Karen Acierno - Director of Investor Relations Thomas E. Jorden - Chairman, President & Chief Executive Officer John Lambuth - Vice President-Exploration Joseph R. Albi - Chief Operating Officer, Director & EVP G. Mark Burford - Chief Financial Officer & Vice President.

Pearce Hammond - Piper Jaffray & Co. (Broker) Drew E. Venker - Morgan Stanley & Co. LLC Will C. Derrick - SunTrust Robinson Humphrey, Inc. Arun Jayaram - JPMorgan Securities LLC Daniel Guffey - Stifel, Nicolaus & Co., Inc. Jason Smith - Bank of America Merrill Lynch Jeanine Wai - Citigroup Global Markets, Inc.

(Broker) Michael Anthony Hall - Heikkinen Energy Advisors LLC Paul Grigel - Macquarie Capital (USA), Inc. John Nelson - Goldman Sachs & Co..

Welcome to the Cimarex Energy First Quarter Earnings Conference Call. All participants will be in listen-only mode. I would now like to turn the conference over to Karen Acierno, Director of Investor Relations. Ms. Acierno, please go ahead..

Thanks, Rocco. Good morning, everyone, and thanks for joining us on the call this morning. So, yesterday afternoon, an updated presentation was posted to our website. We will be referring to this presentation during our call today. And as a remainder our discussion will contain forward-looking statements.

A number of actions could cause actual results to differ materially from what we discuss today. You should read our disclosures on forward-looking statements in our latest 10-K and other filings and news releases for the risk factors associated with our business.

So today's prepared remarks will begin with an overview from our CEO, Tom Jorden, followed by an update on our drilling activities and results from John Lambuth, our VP of Exploration. And then Joe Albi, our COO, will update you on our operations, including production and well costs. Our CFO Mark Burford is also present to help answer any questions.

And as Rocco said, we want to try and keep everybody to one question and one follow-up, so that we can get everybody in the question queue and you can feel free to jump back in if you have another question. So with that, I'll turn the call over to Tom..

necessity is the mother of invention. I'd like to open the call with some brief overview remarks regarding our direction in 2016 and beyond. As always our focus will be on results. We reported a strong production beat this quarter driven by improved well performance.

Our total company production came in at 973 million cubic feet equivalent per day for the first quarter, which exceeded the high end of our guidance. Expenses came in within guidance, resulting in the strong quarter overall. Gas production was up, our oil production was down slightly.

As we had forecasted this was due to fewer well completions in the Permian Basin, due to the timing of our delineation projects. We expect to pick up the pace on our Permian completions during the remainder of the year. We also reported a modest increase in our 2016 capital budget.

This is the result of the completions of our East Cana-Woodford infill program being pushed forward from 2017 into 2016. The application of bigger, more effective stimulations across the board and greater than anticipated working interest in both our own wells and in partner operated wells.

With the results that we're seeing we're delighted to have the increased exposure. Since our last call, we've seen a bit of breathing room in commodity prices, as a result, we're accelerating some of the Permian completion activity that was delayed due to the plant outages this winter.

As you'll also hear during the call, our focus on science and innovation continues apace. We continue to experiment with more effective stimulations, primarily to the use of more profit, more stages, tighter cluster spacing and more clusters per stage and the use of diverter technology.

This down cycle and associated decrease in activity is providing an ideal environment to focus on science and technology. We're also taking advantage of decreased service cost to experiment and improve our methodologies. We've also made great strides in reducing our cost structure.

The organization is undergoing a concerted effort to lower G&A through voluntary retirements that lead to head count reductions, reducing contract and consultant services and optimizing work efficiencies, particularly in the field. Finally, before I turn the call over to John, I'd like to comment on our thoughts as we look ahead.

In 2015, we said that our challenge was to get our program to a point where it was sustainable, where we were living within cash flow and had a capital program and a cost structure that was appropriate for the new normal.

In our last call, we told you that our challenge in 2016 was to preserve our assets, preserve our balance sheet and preserve our organization. I am pleased to tell you that we're on track with both sets of goals.

As we look ahead of the current strip, we modeled at Cimarex that lives within cash flow and is able to get back on a growth trajectory in the years ahead. We have best-in-class assets and we will be able to preserve our prime leasehold with our current program. Our organization is effective, focused and hard at work, generating new opportunities.

Our balance sheet provides the flexibility and strength that will keep Cimarex at the forefront in a highly competitive landscape. We don't know where commodity prices are headed, but we don't expect to return to the price levels of 2014 anytime soon.

Margins will be challenged, cost structures will be paramount, and asset quality, and organizational effectiveness will be the differentiator. It's always been a tough business, and things won't be any easier as we move ahead. Our focus is on performance and results.

Although further price recovery would be warmly welcomed, we are in great shape, and look ahead with conviction that our value creation proposition is alive and well. With that, I'd like to turn the call over to John to provide further color on our program..

Thanks, Tom. I'll start with a quick recap of our drilling activity in the quarter, before getting into some of the specifics of our latest results, and more color on our 2016 plans.

Cimarex invested $158 million on the exploration and development during the first quarter, about 55% was invested in the Permian region, with the rest going towards activities in Mid-Continent region. Companywide, we've brought 22 gross, five net wells on production during the quarter.

Despite the small number of wells completed during the quarter, Cimarex had an average of 10 operated rigs running during the quarter. These rigs were busy finishing the drilling of infill wells, and the Woodford shale, as well as drilling spacing pilots in both the Delaware Basin, and the Mid-Continent.

That activity is winding down, and a majority of our contracted drilling rigs will be rolling off by July. By August, we plan to be down to three operated rigs. In the Delaware Basin, you may recall that we spud a down spacing pilot in the upper Wolfcamp in Culberson County in the fourth quarter of 2015.

We are finished with the drilling portion of these wells, and completions are scheduled to begin in mid May. First production is now expected by midyear. This six well, 7,500-foot lateral pilot will test two different spacing designs.

One at eight wells per section, while the other will test six wells per section, both will be drilled in a staggered pattern. Cimarex continues to push the envelope on well completions.

On page 12 of our presentation, we've shown you the uplift, using a 40% larger completion on these Upper Wolfcamp wells, which equates to 1,640 pounds of sand per foot. We are about to take that a step further on using even larger design to complete this six well pilot.

Incorporating 2,500 pounds of sand per lateral foot, these pilot wells will have 44% more sand pump, than the largest completed wells we've had to date, as shown on page 12. We are currently drilling also, our Lower Wolfcamp infill project, which we call Tim Tam.

This 10,000 foot spacing pilot is comprised of five wells, which will be drilled in a stacked/staggered pattern testing six wells per section. We believe, the success we've had with larger completions in the upper Wolfcamp should easily translate to the Lower Wolfcamp.

If I wave an example, page 13 in our presentation illustrates the uplift we've seen with a larger completion on a 10,000 foot Upper Wolfcamp well. We have also just finished operations on our largest Lower Wolfcamp completion to date, a well we call the Flying Ebony, where we pumped 2,400 pounds of sand per foot.

The production data from this well, along with the larger completions we're doing in the Upper Wolfcamp, will provide us critical data for the design of future completions, including the Tim Tam wells, which are scheduled to be completed in the second half of 2016.

For the remainder of 2016, the vast majority of the capital that we will spend in the Permian will be earmarked for acreage obligations across our Wolfcamp position in both Culberson and Reeves County. The total capital ascribed to acreage holding in the Delaware Basin is just over $200 million in 2016.

Part of this obligation drilling will include six two mile long infill wells in Reeves County, which recently commenced drilling. Similar to our Anaconda pilot, these wells will be drilled using a stacked/staggered pattern resulting in equivalent of 12 wells per section.

Once drilling is completed on this section, we will be down to two operated rigs in the Permian for the remainder of the year. Now on to the Mid-Continent. You will recall that we began drilling the latest Woodford development project on the east side of the Cana core in the fourth quarter 2015.

This development covers six sections of which Cimarex operates two sections. Due to some last minute changes in working interest, this infill project now consists of 47 gross, 22 net wells. Drilling is nearly finished and completion of these wells have been moved up. It is now scheduled for early October versus the first quarter 2017.

This change in scheduling was a contributing factor in our $50 million increase in capital expenditures for 2016. And our emerging Meramec play, we now have production data on 18 operated 5,000 foot laterals. Also, our third 10,000 foot lateral in the Meramec has been on production since early January.

Located in Blaine county, this well called the Dakota Carol 1H-2722X had a 30-day peak IP rate of 10.8 million cubic feet equivalent per day including 951 barrels of oil per day. That results in a condensate yield of around 278 barrels per million.

Page 21 of the presentation illustrates the average uplift, we've seen from the three long laterals in the Meramec versus the 5,000 foot laterals drilled to date. They have outperformed the shorter laterals by 62% within – by 120 days.

While we are very encouraged by the initial uplift in IP that we're seeing in these 10,000-foot laterals, we continue to carefully monitor the decline profile in order to determine the ultimate EURs for these long laterals.

To better understand the multi-zone potential for this area, we have designed a downspacing pilot which commenced drilling in the fourth quarter 2015 and has just finished the drilling phase. See slide 22 for an illustration of the design. The eight new wells will be stacked and staggered in both the Meramec and Woodford formations.

The spacing in the Meramec will be the equivalent of 10 wells per section made up of five upper and five lower staggered Meramec wells. The Woodford will be drilled with our standard nine wells per section development plan. Another Meramec spacing pilot operated by our partner Devon, was recently completed, and is in the early stages of flow-back.

The results from this five wells per section pilot will strongly influence our completion plans for the stacked/staggered pilot. Once drilling is finished on the infill sections, we'll be focused on holding our Meramec acreage. As you know, in late 2014 we added 12,250 net acres in the Meramec at an average cost of $1,650 per acre.

About $70 million of our capital would be invested in holding Meramec acreage in 2016. We currently have four rigs operating in the Mid-Continent region with plans to be down to one operated rig by July of this year. With that, I'll turn the call over to Joe Albi..

Well, thank you, John. And thank you all for joining us on our call today. I'll hit on the usual items, our first quarter production, our Q2 and full-year 2016 production outlook. And then I'll follow-up with a few comments on LOE and service cost.

As Tom mentioned with the help of stronger than expected base property and new well performance, our first quarter volumes, came in slightly better than anticipated.

Our reported total company net equivalent production of 973 million a day, beat our guidance projection of 925 million to 955 million a day and was up 3% from the 947 million a day that we posted in Q1 2015.

As expected, facility disruptions and processing constraints in the Permian did negatively impact our Q1 production to the tune of approximately 30 million a day. Our first quarter equivalent Permian production came in at 477 million a day, down 43 million a day from Q4 2015.

The decrease was expected and came as primarily a result of the facility downtime I just mentioned, as well as completing three net Permian wells in Q1 as compared to eight wells in the fourth quarter of 2015. With our Cana row four wells coming online in late Q4, we did anticipate a nice Mid-Continent posting during Q1 and we saw just that.

With the wells exceeding our planned expectations, our Mid-Continent volumes came in at 493 million a day. That's up 7% from the 461 million a day we reported in the fourth quarter and 11% from the 444 million a day that we posted a year ago in Q1 2015.

As we look forward into the remainder of this year, we've made a few changes to our completion schedule, including the addition of a frac crew in the Permian to help catch up on deferred completions from the downstream disruptions in Q1. And by advancing, as John mentioned, the timing of our Cana (15:47) completions to October of this year.

With our stronger than expected Q1 results, and these completion timing adjustments, we've increased our full year total company equivalent production guidance to 940 million to 970 million a day, up about, at a midpoint basis, 45 million a day from our beginning year guidance of 890 million to 930 million.

As compared to our original guidance, the acceleration of our Cana infill project, results in a significant decrease in the number of drilled but uncompleted wells on our books at the end of the year.

Our current model now projects 32 gross and 9 net Mid-Continent wells waiting on completion at year-end; that compares to the 57 gross and 24 net wells that we anticipated we'd have awaiting completion earlier this year, when we issued our beginning year guidance.

The acceleration not only boosts our 2016 total company guidance, but it increases our projected 2016 exit rate as well. With our new modeling, we now project our total company fourth quarter exit rate this year to be right in line with that of the 986 million a day that we posted back in the fourth quarter of 2015.

In the Permian, the Q1 facility downtime and processing constraints resulted in us deferring approximately three net completions into the latter part of this year. With the processing constraints anticipated to now be behind us, our plans are to add a second completion crew to help catch up – that'll be here in May and into early June.

And with the projected two rigs working the latter part of the year, as John mentioned, we're still forecasting approximately 50 gross and 30 net Permian wells to come online in 2016. That's flat with our previous estimates, but we've just really accelerated the pace here into Q2 and Q3.

So as a result, our projected number of Permian drilled and uncompleted wells will in essence drop fairly quickly here from 34 gross and 21 net wells here in May to 10 gross and 9 net on the books by year-end.

For Q2 2016, our projected guidance of $935 million to $965 million a day, reflects a drop in production from Q1 2016 levels, primarily as we await the scheduled Permian and Cana completion activity which is planned for Q3 and Q4. And to help provide you with some clarity on our projected completion timing through the year.

We completed five net wells in Q1, we're forecasting approximately 13 net wells to be completed in Q2 with approximately 44 net wells projected to come on line in Q3 and Q4. So you can see the emphasis in the later quarters as far as our completion activity is concerned.

Shifting gears to OpEx, our production group continue to make great strides during Q1 to further reduce our operating cost. Through their efforts, we realized additional and sizable cost reductions in items such as salt water disposal, compression, rentals and contract labor. As a result, our Q1 2016 lifting cost came in at $0.80 per Mcfe.

That was at the low end of our guidance which was $0.80 to $0.90 per Mcfe, down 6.3% from our fourth quarter average of $0.85 and down 17% from the $0.96 we posted for the average in the first quarter of 2015. With our cost control efforts, we're projecting our 2016 lifting cost to continue to fall in the range of $0.80 to $0.90.

I'd say we'll most likely be on the lower end of that range as we finish out the year. We're extremely proud of the efforts that our ops team has put forward to reduce our cost structure, all the while maintaining safe and efficient operations.

Tom touched on this, not only is doing so so critical for us to be able to compete in this low product price environment, but our reduced OpEx is also freeing up capital for our drilling program, making us a more efficient operator.

Since prices began falling back in 2014, on an absolute basis we've seen our total company monthly net operating expense drop about $5 million per month, which annualized equates to an additional $60 million that we can direct to our drilling program. And finally, a few comments on drilling and completion cost.

Although most drilling cost components remained somewhat in check during Q1, we were able to realize some modest reductions in service costs on the completion side, primarily in the Permian.

On the drilling side, we're keeping our focus on efficiencies as seen with our Q1 average Wolfcamp spud-to-rig release drill time, now down to 28 days as compared to 35 days in 2014.

On the completion side; in addition to the modest service cost reductions I mentioned, mostly in the Permian, we placed a strong emphasis on reducing our water sourcing cost by challenging our team in the planning, engineering and operating efficiencies in that regard.

The results of our efforts are just now beginning to make their way into our total well cost. As we continue to push the limit on our frac design and size, our completion costs will continue to dominate our total well cost, while we experiment with larger frac designs, many of our generic well AFEs still have stayed somewhat in check.

An exception is the Wolfcamp, where both our drilling and completion efficiencies have reduced our generic two-mile lateral Culberson lower Wolfcamp AFE to a range of $10.2 million to $11.2 million. That's down 5% from the $10.8 million to $11.6 million range that we quoted last call and down 22% from where we were in late 2014.

With last quarter's frac designs, our Cana core one-mile lateral wells, continue to run in a range of $6.6 million to $7 million, unchanged from the last call and down 16% to 17% from 2014, but with the larger frac designs that we're contemplating to be utilized here in Q3 2016, this range is likely to increase anywhere in a range of $500,000 to $600,000 per well.

And in the Meramec, our current one-mile lateral AFE still in the range of $7 million to $7.4 million. Again that is unchanged from last call and down 13% from late 2014 and also here, if we employ larger fracs moving forward, we could see an additional $500,000 to $600,000 in these AFE as well.

So in closing, we had another great quarter, we beat guidance, despite sizable downstream and weather disruptions.

We've made significant strides further reducing our LOE, our drilling and completion group remains focused on cost efficiencies – reductions and efficiencies, and optimizing the results of our fracs and our teams are tightly focused on maximizing the productivity and profitability of our wells all the while we're optimizing our investment program results.

So with that, I'll turn the call over to Q&A..

Thank you very much, sir. We will now begin the question-and-answer session. And our first question comes from Pearce Hammond of Simmons/Piper Jaffray. Please go ahead..

Good morning, and great quarter, guys. My first question is on slide 11, on the Culberson County Wolfcamp 10,000 foot laterals, the before tax IRR changed – moved higher significantly since your last update on this particular slide.

I was just curious what was driving that significant change?.

Yeah. This is John. There are several factors in there, the biggest driver is just an improvement in our type curve or expectation going forward. And that's really related to the – continually to increase our frac design on these wells.

We have three wells now with this current design which I talked about earlier at the 1,640 pounds per foot and those wells have been long enough now that, what's really impressing us is quite frankly lack of decline. These wells come on and they tend to have a very long flat period to them.

And we have enough time with those now that we've gained confidence in that type curve and that's led to a major change in our expectation for these wells going forward. I should also point out, though, as Joe mentioned, we actually have also in addition to that, seen some cost reduction in those wells.

So, with all that, factored together, that's led to the improvement you're seeing there..

Excellent. Thank you for that color. And then my follow up and this grows out of slide number 20 in your presentation on the Meramec. But looks like you had some do well results there on the 5,000 foot lateral and then also the 10,000 foot lateral, looks like they were slightly weaker than some prior ones.

Now, they may have had a bit of a higher oil cut. Just want to get some color on those recent well results in the Meramec..

This is John, again. Well, first thing I would say is, this is still an emerging play and for us, we're still out there doing both a combination of holding acreage, delineating acreage and testing frac design. And so, it's fair to say that some of the wells come in much better than expected and some come in less.

We're still learning a lot in regards to these wells, and there's still a lot that we think we can change or improve upon to make these wells even better. So, yeah, there is some variability there, especially, I would point out yes, with our 10,000 foot lateral we just announced.

It's also, well, I want to point out that we anticipated having a much higher yield than our previous two 10,000 foot laterals. And so, in that case, we did not flow it back as aggressively from a choke management standpoint. We were interested and with this one, particularly in seeing with choke management, how we could manage that yield.

So for that well in particular I don't know that the 30-day rate is as important to us as say the 90 or 180 day rate in terms of the rate we're flowing that well back..

Great. That's very helpful. Thanks again and good quarter..

Thank you..

And our next question comes from Drew Venker of Morgan Stanley. Please go ahead..

Good morning, everyone. Great results.

I was hoping you could speak to whether you can apply the same techniques you've used in the Wolfcamp A recently to the Wolfcamp D? And I know you said you're testing that with at least one well already, but does it have broader applications?.

Yeah. This is John. We are very encouraged by what we're seeing coming out of the Upper Wolfcamp D wells, with this continuation of improving to frac design and that's why we indeed went to our most current 10,000 foot lateral in the Lower Wolfcamp, the Flying Ebony to apply that design to it.

It's just now an flow back, we all have very high expectations for that well. But we also recognized that not any one well makes a trend this year.

But yes going forward, we're very encouraged and let me be also clear, we're not sure that we've really even reached even close to the end number in terms of these frac uplifts, that's why for that Upper Wolfcamp spacing pilot, even though we don't have a well under our belt, we're very comfortable stepping up in the total amount of sand that we're going to pump in those wells because the way we model it with a modest increase in IP and EUR it's a very economic thing to do.

So, we're very pleased with the progress we're seeing here, but we still think there's a lot more to gain..

Drew, this is Tom, I want to follow-up on that. We're very excited by the Wolfcamp A and certainly the results and the uplift we've reported is real and it's grounded in actual results.

We probably see the Wolfcamp A as being a better target overall than the Wolfcamp B but the Wolfcamp B is also outstanding, I mean so it's a question of great and outstanding.

But one other things I want to follow-up on is, one other things that make Cimarex strong is our presence in multiple plays and in particular with our footprint in Delaware Basin and our footprint with stack, we're doing a lot of innovation as are our competitors.

And every time, we see something that works, we look for opportunities to apply it elsewhere in our own portfolio. So, having that footprint in multiple plays allows us to really bring innovations in much more quickly than we could if were single basin player.

So, there are, as John said, we have a lot of running room in completion optimization in both Wolfcamp A, the Wolfcamp D, and I would add in stack both in the Meramec and Woodford. All of those plays are trying some things and that laboratory gives us ideas to apply across the board.

I don't know that we're even scratching the surface yet in a lot of areas, and we're very, very excited about some of the advancements we're reporting, but we have tremendous uplift yet to happen. And so, it's pretty exciting right now..

Thanks for the color, Tom. So just to follow up on that, the results obviously are great in the Wolfcamp A. I know it's been less tested in Culberson, because the returns, I think, for Wolfcamp D had looked so good, and you can hold the acreage by drilling down to the D.

But can you give us a better sense of how delineated the Wolfcamp A is across your acreage position?.

Yeah, this is John, it's not near as well delineated as it is for the D, that's a very fair statement.

The majority of our A drilling to-date has been – has mainly occurred in Culberson down in the southeast part, that's where we really recognize it and from the way we map it, but I would also tell you that we are now stepping out into other areas of Culberson, and I'm hoping in future earnings release to talk more about those efforts.

But, so far, it's been relegated more to a much smaller area in the southeast than the D, but that's just, as you mentioned early on, we were drilling Ds and a way to hold our acreage and hold all our rights with the Wolfcamp As we've been a little bit more selective, but now with these encouraging results we're seeing, we are quickly stepping out in the other areas of our acreage to get a sense of just how good this could be across the whole position..

Drew, there is tremendous future opportunity to test new zones and the same zone elsewhere in our acreage, not only within Culberson and Eddy County. So, we have a lot of work ahead of us, and it's definitely pointing us to get more and more excited about that asset..

And our next question comes from Will Derrick of SunTrust Robinson Humphrey. Please go ahead..

Good morning, guys. Nice update.

I guess first question looking over in the Meramec and Cana Woodford, on the completion time and moving it up to October, what's your expectation on when those wells are all going to come online?.

This is Joe. We're going to start to see the beginnings of that production late Q4 and into early Q1. We flow the wells back, they clean up and just the timing of the complete row of activity is such that it will end up pretty close to what happened this year with row four, carrying into not only Q4 but into Q1 of this year.

I think we'll see the same thing next..

Okay, thanks.

And then also up there, in terms of the completion design that you all are looking at, how does that differ from what you've seen in the past? Are you using the higher intensity completions you've done recently? What are your thoughts there?.

Yeah. This is John.

I think you're referring to our Woodford development wells, correct?.

Yes, sir. Yeah..

Yeah. We – on our previous row, row four, we did quite a bit of experimentation with the frac design there. And in fact, in one case, one section in particular we pumped upwards of 3,200 pounds per foot. That section and those wells are outstanding. I mean, we are just really impressed with the results coming off of that section.

And so going forward into this new row development, our base case, and I think Joe alluded to that why we're anticipating the additional cost is to go up to that size of a frac job in the Woodford Shale at 3,200 pounds per foot, whereas before, our standard was more around 1,800 pounds per foot.

Again there is cost that are associate with it, but based on the performance we're seeing in on those wells, it's well worth the additional cost to do that. So, that's our go forward plan there for that next row development..

Thank you. And our next question comes from Arun Jayaram of JPMorgan. Please go ahead..

Hey, good morning.

Tom, I was wondering if you could perhaps give us some more details on the stacked/staggered pilot that you're doing in the Meramec? In particular, I just wanted to see if you could comment, maybe, on where your completions have been landing today? And just your general thoughts around this pilot coming up?.

Well, I'll answer your question, then I'll turn it over to John, he will have some additions. Landing zone is a real point of experimentation in the Meramec. In the early wells for Cimarex and for many of our competitors, it was, quite frankly, a monkey see, monkey do approach.

The Meramec wasn't the most obvious reservoir and so, early wells were kind of targeted based on mimicking what offset wells had done. And as we've continued to delineate the play, Cimarex and the industry has tested different landing zones.

We're testing two different landing zones in that Meramec stacked/staggered pilot and we continue to experiment with landing zones throughout the play. We're seeing landing zone to be a overprint on production that's greater than we initially anticipated.

There are some areas of the play that have underperformed, that we're going back in now and testing new landing zones, new completion techniques and we're quite encouraged by the potential there. But it's a real open part of experimentation as to where we land these laterals.

John, do you want to add to that?.

The only thing I would add is that for that particular spacing pilot, we went the extra step where we went ahead and drilled, what we would call a pilot hole to get additional log information, to really refine where to put those laterals in the Meramec.

And I must tell you, I feel pretty good about how we've done this for this particular stacked/staggered pilot in regards to the data we've received from that pilot, which really helped us pinpoint exactly where we're going to put these laterals.

Whereas before, Tom's absolutely be right, we would have looked just say, say two sections over and to see what the company XYZ does as far as where they landed it. I think we're recognizing that for the Meramec, I mean, every section might have just a slight different tweak to where you want to put that lateral to achieve maximum performance.

And that's some of the lessons we're learning as we go forward. So, I'm very excited about the stacked/staggered pilot and I'm looking forward to when we finally get around to completing it. But as I mentioned, we do have a strong interest in the other operated pilot that is just flowing back now.

And there was a lot of science associated with that pilot and we're very anxious to kind of see the flow back, review the science data. And that's why we're not in any rush to go out and frac our current stacked/staggered till we see some of those results and see how we might then tailor our fracture design for our pilot..

Great. And just my follow-up, you drilled and completed some wells on the updip portion of your acreage and the downdip.

Any takeaways or conclusions around well performance on the updip or downdip? Are they similar?.

This is John.

I think you're referring to Meramec wells or Mississippi wells?.

Pardon me, it's slide 22?.

Yeah. Well, I guess, I need to just adopt the stack vernacular, I guess..

Sorry..

Yeah, we have. Again, delineation wells, sometimes the results were not as we were hoping, other times they're outstanding. So, it's kind of what you expect early on in a play like this where every now and then, you hit a homerun and then – now and then, you hit one that's not so good.

And then really, it's the ones that don't quite meet our expectations that we really, really spend a lot time on saying, okay, what could we have done differently, where could we have landed differently, how do we make it better. And so, yeah, I'd still think there is a lot of improvements still to come in this play based on what I've seen so far..

Yeah, Arun, Cimarex, I think speaks a little differently than some other companies about the Meramec. I would say, first and foremost, we're very excited about the Meramec. We have a program that is in our estimation top tier. We study our wells.

We study our competitors' wells, and we think our results are in that upper class, and we have a lot of data to back that statement up. That said, we do see a fair amount of reservoir variability through the play. We don't view the Meramec as a blanket play.

We see a fair amount of variability and that's why John talked about the importance of having pilot holes when we target our laterals. The landing zones can change in short order. The yield can change in short order and the well-performance can change. Now, we're fairly confident based on the work we're doing that all if not most of those are solvable.

Solvable with completion techniques, solvable with smart application of your landing zone, but it's an evolving story. And as we always have done, we're going to talk about results and our results stand on their own. They're quite good..

Our next question come from Dan Guffey of Stifel. Please go ahead..

Good morning, everyone.

Focusing on Reeves County, can you update us with the cumulative production and days online for the Big Timber? And then whether or not you think the strong result is repeatable? And then I guess a few comments how the Upper Wolfcamp in this area stacks up to other Delaware Basin assets that are in your portfolio?.

Yeah. This is John. I don't have the Big Timber production in front of me right now; we can probably give that information back to you. What I do know is based on that well result as well as some other competitor wells in the area, we feel really, really good about that acreage over there from a 10,000 foot lateral standpoint.

So good, as I mentioned in my comments, that we are moving forward with the development plans that we're doing in Reeves County with the 10,000 foot stacked/staggered development that we'll initiate – in fact that's started drilling on right now.

It's a very good area for the Upper Wolfcamp and I think our Anaconda pilots really demonstrated to us that it's not just a good area, it's thick enough to support multiple levels of wells in that shale.

So going forward, we're very, very excited about that area and the results we'll get, especially from this development that we're currently drilling right now..

I guess, as it competes for capital in other areas in your Delaware Basin program, I guess, assuming commodity price, assuming the strip currently isn't competitive with other assets in your portfolio, do you have any constraints such as infrastructure that may limit future development as you head into 2017?.

Sure. I'll take the stab at that. It competes very well with the other things we have in our portfolio. The thing that's driving a lot of our capital this year, as we've mentioned. is acreage holing. And in particular in Reeves, we have a lot of acreage there that's still on a primary term that we definitely want to hold.

So, there is quite a bit of capital going that way.

It is fair to say that once we get to the point, where we've excess capital beyond holding acreage, then we have to look – and any time we make those decisions, then it's factors such as, yes, always rate of return and takeaway issues and water sourcing as Joe mentioned, and other factors that lead to where we deploy that capital.

But in terms of optional capital spending Reeves, holds its own pretty well compared to Culberson right now..

Yeah, Dan one of the things that drives that, isn't just the rocks, but it's also our ability to drill that longer lateral..

All right..

And so one of the things that makes Culberson such a beautiful asset for us, not only is it multiple zone, some of which we haven't even tested yet, but we can drill long laterals at will, there is no constraint there over that entire acreage block.

That's generally true in Reeves, but there are areas where that's not true and what Cimarex is doing and a lot of operators are focused on, I think there's wide spread recognition of the economic uplift of these longer wells. And so there are some trades going on to let us block up that area and be in a better place to drill long laterals.

But as far as the rock goes, it's highly competitive with other things we've got..

And our next question come from Jason Smith of Bank of America Merrill Lynch. Please go ahead..

Hi, good morning, everyone..

Hi, Jason..

So to kick that prior question on capital allocation maybe a step further, and just thinking about the portfolio as a whole. Now that you've drilled more wells in the Meramec and are getting more confident in your Upper Wolfcamp wells – I'm not going to ask you, Tom, when you're going to go back to work.

But just a question around where that first incremental dollar goes, when you do go back to work?.

Back to work, Jason.

You see golf pants on us?.

I should have worded that one a little better..

Yeah. Well, the challenge is it's a really evolving story. And if we had the snapshot of today, and we said, you know what, based on what we know today we have to make long-term capital allocation decisions.

There'll probably be a bias for a lot of our Delaware program not only the Bone Spring but the Avalon looks quite good and these long wells in the Wolfcamp, those are all cream of the crop.

But we are still seeing not only the Meramec but I'd still throw the Woodford in the mix, that with our – the experiments we're doing with our completion innovations, we're seeing a really improving story there. And so, in the near-term, we're going to continue to experiment.

I mean, we want to have an active program in both basins because what we learn is setting the stage for a long-term capital allocation. I mean, you've heard us talk about in the Woodford, we have some projects that would be stacked Meramec and Woodford that once we kick them off, they are hundreds of 10,000 foot long wells.

I mean, it's a real opportunity for Cimarex. So we're not just going to snapshot today its evolving story..

Yeah, this is John I'll just follow-up. Especially in today's market, to what Tom said, completion costs are really surprisingly enough to me they've gotten a little softer on the service cost side. But as an example to just take our total company frac stats now is the time to try this experimentation.

Our early 2016 average frac statistics compared to our 2015 averages such that we're drilling – we're completing 11% longer laterals, pumping 23% more fluid, 30% more sand and when you look at it all-in, cost reduction per well including water sourcing, we're seeing a reduction of 5% and our completion cost even with those increases.

So now is the time to try those experiments..

Got it. Thanks. And just one quick one on the Avalon. A few of your peers have talked about it this quarter. I think that it's held by production for you guys.

Any change in your thoughts around allocating some capital there or doing any further tests in that zone?.

Well, this is John. Actually I think about two days ago, I was in Midland and reviewed our latest Avalon well with our latest generation of frac design and it's fantastic, it's a great well. And the challenge again as you mentioned is all held by production.

And so right now, we would must rather spend that capital to hold the rest of our acreage position throughout the Wolfcamp. But, I got to tell you, I got a team down there, this is just itching to go on a two-mile lateral and the Avalon and the numbers look great.

But it's just a matter of capital allocation right now, where we think obviously our best interest is to go out there and deploy that capital and hold our acreage for this year.

But they're raring to go and at some point, especially since we've already got a number of the spacing pilots done where we're already at eight wells per section of each interval within the Avalon, there are several benches.

So it looked really good, it's just a question of when we get to a point where I guess as someone said, we get back to work and start drilling some more wells out there..

And our next question comes from Jeanine Wai of Citigroup. Please go ahead..

Hi. Good morning, everyone..

Good morning, Jeanine..

So on the fourth-quarter call, you all provided us with your estimated year end 2016 cash balance of I think it was $400 million.

And with the $50 million CapEx increase that you announced last night, what's your new estimated cash balance at year end 2016? And realizing that the strip has moved up in the meantime?.

Yeah. Jeanine. Hi, good morning this is Mark here. Yeah using a early May 2 strip price with that incremental capital in our new volume forecast, we're still expecting actually, it's gone up a bit from $400 million to maybe $450 million, the way it looks right now, Jeanine.

So, it's something we're closely watching and seeing how that moves through the year. But even with the increased capital you expect that cash balance to be even a bit higher than we had previously forecasted..

And Jeanine, I want to give just a little bit of detail in that CapEx increase. On our fourth quarter call, we were at a range of $600 million to $650 million and we said the upper-end of that $650 million would be if those completions rolled into 2016. So, those completions have rolled into 2016.

So if we wanted to benchmark us against the fourth quarter, we'd be at that $650 million number we talked about. Now we gave a range of guidance of $650 million to $700 million. So, really we kind of deal with midpoint, midpoint is $675 million.

So really it's a $25 million increase over where we were in our fourth quarter call given that those completions are accelerated. So although, it looks like $50 million, I think that's probably just an absolute upper-end of that..

Okay, great, that's really helpful. And my follow-up, so it sounds like you have more cash – slightly more cash than you previously thought, and you're finding more ways to spend your cash flow.

So what are the next opportunities you have to spend more CapEx on, if you spend any more at all?.

Well, I'll take that, this is Tom. We've got lots to do and certainly we have a lot of projects that are begging for capital in the Delaware Basin and these are as John said, the list is long and long and long. And then this Meramec delineation probably is one that we'd easily be able to throw a little capital at.

And then we're also, we've talked in the past about we're doing some exploration. I mean, this is the time when we are kind of keying on what our organization does best and our value proposition has always been centered around doing good geoscience, finding ideas that give us competitive advantage and getting acreage positions ahead of the crowd.

And so we're putting a lot of emphasis on that as well and there will be some opportunities to come out of that. So depending on what the landscape looks like over the next six months, I think there is a reasonable chance that we may do a little more. We're going to need to see the fundamental shore up.

We're going to need to have confidence that this price file is affordable, but we are ready to roll with cash and balance sheet to do it..

And our next question comes from Michael Hall with Heikkinen Energy. Please go ahead..

Thanks. Maybe follow up a little on that, while we're on the topic. Just bigger picture, as I think about capital allocation in this cycle, what's your perspective on out-spending cash flow? You mentioned earlier in the remarks that you think within cash flow on the strip, you can get back to growth in the years ahead.

I appreciate that certainly, but will end the year with a substantial amount of cash on hand, already a very differentiated balance sheet. And I'm just thinking through this – where we are in the cycle. You've got productivity trending up and to the right. Costs are at cyclical lows.

How do you think about out-spending cash flow, as we move further forward in 2017? Given the current environment, is that something you'd be more likely to do than at other points in the cycle?.

Michael, I'll take that one. This is Tom. We are very willing to outspend cash flow, and the way I think about it is very simple, it's about creating value. If we can borrow money at low interest rate and invest it in the high interest rate, I think as long as we're confident in those returns that's a value creating proposition for our shareholder.

And with our top-tier assets, I think our bias as a management team is to bring that value forward for our shareholders. Now that said, when you drill a well, those returns are predicated on a discounted cash flow that makes some significant assumptions about future commodity pricing. And the quality of that assumption is key.

If we get to a point to where we gain confidence about that future commodity pricing, if we think that the markets have kind of worked themselves out and they're in balance. And we get asked about at what price file, it's not about the price file. We have the opportunities today at this price file to accelerate and add value.

It's about our confidence in that price file and that the markets are in balance and that we think that it's a fairly low volatile proposition. So, I think our bias is going to be to invest, use our balance sheet and yes, we'd be willing to modestly outspend cash flow.

Mark, do you want to answer that?.

Yeah, no, I completely concur with Tom here. It's gaining confidence in our future curve. And now we're seeing kind of same thing as we think about increasing activity, the current curve suggest that we have lots of economic wells to drill. But we've seen a couple head fakes seen the commodity price reverse.

A lot of movement to date has probably been driven on expectation of continued oil production than inventories improving, which we're starting to see. But we want to see more continuation of that and making sure that forward strip is really kind of intact and based on the fundamentals..

I'll say just one last thing on that. We do an annual look back, and many of you've heard us talk about that in the past, and John and I spent two hours yesterday, reviewing our annual look back, going back on our history of economic performance. And there are some real lessons there.

And one of the lessons is you really have to have confidence on that commodity price file. I mean there's a lot of lessons in that. And it's about being good at the business, making sure you have high quality assets, and being very prudent in your investments.

And I think Cimarex has a long history of success on that front, and we're going to continue to stay disciplined. We have the luxury of top tier assets, and outstanding returns in this current price environment.

So we're going to be ready to roll, and I think you – I think it's reasonable for you to expect with a little stability in commodity pricing, you will see Cimarex pick up the pace..

I appreciate that color. That's very helpful. I guess my follow-up, stepping way back again, high level. If you just look at the Meramec today, and this might be a little tricky to answer, but just given all the moving pieces in the world.

But if you look at the Meramec today, and you try to compare that to the year of learning curve for the Wolfcamp and the Del Basin.

So looking back in time, in the Delaware Basin and on Wolfcamp, what year would you think we're in if we were to try and characterize the Meramec today? Does that makes sense?.

Well, this is John. And I guess I'll take a stab at it. It's interesting you asked that. I've been actually kind of going down memory lane, and just recently talked with our lead generator for Culberson. And I'd forgotten that Culberson started in 2006 for us.

So, we're in year 10 in Culberson and I'm going to tell you right now, we still don't know everything about Wolfcamp and Culberson; obvious by our well results and what we continue to do. Whereas we're in year two of Meramec and I just think we've scratched the surface.

There's just so much that we are learning with each well, both us and our competitors and in some way, yes, it is happening at a far more accelerated paced than Culberson ever did because we were the only game in town when we were doing Culberson.

Here, as you well are aware, we have at least five other operators drilling all around us, and we're all looking at each other kind of figure out what works best, where should I go, where do I land.

And so clearly, it's at a much more accelerated pace, but sometimes I wonder maybe too fast, honestly, in that you never really get a chance to really catch your breath and look at the data and look at the results – not just that 30-day rate as I mentioned – but what is the well doing 180 days later.

And is it surprising you and so – there are sometimes I wish we went to little bit slower to be honest in Meramec – but in some ways we're being forced to just with the competition. So, I don't know if that answers your question, but that's just my perspective on what's going on in the Meramec right now..

We saw the same – this is Joe. We saw the same thing in Cana. We kicked off that program in 2007 and it's 2014 where a frac design revolutionizes the play. So, boy, that's a tough question. Where is the end-game on how well these wells can produce, is the real question there..

And our next question comes from Paul Grigel of Macquarie. Please go ahead..

Good morning, and actually a good segue into the question I had here, focusing in on the Meramec.

Going back to the commentary on the landing zone and some of the variability, how do you address those challenges in the variability, as you apply the downspacing tests, going forward, both the results from yours and Devon's, across the broader acreage position?.

This is John. That's a great question. It's something that we talk about all the time. Part of it is sometimes in some of these sections, we're blessed to have, quite frankly, quite a bit of vertical control within the section to give us an idea of what variability we should expect.

In other cases, quite frankly we've reached the point, we said we just got to go ahead and drill and create that information by drilling a pilot hole.

I would also tell you in some ways we're putting even more renewed emphasis on our 3D seismic coverage because at least with 3D seismic, you are sampling the geology, so to speak, in a much finer scale.

So we're really trying to incorporate that as a tool to help us along with the subsurface control and the horizontal wells that have been drilled to date to build a more comprehensive model of what's going on and what we should expect going forward.

I would just tell you that, again, right now, we have expectations for every Meramec well we drill, and each one in some way typically surprises us fortunately to the positive, but also sometimes to the negative.

So as we go forward, we'll continue to look for ways to get more comfortable with that variability and be able to adjust to it appropriately..

Well, thanks. And then maybe a follow-up here, for Tom.

Could you just talk about the current M&A outlook and what you're seeing in both the Permian as well as in the Mid-Con?.

Well, we see opportunities and we're always in the hunt as we've talked in past calls. There's not a point in time, where we're not evaluating something.

Our challenge is we want to create value and I think if you look at the history of M&A, in E&P and in other industries, it's a fairly challenging landscape for acquirers to make the argument that over the long run, that's been a real good value-creating strategy.

Now, hey, maybe we count our money differently than others do, but we are who we are and we want to be forthright in our approach to the business.

We look at full cycle value creation, we look at time to capital, we look at what the pace of development will be and will that generate a rate of return for our shareholders? Some of these splashy acquisition deals are good for everybody that participates except for the shareholder. And our focus first and foremost is on shareholder value.

So, as I've said in the past, there are assets we covet. I mean, there are some really outstanding assets on the market and some really outstanding assets that have transacted. And we've been in that game and we often are at a valuation point where we are just flat out unwilling to get the number that's the winning bid.

We ask ourselves at every turn what's our competitive advantage. If we don't have a competitive advantage, and that's generally either information, science or our ability to execute well above and beyond our competitors, then we're just bidding discount rate and commodity price forecast with a group of very well-funded competitors.

And that's just not a winning proposition for the Cimarex shareholder. So, we look – I'm very hopeful that there'll be opportunities for us and when we find the right one, we'll strike. But it will be right because we had a competitive advantage..

And our next question comes from John Nelson of Goldman Sachs. Please go ahead..

Good morning. Thanks for taking my questions. We've already belabored the re-acceleration point.

But if I could just ask, would it be reasonable to assume the planned drop of rigs around midyear is probably a good catalyst for you to reevaluate if that commodity outlook has stabilized, rather than risk losing efficiency gains – efficiencies kind of with those rigs?.

Yes, that's reasonable. Hey, we're not happy about going down to four, then three rigs, but we're going to do what we need to do to preserve that balance sheet and make sure that we're well positioned for the future. We may be getting the wrong feedback.

We've always kept our debt low and our conclusion from what we've seen over the last 24 months is that was a prudent course of action because we have a lot of flexibility today in an arena where many of our competitors do not.

So we're going to be careful, but nobody is unhappier with us going down to three rigs than we are, but it's what we have to do and we are going to stay disciplined..

And this is Joe. I'll follow-up, from a rig standpoint, when we added rigs earlier, a couple of months back, we got good iron, good crews. And I don't – in fact one of the rigs we got back drilled a record well.

So I think the quality of the rigs and the people right now when – if and when we do pick them up, I feel very confident we will get a good efficient optimized service provided to us..

That's helpful. And then just for my follow-up, I appreciate the help on providing the exit rate in your commentary.

Should we expect oil mix to be constant, as well, with the 4Q 2015 level? Or should that be down?.

For the year, we may end up being slightly more on the gas side at the end of the year.

You want to add to that Mark?.

Yeah, no, it's pretty consistent, John. We're at 28% oil in the first quarter and mid-year within that 0.5% of that is what we see for the fourth quarter. So it's pretty consistent..

Thank you. This concludes our question-and-answer session. I'd like to turn the conference back over to Ms. Acierno for any final remarks..

Thanks, Rocco. So, before we signoff, I have received some information on the Big Timber well, so I can give you the Q production, Dan, if you're still on. So, it's produced for 320 days. It's produced 250,000 barrels of oil, and about a 1.1 Bcf of wet gas. So, with that, we'll say good bye, and have a nice day. And thanks for joining us..

And thank you, ma'am. So this conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day..