On Oct 15, 2015, we issued an updated research report on independent oil & gas exploration and production firm, Cimarex Energy Company XEC.
Cimarex has established a track record of focused and disciplined Exploration and Production (E&P) capital spending that has driven profitable growth in the past. Management’s conservatism can be gauged from the fact that the company does not recognize undeveloped reserves as part of its proven reserves for reporting purposes. As a result, all of the company’s reported reserves are developed.
The company’s substantial acreage in core operating areas gives it a detailed inventory of exploration and development prospects that provide it with relatively low-risk volume growth opportunities. We expect continued focus on drilling activities to remain the primary production growth driver, going forward. Cimarex is also increasing its ownership interests in the wells in which it participates. As a result, the successful projects are boosting the company’s volumes and reserves.
Cimarex Energy’s financial flexibility and strong balance sheet are real assets in this highly uncertain period for the economy. The company exited second-quarter 2015 with nearly $857 million of cash, while its long-term debt consisted of $1.5 billion in long-term notes. Cimarex had no borrowings under its revolving credit facility and has a low debt-to-capitalization ratio of 26%.
However, Cimarex Energy’s long-term production and reserve growth primarily depend on its acquire-and-exploit model. The company may find it difficult to complete accretive transactions in the future, which in turn, could negatively impact its growth rate.
Moreover, like other independent exploration and production companies, Cimarex Energy’s results are directly influenced by oil and gas prices. Continued weakness in commodity prices has significantly affected the company’s revenues, earnings and cash flows.
The effect of the oil and gas price slump has been more pronounced on Cimarex Energy’s top line, as the energy explorer did not hedge its production. The move could spell more trouble for the beleaguered company if prices start to slide once again.
Other notable stocks from the same space are Natural Gas Services Group Inc. NGS, Matrix Service Company MTRX and ReneSola Ltd SOL.
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