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TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART IV

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D C 20549

Form 10-K

Commission file number 001-31446

CIMAREX ENERGY CO.
(Exact name of registrant as specified in its charter)

1700 Lincoln Street, Suite 1800, Denver, Colorado 80203
(Address of principal executive offices including ZIP code)

(303) 295-3995
(Registrant's telephone number)

        Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ý    NO o

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o    NO ý

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý    NO o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý    NO o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o    NO ý

        Aggregate market value of the voting stock held by non-affiliates of Cimarex Energy Co. as of June 30, 20082009 was approximately $5,701,925,730.$2,319,938,473.

        Number of shares of Cimarex Energy Co. common stock outstanding as of February 18, 200919, 2010 was 83,350,488.83,839,327.

        Documents Incorporated by Reference: Portions of the Registrant's Proxy Statement for its 20092010 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

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DESCRIPTION

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GLOSSARY

Bbl/d—Barrels (of oil) per day

Bbls—Barrels (of oil)

Bcf—Billion cubic feet

Bcfe—Billion cubic feet equivalent

MBbls—Thousand barrels

Mcf—Thousand cubic feet (of natural gas)

Mcfe—Thousand cubic feet equivalent

MMBbls—Million barrels

MMBtu—Million British Thermal Units

MMcf—Million cubic feet

MMcf/d—Million cubic feet per day

MMcfe—Million cubic feet equivalent

MMcfe/d—Million cubic feet equivalent per day

Net Acres—Gross acreage multiplied by working interest percentage

Net Production—Gross production multiplied by net revenue interest

NGL—Natural gas liquids

Tcf—Trillion cubic feet

Tcfe—Trillion cubic feet equivalent

One barrel of oil is the energy equivalent of six Mcf of natural gas.gas

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PART I

Forward-Looking Statements

        Throughout this Form 10-K, we make statements that may be deemed "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, that address activities, events, outcomes and other matters that Cimarex plans, expects, intends, assumes, believes, budgets, predicts, forecasts, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-K. Forward-looking statements include statements with respect to, among other things:

•

amount, nature and timing of capital expenditures;



•

drilling of wells;



•

reserve estimates;



•

timing and amount of future production of oil and natural gas;



•

operating costs and other expenses;



•

cash flow and anticipated liquidity;



•

estimates of proved reserves, exploitation potential or exploration prospect size; and



•

marketing of oil and natural gas.

        We caution you that these forward-looking statements are subject to all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and sale of oil and gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of goods and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures and other risks described herein.

        Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data and the interpretation of such data by our engineers. As a result, estimates made by different engineers often vary from one another. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions could change the timing of future production and development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered.

        Should one or more of the risks or uncertainties above or elsewhere in this Form 10-K cause our underlying assumptions to be incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

        All forward-looking statements, express or implied, included in this Form 10-K and attributable to Cimarex are qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Cimarex or persons acting on its behalf may issue. Cimarex does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of filing this Form 10-K with the Securities and Exchange Commission, except as required by law.

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ITEM 1.    BUSINESS

General

        Cimarex Energy Co. is an independent oil and gas exploration and production company. Our operations are mainly located in Texas, Oklahoma, New Mexico, Kansas Louisiana and Wyoming. Proved oil and gas reserves as of year-end 20082009 totaled 1.31.5 Tcfe, consisting of 1.11.2 Tcf of gas and 45.258.0 million barrels of oil and natural gas liquids. Of total proved reserves, 8077 percent are gas and 8277 percent are classified as proved developed. Our 20082009 production averaged 485.8462.9 MMcfe per day, comprised of 348.2323.2 MMcf of gas per day and 22,93723,283 barrels of oil per day. We operate the wells that account for 8379 percent of our total proved reserves and approximately 8182 percent of production.

        Our corporate headquarters are located at 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203 and our main telephone number at that location is (303) 295-3995. Cimarex is a Delaware corporation.

        Our Web site address iswww.cimarex.com. There you will find our news releases, annual reports, proxy statements, 10-Ks, 10-Qs, 8-Ks, insider (Section 16) filings and all other SECSecurities and Exchange Commission ("SEC") filings. We have also posted our Code of Ethics, Code of Business Conduct, Corporate Governance Guidelines, Audit Committee Charter and Governance Committee Charter. Copies of these documents are also available in print upon a written or telephone request to our Corporate Secretary. Throughout this Form 10-K we use the terms "Cimarex," "Company," "we," "our," and "us" to refer to Cimarex Energy Co. and its subsidiaries.

History

        Cimarex was formed in February 2002 as a wholly owned subsidiary of Tulsa-based Helmerich & Payne, Inc. On September 30, 2002, Cimarex was completely spun off to Helmerich and Payne shareholders and simultaneously merged with Denver-based Key Production Company, Inc. Our common stock began trading on the New York Stock Exchange on October 1, 2002 under the symbol XEC.

        On June 7, 2005, we acquired Dallas-based Magnum Hunter Resources, Inc. in a $1.5 billion stock-for-stock merger including assumption of liabilities. That transaction effectively tripled our proved reserves and doubled our production. Since 2005, we have principally focused on exploration and development drilling and have funded these investments with cash flow provided by operating activities.

Market Conditions

        DuringBeginning in the fourth quarter of 2008, severe financial market disruptions and global economic contraction contributed to large decreases in the credit markets and reductions in global economic activity caused significant decreases inprices we received for our oil and gas prices. Oil prices fell from a mid-year 2008 peak of $130production. Our oil price realizations for 2009 averaged $56 per barrel, 42% less than our 2008 average of $96 per barrel. Our average gas price dropped 51% to $37 per barrel at year-end. Gas prices fell from $12.00$4.12 per Mcf in mid 2008 to $4.50during 2009 from $8.43 per Mcf in the fourth quarter 2008. The large decrease in prices hadprice resulted in a significant adverse impact ondecrease in the amount of cash flow available to invest in exploration and development drilling, the present value of our proved reserves, our stock price and total market capitalization.

        The continued credit crisis and related turmoil in the global financial system may have further impact on our business and our financial position. A further decrease in oil and gas prices would have a negative impact on our earnings, cash flow available for reinvestment, and future growth in proved reserves and production. Our ability to access the capital markets to fund our growth may also be restricted. Further, the economic situation could have an impact on our lenders and customers, causing them to fail to meet their obligations to us.

        As a result of lower commodity pricesdevelopment. In response, we have sharply reduced our drilling activity. In 2009 we drilled 76% fewer wells as compared to 2008. Our total capital investment in exploration and development during 2009 was just $524 million versus $1.4 billion in 2008.

        In early 2010, oil and gas prices have improved and the cost to drill and complete our wells has decreased. We have begun to increase our drilling activity and our exploration and development capital investment for 2010 is presently expected to decreaserange from $1.4 billion in 2008 to $400-$700-$600 million in 2009, depending on prices and corresponding cash flow.

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20082009 Summary

        During 20082009 we accomplished the following positive highlights:

•

Oil and gas sales increased 38 percentIncreased proved reserves 15% to a record $1.9 billion.1.53 Tcfe

•

Added 215312 Bcfe of proved reserves from extensions, discoveries and improved recovery, replacing 121185 percent of production.



•

IncreasedReduced drilling costs and improved our well performance in our western Oklahoma, Anadarko-Woodford position to 98,000 net acres, including a $180.9 million purchaseCana-Woodford shale play ending the year with 225 Bcfe of 38,000 net acres.proved reserves.



•

EndedBy year-end, had brought on approximately 100 MMcfe/d of new production in southeast Texas.



•

Reduced borrowings outstanding under our revolving credit facility by $195 million, exiting the year with a debt to total capitalization ratio of 2016 percent.

        However, largely as a result of the collapse inlow oil and gas prices we also experienced the following negative consequences:also:

•

$1.4 billion after-tax,Recorded a first-quarter 2009 non-cash full-cost ceiling test write-down of oil and gas properties.properties of $502 million after-tax.



•

Negative price-related revisions to proved reservesHad a net loss for 2009 of 157 Bcfe, resulting in an overall 9% decrease in our proved reserves to 1.3 Tcfe.$311.9 million.

Business Strategy

        Our principal business objective is to profitably grow our proved reserves and production for the long-term benefit of our investors.shareholders. Our strategy centers on maximizing cash flow from our producing properties and profitably reinvesting that cash flow in exploration and development. During 2009, our cash flow from operating activities totaled approximately $675 million. Our 2009 investment in exploration and development was $524 million.

        A cornerstone to our approach is a detailed evaluation of each drilling decision based on its risk-adjusted discounted cash flow rate of return on investment. Our analysis includes estimates and assessments of potential reserve size, geologic and mechanical risks, expected costs, future production profiles and future oil and gas prices.

        During 2008, our cash flow from operating activities totaled approximately $1.4 billion. Our 2008 investment in ongoing exploration and development activity also approximated $1.4 billion.

        Our integrated teams of geoscientists, landmen and petroleum engineers continually generate new prospects to maintain a rolling portfolio of drilling opportunities in different basins with varying geologic characteristics. We have a centralized exploration management system that measures actual results and provides feedback to the originating exploration team in order to help them improve and refine future investment decisions. We believe that our detailed technical analysis and disciplined capital investment process mitigates risk assessment is a competitive advantage and best positions us to continue to achieve attractive rates of return and consistent increases in proved reserves and production.

        While our primary focus is drilling, we occasionally consider acquisition and merger opportunities that allow us to either enhance our competitive position in existing core areas or to add new areas. The 2005 Magnum Hunter acquisition significantly increased our presence in the Permian Basin and enhanced our Mid-Continent operations in the Texas Panhandle. In 2008, we acquired 38,000 net acres in our Westernwestern Oklahoma Woodford Shale core area.Cana-Woodford shale play. The cost of that acquisition was $180.9 million.

        Conservative use of leverage has long been a part of our financial strategy. We believe that maintaining a strong balance sheet mitigates financial risk and enables us to withstand low prices and challenging capital markets.prices. At year-end 20082009 we had $591$393 million of long-term debt and our debt to total capitalization ratio was 2016 percent.

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Business Segments

        Cimarex has one reportable segment (exploration and production).

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Exploration and Development Activity Overview

        Our operationsexploration and development activities are currently focused inconducted within three main areas: the Mid-Continent region, whichthe Permian Basin and the Gulf Coast. The Mid-Continent region consists of Oklahoma, the Texas Panhandle and southwest Kansas; theKansas. The Permian Basin region ofencompasses west Texas and southeast New Mexico; and theMexico. Our Gulf Coast areas of Texas, south Louisiana, and offshore Louisiana.operations are currently focused in southeast Texas. We also have operationsa gas field development project underway in Michigan and Wyoming.

        A summary of our 20082009 exploration and development (E&D) activity by region is as follows.

        Company-wide, we participated in drilling 450110 gross wells during 2008,2009, with an overall completion rate of 9493 percent. On a net basis, 25360 of 27767 total wells drilled during 20082009 were completed as producers.

        Our 20082009 E&D investment totaled $1,438$524 million and resulted in 215312 Bcfe of proved reserve additions. Of total expenditures, 4548 percent were invested in projects located in the Mid-Continent area; 3830 percent in the Permian Basin; and 1520 percent in the Gulf Coast.

Mid-Continent

        Our Mid-Continent region encompasses operations in Oklahoma, southwest Kansas and the Texas Panhandle. We drilled 25651 gross (138(22 net) Mid-Continent wells during 2008,2009, completing 9698 percent as producers. The bulk of this drilling activity is directed at gas-bearing geological formations in the Anadarko Basin of western Oklahoma and Texas Panhandle.Oklahoma. Full-year 20082009 investment in this area was $648$251 million, or 4548 percent of total E&D capital.

        We drilled 8244 gross (22(17 net) Anadarko Basin wells, of which 9598 percent were completed as producers. Our drilling activity mainly targets the Woodford Shale, Red Fork and Clinton Lake/Atoka formations at depths ranging from 11,000-15,000 feet. Our largest investment in this area is in the Anadarko-Woodford Shalewestern Oklahoma, Cana-Woodford shale play. Our activities began in this area in 2007, and our early success in drilling led to leasing a significant land position. We have approximately 98,00094,000 net acres in the play, which includes the purchase of 38,000 net acres in the fourth quarter of 2008 for $180.9 million.play.

        The WoodfordCana-Woodford formation is a shale interval that varies in thickness from 120-280 feet at depths of 12,000-16,000 feet throughout our acreage. During 2008,2009, we drilled 22 (10and completed 35 gross (13.6 net) horizontal Anadarko-WoodfordCana-Woodford wells. At year-end 2008 ourthere were 11 gross (6.3 net) wells waiting on completion.

        Since the Cana play began in late 2007, Cimarex has participated in a total of 75 gross (32.8 net) wells. Of which, 58 gross (23.7 net) wells have been brought on production was over 50 MMcfeand the remainder were either in the process of being drilled or awaiting completion at year-end 2009. For the 58 producing wells, average estimated gross ultimate recovery exceeds 6.5 Bcfe per day gross.well. Our acreage position developed on 160-acre well spacing haspositions have multiple years of drilling opportunity.

        In the Texas Panhandle, we drilled 1182 gross (84(2 net) wells with 96 percent being completed as producers. Most of these wells targeted thesuccessful Granite Wash formationwells. Our land position in the Texas Panhandle is primarily in Roberts and Hemphill counties at depths ranging from 11,000-14,000 feet.counties.

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Permian Basin

        Our Permian Basin operations cover both west Texas and southeast New Mexico. In total, we drilled 16449 gross (117(36 net) wells in this area during 20082009 completing 16044 gross (114(32 net) as producers. Full-year 20082009 investment in this area totaled $549$155 million, or 3830 percent of total E&D capital. Our 20082009 drilling focused on horizontal oil plays.

        In West Texas, a total of 82 gross (59 net) wells were drilled, of which 100 percent were successful. Geologic targets include the Bone Spring, Devonian and Ellenburger formations. In Ward and Reeves Counties drilling totaled 30 gross (25 net) horizontal Third Bone Spring oil wells.

Southeast New Mexico drilling, mainly targeting the Bone Spring, Cherry Canyon, Abo, Paddock and Wolfcamp formations, totaled 8238 gross (58(30 net) wells with 95 percent87% being completed as producers. The primary formations we target in this area are the Abo/Wolfcamp, Morrow, Atoka and Strawn at depths ranging from 9,000-14,000 feet. Our largest investment was in drilling 33 gross (24 net) horizontal Abo/Wolfcamp oil wells during 2008.

Gulf Coast

��        Our onshorecurrent Gulf Coast focus area generally encompasses coastal Texas, south Louisiana and Mississippi.exploration drilling is primarily in southeast Texas. This effort is generally characterized by a greater reliance on three-dimensional (3-D) seismic information for prospect generation,generation. We also experience larger potential reserves per well, greater drilling depths and lower success rates. Full-year 2009 investment in the Gulf Coast area was $106 million, or 20 percent of total E&D capital. During 2009 we drilled 9 gross (8.1 net) Gulf Coast wells, realizing an 89 percent success rate. The majority of the activity occurred near Beaumont in Jefferson County, Texas, where seven gross (6.9 net) Yegua/Cook Mountain wells were drilled.

        We also own interests in offshore Louisiana on the Gulf of Mexico shelf (water depth less than 300 feet). We obtained all of our offshore position through the Magnum Hunter acquisition. Our 20082009 activity in this area consisted primarily of workovers and recompletions.

        Full-year 2008 investment in the Gulf Coast area was $210 million, or 15 percent of total E&D capital. During 2008 we drilled 28 gross (21 net) Gulf Coast wells, realizing a 54 percent success rate. A significant portion of the drilling occurred in Liberty and Hardin Counties, Texas. Targeting the Yegua and Cook Mountain formations at approximately 10,500 feet, we drilled 18 gross (15 net) wells with a success rate of 50 percent.

Other

        We have a large development project in Sublette County, Wyoming where we are developing the deep Madison gas formation and constructing a gas processing plant. During 20082009 we invested a total of $23.9$20.1 million in this project and our cumulative investment in this project is $32.4$70.9 million. We presently expect that we will initiate gas sales from this project in 2010.2011. Our total investment, including planned expansion, will approximate $208$200 million.

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Production and Pricing Information

        The following table sets forth certain information regarding the company's production volumes and the average oil and gas prices received:

        Total 20082009 oil and gas production grew eightfell five percent averaging 485.8462.9 MMcfe per day as compared to 451.0485.8 MMcfe per day in 2007.2008. Gas production in 2008 increased six2009 decreased seven percent to 348.2323.2 MMcf per day and oil production grew 12one percent to 22,93723,283 barrels per day. The

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        Production changes reflect the early-2009 reduction in company-operated drilling rigs and number of wells drilled. During the fourth quarter of 2008, we were running an average of 31 operated rigs. By the end of March 2009, we were operating only 3 rigs. In the second half of 2009 we began to pick up our drilling activity and had 12 rigs running during the fourth quarter. In total, we drilled and completed 110 gross (67 net) wells during 2009 compared to 450 gross (276.9 net) in 2008. Partially offsetting the impact of the sharp reduction in drilling were four new highly productive wells in southeast Texas that contributed 70 MMcfe/d to our average fourth quarter volumes.

        Reflecting weaker overall U.S. gas volume growth resulted primarily from Texas Panhandle and Anadarko-Woodford shale drilling. The growing oil volume was principally a result of successful horizontal Third Bone Spring and Abo/Wolfcamp drilling in the Permian Basin.

        Wemarkets, we sold our 20082009 gas at an average price of $8.43$4.12 per Mcf, which was 2051 percent higherlower than the $7.05$8.43 per Mcf we received in 2007. We had natural gas collars for calendar year 2008 covering 40,000 MMBtu per day. The collars increased our 2008 average realized gas price by $0.09 per Mcf. For a discussion of derivatives, see Note 3 of Notes to Consolidated Financial Statements contained herein.2008. Declining global oil prices negatively impacted the oil prices we received. Our annual average realized oil price during 2008 increased 382009 dropped 42 percent to $56.13 per barrel from $96.03 per barrel from $69.71 per barrel in 2007.

        Strong global demand and overall tight commodity market conditions for oil, natural gas and natural gas liquids for the first nine months of 2008 resulted in overall higher average realized price in 2008 compared to 2007. During the fourth quarter of 2008, reductions in global economic activity and energy demands caused significant decreases in oil and gas prices. Year-end 2008 oil and gas prices fell 50-70% from their mid-year peak. Our overall average fourth quarter equivalent price realization was approximately 50% below our average third quarter equivalent price.2008.

        The following table summarizes Cimarex's daily production by region for 20082009 and 2007.2008.

        Our largest producing area is the Mid-Continent region. During 20082009 our Mid-Continent production averaged 223.9218.5 MMcfe per day, or 4647 percent of our total 20082009 production. SuccessfulLimited drilling programsactivity outside of the western Oklahoma Cana-Woodford resulted in the Texas Panhandle and the Anadarko Basin helped boost our Mid-Continent production by 16decreasing two percent in 2009.

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2008.        The Permian Basin contributed 166.2161.4 MMcfe per day in 2008,2009, which was 3435 percent of our total production. Oil production for this period. Production increased 15seven percent as a result of successful horizontal oil drilling in the Abo/Bone Spring, Cherry Canyon, Abo, Paddock and Wolfcamp formations in southeast New Mexico and in the West Texas Third Bone Spring formation.Texas.

        Gulf Coast production averaged 91.380.2 MMcfe per day during 2008,2009, or 1917 percent of total production. Full-year 2009 Gulf Coast volumes decreased in12 percent as compared to 2008 as a result of natural production declines and no newthe timing of exploration success. Successful exploration drilling in the Gulfsecond-half of Mexico.2009 near Beaumont Texas, resulted in production volumes increasing to 116.2 MMcfe/d, a 54 percent increase over fourth-quarter 2008 average of 75.7 MMcfe/d.

Acquisitions and Divestitures

        During 2009, we sold various oil and gas properties for a total of $109.4 million. Associated proved reserves were 25 Bcfe. The largest transaction was $79 million for an interest in a West Texas secondary oil field. There were no significant acquisitions during 2009. Subsequent to year end we acquired additional interests in our Western Oklahoma Cana-Woodford shale play for approximately $23 million.

        During 2008 we sold interests in various oil and gas properties primarily located in South Texas for $38.1 million. Also during 2008, we purchased 38,000 undeveloped acres in western Oklahoma for $180.9 million.

        In 2005, Cimarex acquired Magnum Hunter Resources, Inc, on June 7, 2005. Magnum Hunter was an independent oil and gas exploration and production company with operations concentrated in the Permian Basin and the Gulf of Mexico. Magnum's oil and gas properties were valued at $1.8 billion and resulted in the addition of 886.7 Bcfe of proved reserves (60 percent gas and 73 percent proved developed).

        During 2007 we sold various interests in oil and gas properties located in West Texas, California and GulfTable of Mexico. In total we sold 123 Bcfe of proved reserves for $177 million. During 2008 we sold various interests in oil and gas properties located in South Texas. In total we sold 17 Bcfe of proved reserves for $38.1 million.

��       During 2007 we purchased $40.9 million of assets, with the largest acquisition being in the Texas Panhandle Area. During 2008 we purchased 38,000 acres in western Oklahoma, Anadarko Basin Woodford Shale play for $180.9 million. In total we have approximately 98,000 net acres in the play.Contents

Marketing

        Our oil and gas production is sold under various short-term arrangements at market-responsive prices. We sell our oil at various prices directly or indirectly tied to field postings and monthly futures contract prices on the New York Mercantile Exchange (NYMEX). Our gas is sold under pricing mechanisms related to either monthly index prices on pipelines where we deliver our gas or the daily spot market.

        We sell our oil and gas to a broad portfolio of customers. Our largest customer accounted for tenapproximately 14 percent of 20082009 revenues. Because over 95 percent of our gas production is from wells in Kansas, Oklahoma, New Mexico, Texas and Louisiana, most of our customers are either from those states or nearby end-user market centers. We regularly monitor the credit worthiness of all our customers and may require parental guarantees, letters of credit or prepayments when we deem such security is necessary.

Employees

        We employed 831756 people on December 31, 2008.2009. None of our employees are subject to collective bargaining agreements.

Competition

        The oil and gas industry is highly competitive. Competition is particularly intense for prospective undeveloped leases and purchases of proved oil and gas reserves. There is also competition for rigs and related equipment we use to drill for and produce oil and gas. Our competitive position is also highly dependent on our ability to recruit and retain geological, geophysical and engineering expertise. We compete for prospects, proved reserves, oil-field services and qualified oil and gas professionals with major and diversified energy companies and other independent operators that have larger financial, human and technological resources than we do.

        We compete with integrated, independent and other energy companies for the sale and transportation of oil and gas to marketing companies and end users. The oil and gas industry competes with other energy industries that supply fuel and power to industrial, commercial and residential consumers. Many of these

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competitors have greater financial and human resources. The effect of these competitive factors cannot be predicted.

Title to Oil and Gas Properties

        We undertake title examination and perform curative work at the time we lease undeveloped acreage, prepare for the drilling of a prospect or acquire proved properties. We believe that the titles to our properties are good and defensible, and are in accordance with industry standards. Nevertheless, we are involved in title disputes from time to time which result in litigation. Our oil and gas properties are subject to customary royalty interests, liens incidental to operating agreements, tax liens and other burdens and minor encumbrances, easements and restrictions.

Government Regulation

        Oil and gas production and transportation is subject to extensive federal, state and local laws and regulations. Compliance with existing laws often is difficult and costly, but has not had a significantly adverse effect upon our operations or financial condition. In recent years, we have been most directly affected by federal and state environmental regulations and energy conservation rules. We are also indirectly affected by federal and state regulation of pipelines and other oil and gas transportation systems.

        The states in which we conduct operations establish requirements for drilling permits, the method of developing new fields, the size of well spacing units, drilling density within productive formations and the unitization or pooling of properties. In addition, state conservation laws include requirements for waste prevention, establish limits on the maximum rate of production from wells, generally prohibit the venting

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or flaring of natural gas and impose certain requirements regarding the ratability of production. The effect of these regulations is to limit the amounts of oil and natural gas that we can produce from our wells and to limit the number of wells or locations at which we can drill.

        Environmental Regulation.    Various federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, directly impact oil and gas exploration, development and production operations, and consequently may impact our operations and costs. These laws and regulations govern, among other things, emissions to the atmosphere, discharges of pollutants into waters, underground injection of waste water, the generation, storage, transportation and disposal of waste materials, and protection of public health, natural resources and wildlife. These laws and regulations may impose substantial liabilities for noncompliance and for any contamination resulting from our operations and may require the suspension or cessation of operations in affected areas.

        We are committed to environmental protection and believe we are in substantial compliance with applicable environmental laws and regulations. We routinely obtain permits for our facilities and operations in accordance with the applicable laws and regulations. There are no known issues that have a significant adverse effect on the permitting process or permit compliance status of any of our facilities or operations. We have made, and will continue to make, expenditures in our efforts to comply with environmental regulations and requirements. These costs are considered a normal, recurring cost of our ongoing operations and not an extraordinary cost of compliance with government regulations.

        We do not anticipate that we will be required under current environmental laws and regulations to expend amounts that will have a material adverse effect on our financial position or operations. However, due to continuing changes in these laws and regulations, we are unable to predict with any reasonable degree of certainty any potential delays in development plans that could arise, or our future costs of complying with these governmental requirements. We do maintain levels of insurance customary in the industry to limit our financial exposure in the event of a substantial environmental claim resulting from sudden, unanticipated and accidental discharges of oil, produced water or other substances.

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        Gas Gathering and Transportation.    The Federal Energy Regulatory Commission (FERC) requires interstate gas pipelines to provide open access transportation. FERC also enforces the prohibition of market manipulation by any entity, and the facilitation of the sale or transportation of natural gas in interstate commerce. Interstate pipelines have implemented these requirements, providing us with additional market access and more fairly applied transportation services and rates. FERC continues to review and modify its open access and other regulations applicable to interstate pipelines.

        Under the Natural Gas Policy Act (NGPA), natural gas gathering facilities are expressly exempt from FERC jurisdiction. What constitutes "gathering" under the NGPA has evolved through FERC decisions and judicial review of such decisions. We believe that our gathering systems meet the test for non-jurisdictional "gathering" systems under the NGPA and that our facilities are not subject to federal regulations. Although exempt from FERC oversight, our natural gas gathering systems and services may receive regulatory scrutiny by state and Federal agencies regarding the safety and operating aspects of the transportation and storage activities of these facilities.

        In addition to using our own gathering facilities, we may use third-party gathering services or interstate transmission facilities (owned and operated by interstate pipelines) to ship our gas to markets.

        Additional proposals and proceedings that might affect the oil and gas industry are pending before the U.S. Congress, FERC, state legislatures, state agencies and the courts. We cannot predict when or whether any such proposals may become effective and what effect they will have on our operations. We do not anticipate that compliance with existing federal, state and local laws, rules or regulations will have a material adverse effect upon our capital expenditures, earnings or competitive position.

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Federal and State Income and Other Local Taxation

        Cimarex and the petroleum industry in general are affected by both federal and state income tax laws, as well as other local tax regulations involving ad valorem, personal property, franchise, severance and other excise taxes. We have considered the effects of these provisions on our operations and do not anticipate that there will be any undisclosed impact on our capital expenditures, earnings or competitive position.

Certain Risks

        The following risks and uncertainties, together with other information set forth in this Form 10-K, should be carefully considered by current and future investors in our securities. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks and uncertainties develop into actual events, this could have a material adverse affect onactually occurs, our business, financial condition or results of operations could be materially adversely affected, and these events could negatively impact the value of our common stock.

Oil and gas prices fluctuate due to a number of uncontrollable factors, creating a component of uncertainty in our development plans and overall operations. Continued declinesDeclines in prices adversely affect our financial results and rate of growth in proved reserves and production.

        The oilOil and gas markets are very volatile, and we cannot predict future oil and natural gas prices. The priceprices we receive for our oil and natural gas production heavily influencesinfluence our revenue, profitability, access to capital and future rate of growth. The prices we receive for our production depend on numerous factors beyond our control. These factors include, but are not limited to, changes in global supply and demand for oil and gas, the actions of the Organization of Petroleum Exporting Countries, the level of global oil and gas exploration and production activity, weather conditions, technological advances affecting energy consumption, domestic and foreign governmental regulations, proximity and capacity of oil and gas pipelines and other transportation facilities and the price and technological advancement of alternative fuels.

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        DuringThe downward pressure in natural gas prices that began in the fourth quarterlast half of 2008 severe disruptionscontinued in the credit markets and reductions in global economic activity caused significant decreases in2009. Our average realized natural gas price for 2009 decreased 51% from 2008. Additionally, although oil and gas prices. Oil and gas prices fell 50-70% from the mid-year 2008 peak tohave improved since the end of the year and 30-60%2008, our average realized price for oil for 2009 was down 42% from the third to the fourth-quarter 2008. The dramatic decrease in prices significantly decreased the amount available to invest in exploration and development drilling and the present value of our proved reserves and our stock price and corresponding market capitalization.reserves. As a result of the drop in commodity prices in 2008,the first quarter of 2009, we recorded $1.4 billiona $502 million after-tax, full-cost ceiling test write-down of proved properties book-value.

        Our proved oil and gas reserves and production volumes decrease in quantity unless we successfully replace the reserves we produce with new discoveries or acquisitions. For the foreseeable future, we expect to make substantial capital investments for the exploration and development of new oil and gas reserves to replace the reserves we produce and to increase our total proved reserves. Historically, we have paid for these types of capital expenditures with cash flow provided by our production operations. Low prices also reduce the amount of oil and gas that we can economically produce and may cause us to curtail, delay or defer certain exploration and development projects. Moreover, our ability to borrow under our bank credit facility and to raise additional debt or equity capital to fund acquisitions would also be impacted.

If oil and natural gas prices decrease further, we may be required to take additional write-downs of the carrying values of our oil and gas properties and/or our goodwill.

        Accounting rules require that we review the carrying value of our oil and gas properties and goodwill for possible impairment at the end of each reporting period. If prices fall further,decrease significantly, we may incur

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additional impairment charges in the future, which could have a material adverse effect on our results of operations in the period taken.

The global financial crisis may have impacts on our business and financial condition that we currently cannot predict.

        The continued credit crisis and related turmoil in the global financial system may have an impact on our business and our financial condition, and we may face challenges if conditions in the financial markets do not improve. Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing, which could have an impact on our flexibility to react to changing economic and business conditions. The economic situation could have an impact on our lenders, or customers,purchasers of our oil and gas production and working interest owners in properties we operate, causing them to fail to meet their obligations to us.

Failure of our exploration and development program to findeconomically replace commercial quantities of new oil and gas reserves could negatively affect our financial results and future rate of growth.

        Most of our wells produce from reservoirs characterized by high initial production rates which decline rapidly and stabilize within three to five years.        In order to replace the reserves depleted by production and to maintain or grow our total proved reserves and overall production levels, we must locate and develop new oil and gas reserves or acquire producing properties from others. This can require significant capital expenditures and can impose reinvestment risk for our company, as we may not be able to continue to replace our reserves economically. While we may from time to time seek to acquire proved reserves, our main business strategy is to grow through drilling. Without successful exploration and development, our reserves, production and revenues could decline rapidly, which would negatively impact our results of operations.

        Exploration and development involves numerous risks, including the risk that no commercially productive oil or gas reservoirs will be discovered. Exploration and development can also be unprofitable, not only from dry wells, but from productive wells that do not produce sufficient reserves to return a profit.

        Our drilling operations may be curtailed, delayed or canceled as a result of several factors, including unforeseen poor drilling conditions, title problems, unexpected pressure or irregularities in formations, equipment failures, accidents, adverse weather conditions, compliance with environmental and other

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governmental requirements, and the cost of, or shortages or delays in the availability of, drilling rigs and related equipment.

The high-rate production characteristics of our properties subject us to high reserve replacement needs and require significant capital expenditures to replace our reserves.

        Unless we conduct successful development activities or acquire properties containing proved reserves, our proved reserves will decline as they are produced. Producing natural gas and oil reservoirs are generally characterized by declining production rates that vary depending on reservoir characteristics and other factors. Because of the high-rate production profiles of our properties, replacing produced reserves is more difficult for us than for companies whose reserves have longer-life production profiles. This imposes greater reinvestment risk for our company as we may not be able to continue to economically replace our reserves.

Our proved reserve estimates may be inaccurate and future net cash flows are uncertain.

        Estimates of total proved oil and gas reserves (consisting of proved developed and proved undeveloped reserves) and associated future net cash flow depend on a number of variables and assumptions. Among others, changes in any of the following factors may cause estimatesactual results to vary considerably from actual results:estimates:

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production rates, reservoir pressure, unexpected water encroachment, and other subsurface information;conditions;



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future oil and gas prices;



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assumed effects of governmental regulation;



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future operating costs;



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future property, severance, excise and other taxes incidental to oil and gas operations;



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capital expenditures;



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workoverwork-over and remedial costs; and