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Detailed evaluation of drilling decisions based on risk-adjusted discounted cash flow rate of return on investment



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Tracking predicted and actual results in a centralized exploration management system that provides feedback to improve results



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Attracting quality employees and maintaining integrated teams of geoscientists, landmen and engineers



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Maximizing profitability by efficiently operating our properties



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Maintaining a strong financial structure

        We believe that detailed technical analysis, operational focus and a disciplined capital investment process mitigates risk and positions us to continue to achieve profitable increases in proved reserves and production. Further, our diversified portfolio and limited long-term capital commitments provide the flexibility to respond quickly to industry volatility.

        Our drilling portfolio is principally split between the Permian Basin and Mid-Continent regions. Exploration and development (E&D) capital expenditures for 2013 totaled $1.57 billion. Of total expenditures, 65% were invested in the Permian Basin and 31% in the Mid-Continent area. Our Permian Basin efforts generated our best rates of return in 2013 and are focused on drilling horizontal oil and liquids-rich gas wells in the Bone Spring formations in Texas and New Mexico and to the Wolfcamp shale formation in Texas. In the Mid-Continent, our activity has been focused in the liquids-rich gas portion of the Cana-Woodford shale.

Conservative use of leverage has long been a part ofthe key to our financial strategy. We believe that maintaining a strong balance sheetlow leverage mitigates financial risk, andwhich enables us to withstand low prices. At year-end 2013, wevolatility in commodity prices and provide competitive returns to shareholders.  Cimarex looks to enhance shareholder returns through quarterly dividends which have increased 100% over the last five years.  In June 2014, Cimarex was added to the S&P 500.  See Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer purchases of Equity Securities – Stock Performance Graph and Item. 6 Selected Financial Data for additional financial and operating information for fiscal years 2010-2014.

Proved Oil and Gas Reserves

In 2014, our total proved reserves grew 25% to 3.1 Tcfe.  Proved undeveloped reserves as a percentage of total proved reserves increased to 23% from 20% a year ago.  We added 814 Bcfe of new reserves through extensions and discoveries and had $924 millionupward revisions of long-term debt105 Bcfe.  Organic growth, as represented by our reserve replacement ratio (excluding reserve purchases and $4.02 billion of stockholders equity.

Business Segments

        Cimarex has one reportable segment (exploration and production).

Exploration and Production Overview

        Our exploration and production (E&P) activities are conducted primarilysales) was 2.9 times.  The change in two main areas: the Permian Basin and the Mid-Continent region. The Permian Basin encompasses west Texas and southeast New Mexico. The Mid-Continent region consists of Oklahoma, the Texas Panhandle and southwest Kansas.

        A summary of our 2013 exploration and development activity by regionproved reserves is as follows.follows (in Bcfe):

Permian Basin

        Our Permian Basin operations cover west Texas and southeast New Mexico. In total, Cimarex drilled 175 gross (115 net) wells in this area during 2013, completing 174 gross (114 net) as producers. Capital investment in this area totaled $1,019 million, or 65% of total 2013 capital.

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A breakdown by commodity of our proved oil and gas reserves follows:

 Drilling principally occurred

See “Supplemental Oil and Gas Information” in the Delaware Basin portion of New Mexico and West Texas, mainly targeting the Bone Spring and Wolfcamp formations. Cimarex drilled and completed 73 gross (40 net) New Mexico Bone Spring wells in 2013. Texas Third Bone Spring drilling totaled 39 gross (28 net) wells.

        In addition, Cimarex drilled and completed 26 gross (21 net) horizontal Wolfcamp shale wells in Culberson and Reeves Counties, Texas in 2013. The company now has over 180,000 net acres prospective for the Wolfcamp shale formation in the Delaware Basin.

        Cimarex also successfully tested an oil window in the Avalon shale interval on our acreage in Lea County, New Mexico. We completed five gross (five net) wells during 2013.

Mid-Continent

        Our Mid-Continent region encompasses operations in Oklahoma, southwest Kansas and the Texas Panhandle. We drilled 183 gross (65 net) Mid-Continent wells during 2013, completing all as producers. The bulkItem 8 of this drilling activity was in the Anadarko Basinreport for further information.

Production volumes totaled 869 MMcfe of western Oklahoma, where we drilled 149 gross (54 net) wells which were primarily infill development wells. At year-end there were 54 gross (22 net) wells waiting on completion. Capital investment in this region in 2013 totaled $480 million, or 31%natural gas equivalent per day, a 25% increase over 2013.  Production volumes are comprised of total E&D capital.

        Our largest investment area was in the Cana-Woodford shale play. We have approximately 75,000 net acres in the core of the play.

Production, Pricing49% natural gas, 30% oil and Production Cost Information

21% NGLs.  The following tables set forth certain information regarding the company'sshow our production volumes by region, the average commodity prices received and production cost per unit of production (Mcfe). ThisSeparate data also is also included for our Cana-Woodford project, which is part of our Mid-Continent region and is part of our largest producing field.

Acquisitions and Divestitures

In 2014 we made property acquisitions totaling $250 million, including a $238 million acquisition of properties in our Cana-Woodford shale play where enhanced completion techniques along with new workover designs were used to increase returns.  In addition, we sold interests in various non-core oil and gas properties for $446 million, including non-strategic, high-value acreage in Reagan County, Texas, for $242 million, and other producing properties in southwestern Kansas.

Exploration and Production Overview

Cimarex has one reportable segment, exploration and production (E&P).  Our E&P activities take place primarily in two areas: the Permian Basin and the Mid-Continent region. Almost all of our exploration and development (E&D)

capital is allocated between these two areas. In 2013,2014, E&D investment totaled $1.88 billion. Of that, 73% was invested in the Permian Basin and 25% in the Mid-Continent region.

In 2014, Cimarex drilled or participated in 312 gross (174.6 net) wells, of which we operated 185 gross (144.5 net) wells.  At year-end, we were in the process of drilling or participating in 8 gross (4.0 net) wells and there were 54 gross (31.9 net) wells waiting on completion.  A summary of our 2014 exploration and development activity by region is as follows:

The Permian region encompasses west Texas and southeast New Mexico.  Cimarex’s Permian Basin efforts are located in the western half of the Permian Basin known as the Delaware Basin.  In 2014, we focused on drilling horizontal wells that yielded oil and liquids-rich gas from the Wolfcamp shale, the Bone Spring formation, and the Avalon shale.  Cimarex saw improved results in its Wolfcamp shale wells, as measured by production and reserves, with the implementation of long laterals and in the Bone Spring wells via upsized well completions.

The Permian region produced 399 MMcfe per day in 2014, which was 46% of our total company production. Because of strong oil prices in the first nine months, the Permian was our most active drilling region in 2014. Oil production in the Permian Basin in 2014 averaged a record 34,390 barrels per day, a 17% increase over 2013.

Our Mid-Continent region consists of Oklahoma and the Texas Panhandle.  Our activity in 2014 in the Mid-Continent was focused in the Cana-Woodford shale in Oklahoma.  Returns increased significantly in this play during 2014 as we implemented well completion techniques in this area that were highly successful in our Delaware Basin Wolfcamp

Shale wells in 2013.  These improved results, combined with a favorable average product price mix, led to the Mid-Continent region posting the company’s strongest returns in 2014.  Cimarex also had success in a new zone, the Meramec, which sits above the Woodford Shale. Cimarex is working to delineate the size and potential of the Meramec play.

The Mid-Continent region is our largest producing area. During 2014, production averaged 451.2 MMcfe per day, or 52% of total company production.  Production from the region increased 30% in 2014 versus 2013.   New completion designs and improved workover technology both contributed to higher production from the region.

Wells Drilled

We drilled the following exploratory and developmental wells in 2014:

We have working interests in the following productive wells by region as of December 31, 2014:

Significant Properties

All of our oil and gas assets (proved reserves and undeveloped acreage) are located in the United States. We have varying levels of ownership interests in our properties consisting of working, royalty and overriding royalty interests. We operate the wells that comprise 74% of our proved reserves.  In 2014, proved reserves of Cana-Woodfordin the Watonga-Chickasha field were approximately 43%54% of the company'scompany’s total proved reserves. The Cana-Woodford shale makes up the majority of this field.  No other field had reserves in excess of 15% of our total proved reserves.

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        Our largest producing area is the Mid-Continent region. During 2013, Mid-Continent production averaged 346.1 MMcfe/d, or 50% of total production. Infill development drilling activity in the Cana-Woodford shale play resulted in Mid-Continent production increasing 7% in 2013.

        The Permian Basin contributed 320.0 MMcfe/d in 2013, which was 46%At December 31, 2014, 63% of our total production. It was our most active drilling area in 2013 as higher oil prices led to strong returns on investment. Most of the activity was focusedproved reserves were located in the Bone SpringMid-Continent region and Wolfcamp formations. Oil production36% were in the Permian Basin was a record 29,421 Bbl/d, a 23% increase over 2012.

Acquisitions and Divestitures

        In 2013, we sold interestsBasin.   We owned an interest in non-core10,620 gross (3,240 net) productive oil and gas assets for $61.5 million. During the second quarter of 2013, we also sold a 50% interest inwells.   The following table summarizes our Culberson County, Texas Triple Crown gas gathering and processing system for approximately $31 million. Total property acquisitions during 2013 were $37.1 million, mostly for undeveloped acreage in Reeves County, Texas.

        During 2012, we sold interests in non-coreestimated proved oil and gas assets for $306 million. Of thisreserves by region as of December 31, 2014.

At December 31, 2014, our ten largest producing fields held 80% of total $290 million was related to non-core oilproved reserves. We are the principal operator of our production in each of these fields.

Acreage

The following table sets forth the gross and gas assets locatednet acres of both developed and undeveloped leases held by Cimarex as of December 31, 2014. Gross acres are the total number of acres in Texas. We had property acquisitions of $33.5 million during 2012, most of which werewe own a working interest. Net acres are the gross acres multiplied by our working interest.

The table below summarizes by year and region our undeveloped acreage expirations in the Permian Basin.

Marketingnext five years. In most cases, the drilling of a commercial well will hold the acreage beyond the expiration.

Marketing

Our oil and gas production is sold under short-term arrangements at market-responsive prices. We sell our oil at prices tied directly or indirectly to field postings. Our gas is sold under pricingprice mechanisms related to either monthly or daily index prices on pipelines where we deliver our gas or the daily spot market.gas.

We sell our oil and gas to a broad portfolio of customers. Our major customers during 20132014 were Enterprise Products Partners L.P. (Enterprise) and, Sunoco Logistics Partners L.P. (Sunoco) and Oneok Partners, L.P. (Oneok). Enterprise and Sunoco each accounted for 24% and 22%, respectively,19% of our consolidated revenues in 2013. 2014. Oneok accounted for 10% of our 2014 consolidated revenues. 

Enterprise is our primarya significant oil purchaser in Oklahoma and West Texas. Sunoco is a significant purchaser of our oil in Southeast New Mexico.Mexico and Canadian County, Oklahoma. If either of these entities were to stop purchasing our production, we believe there are a number of other purchasers to whom we could sell our production with littlesome delay. If both parties were to

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discontinue purchasing our product, there would be challenges initially, but ample markets to handle the disruption.

Oneok primarily purchases our NGLs and provides gathering, compression and processing services for the majority of our Mid-Continent region gas production.  In the event Oneok ceased buying our NGLs, a minimal impact would occur as these products are piped to various processing and storage market areas where we could sell to a different purchaser. In the event Oneok ceased gathering, compressing, and processing our gas, there would be challenges initially, but several other entities exist to fill in the gap.

We regularly monitor the credit worthiness of all our customers and may require parentalparent company guarantees, letters of credit or prepayments when deemed necessary.

Corporate Headquarters and Employees

Our corporate headquarters is located at 1700 Lincoln St., Suite 3700,  Denver, Colorado 80203.  On December 31, 2014, and 2013, Cimarex had 991 and 908 employees, on December 31, 2013.respectively. None of our employees are subject to collective bargaining agreements.

Competition

The oil and gas industry is highly competitive, particularly for prospective undeveloped leases and purchases of proved reserves. There is also competition for rigs and related equipment used 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 our 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 competitors have greater financial and human resources. The effect of these competitive factors cannot be predicted.

Proved Reserves Estimation Procedures

Proved oil and gas reserve quantities are based on estimates prepared by Cimarex in accordance with the SEC’s rules for reporting oil and gas reserves. Our reserve definitions conform with definitions of Rules 4-10(a) (1)-(32) of Regulation S-X of the SEC. All of our reserve estimates are maintained by our internal Corporate Reservoir Engineering group, which is comprised of reservoir engineers and engineering technicians. The objectives and management of this group are separate from and independent of the exploration and production functions of the company. The primary objective of our Corporate Reservoir Engineering group is to maintain accurate forecasts on all properties of the company

through ongoing monitoring and timely updates of operating and economic parameters (production forecasts, prices and regional differentials, operating expenses, ownership, etc.) in accordance with guidelines established by the SEC. This separation of function and responsibility is a key internal control.

Cimarex engineers are responsible for estimates of proved reserves. Corporate engineers interact with the exploration and production departments to ensure all available engineering and geologic data is taken into account prior to establishing or revising an estimate. After preparing the reserves update, the corporate engineers review their recommendations with the Vice President of Corporate Engineering. After approval from the Vice President of Corporate Engineering, the revisions are entered into our reserves database by the engineering technician.

During the course of the year, the Vice President of Corporate Engineering presents summary reserves information to senior management and to our Board of Directors for their review. From time to time, the Vice President of Corporate Engineering also will confer with the Vice President of Exploration, Chief Operating Officer and the Chief Executive Officer regarding specific reserves-related issues. In addition, Corporate Reservoir Engineering maintains a set of basic guidelines and procedures to ensure that critical checks and reviews of the reserves database are performed on a regular basis.

Together, these internal controls are designed to promote a comprehensive, objective and accurate reserves estimation process. As an additional confirmation of the reasonableness of our internal estimates, DeGolyer and MacNaughton, an independent petroleum engineering consulting firm, reviewed greater than 80% of the total future net revenue discounted at 10% attributable to the total interests owned by Cimarex as of December 31, 2014. The individual primarily responsible for overseeing the review is a Senior Vice President with DeGolyer and MacNaughton and a Registered Professional Engineer in the State of Texas with over 40 years of experience in oil and gas reservoir studies and evaluations.

The technical employee primarily responsible for overseeing the oil and gas reserves estimation process is Cimarex’s Vice President of Corporate Engineering. This individual graduated from the Colorado School of Mines with a Bachelor of Science degree in Engineering and has more than 20 years of practical experience in oil and gas reservoir evaluation. He has been directly involved in the annual reserves reporting process of Cimarex since 2002 and has served in his current role for the past ten years.

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 title to our properties is good and defensible, and is in accordance with industry standards. Nevertheless, we are involved in title disputes from time to time whichthat 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 significant adverse effect on our operations or financial condition. In recent years, we have been most directly impacted by federal and state environmental regulations and energy conservation rules. We are also impacted 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 or flaring of natural gas and impose certain requirements regarding the ratability of production.

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, which consequently 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.

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Cimarex is committed to environmental protection and believes we are in material compliance with applicable environmental laws and regulations. We 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. Expenditures are required to comply with environmental regulations. These costs are a normal, recurring expense of 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 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.substances as well as additional coverage for certain other pollution events.

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"“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"“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 Federalfederal 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, Bureau of Land Management (BLM), state legislatures, state agencies, local governments 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.

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.

ITEM 1A.  RISK FACTORS

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 presently unknown to us or currently deemed immaterial also may impair our business operations. The occurrence of one or more of these risks or uncertainties could materially and adversely affect our business, our financial condition, and the results of our operations, which in turn could negatively impact the value of our securities.

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

Oil and gas markets are volatile. We cannot predict future prices. The prices we receive for our production heavily influence our revenue, profitability, access to capital, and future rate of growth. The prices we receive depend on numerous factors beyond our control. These factors include, but are not limited to, changes in domestic and global supply and demand for oil and gas, geopolitical instability, the actions of the Organization of Petroleum Exporting Countries, the level of domestic and global oil and gas exploration and production activity, geopolitical instability, the actions of the Organization of Petroleum Exporting Countries, weather conditions, technological advances affecting energy consumption, governmental regulations and taxes, and the price and technological advancement of alternative fuels.

Our proved oil and gas reserves and production volumes will decrease unless suchthose reserves are replaced with new discoveries or acquisitions. Accordingly, for the foreseeable future, we expect to make substantial capital investments for the exploration and development of new oil and gas reserves. Historically, we have paid for these types of capital expenditures with cash flow provided by our production operations, our revolving credit facility, and proceeds from the sale of senior notes. Low prices reduce our cash flow and 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, low prices also may impact our abilities to borrow under our bankrevolving credit facility and to raise additional debt or equity capital to fund acquisitions.

If prices stay at recent lower levels or decrease, we maywill be required to take write-downs of the carrying values of our oil and gas properties and/or our goodwill.

Accounting rules require that we periodically review the carrying value of our oil and gas properties and goodwill for possible impairment. Even moderate future price declines could cause us to incur impairment charges, which could have a material adverse effect on the results of our operations in the period taken.

As of December 31, 2013,2014, the calculated value of the ceiling limitation exceeded the carrying value of our oil and gas properties subject to a ceiling test and no impairment was necessary. However, a decline of 3%8% or more in the value of the ceiling limitation would have resulted in an impairment. If commodity prices stay at the current early 2015 levels or decline or if there is a negative impact on one or more of the other components of the calculation,further, we maywill incur a full cost ceiling impairment related to our oil and gas propertiesimpairments in future quarters. Because the ceiling calculation uses rolling 12-month average commodity prices, the effect of lower quarter-over-quarter prices in 2015 compared to 2014 is a lower ceiling value each quarter.  This will result in ongoing impairments each quarter until prices stabilize or improve.  Impairment charges would not affect cash flow from operating activities, but would adversely affect our net income and stockholders’ equity.

U.S. or global financial markets may impact our business and financial condition.

A credit crisis or other turmoil in the U.S. or global financial system may have a negative impact on our business and our financial condition. Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing. This could have an impact on our flexibility to react to changing economic and business conditions. Deteriorating economic conditions could have a negative impact on our lenders, the purchasers of our oil and gas production and the working interest owners in properties we operate, causing them to fail to meet their obligations to us.

Failure to economically replace oil and gas reserves commercially could negatively affect our financial results and future rate of growth.

In order to replace the reserves depleted by production and to maintain or growincrease our total proved reserves and overall production levels, we must either locate and develop new oil and gas reserves or acquire producing properties from others. This can requirerequires significant capital expenditures and can impose reinvestment risk for our company,us, as we may not be able to continue to replace our reserves economically. While we occasionally may seek to acquire proved reserves, our main business strategy is to grow through exploration and drilling. Without successful exploration and development, our reserves, production and revenues could decline rapidly, which would negatively impact the results of our operations.

Exploration and development involves numerous risks, including new governmental regulations and the risk that we will not discover any commercially productive oil or gas reservoirs. Additionally, it can be unprofitable, not only from drilling dry holes, but also from drilling productive wells that do not return a profit because of insufficient reserves or declines in commodity prices.

Our drilling operations may be curtailed, delayed, or canceled for many reasons. Factors such as unforeseen poor drilling conditions, title problems, unexpected pressure irregularities, equipment failures, accidents, adverse weather conditions, compliance with environmental and other governmental requirements, bans, moratoria or other restrictions implemented by local governments and the cost of, or shortages or delays in the availability of, drilling and completion services could negatively impact our drilling operations.

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. See "Forward-Looking Statement"“Forward-Looking Statement” in this report. Among others, changes in any of the following factors may cause actual results to vary considerably from our estimates:

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timing of development expenditures;

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amount of required capital expenditures and associated economics;

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recovery efficiencies, decline rates, drainage areas, and reservoir limits;

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anticipated reservoir and production characteristics and interpretations of geologic and geophysical data;

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

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oil, gas, and NGL prices;

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governmental regulation;

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access to assets restricted by local government action;

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operating costs;

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

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workover and remediation costs; and

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federal and state income taxes.

At December 31, 2014, 23% of development expenditures;



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amountour total proved reserves are categorized as proved undeveloped.

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Table of required capital expenditures and associated economics;



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recovery efficiencies, decline rates, drainage areas, and reservoir limits;



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anticipated reservoir and production characteristics and interpretations of geologic and geophysical data;



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



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oil, gas, and NGL prices;



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governmental regulation;



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operating costs;



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



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workover and remediation costs; and



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Federal and state income taxes.

Our proved oil and gas reserve estimates are prepared by Cimarex engineers in accordance with SEC guidelines.guidelines established by the SEC. DeGolyer and MacNaughton, independent petroleum engineers, reviewed our reserve estimates for properties that comprised at least 80% of the discounted future net cash flows before income taxes, using a 10% discount rate, as of December 31, 2013.

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The cash flow amounts referred to in this filing should not be construed as the current market value of our proved reserves. In accordance with SEC guidelines, the estimated discounted net cash flow from proved reserves is based on (i) the unweighted average of the previous twelve12 months' first day of the monthfirst-day-of-the-month prices and (ii) current costs as of the date of the estimate;estimate, whereas actual future prices and costs however, may be materially different.

Hedging transactions may limit our potential gains and involve other risks.

To limit our exposure to price risk, we enter into hedging agreements from time to time, and use commodity derivatives. ForDuring 2014, we have currently hedged approximatelyhad hedges covering 28% of our anticipated oil production and 37%32% of our anticipated gas production. TheseWe currently do not have any hedges in place for 2015 or later periods.  Hedges limit volatility and increase the predictability of a portion of our cash flow. These transactions also limit our potential gains when oil and gas prices exceed the prices established by the hedges.