Cimarex Energy (XEC) Q2 Results

[dan_s]

Cimarex Energy Co. (NYSE: XEC) reported second quarter 2018 net income of $141.0 million, or $1.48 per share, compared to $97.3 million, or $1.02 per share, in the same period a year ago. Second quarter adjusted net income (non-GAAP) was $151.9 million, or $1.59 per share, compared to second quarter 2017 adjusted net income (non-GAAP) of $101.0 million, or $1.06 per share. < Adjusted Net Income compares to my forecast of $172.5 million or $1.84/share.

Net cash provided by operating activities was $321.2 million in the second quarter of 2018 compared to $255.3 million in the same period a year ago. Adjusted cash flow from operations (non-GAAP) was $349.5 million in the second quarter of 2018 compared to $278.8 million in the second quarter a year ago. < Compares to my forecast of $374.9 million cash flow from operations.

The previously announced sale of assets in Ward County, Texas, for $570 million (before any purchase price adjustments), is expected to close on August 31, 2018. The impact of the sale has been factored into our production guidance starting in September. < Callon Petroleum is the Buyer.

Total company volumes for the quarter averaged 211.4 thousand barrels of oil equivalent (MBOE) per day. < Compares to my forecast of Q2 production of 208,000 Boepd.

Oil production averaged 61,651 barrels (bbl) per day, up seven percent from the same period a year ago and down five percent from first quarter 2018 levels. Driven by the number of wells expected to be brought on production in the second half of 2018 (86 wells versus 38 wells in the first half), and pro forma for the sale of assets in Ward County, Texas, Cimarex continues to expect oil production growth of 20-25 percent year-over-year. < Compares to my forecast of 67,000 BOPD in Q2.

[letitfly]

And these numbers were the basis for the huge fall yesterday, or is this another example of Wall Street just not getting the energy story?

[dan_s]

Since Cimarex announced Q2 results, 3 Wall Street analysts have sent updated forecast/valuations to Reuters/First Call:
> Michael Scialla at Stifel Nicolaus rates XEC a BUY with a valuation of $175
> Gabriele Sorbara at Williams Capital rates XEC a BUY with a valuation of $134 < Highest rated analyst in this bunch
> Arun Jayaram at J.P. Morgan rates it a HOLD with a valuation of $110

XEC is now trading at $88.25

I have updated my forecast/valuation model for Cimarex and it will be posted to the EPG website this afternoon.
Impacting my valuation are:
> The sale of the Ward County package to Callon Petroleum that is now expected to close on 8/31 (lowers Q3 production but also lowers interest expense)
> Much lower realized natural gas prices. Realized natural gas prices net of cash payments received on hedges went from $2.28/mcf in Q1 to $1.85/mcf in Q2.
> Higher realized NGL prices offsets some of the "pain" of the lower gas prices.
> I've lowered Q3 and Q4 production to the low end of their fresh guidance.

My valuation moves lower by $6.00 to $154.00/share.

Cash from the Ward County sale will shore up an already very strong balance sheet, so I could justify using a higher multiple of CFPS to value it.