TOM BUTCHER: Tom, thanks very much indeed for joining me today.
TOM JORDEN: You are welcome. Glad to be here.
BUTCHER: We have heard a lot this year about changing business models across the industry. How has Cimarex evolved to face the current environment?
JORDEN: Well, I do not know that I would accept your premise. I am not sure we have heard a lot about changing business models as much as we have heard that companies need to justify the business model that they have been proclaiming.
JORDEN: I think that we all want to create value over time. We all want to create value over the cycles. And as commodities have risen and fallen, mostly fallen, I think that many of the investors have been frustrated with how we are creating value as a sector, and as individual companies.
So Cimarex has listened intently to this conversation, and certainly we are not immune from the commodities cycles, but we have always had an internal mantra, a DNA if you will, around value creation, around return on invested capital. When we make our investments, we fully burden them with all associated costs. We do not just talk about well-level returns, we talk about land, organizational overhead, all of the science that you have to prosecute, midstream production capital. All those are real costs.
What Cimarex has done in response to this is, we have been doing some fairly intense analytics on our own history, seeing what programs have worked, what programs have failed. We have certainly found some of both in our history. I mean, we are not immune to it. I am happy to say that, over the last ten years, we have achieved a greater than cost-to-capital in our investment program, in spite of the commodities swings, and that is something I think very few companies could say and be able to back that statement up.
But we are, I think, reinvigorating that focus at Cimarex. We are having a stronger price discipline. A stronger hurdle on capital that we invest. And we are also not tone deaf to the hue and cry that say grow at a more modest price, do not grow for growth’s sake. And that has always been our approach. So we are certainly reinforcing those things enough in us that I think are consistent with that business model hue and cry.
BUTCHER: Thank you. And just one other question: what would you like conference attendees to take away with them about Cimarex?
JORDEN: What I hope they take away looking at Cimarex is that these are not just things a CEO can talk about. Certainly, we all talk. But these are things that, if you are looking at a company or companies and you say, what separates them? Well, certainly, operational execution is number one. An organization that is tuned on value creation, I do not think you can just suddenly shift your weight and create these things. Cimarex has had a long legacy history of running the company by return on invested capital. We have never managed around growth targets. We have never managed around any metric other than after-tax return on invested capital.
If you look at our history, you will see that that has shown up in our results. We have a healthy balance sheet. We have top-tier assets. But the one takeaway that I hope the people would listen to and hear is this value creation mantra. This return on invested capital, and what it means to us, is not something that is just in the C-suite, it is throughout our organization.
I was on a field trip this week. I was in Oklahoma Monday. And then I was in the Permian Basin yesterday, meeting with pumpers, meeting with production foremen, and talking about some of these principles to them. And to a person, they said to me: “Wow, it is nice to hear you say it, because we hear this from our boss all the time.” Every decision we make, whether it is to change a lift mechanism, to drill a well, to plumb a saltwater disposal well, to add compression – everything we do is measured through a lens of return on investment. We do not do things willy-nilly. We are spending the shareholders’ money as if it were our own. And that is the way we have always run the company. And I would hope that that comes through with conference attendees.
BUTCHER: Great. Tom, thank you very much, and may I wish you the best going forward?
JORDEN: Well, thank you very much. Appreciate the opportunity.
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