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Cimarex has 'confidence' to develop permitted federal Permian acreage: CEO

Highlights

Company pulled rigs out of New Mexico but they are back

Local permitting offices are approving some activities

Anadarko Basin, with good source rock, is 'overlooked'

Houston — Upstream producer Cimarex Energy plans to push ahead with "confidence" of developing its permitted federal acreage in the western Permian Basin of New Mexico, based on recent actions of the state's governor and the US Interior Department under the Joe Biden administration, Cimarex's top executive said late March 23.

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When Biden was sworn in as president just over two months ago, bringing with him a pledge of no new drilling on federal lands, the company responded in a "knee-jerk" fashion and redirected back to West Texas rigs it was ready to mobilize into New Mexico, Cimarex CEO Thomas Jorden said in a presentation to the virtual Simmons Energy 21st Annual Energy Conference.

The western Permian Basin, which also spans West Texas, is also called the Delaware Basin. Cimarex operates in both West Texas and New Mexico Delaware Basin.

As the November 2020 election approached, Cimarex tasked its Permian business unit to forge an acceleration plan to potentially front-load its drilling planned for New Mexico on federal acreage so it could get ahead of any possible halts or further moratoria the new administration might impose, Jorden said.

Back in New Mexico

But upon reflection, "we've chosen not to do that," he said. "We're back in New Mexico."

Even though companies may have general permits in hand, if a small circumstance changes like a cementing or a casing program, an allowance called a sundry needs to be filed, which requires federal approval. Also, while a project is underway, right-of-ways still are being secured, also involving federal approval.

"If you cross federal lands, it requires federal approval," Jorden said during his company's fourth quarter conference call in February.

When Biden took office on Jan. 20, one of the first things he did was sign an executive order terminating construction of the Keystone XL Pipeline that aimed to bring oil from western Canada to the US -- a project that had concerned environmentalists for the decade of its progress and setbacks according to the political party in power.

Shortly after the pipeline cancellation, the administration mandated a 60-day moratorium on issuing new drilling permits and leasing on federal land.

Biden's swift actions, while not unexpected, created a wariness in the oil and gas sector, particularly upstream producers that had been accustomed to routinely receiving permits for drilling on federal lands in the Permian and elsewhere, such as North Dakota, Colorado and Wyoming.

"We were in the process of mobilizing some rigs into New Mexico" around the time Biden took office, said Jorden. "We made the decision we wouldn't put pipe in the ground without clarity on what the new administration would do. [But] as we saw the dust settle, we gained great confidence that there would be a path forward for judicious exploitation of our assets" in that state.

During Biden's first two months in office, things have become more hopeful for producers that want to develop their permitted Permian acreage, he said, adding New Mexico's governor is "highly engaged with a prominent responsible voice" and the US Interior Department is "reaching out for conversation."

Jorden added that local Interior Department offices are approving right-of-ways and related items.

"We feel wholly different than the way we did the day [the moratorium] was released," he said. "Our confidence in being able to develop that acreage is high. We're not going into disaster mode here; we really do think we'll be able to prudently develop" Cimarex's federal acreage.

Moreover, the Delaware Basin is "a quilt patchwork" without much turnover on new leases, he said.

"So if the worst-case scenario is that they suspend new leasing, that will have little to no impact on Cimarex, and in the Delaware Basin it will have little or no impact on the industry at large," Jorden added. "That's not true everywhere, but it's true in the Delaware Basin."

Also in Cimarex news, the company has allotted a limited amount of money to develop its Oklahoma Anadarko Basin assets this year. Jorden said 10%-15% of the company's $650 million-$750 million capital budget will be devoted to some of the 326,000 net acres in that multistacked play.

'Outstanding' returns in Anadarko Basin

"Our Anadarko team has found things [in the basin] that have outstanding returns," Jorden said. "That's due to a combination of enhanced stimulations and greater well performance, but also greatly reduced cost."

The US Midcontinent's geology is "overlooked," he said.

"Certainly the Meramec was oversold, but it's terrific if properly spaced," he added. "The Woodford Shale is some of the best source rock anywhere in the US and has outstanding capacity to deliver great returns."

The Meramec is a subsoil formation in the Anadarko Basin, found above the Woodford Shale horizon.

But any material changes in capital expenditures that Cimarex would give to that area would be in 2022, Jorden said.

"When we rank our returns from best to descending, there's a really strong representation of the Anadarko Basin in that upper quartile of returns," he said. "We love the flexibility that multi-basin, multi-commodity [operations] affords us, and we think the marketplace is hearing that -- it [Anadarko Basin] appears to be coming back in style."

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