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Cimarex Energy Co (NYSE:XEC)
Q4 2020 Earnings Call
Feb 23, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the XEC Fourth Quarter 2020 Earnings Release Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Caterina Papadimitropoulos. Please go ahead, ma'am.

Caterina Papadimitropoulos -- Investor Relations Analyst

Thank you, Chuck. Good morning, everyone. Thank you for joining our fourth quarter 2020 earnings conference call. An updated presentation was posted to our website yesterday afternoon. We may reference our presentation on our call today. As a reminder, our discussion will contain forward-looking statements. A number of actions could cause actual results to differ materially from what we discuss. You should read our disclosures on forward-looking statements in our news release and in our latest 10-K for the risk factors associated with our business.

We plan to file our 10-K later today. Our prepared remarks include an overview from our CEO, Tom Jorden; followed by comments from Cimarex CFO, Mark Burford; and Blake Sirgo, Vice President of Operations. We also have John Lambuth, Executive Vice President of Exploration on the line. As always, and so that we can accommodate more of your questions during the hour we have allotted for the call, we'd like to ask that you limit yourself to one question and one follow-up. Feel free to get back into the queue, if you like.

With that, I'll turn the call over to Tom.

Thomas E. Jorden -- President and Chief Executive Officer

Want to begin by expressing our well wishes for any of you that may have been impacted by the recent severe cold weather. We were all caught by surprise at the severity of the event and the collapse of infrastructure that resulted from it. Like many of our peers, our operations were significantly impacted by the extreme cold weather. The good news is that our organization -- our operations are almost back to normal after an unbelievable effort by our organization. Mark will provide more detail on the impact to Cimarex. Despite the tremendous challenges in 2020 and in many instances, because of them, Cimarex is a much stronger company as we look ahead.

We entered 2021 with a lower cost structure, better asset performance, our commitment to financial performance, our continuing focus on meeting today's ESG challenges and with our recent dividend increase, a reaffirmation of our commitment to the evolving business model of Shale 3.0. We generated good operating results in 2020 and are optimistic about the recovery in oil and gas demand and pricing as we look ahead. Fourth quarter 2020 oil production came in at 68,000 barrels of oil per day, which was 3.5% above our guidance midpoint. Total capital for 2020 was $577 million, which was below our guidance of $600 million. We generated $279 million of free cash flow after our dividend, and exited 2020 with $273 million cash on hand. Blake will comment on our cost structure, and John is on the call to answer any questions regarding asset performance. Delivering in our commitment to return cash to our owners, we increased our dividend 23% to an annual rate of $1.08 per share.

Although future increases will depend upon market conditions, we approved our recent increase with an analysis that included the potential downside of a $35 flat oil price. Our plan for 2021 reflects our commitment to financial prudence and free cash flow generation. We expect to invest $650 million to $750 million in 2021, with oil production forecasted to grow 2% at the midpoint. More importantly, at $55 oil, our plan calls for us to invest less than half of our cash flow, generating approximately 48% free cash flow after the dividend. At a $35 oil price, free cash flow after the dividend is projected to be 9% of our total cash flow. Last year, we discussed our commitment to Shale 3.0, including our long-term intention to annually invest 70% to 80% of our cash flow. Clearly, our 2021 capital investment plan undershoots this range. We view 2021 through a lens of caution. Although there are many reasons for constructive outlook on both oil and gas prices, we would like to see a robust restart of the world economy, and a balance of supply and demand fundamentals before we would consider the 70% to 80% investment range.

At Cimarex, capital planning has always been about investment returns through the cycles. Our goal is long-term profitability, the generation of significant free cash flow and returning cash to our owners. Moderating our growth in response to supply and demand fundamentals is the best way to achieve these long-term goals. We think that our 2021 capital investment plan is prudent, balanced and will leave us well positioned with great flexibility for future years. In a cyclic commodity business, flexibility is the coin of the realm. Our 2021 plans involve a significant amount of New Mexico work, most of which is on federal lands. On the heels of last month's executive order, which suspended federal permit decision-making authority in regional offices, we redirected all New Mexico activity toward Texas projects. We have a deep inventory of top-tier projects in Texas. And fortunately, there were several that were shovel ready. Owing to the executive order coming at a fortuitous time when we were mobilizing between projects, we were able to pivot from New Mexico to Texas within 48 hours of the executive orders publication.

After further analysis, we are confident that permit activity on existing federal leases will continue relatively unabated, and we have restored significant New Mexico activity into our 2021 program. We look forward to working with the state and federal government as we develop our leasehold. We are also continuing our emphasis on environmental excellence in 2021. In 2020, we set aggressive high-pressure flaring and methane intensity goals, linking executive compensation to their achievement. As outlined in our investor presentation, our organization crushed both goals. They accomplished this through diligence, creative engineering and advanced data analytics. Our environmental goals for 2021 will continue to challenge our organization and comprise 30% of the executive team annual incentive metrics. Before I turn the call over to Mark and Blake, I want to comment on the tremendous challenges we faced in 2020, and acknowledge how proud we are of our organizational response.

It was easy to be humbled in 2020 by the hardships that so many of us face and by the valiant efforts shown by healthcare providers, emergency responders, essential workers and educators. In a time when our offices went to remote work, our field personnel got up each and every morning and provided critical attention to our assets. They kept our production flowing and continue to bring new wells online. They have the same health concerns for themselves and their loved ones that the rest of us had for our own, but they did not have the luxury of working remotely. Although we are deeply grateful to all of our employees who gave it their all to keep Cimarex healthy and prosperous during 2020, none of us deserve our gratitude as much as our field staff. They are an example of what excellence and dedication look like.

With that, I'd like to invite Mark to discuss our financial results and outlook.

Mark Burford -- Senior Vice President and Chief Financial Officer

Thank you, Tom. Good morning, everyone. I'll first discuss our 2020 financial results and then move on to our 2021 outlook. As Tom described, Cimarex's 2020 operational performance generated a substantial amount of free cash flow, further strengthening our investment-grade financial position. We exit 2020 with net debt of $1.73 billion, a decrease of $178 million from 2019. In the fourth quarter, we also repurchased 55% of the outstanding 8.125% preferred stock for $43 million. We remain focused on maintaining and improving our strong financial position, generating free cash flow and providing cash returns to our shareholders, as is demonstrated by the 23% increase and a regular cash dividend to an annual rate of $1.08 per share.

Our fourth quarter total capital investment was $136 million, including $101 million of drilling and completion capital. Full year 2020 capital investment was $577 million, which was a 56% decrease compared to 2019 and 4% below our guidance range. Our 2020 total cash operating costs comprised of LOE, workover, transportation, production taxes and G&A, totaled $7.46 per BOE, which decreased on a per unit basis 8% as compared to 2019. On an absolute basis, total cash cost in 2020 decreased $134 million or 16% as compared to 2019. Adjusted cash flow from operations in the fourth quarter totaled $257 million, and we generated $97 million of free cash flow after dividend. For full year 2020, adjusted cash flow from operation was $944 million with free cash flow of $372 million and $279 million after the dividend. Moving on to 2021 outlook. We expect 2021 total capital investment of $650 million to $750 million, bringing on 73 net wells on production. The majority of the capital is being directed to the Permian, is probably less than 10% to be invested in the Anadarko Basin.

Total production in the first quarter of 2021 is expected to average 65,000 to 69,000 barrels per day, with total equivalent production to average 205,000 to 225,000 BOE per day. First quarter guidance includes an estimate for the weather impact on production volumes in both Permian and Mid-Continent regions. We currently estimate, on average, our first quarter volumes are being negatively impacted by 5% to 7% from winter storms, which is around 4,000 barrels of oil per day. For full year '21, our oil production is projected to average 75,000 to 81,000 barrels per day. We expect to run two frac crews in the Permian for most of the year, resulting in a projected oil exit rate growth from fourth quarter '20 to fourth quarter '21 of over 30%.

Total equivalent production is expected to average 235,000 to 255,000 barrels of oil equivalent per day. Looking at the '21 plans in terms of capital investment rate and potential free cash flow, we illustrate on slide five of our investor presentation two price scenarios of $35 WTI and $55 WTI to give perspective on reinvestment rate and free cash flow generation. At $35 WTI, we project our total capital reinvestment rate to be 79% of our cash flow. At $55 WTI, which approximate recent forward strip prices, our capital investment rate is 45%, with 55% free cash flow. That would be free cash flow of approximately $850 million for the year, and we'll estimate exiting the year with more than $900 million of cash on our balance sheet. At recent strip prices, we'd achieve our goal this year of having sufficient cash to retire our 2024 notes of $750 million, positioning us to evaluate other options, returning cash to shareholders through further sustainable growth of our regular dividend and/or instituting a variable dividend. Our asset quality, cost structure and organization put us in a great position to generate significant returns and free cash flow for owners in 2021 and beyond.

With that, I'll turn the call over to Blake.

Blake A. Sirgo -- Vice President of Operations

Thanks, Mark. We ended 2020 with and are currently running five rigs and two completion crews in the Permian and one rig in the Anadarko, a marked difference from the one rig and no crews we had running last June. Our 2020 Permian Basin operated D&C capital cost per lateral foot came in at $944 per foot, which was down 15% from our 2019 average. Late 2020 D&C cost averaged $800 to $850 per foot, and we expect to stay within this range throughout 2021. While we have recently seen some increases in service rates and have incorporated those into our go-forward cost, we expect some of the inflation to be offset by efficiency gains. Our operations teams continue to deliver in 2020. With our average drilling feet per day of 34% and completed feet per day up 29% compared to 2019.

These efficiency gains were driven by many factors, including continued multi-well pad drilling, off-line cementing and tank battery commingling. Hats off to all our operations teams who continue to find new ways to increase efficiencies, lower costs and challenge the status quo. A new initiative we are currently pursuing is the electrification of our D&C operations as well as field compression. Of note, we have been working closely with Halliburton, to develop electric frac pumps driven directly from our Cimarex-owned power grid. three grid powered frac pumps have been in operation since November of 2020. We have gathered valuable data on fuel savings and emission reductions while also observing a 30% to 40% increase in pump rate due to the on-demand power available from our grid. We are incorporating this data into other projects, including the electrification of drilling rigs and compression, to guide development of our power grid in Culberson and Reeves County, Texas. These large contiguous assets that include Cimarex-owned and controlled power grids provide the scale and inventory needed for these electrification projects. We plan to continue to invest in our power grids during 2021, as we firmly expect these grid investments will lead to a lower cost structure and substantial emission reductions for many years to come.

Our 2020 lifting cost came in at $3.09 per BOE. And we are guiding to a 2021 lifting cost of $3.10 to $3.60 per BOE. Our 2021 LOE includes increased workover activity, along with newly instituted maintenance programs, focused on limiting emissions, reducing spills and improving asset reliability. And lastly, a few operational comments regarding the recent storms that impacted our operations in both the Permian and Anadarko. Almost two weeks ago, when it became clear that these storms could be significant weather events, our operations teams began putting plans in place to keep our operations running during the storm. We mobilized our entire field staff, which worked diligently and safely through extremely tough conditions. Our teams brought in road clearing equipment to keep trucks hauling, obtain steamers and heaters to deal with freezing issues, and worked closely with our midstream partners to maximize product flowing to market. During the storm, we did encounter frac downtime due to logistical issues with sand, but our drilling rigs maintained operations throughout the storm. Thanks to these efforts, Cimarex was able to safely keep a significant portion of our operations running throughout the storm. This was an all-hands on deck event for Cimarex, and our field staff efforts are truly commendable.

And with that, we will now take questions.

Questions and Answers:

Operator

[Operator Instructions] And the first question will come from Arun Jayaram with JPMorgan Chase. Please go ahead.

Arun Jayaram -- JPMorgan Chase -- Analyst

Yeah, good morning, Arun Jayaram from JPMorgan. Just a quick question here, Mark, in your prepared comments, you talked about perhaps the Board evaluating a variable dividend policy, we did note of the dividend increase. So could you provide a little bit more meat behind the bone? And obviously, I think you said $850 million of free cash flow this year, on your updated guide at $55. So just want you to give some more color around that variable dividend commentary.

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Arun. With our current emphasis on tunning cash for having sufficient cash to retire those 2024 notes, that's our first priority, as we discussed. And second priority has been going to increasing our regular dividend on a sustainable basis. So we're checking the sustainable dividend growth this year. And we'll see how prices really do stay, and we're very optimistic that $55 could come true, but we've seen enough volatility in commodity prices. We're not going to make any decisions around that at this point. We'll make sure we see the cash flow come through and our cash came in on our balance sheet, and then we'll make further decisions then. But definitely, our Board has been open to discussions on certainly a sustainable regular dividend growth, very supportive of that and further open to discussions on a variable dividend.

Arun Jayaram -- JPMorgan Chase -- Analyst

Great. Great. And Tom, my follow-up is, you mentioned how Cimarex had been kind of just -- had been potentially pivoting activity between New Mexico and Texas, just given some of the rulings from the Department of Interior, the temporary suspension. So I just -- I was just wondering why you guys were considering pivoting from New Mexico? Because it was our understanding that if a project has been permitting, that you could continue to operate that project. So maybe a little bit of color around your discussion around that pivoting of activity between both states?

Thomas E. Jorden -- President and Chief Executive Officer

Well, sure, Arun. I think in hindsight, I would say we overreacted. And that's exactly the reaction I would have wanted us to have. If I can go back to ancient history a full month ago, this was 24, 48 hours after the Keystone XL discussion. And we had two rigs in route to drill a fairly large project, and we did need additional right-of-way. The drilling permit is only one of multiple permits or approvals that one needs to execute a project on federal lands. The drilling permit is often issued or applied for 18 months before the well is spud. If anything changes, either a cementing program, casing program, fairly immaterial change, you need a sundry, you file a sundry notice and you need approval. And then often, while a project is under way, you're still securing right of way, which involves federal permit approval, even to the extent of laying water lines on the surface for your frac job, if you cross federal lands, it requires federal approval. So when they suspended all local decision-making authority on permitting, we were in a fortuitous position. We were in the middle of a project, we were about ready to mobilize rigs in New Mexico. And again, on the heels of that Keystone XL decision, we said we are not putting a $100 million of pipe in the ground until this situation clarifies. Since then, I think it has clarified. As I said in my remarks, we're very confident that existing permits on existing leases will be allowed to be developed. But it was an extraordinary opportunity for us to pivot to Texas while we figured this out. So yes, we overreacted, in my opinion, bully for us for that.

Arun Jayaram -- JPMorgan Chase -- Analyst

It's great to have the flexibility toward Texas. Thanks Tom for clarifying that. Appreciate it.

Operator

The next question will come from Jeanine Wai with Barclays. Please go ahead.

Jeanine Wai -- Barclays Bank -- Analyst

My first question is on kind of oil trajectory, and our follow-up is more on kind of medium-term growth. So in -- given the timing of completions for 4Q '20 plus the freeze off in Q1 '21. It looks like the full year oil guide implies quarter-over-quarter increases from 2Q onwards. So I guess, first question is, do you have any color on the 4Q to 4Q for the exit rate growth for this year?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes. Jeanine, yes, we do expect second, third and fourth quarter sequential growth, a little bit more toward the third and fourth quarters. The fourth quarter '20 to fourth quarter '21 rate of growth is targeting north of 30%. So we do expect a significant year-over-year change in fourth quarter to fourth quarter growth in oil. But again, it's a fairly steady growth and weighted a bit more toward the third and fourth quarter.

Jeanine Wai -- Barclays Bank -- Analyst

Okay. Great. And then my follow-up is, when we do the math on like a higher exit rate, it looks like you could be implying double-digit year-over-year oil growth in '22, if you just kind of held flat at that exit rate because it is so much higher. Is this a reasonable scenario? I know there's some variability on the year-to-year growth, but the overall medium-term outlook is for low single-digit growth. So just wanted to maybe get some clarity on that. Because it could imply pretty good capital efficiency for '22 given how strong you're entering the year?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Jeanine. So certainly with that trajectory we stated coming into this year, a matter of just reactivating two frac crews in the Permian, running the five rigs. We are resuming getting back to levels more of what we saw in 2020. But in 2021 and going into 2022 with that particular exit rate we see in the fourth quarter, we don't expect that we will ultimately just absolutely have to maintain that fourth quarter rate, we'll be evaluating the 2022 plans. And evaluating where we invest in the pace of investment, but we expect to have steady rig and completion cadence going into '22, and we don't have a targeted growth rate into 2022.

Thomas E. Jorden -- President and Chief Executive Officer

Jeanine, this is Tom. Let me just comment on that. Let me comment on that, if I could. A challenge here is 2020 saw such a huge disruption, not only in our capital program, but also our production. And so it's kind of hard to look at quarter-to-quarter, and make any kind of inference that, that would be a steady state number. We are full of very good projects. And I want to reiterate what I said in my opening remarks, our long-term goal is really driven by cash flow generation and not production increase. But when you come off a year like we've had in 2020 and we have the kind of projects we have to say, "Oh, my goodness, you don't want to have your quarter-to-quarter or fourth quarter increase is rather like asking a thoroughbred to pull a milk truck." I mean we've got tremendous assets, and it's just -- that's just the way the numbers fell out. And given that we're investing less than half our cash flow this year, that's -- that just provides us tremendous flexibility. And we can react to the marketplace as the year goes on. But when I -- when I see that Q4 to Q4 exit rate change, I think, wow, we have unbelievable flexibility, both financial and operational for 2022.

Jeanine Wai -- Barclays Bank -- Analyst

Thank you for the clarification.

Thomas E. Jorden -- President and Chief Executive Officer

Yeah. Thank you. Janine

Operator

The next question will come from Doug Leggate with Bank of America. Please go ahead.

Douglas George Blyth Leggate -- BofA Securities, Research -- Analyst

Tom, I wonder if I could just ask you for a little help on your comments around your comfort that existing leases and permits will be allowed to be developed. I know you talked about in your prepared remarks, but I just wonder if you could offer some color as to what you're seeing, what you're hearing, what discussions you've had that we just will have conclusion and a better followup?

Thomas E. Jorden -- President and Chief Executive Officer

Well, I don't know that I can offer you any inside baseball that's not already widely circulated. We have had lots of discussions with elected officials at the federal level from New Mexico, both Sanders offices and in addition to the governor's office. And we're confident that cooler heads will prevail and that the tremendous, not just value, but lifeline that the oil and gas industry provides to New Mexico will be kept alive and well. We do expect a new regulatory environment. We expect many of the Obama era regulations from federal level to return and be strengthened. And for that, we're ready. We're a better company in every respect, including environmentally than we were four or five years ago. But every indication that we have been given. And again, I don't claim to be the oracle on this. But every indication we've been given has led us to be optimistic that we're going to be able to develop our assets in a very prudent manner.

Douglas George Blyth Leggate -- BofA Securities, Research -- Analyst

Great. I appreciate the answer. Tom, I wonder if I could just -- my follow-up is really on the capital allocation, Shale 3.0 moderate and growth type story. I mean, obviously, at your scale, 80,000 barrels a day, give or take. 5% growth doesn't really move the needle at the macro level. And your free cash flow yield in our numbers at least is getting well into the mid-teens. You've got a ton of options just to what to do with that cash and your balance sheet is in great shape. So I just wonder if you can walk us through how well you are in the spectrum of that discussion over, can you grow, do you return cash on our variable dividend and that has been touched on already, but your debt is already kind of in a good place. I'm just thinking about how -- it's a nice problem to have, but what are you doing next, assuming this super cycle, as you see not a lot of people are talking about does, in fact, play out?

Thomas E. Jorden -- President and Chief Executive Officer

Well, look, what do we do in an uncertain future has been the topic of discussion for the last 18 months. But Doug, we're -- look, we've paid a dividend since 2006. So culturally, I think, the idea of returning cash to our owners is not a -- we don't have to blink an eye for it to be embraced in our boardroom. But we -- and Mark said it well, at the outset, we have made a tactical decision that we would like to have cash on our balance sheet sufficient to call those notes due in 2024. Now you could argue, well, that's too conservative. You ought to be returning cash in some other fashion, because it certainly looks like you're going to go well beyond that goal of amassing that cash required to call those notes. Well, yes, it does. But I -- we were remarking before the call this morning, how optimistic we were about 2020, one year ago today. And so reality has a way of intervening. And right now, we would like to just get that cash on our balance sheet, have that defensive posture, quite frankly, that will allow us to have the flexibility to call those notes. And then and only then, is there something to talk about as far as other avenues of returning cash to shareholders. But we're deeply committed to it. I will tell you there's not a blink of an eye in the border when we talk about this. And we're also watching some of our peers. There have been some creative go firsts out there. We respect very much. So I'm really interested to see what other people do. We're not necessarily wanting to voluntary to be the first heroes in this campaign. So we're very willing to look at best practices in the marketplace. Mark, do you want to comment on this further?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes. No, I think your last point is very valid there, too, Tom. I think it will be interesting to see how the market starts trying to value some of the variable dividends. And obviously, we want to give some visibility to that for the mechanics of it. And seeing how others do that in evaluating what's the best avenue to do that, I think, will be important. So -- and then having the first goal of having the cash on our balance sheet for those notes, I think, gives us some time to evaluate that.

Douglas George Blyth Leggate -- BofA Securities, Research -- Analyst

Well, Tom, you've led the market in this, just a comment really, my hope is that the market, my competitors and observers generally start to recognize the free cash flow visibility you and the industry are now generating as appropriate cases for evaluations Appreciate everything you are doing for us. Thank you taking my questions.

Mark Burford -- Senior Vice President and Chief Financial Officer

Thanks, Doug.

Operator

The next question will come from Brian Singer with Goldman Sachs. Please go ahead.

Brian Arthur Singer -- Goldman Sachs -- Analyst

Thank you. Good morning. I wanted to further follow-up on Jeanine's question with regards to the implications of the production trajectory as it would relate to the end of this year and into next year. Because going from a mid-60s type production to what could be 80 to 90-plus in the second half of the year is pretty significant. It seems like you raised the possibility of trying to maybe stabilize next year's production at a more materially higher level than this year. And I wondered if you can kind of talk more about maintenance capital. And how you expect that to evolve if the new range of production is more 80 to 90 relative to the $650 million to $750 million of capex for this year?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Brian, that maintenance capital is obviously something that has a lot of different discussions around that and what the definition of that means. But as you just said, if you're thinking in terms of maintenance capital of somewhere around that 80,000 barrel oil per day, generally kind of our midpoint of our guidance for annual 2021 is 78,000. So if you think of in terms of that, we're looking at probably the low end of our guidance range is something at $650 million or slightly less for just trying to maintain that 80,000 BOE per day.

Brian Arthur Singer -- Goldman Sachs -- Analyst

Got it. You think the low end of this year's guidance would be able to stabilize at 84 in 2022?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, that's right, Brian.

Brian Arthur Singer -- Goldman Sachs -- Analyst

Got it. Great. And then my follow-up is just a quick one on the use of cash because I think that's been talked about here. You did spend some capital buying back preferred shares. And I just wondered if you could talk about whether that's a needed further use of cash to close that out prior to the consideration of returning cash more incrementally than what you're doing with the dividend to shareholders.

Mark Burford -- Senior Vice President and Chief Financial Officer

Well, yes, the preferred, it's 8.125% of perpetual preferred. So as we have opportunity to purchase that and, we'd want to do that just on our capital structure being fairly expensive. The window for which us to do that is uncertain. It will obviously depend a lot on interest rate yields and other things to, if we have an opportunity to purchase more. Yes, I put that 8.125% preferred in the same bucket as the -- having cash available for the retirement of our 2024 notes.

Brian Arthur Singer -- Goldman Sachs -- Analyst

Thank you.

Operator

The next question will come from Michael Scialla with Stifel. Please go ahead.

Michael Stephen Scialla -- Stifel, Nicolaus -- Analyst

Mark, you brought up an interesting point with Brian's question in terms of maintenance capex. You'd be at sort of the low end of the range to call it hold production flat in that 80 day, whatever, 84,000 BOE per day range. This year, though, you didn't hold your reserves flat, if I look at reserve additions relative to production or last year, I should say. Is that a consideration when you're thinking about maintenance capital as you go forward? Or how you think about your reserves relative to maintenance capex?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Mike, certainly with the significant drop in our capital in 2020, down 56%. We did see a 14% decrease in our proved reserves. As we look out in this current year plan and in a maintenance plan, we would view those reserve additions to be kind of paralleling or flat with kind of if you are in a maintenance mode or we review our reserves as being relatively flat. And this year, we expect with the kind of current plan that we have that we'll see growth in our proved reserves. Again, more trailing toward the activity levels with that activity of a couple of frac crews and five rigs in the Permian that we would see our reserves growing this year. And again, in a flat world, we would see our proved reserves to be maintaining flat.

Michael Stephen Scialla -- Stifel, Nicolaus -- Analyst

Okay. Good. And Tom, you mentioned meeting the ESG challenges, one of your competitors talked this morning about purchasing carbon credits and investing in kind of income-generating projects to get to carbon neutral scope one emissions. Just wondering if Cimarex and the Board has been considering anything like that?

Thomas E. Jorden -- President and Chief Executive Officer

We have not discussed that to date. We're pretty focused on the engineering aspects of our own assets. And we have -- as Blake nicely said, we have a lot of opportunity in our own assets. I mean I wouldn't put some kind of carbon offsets off the table, but I can't imagine us doing that in the next few years. We've got tremendous opportunity to make material progress through, Blake mentioned, electrification. We've got certainly a lot of opportunity in high and low-pressure emissions. And we have our best minds on this project, and I am wholly confident that we're going to really make tremendous progress. So no, I mean, the direct answer to your question is no, we have not discussed the offsets.

Michael Stephen Scialla -- Stifel, Nicolaus -- Analyst

Thank you.

Thomas E. Jorden -- President and Chief Executive Officer

Thanks, Mike.

Operator

The next question will come from Leo Mariani with KeyBanc. Please go ahead.

Leo Paul Mariani -- KeyBanc Capital Markets -- Analyst

Just looking at your 2021 capex budget, fairly decent range there, $650 million to $750 million. And I guess, $100 million on that is, let's just call it, I don't know, circa 16 or so percent range there top to bottom. Can you just give us a little color around what's dictating the top and the bottom of the range? Is this budget potentially allowing for maybe slightly higher activity at the end of '21 to get a little bit of a head start? On '22, is there a significant service cost component where there might be a lot of uncertainty there? What can you kind of tell us about the range?

Thomas E. Jorden -- President and Chief Executive Officer

Yes, I'll tee it off and then hand it over to Mark. We want to leave ourselves a pretty wide range because there is a lot of elasticity and things, we'd like to do this year. Certainly, a number of things are around ESG. We have some really good opportunities to make some facilities modifications and reduce our emissions, and that will involve a little bit of capital. I will also say that as we reenergize our New Mexico program, we're not sure to the degree of partner participation we're going to have on some projects. We do have projects where our working interest is a little lower than it is in Texas. So we may find ourselves with a little more working interest on projects we absolutely love, and we want to give a little flexibility for that. But Mark, why don't you give a better answer?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes. Tom, I think you hit on a couple of points I was going to make that we do have some variability there. One other point, Leo, is that we -- our midpoint of our guidance as we typically provide capital guidance kind of our current status of where we see AFEs are at. And we have incorporated some early time data for some increases related to sands as far as hauling and other components there. But we have some room, hopefully, in our budget that if we see some additional inflation, we would be able to also maintain our current range. So really the working interest component, maybe the potential little inflation and just an ESG type work too is really the upper end of the range.

Leo Paul Mariani -- KeyBanc Capital Markets -- Analyst

Got it. Okay. So it sounds like you're basically not really planning on kind of changing the activity that you've laid out in the plan for '21, pretty much keep that steady. And then obviously, these other variables will dictate kind of where you fall. Just wanted to confirm, you're not really looking at increasing activity late this year or anything?

Mark Burford -- Senior Vice President and Chief Financial Officer

That's right. Leo. That's right.

Leo Paul Mariani -- KeyBanc Capital Markets -- Analyst

Okay. Helpful. And I guess just wanted to follow-up a little bit on the dividend question. Obviously, you guys talked about this in a couple of questions already here. But obviously, just a very healthy increase this year at 23%, very chunky, but just start at the year. Certainly, it sounds like you'll have those bonds paid off. I think the plan, I think, is to call them in early 2022. And then the Board will still have to come and go out there and make some decisions about things. But is it fair to say that the preference today would be to have just very solid long-term growing base dividend is kind of the foundation for Cimarex over the next several years?

Mark Burford -- Senior Vice President and Chief Financial Officer

Well, let me just clarify one point on the -- yes, we do expect $55 oil at the current strip that we would have sufficient cash in the balance sheet. But those notes aren't callable in 2022. We could have some options on tendering or other things, but they're not callable until the first quarter of 2024. So we just have to evaluate what our options are to maybe chip away at those in the meantime. But as far as the dividend increase, yes, certainly, we want to have a pattern of increase in dividend, which we've had throughout our history, certainly want to stress test it and make sure it's sustainable, and that's how as we depicted it in our slide five, even at $35 oil that dividend only represents 12% of our cash flow. And at the current strip, it's only about 7%. So in that range, it's somewhere around 10% of our cash flow, we feel very comfortable that dividend is sustainable. And if you look at future increases, we'll be doing the same evaluation to make sure that whatever we raise that regular dividend by that we would be sustainable through the cycle.

Thomas E. Jorden -- President and Chief Executive Officer

Let me just add to that. The -- we love our regular dividend. But as Mark very happily said, we do want it to be sustainable. And so the beauty of a variable dividend is in its very name. It's variable. And so as we said earlier, we're watching different models that roll out. But we would love to find a sustainable dividend philosophy. I'll say that. And I think the combination between ordinary and variable is intriguing to us. But we were delighted to increase our dividend. We thought it was the right time. We wanted to do a significant increase. If for no other reason, just to put our money where our mouth is and just demonstrate our commitment to our owners.

Leo Paul Mariani -- KeyBanc Capital Markets -- Analyst

Okay, thanks for all the color. Tom

Operator

The next question will come from Brian Downey with Citigroup. Please go ahead.

Brian Kevin Downey -- Citigroup Inc -- Analyst

Following up on Blake's comments on your electric grid completion and electric rig experiences. Any sense for the magnitude of efficiency or cost benefits if those become more wide scale? I guess, what's the size of the opportunity in pie there, both on the subset of projects those could eventually be used on? And what's the potential magnitude of the cost and efficiency savings?

Blake A. Sirgo -- Vice President of Operations

Sure. Thanks, Brian. The -- a lot of it is dependent, of course, on what service rates do in the future. We're all watching that closely. But I think we've gathered enough data to think we're probably chasing $25 to $50 a foot on our cost structure, which is pretty significant. And then also, we have fuel savings on the opex side, when we look at compression, and then you bring in some horsepower efficiencies on top of that. So on the capital side, $25 to $50 at today's prices. And then go forward on opex, we'll see as we gather data, but we expect lower opex as well.

Brian Kevin Downey -- Citigroup Inc -- Analyst

Great. That's helpful. And then maybe for Tom or Mark, on the free cash flow scenarios you show on slide five. Any changes in how you're thinking about approaching your hedging program on either commodity front as you're building cash for the '24 notes and any shareholder return beyond that?

Mark Burford -- Senior Vice President and Chief Financial Officer

Brian, we've had a pretty steady methodical hedging program in the last several years. And obviously, in 2020, that was to our benefit as we look at our hedge position for this year as we layered in hedges through '20 for '21, we'll be having some cash payments, but that's kind of a natural component of a true hedge program as you head through the cycle. But we'll continue to maintain kind of a quarter-to-quarter hedge program where we target 10% per quarter for five quarters forward, allows us to get to about 50% hedged for the preceding forward 12 months. And we'll continue to be methodical about it. And not being speculative or opportunistic, but just sampling that forward strip periodically every quarter through the year.

Brian Kevin Downey -- Citigroup Inc -- Analyst

Right. I appreciate it.

Operator

The next question will come from Noel Parks with Touhy Brothers. Please go ahead.

Noel Augustus Parks -- Tuohy Brothers Investment -- Analyst

I'm not sure if you touched on this already, but have you -- if you could talk a little bit about where the strip is for oil and gas and just the economics out in your different Oklahoma projects? And also, what sort of working interest do you think you'll be looking at for the activity you have there this year?

John A. Lambuth -- Executive Vice President

Yes, this is John. We're currently developing right now in Anadarko, one of our Lone Rock projects where we're drilling five wells. We model currently at strip very, very attractive returns, returns that compete heads up with a number of our Permian projects, which is why we're making this investment right now. But the reality is, we need to see those results, as good as it looks on paper, we'd like to actually see it in the performance of the wells. We think at five wells per section, we will have the kind of performance that will lead to those results. And if we see that, then that makes for us to want to even throw more capital that way. But this kind of our -- putting our toe in the water there, we really want to see this development ticker come on, see what kind of results we get from it, and then we'll move from there in terms of any further investment. As far as the working interest there, it's quite high. We've done a very nice job of accumulating other interest in there. I mean right now, we show about 94% working interest.

Noel Augustus Parks -- Tuohy Brothers Investment -- Analyst

Oh, well, that's considerably above where it's been for some of your past activity, right?

John A. Lambuth -- Executive Vice President

Well, quite frankly, over the last year, with a lot of people not really paying much attention, we've been able to accumulate more interest in that area. And it's an area we really like, and we think it's going to deliver great returns. But again, the proof will be in this particular development and the results we see.

Noel Augustus Parks -- Tuohy Brothers Investment -- Analyst

Great. And just for my follow-up, do you just have any thoughts on NGL piece of the puzzle as far as just pricing and what you think that might look like, I guess, at the wellhead and also for your marketing as these goes on?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes. No. We -- with our NGL component of our realization in the fourth quarter, we were at 33% of WTI, seen the benefit of higher propane prices. Propane inventories have been very positive. And we've seen -- we'll see how exports continue to trend here going forward, but inventory levels there are very reasonable. And we're optimistic about NGLs. We're not really probably the person to ask. Most for NGLs are marketed at the tailgate of our plants, so we don't really directly market our NGLs, but we're optimistic about the overall NGL component of our barrel or of our commodity.

Thomas E. Jorden -- President and Chief Executive Officer

This is Tom. I just want to make a quick comment that the 2020 and including the weather events that we just went through, have reaffirmed in us why strategically we've always wanted to be a multi-basin, multi-commodity type company. Our marketing group had some valiant times in 2020, we're markets were locked up. You all remember the tremendous pressure on Waha. Having diversity of assets was a tremendous benefit to us as it was in the recent storm event. So I'm -- John and his team have done a phenomenal job of bringing forward some fantastic investment opportunities in the Anadarko Basin that are at the very top of our forced ranking on returns, and that's strategically consistent with how we want to manage the company.

Noel Augustus Parks -- Tuohy Brothers Investment -- Analyst

Great, thanks a lot.

Operator

The next question will come from Neal Dingmann with SunTrust. Please go ahead.

Neal David Dingmann -- Truist Securities -- Analyst

Tom my question -- or I guess, maybe for you or John. Just looking at slide nine, I like the new well design. Could you talk a bit when you think of that now, does that essentially eliminate any of the interference between the XY and the A versus the previous design? Or maybe just talk a bit about the upside and what you're seeing with that new design?

John A. Lambuth -- Executive Vice President

This is John. I'll take a stab at it. I'm sure Tom will want to follow-up. I think the slide you're referring to is what we will be doing with our count fleet development in Culberson and where we have relaxed or upside the spacing, in terms of the well cap. But as you did point out as well as the vertical spacing between the landings. And again, this is just all lessons learned from multiple developments that we've already undertaken. We've talked about this. There was clearly greater communication or what we say permeability going on between our wells, more so than what we originally modeled and expected. We have adjusted to that. And what this slide demonstrates is, we think, going from 10 to seven wells per section, we will essentially save the cost of three wells, but essentially achieve the same total recoverable reserves for that section, thus, greater capital efficiency and higher overall project returns. And this is being carried across all of our projects, not just here in Culberson, but in Reeves, LEA. And even what I mentioned earlier in Lone Rock, or there was a time at Lone Rock we thought we'd be at eight wells a section. Now we're at five. We see at five. We do a much better job of keeping our condensate yield, having less of a decline. And again, just better economics.

Thomas E. Jorden -- President and Chief Executive Officer

Yes. The spacing is going to vary across our asset. For example, on Culberson to map, that's on slide nine. You're going to see six to eight wells per section on the western side, and eight to 10 wells per section on the eastern side. But the important thing is, as John pointed out, we're trying to maximize the value of that section. And the beauty of a deep inventory, as you all know, we have a very long, deep inventory, is we can make decisions from going from 10 wells per section to seven wells per section, solely considering maximizing our value, and we don't have a concern of inventory overhanging that decision. And it gives us just the financial flexibility that bleeds into the financials that we report.

Neal David Dingmann -- Truist Securities -- Analyst

Okay. And then one just follow-up also on kind of completions. I think you mentioned doing just a couple of fracs for most of the year, maybe two or three. Do you think -- is that still kind of an optimal completion? If you're looking at thinking about optimal completions in the Permian, is just even if you have a little bit reduced activity or the limited activity like that? Are you losing any of these, any of that optionality? Or is it -- would it be more -- I guess, my question is, would it be more optimal if you happen to be able to run more frac spreads and add some simo-fracs and such?

Thomas E. Jorden -- President and Chief Executive Officer

I'm going to let Blake handle that. We spend a lot of time modeling program efficiencies and what the right mix of field assets is to maximize our efficiency. But Blake, you take that question.

Blake A. Sirgo -- Vice President of Operations

Yes, sure. We look at all kinds of efficiencies and what scale it takes to achieve them. And a lot of it requires simo-frac, for example, greatly limits our flexibility in certain cases. So that's not always the optimal result when we look at that. So between the different size of projects that's what we think really drives efficiency more than anything, wells per pad is the number one driver for efficiency, and we're maxing that out every chance we get.

Neal David Dingmann -- Truist Securities -- Analyst

Very good. Thanks for the detail, guys.

Operator

The next question will come from Paul Cheng with Scotiabank. Please go ahead.

Paul Cheng -- Scotiabank Global Banking -- Analyst

I have to apologize for my first question because I think people have been asking that. When I'm looking at your fourth quarter extensively a 30% growth, that's about 88,000 barrels per day. So even if we assume that's going to stay flat for the next three years until 2024, that's about 4% growth. So when I look at your presentation on page six, you say oil volume expected to be flat to slightly up year-over-year from 2021 to 2024. So is that statement still correct? That is the intention you may just keep it flat for the next several years? Or this is based on the assumption, commodity price perhaps is less -- much less robust than where we are today? So trying to understand what extent is that statement means under what condition?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes, Paul. So yes, on slide six, we were trying to depict what a free cash flow framework could look like even at a lower price case, which we were describing there, $35 oil. And certainly, at that level, we would be much more conservative on our capital reinvestment and we would also be looking at our debt retirements as being a very high priority into that kind of world of $35 WTI. And -- but even at $35 WTI, we believe we would be in a position to have flat and maybe maintenance capital is slightly up volumes even at $35 oil. And we believe we'd have sufficient cash over that time period to pay out the 2024 notes. So that's what we're trying to describe in that framework. Certainly at higher prices that our '22 and beyond type world, we will have to continue to evaluate. We don't are signaling that we would want to go to any kind of growth mode, but we will continue to evaluate our capital plans each year as we go into the year. Looking at capital plans based on conservative price decks that is realistically well below where the current strip is kind of setting that capital plan level and looking at making sure we have 20% to 30% of free cash flow available after our capital plans. And we would then -- firstly, investing 70% to 80% of our capital -- our cash flow and our capital. So it is a mixture of kind of how we were trying to describe there with $35 oil versus, again, kind of an ongoing plan with more current strip pricing and current pricing involved.

Thomas E. Jorden -- President and Chief Executive Officer

And the only comment I would make is, I think slide six is built more with a viewpoint to where we want to land steady state. And because of the huge production decline we saw in 2020, as I said earlier, it's kind of hard to throttle back. I mean we're going to -- with any kind of even very modest investment. And I think this year below at 50% of our cash flow, you would use the word modest. We'll see some Q4 to Q4 reasonable growth rates. But we're not managing over growth. That's not what we're doing. We're really managing around our long-term financial targets.

Paul Cheng -- Scotiabank Global Banking -- Analyst

Okay. Last question for me. On the capex projectory because the number of wells that came on stream is much less in the first quarter comparing to the remaining. Should we assume that it's going to be followed then? Or it's going to be pretty steady?

Mark Burford -- Senior Vice President and Chief Financial Officer

Yes. Paul, I'm sorry, on a quarter-to-quarter production profile, is that what you asked?

Paul Cheng -- Scotiabank Global Banking -- Analyst

The capex.

Mark Burford -- Senior Vice President and Chief Financial Officer

Capex, sorry, capex. We'll have a little higher capex in the second and third quarters. But it's -- on a relative basis, it's fairly steady, but we do have a little bit more completion capital in the second and third quarters.

Paul Cheng -- Scotiabank Global Banking -- Analyst

Okay, all right, thank you.

Mark Burford -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Thomas Jorden for any closing remarks. Please go ahead, sir.

Thomas E. Jorden -- President and Chief Executive Officer

Well, thank you. I just want to thank everybody that joined us this morning. We're very optimistic about 2021. Appreciate your great questions. I think we're pretty pleased with the shape Cimarex is in. And I'll say, as I said at the beginning, we're a much better company entering 2021 than we've been, and that's a testament to the challenges we faced, and the organizational response. And I know we've all had some challenges in 2020. I hope you're all doing well. And again, thank you so much for your interest and your great questions this morning. Thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Caterina Papadimitropoulos -- Investor Relations Analyst

Thomas E. Jorden -- President and Chief Executive Officer

Mark Burford -- Senior Vice President and Chief Financial Officer

Blake A. Sirgo -- Vice President of Operations

John A. Lambuth -- Executive Vice President

Arun Jayaram -- JPMorgan Chase -- Analyst

Jeanine Wai -- Barclays Bank -- Analyst

Douglas George Blyth Leggate -- BofA Securities, Research -- Analyst

Brian Arthur Singer -- Goldman Sachs -- Analyst

Michael Stephen Scialla -- Stifel, Nicolaus -- Analyst

Leo Paul Mariani -- KeyBanc Capital Markets -- Analyst

Brian Kevin Downey -- Citigroup Inc -- Analyst

Noel Augustus Parks -- Tuohy Brothers Investment -- Analyst

Neal David Dingmann -- Truist Securities -- Analyst

Paul Cheng -- Scotiabank Global Banking -- Analyst

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