US' Cimarex restarts Permian shut-ins, signals potential risks to federal acreage

Washington — Permian Basin oil and natural gas driller Cimarex Energy has begun restarting production shut in May and plans to gradually add rigs and completion crews in the third quarter, CEO Thomas Jorden said Aug. 6.

Cimarex shut 20% of its oil output in May in response to this spring's oil price crash and a plunge in demand brought on by the coronavirus pandemic. It started bringing that production back online in June.

The company expects Q3 production of 240,000 b/d of oil equivalent, with oil output averaging 71,500 b/d.

Cimarex revised its 2020 guidance to 245,000 boe/d, including 76,500 b/d of oil production.

The driller had two rigs operating in July and plans to add one each in August and September. It will bring back two completion crews in September to restart well completions, with a year-end target of 46 wells in progress.

Jorden said shut or curtailed wells have returned to previous flow rates, confirming analysis that the majority of the driller's wells could be shut without damaging long-term production potential.

"This freed us to make decisions solely based upon economic considerations with the confidence that the production would rebound once we brought the wells back online," he said.

Federal drilling risks

However, Jorden signaled that Cimarex may have to shift some focus from its prime Delaware Basin assets in New Mexico if federal permitting changes.

Presumptive Democratic presidential nominee Joe Biden has promised to halt permits for new oil and gas wells on federal lands if elected in November, which has pushed some producers to build up inventories of drilled-but-uncompleted wells that could still be produced under that policy scenario.

Without mentioning the presidential election, Jorden said any changes to Bureau of Land Management policies could force Cimarex to "pivot" the Delaware program to its Texas assets on private land, which he said "have a deep and profitable inventory life."

Under the existing federal drilling policies, Cimarex plans to develop 46 wells on federal land through 2023. It has 32 approved permits in hand, including 16 that would require extensions before planned spudding, and 14 new permits in progress.

A third of Cimarex's acreage is on federal land in New Mexico.

"Federal permits are good for two years and renewable for an additional two years," Jorden said. "Although these extensions have been routinely granted, there's no guarantee that this will be the case in the future. We are confident in our approach to federal permitting, but it would be misleading to claim an inventory beyond two years."

Jorden said the company was basing its 2021 drilling program on levels that would maintain production at $35/b NYMEX oil and $2.50/MMBtu NYMEX gas.

Cimarex aims to improve well productivity into next year by relaxing well spacing, for example in the Delaware Wolf Camp from 8-10 wells per drilling spacing unit to 7-9 wells.

"We think we can get ... the same ultimate recovery out of a given drilling spacing unit with fewer wells," he said. "This has significant implications to our capital efficiency."