861,893

 
3,329,786

 
 
$
7,595,934

 
$
6,062,084

See accompanying Notes to Condensed Consolidated Financial Statements.


4


Table of Contents


CIMAREX ENERGY CO.
Condensed Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share information)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 

 
 

 
 

 
 

Oil sales
 
$
411,766

 
$
342,184

 
$
761,072

 
$
693,907

Gas and NGL sales
 
126,044

 
202,202

 
343,959

 
405,920

Gas gathering and other
 
9,769

 
11,810

 
20,031

 
23,262

Gas marketing
 
(1,116
)
 
78

 
(1,642
)
 
319

 
 
546,463

 
556,274

 
1,123,420

 
1,123,408

Costs and expenses:
 
 

 
 

 
 

 
 

Depreciation, depletion, and amortization
 
213,327

 
143,388

 
403,744

 
276,247

Asset retirement obligation
 
2,157

 
2,053

 
4,206

 
3,113

Production
 
87,726

 
79,215

 
164,959

 
150,486

Transportation, processing, and other operating
 
48,331

 
51,933

 
101,939

 
97,098

Gas gathering and other
 
13,605

 
9,467

 
25,925

 
19,290

Taxes other than income
 
41,033

 
27,930

 
74,727

 
58,118

General and administrative
 
24,911

 
19,739

 
53,995

 
43,060

Stock compensation
 
6,494

 
3,095

 
13,207

 
9,825

(Gain) loss on derivative instruments, net
 
(40,768
)
 
21,699

 
74,684

 
17,540

Other operating expense, net
 
590

 
5,252

 
8,916

 
5,455

 
 
397,406

 
363,771

 
926,302

 
680,232

Operating income
 
149,057

 
192,503

 
197,118

 
443,176

Other (income) and expense:
 
 

 
 

 
 

 
 

Interest expense
 
24,674

 
16,895

 
45,079

 
33,678

Capitalized interest
 
(16,805
)
 
(4,850
)
 
(25,547
)
 
(9,660
)
Loss on early extinguishment of debt
 

 

 
4,250

 

Other, net
 
(2,167
)
 
(2,605
)
 
(4,408
)
 
(7,172
)
Income before income tax
 
143,355

 
183,063

 
177,744

 
426,330

Income tax expense
 
34,046

 
42,066

 
42,119

 
99,015

Net income
 
$
109,309

 
$
140,997

 
$
135,625

 
$
327,315

 
 
 
 
 
 
 
 
 
Earnings per share to common stockholders:
 
 

 
 

 
 

 
 

Basic
 
$
1.07

 
$
1.48

 
$
1.34

 
$
3.44

Diluted
 
$
1.07

 
$
1.48

 
$
1.34

 
$
3.44

 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 

 
 

 
 

 
 

Net income
 
$
109,309

 
$
140,997

 
$
135,625

 
$
327,315

Other comprehensive income:
 
 

 
 

 
 

 
 

Change in fair value of investments, net of tax of $89, $57, $428 and $1, respectively
 
304

 
192

 
1,453

 
2

Total comprehensive income
 
$
109,613

 
$
141,189

 
$
137,078

 
$
327,317

 





See accompanying Notes to Condensed Consolidated Financial Statements.


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Table of Contents


CIMAREX ENERGY CO.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
 
Six Months Ended
June 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 

Net income
 
$
135,625

 
$
327,315

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation, depletion, and amortization
 
403,744

 
276,247

Asset retirement obligation
 
4,206

 
3,113

Deferred income taxes
 
42,119

 
99,732

Stock compensation
 
13,207

 
9,825

Loss on derivative instruments, net
 
74,684

 
17,540

Settlements on derivative instruments
 
(2,814
)
 
(19,919
)
Loss on early extinguishment of debt
 
4,250

 

Amortization of debt issuance costs and discounts
 
1,502

 
1,456

Changes in non-current assets and liabilities
 
2,749

 
713

Other, net
 
8,152

 
723

Changes in operating assets and liabilities:
 
 

 
 

Accounts receivable
 
117,692

 
15,012

Other current assets
 
(761
)
 
1,886

Accounts payable and other current liabilities
 
(140,272
)
 
(29,304
)
Net cash provided by operating activities
 
664,083

 
704,339

Cash flows from investing activities:
 
 

 
 

Acquisition of Resolute Energy, net of cash acquired (Note 13)
 
(284,441
)
 

Oil and gas capital expenditures
 
(711,757
)
 
(650,807
)
Other capital expenditures
 
(40,141
)
 
(56,112
)
Sales of oil and gas assets
 
13,233

 
34,842

Sales of other assets
 
434

 
525

Net cash used by investing activities
 
(1,022,672
)
 
(671,552
)
Cash flows from financing activities:
 
 

 
 

Borrowings of long-term debt
 
1,710,310

 

Repayments of long-term debt
 
(2,081,000
)
 

Financing, underwriting, and debt redemption fees
 
(11,791
)
 

Finance lease payments
 
(1,555
)
 

Dividends paid
 
(38,647
)
 
(22,801
)
Employee withholding taxes paid upon the net settlement of equity-classified stock awards
 
(654
)
 
(946
)
Proceeds from exercise of stock options
 
674

 
1,249

Net cash used by financing activities
 
(422,663
)
 
(22,498
)
Net change in cash and cash equivalents
 
(781,252
)
 
10,289

Cash and cash equivalents at beginning of period
 
800,666

 
400,534

Cash and cash equivalents at end of period
 
$
19,414

 
$
410,823

  




See accompanying Notes to Condensed Consolidated Financial Statements.


6


Table of Contents


CIMAREX ENERGY CO.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(Unaudited)

 
 
 
 
 
 
Additional Paid-in Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
 
Common Stock
 
Shares
 
Amount
Balance, December 31, 2018
 
95,756

 
$
958

 
$
2,785,188

 
$
542,885

 
$
755

 
$
3,329,786

Dividends paid on stock awards subsequently forfeited
 

 

 

 
2

 

 
2

Dividends declared on common stock ($0.20 per share)
 

 

 

 
(20,308
)
 

 
(20,308
)
Dividends declared on redeemable preferred stock ($20.31 per share)
 

 

 

 
(1,269
)
 

 
(1,269
)
Net income
 

 

 

 
26,316

 

 
26,316

Issuance of stock for Resolute Energy acquisition (Note 13)
 
5,652

 
56

 
412,959

 

 

 
413,015

Unrealized change in fair value of investments, net of tax
 

 

 

 

 
1,149

 
1,149

Issuance of restricted stock awards
 
11

 

 

 

 

 

Common stock reacquired and retired
 
(10
)
 

 
(654
)
 

 

 
(654
)
Restricted stock forfeited and retired
 
(4
)
 

 

 

 

 

Exercise of stock options
 
3

 

 
80

 

 

 
80

Stock-based compensation
 

 

 
13,245

 

 

 
13,245

Balance, March 31, 2019
 
101,408

 
1,014

 
3,210,818

 
547,626

 
1,904

 
3,761,362

Dividends paid on stock awards subsequently forfeited
 

 

 
1

 
4

 

 
5

Dividends declared on common stock ($0.20 per share)
 

 

 

 
(20,330
)
 

 
(20,330
)
Dividends declared on redeemable preferred stock ($20.31 per share)
 

 

 

 
(1,270
)
 

 
(1,270
)
Net income
 

 

 

 
109,309

 

 
109,309

Unrealized change in fair value of investments, net of tax
 

 

 

 

 
304

 
304

Issuance of restricted stock awards
 
54

 
1

 
(1
)
 

 

 

Restricted stock forfeited and retired
 
(4
)
 

 

 

 

 

Exercise of stock options
 
15

 

 
594

 

 

 
594

Stock-based compensation
 

 

 
11,919

 

 

 
11,919

Balance, June 30, 2019
 
101,473

 
$
1,015

 
$
3,223,331

 
$
635,339

 
$
2,208

 
$
3,861,893







See accompanying Notes to Condensed Consolidated Financial Statements.


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Table of Contents


CIMAREX ENERGY CO.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(Unaudited)

 
 
 
 
 
 
Additional Paid-in Capital
 
Retained
Earnings
(Accumulated Deficit)
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
 
Common Stock
 
Shares
 
Amount
Balance, December 31, 2017
 
95,437

 
$
954

 
$
2,764,384

 
$
(199,259
)
 
$
2,199

 
$
2,568,278

Dividends paid on stock awards subsequently forfeited
 

 

 
3

 
4

 

 
7

Dividends declared on common stock ($0.16 per share)
 

 

 
(15,271
)
 

 

 
(15,271
)
Net income
 

 

 

 
186,318

 

 
186,318

Unrealized change in fair value of investments, net of tax
 

 

 

 

 
(190
)
 
(190
)
Issuance of restricted stock awards
 
2

 

 

 

 

 

Common stock reacquired and retired
 
(3
)
 

 
(305
)
 

 

 
(305
)
Restricted stock forfeited and retired
 
(7
)
 

 

 

 

 

Exercise of stock options
 
4

 

 
345

 

 

 
345

Stock-based compensation
 

 

 
12,411

 

 

 
12,411

Balance, March 31, 2018
 
95,433

 
954

 
2,761,567

 
(12,937
)
 
2,009

 
2,751,593

Dividends paid on stock awards subsequently forfeited
 

 

 
26

 
13

 

 
39

Dividends declared on common stock ($0.16 per share)
 

 

 
21

 
(15,262
)
 

 
(15,241
)
Net income
 

 

 

 
140,997

 

 
140,997

Unrealized change in fair value of investments, net of tax
 

 

 

 

 
192

 
192

Issuance of restricted stock awards
 
27

 

 

 

 

 

Common stock reacquired and retired
 
(5
)
 

 
(641
)
 

 

 
(641
)
Restricted stock forfeited and retired
 
(75
)
 

 

 

 

 

Exercise of stock options
 
13

 

 
904

 

 

 
904

Stock-based compensation
 

 

 
8,655

 

 

 
8,655

Balance, June 30, 2018
 
95,393

 
$
954

 
$
2,770,532

 
$
112,811

 
$
2,201

 
$
2,886,498










See accompanying Notes to Condensed Consolidated Financial Statements.


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Table of Contents
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2019
(Unaudited)



1.
BASIS OF PRESENTATION

Cimarex Energy Co. (“Cimarex,” “we,” or “us”), a Delaware corporation, is an independent oil and gas exploration and production company. Our operations are mainly located in Texas, Oklahoma, and New Mexico. The accompanying unaudited financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain disclosures required by accounting principles generally accepted in the United States and normally included in Annual Reports on Form 10-K have been omitted. Although management believes that our disclosures in these interim financial statements are adequate, they should be read in conjunction with the financial statements, summary of significant accounting policies, and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

In the opinion of management, the accompanying financial statements reflect all adjustments necessary to fairly present our financial position, results of operations, and cash flows for the periods and as of the dates shown. The accounts of Cimarex and its subsidiaries are presented in the accompanying financial statements, with intercompany balances and transactions eliminated in consolidation. Certain amounts in the prior year financial statements have been reclassified to conform to the 2019 financial statement presentation.

On March 1, 2019, we acquired Resolute Energy Corporation (“Resolute”) in a cash and stock transaction. The results of Resolute’s operations have been included in our consolidated financial statements since the March 1, 2019 acquisition date. See Note 13 for more information on this transaction.

Use of Estimates

Areas of significance requiring the use of management’s judgments include the estimation of proved oil and gas reserves used in calculating depletion, the estimation of future net revenues used in computing ceiling test limitations, the estimation of future abandonment obligations used in recording asset retirement obligations, and the assessment of goodwill. Estimates and judgments also are required in determining allowances for doubtful accounts, impairments of unproved properties and other assets, valuation of deferred tax assets, fair value measurements, and contingencies.

Oil and Gas Well Equipment and Supplies

Our oil and gas well equipment and supplies are valued at the lower of cost and net realizable value, where net realizable value is estimated selling prices in the ordinary course of business, less reasonably predictable costs of disposal and transportation. Declines in the price of oil and gas well equipment and supplies in future periods could cause us to recognize impairments on these assets. An impairment would not affect cash flow from operating activities, but would adversely affect our net income and stockholders’ equity.

Oil and Gas Properties

We use the full cost method of accounting for our oil and gas operations. All costs associated with property acquisition, exploration, and development activities are capitalized. Under the full cost method of accounting, we are required to perform a quarterly ceiling test calculation to test our oil and gas properties for possible impairment. If the net capitalized cost of our oil and gas properties, as adjusted for income taxes, exceeds the ceiling limitation, the excess is charged to expense. The ceiling limitation is equal to the sum of: (i) the present value discounted at 10% of estimated future net revenues from proved reserves, (ii) the cost of properties not being amortized, and (iii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, as adjusted for income taxes. We currently do not have any unproven properties that are being amortized. Estimated future net revenues are determined based on trailing twelve-month average commodity prices and estimated proved reserve quantities, operating costs, and capital expenditures. The calculated ceiling limitation is not intended to be indicative of the fair market value of our proved reserves or future results.




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Table of Contents
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2019
(Unaudited)


We did not recognize a ceiling test impairment during the three and six months ended June 30, 2019 and 2018 because the net capitalized cost of our oil and gas properties, as adjusted for income taxes, did not exceed the ceiling limitation. However, at June 30, 2019, a decline in the value of our ceiling limitation of approximately 4% or more would have resulted in an impairment. If pricing conditions deteriorate, including the further widening of local market basis differentials, or if there is a negative impact on one or more of the other components of the calculation, we may incur full cost ceiling test impairments in future quarters. Impairment charges do not affect cash flow from operating activities, but do adversely affect our net income and various components of our balance sheet. Any impairment of oil and gas properties is not reversible at a later date.

Revenue Recognition

Oil, Gas, and NGL Sales

Revenue is recognized from the sales of oil, gas, and NGLs when the customer obtains control of the product, when we have no further obligations to perform related to the sale, and when collectability is probable. All of our sales of oil, gas, and NGLs are made under contracts with customers, which typically include variable consideration based on monthly pricing tied to local indices and monthly volumes delivered. The nature of our contracts with customers does not require us to constrain that variable consideration or to estimate the amount of transaction price attributable to future performance obligations for accounting purposes. As of June 30, 2019, we had open contracts with customers with terms of one month to multiple years, as well as “evergreen” contracts that renew on a periodic basis if not canceled by us or the customer. Performance obligations under our contracts with customers are typically satisfied at a point-in-time through monthly delivery of oil, gas, and/or NGLs. Our contracts with customers typically require payment within one month of delivery.

Our gas and NGLs are sold under a limited number of contract structure types common in our industry. Under these contracts the gas and its components, including NGLs, may be sold to a single purchaser or the residue gas and NGLs may be sold to separate purchasers. Regardless of the contract structure type, the terms of these contracts compensate us for the value of the residue gas and NGLs at current market prices for each product. However, depending on the contract structure type, certain transportation, processing, and other charges may be deducted against the prices received for the product. Our oil typically is sold at specific delivery points under contract terms that also are common in our industry.

Gas Gathering

When we transport and/or process third-party gas associated with our equity gas, we recognize revenue for the fees charged to third-parties for such services.

Gas Marketing

When we market and sell gas for working interest owners, we act as agent under short-term sales and supply agreements and may earn a fee for such services. Revenues from such services are recognized as gas is delivered.

Gas Imbalances

Revenue from the sale of gas is recorded on the basis of gas actually sold by us. If our aggregate sales volumes for a well are greater (or less) than our proportionate share of production from the well, a liability (or receivable) is established to the extent there are insufficient proved reserves available to make-up the overproduced (or underproduced) imbalance. Imbalances have not been significant in the periods presented.




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Table of Contents
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2019
(Unaudited)


Lease Accounting

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”).  The FASB subsequently issued various ASUs which provided additional implementation guidance. Topic 842 requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for contracts that provide lessees with the right to control the use of identified assets for a period of time. The scope of Topic 842 excludes leases to explore for or use minerals, oil, natural gas, and similar nonregenerative resources. We adopted Topic 842 effective January 1, 2019, using the modified retrospective method applied to all leases that existed on that date, which resulted in the recognition of lease liabilities of $276.9 million and right-of-use assets of $265.0 million. In connection with adoption we made use of the following practical expedients, which are provided in Topic 842:

a package of practical expedients to not reassess: 1) whether expired or existing contracts are or contain a lease, 2) lease classification for expired or existing leases, and 3) initial direct costs for existing leases;
an election not to apply the recognition requirements in Topic 842 to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise);
a practical expedient that permits combining lease and nonlease components in a contract and accounting for the combination as a lease (elected by asset class); and
a practical expedient to not reassess certain land easements in existence prior to January 1, 2019.


2.
LONG-TERM DEBT

Long-term debt at June 30, 2019 and December 31, 2018 consisted of the following:
 
 
June 30, 2019
 
December 31, 2018
(in thousands)
 
Principal
 
Unamortized Debt
Issuance Costs
and Discounts (1)
 
Long-term
Debt, net
 
Principal
 
Unamortized Debt
Issuance Costs
and Discount (1)
 
Long-term
Debt, net
4.375% Notes due 2024
 
$
750,000

 
$
(3,982
)
 
$
746,018

 
$
750,000

 
$
(4,439
)
 
$
745,561

3.90% Notes due 2027
 
750,000

 
(6,651
)
 
743,349

 
750,000

 
(7,007
)
 
742,993

4.375% Notes due 2029
 
500,000

 
(5,137
)
 
494,863

 

 

 

 
 
$
2,000,000

 
$
(15,770
)
 
$
1,984,230

 
$
1,500,000

 
$
(11,446
)
 
$
1,488,554

________________________________________
(1)
At June 30, 2019, the unamortized debt issuance costs and discount related to the 3.90% Notes due 2027 were $5.1 million and $1.5 million, respectively. At December 31, 2018, the unamortized debt issuance costs and discount related to the 3.90% Notes due 2027 were $5.4 million and $1.6 million, respectively. At June 30, 2019, the unamortized debt issuance costs and discount related to the 4.375% Notes due 2029 were $4.5 million and $0.7 million, respectively. The 4.375% Notes due 2024 were issued at par.




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Table of Contents
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2019
(Unaudited)


Bank Debt

On February 5, 2019, we entered into an Amended and Restated Credit Agreement for our senior unsecured revolving credit facility (“Credit Facility”). Among other things, the amended and restated credit facility increased the aggregate commitments to $1.25 billion with an option for us to increase the aggregate commitments to $1.5 billion, and extended the maturity date to February 5, 2024. As of June 30, 2019, we had no bank borrowings outstanding under the Credit Facility, but did have letters of credit of $2.5 million outstanding, leaving an unused borrowing availability of $1.248 billion. During the three months ended June 30, 2019, we borrowed and repaid an aggregate of $528.0 million on the Credit Facility to meet cash requirements as needed.

At our option, borrowings under the Credit Facility may bear interest at either (a) LIBOR (or an alternate rate determined by the administrative agent for the Credit Facility in accordance with the Credit Facility when LIBOR is no longer available) plus 1.1252.0% based on the credit rating for our senior unsecured long-term debt, or (b) a base rate (as defined in the credit agreement) plus 0.1251.0%, based on the credit rating for our senior unsecured long-term debt. Unused borrowings are subject to a commitment fee of 0.1250.35%, based on the credit rating for our senior unsecured long-term debt.

The Credit Facility contains representations, warranties, covenants, and events of default that are customary for investment grade, senior unsecured bank credit agreements, including a financial covenant for the maintenance of a defined total debt-to-capital ratio of no greater than 65%. As of June 30, 2019, we were in compliance with all of the financial covenants.

At June 30, 2019 and December 31, 2018, we had $4.6 million and $2.2 million, respectively, of unamortized debt issuance costs associated with our Credit Facility, which were recorded as assets and included in Other assets on our Condensed Consolidated Balance Sheets. These costs are being amortized to interest expense ratably over the life of the Credit Facility. We incurred $3.0 million in additional debt issuance costs in amending our Credit Facility.

Senior Notes

On March 8, 2019, we issued $500 million aggregate principal amount of 4.375% senior unsecured notes due March 15, 2029 at 99.862% of par to yield 4.392% per annum.  We received $494.7 million in net cash proceeds, after deducting underwriters’ fees, discount, and debt issuance costs.  The notes bear an annual interest rate of 4.375% and interest is payable semiannually on March 15 and September 15, with the first payment due September 15, 2019.  We used the net proceeds to repay borrowings that were outstanding under our Credit Facility that were used to help fund the Resolute acquisition on March 1, 2019. The effective interest rate on these notes, including the amortization of debt issuance costs and discount, is 4.50%.

In April 2017, we issued $750 million aggregate principal amount of 3.90% senior unsecured notes at 99.748% of par to yield 3.93% per annum. These notes are due May 15, 2027 and interest is payable semiannually on May 15 and November 15. The effective interest rate on these notes, including the amortization of debt issuance costs and discount, is 4.01%.

In June 2014, we issued $750 million aggregate principal amount of 4.375% senior unsecured notes at par. These notes are due June 1, 2024 and interest is payable semiannually on June 1 and December 1. The effective interest rate on these notes, including the amortization of debt issuance costs, is 4.50%.

Our senior unsecured notes are governed by indentures containing certain covenants, events of default, and other restrictive provisions with which we were in compliance as of June 30, 2019.





12

Table of Contents
CIMAREX ENERGY CO.
Notes to Condensed Consolidated Financial Statements
June 30, 2019
(Unaudited)


3.    DERIVATIVE INSTRUMENTS

We periodically use derivative instruments to mitigate volatility in commodity prices.  While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future cash flow from favorable price changes.  Depending on changes in oil and gas futures markets and management’s view of underlying supply and demand trends, we may increase or decrease our derivative positions from current levels. 

As of June 30, 2019, we have entered into oil and gas collars, oil basis swaps, oil and gas fixed price swaps, and sold oil calls. Under our collars, we receive the difference between the published index price and a floor price if the index price is below the floor price or we pay the difference between the ceiling price and the index price if the index price is above the ceiling price.  No amounts are paid or received if the index price is between the floor and the ceiling prices. By using a collar, we have fixed the minimum and maximum prices we can receive on the underlying production. Our basis swaps are settled based on the difference between a published index price plus or minus a fixed differential, as applicable, and the applicable local index price under which the underlying production is sold. By using a basis swap, we have fixed the differential between the published index price and certain of our physical pricing points. For our Permian oil production, the basis swaps fix the price differential between the WTI NYMEX (Cushing Oklahoma) price and the WTI Midland price. For our Permian and Mid-Continent gas production, the contract prices in our collars are consistent with the index prices used to sell our production. Under our fixed price swaps, we receive the difference between the fixed price and the published index price if the published index price is below the fixed price and we pay the difference between the fixed price and the published index price if the published index price is above the fixed price. Under our sold oil calls, we pay the difference between the fixed price and the published index price if the published index price is above the fixed price. The following tables summarize our outstanding derivative contracts as of June 30, 2019:
 Oil Collars
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth Quarter
 
Total
2019:
 
 
 
 
 
 
 
 
 
 

WTI (1)
 
 
 
 
 
 
 
 
 
 

Volume (Bbls)
 

 

 
3,312,000

 
2,576,000