Cimarex Energy (XEC) Q2 Results - Aug 6

[dan_s]

Cimarex Reports Second Quarter 2020 Results

Highlights:
Generated Cash from Operating Activities of $145 million in the quarter < Compared to my forecast of $108.8 million cash flow from operations.
Invested $84 million in the second quarter
$26 million in free cash flow after dividend < Hedges lock in FCF.
Oil production averaged 78,000 barrels per day < Compares to my forecast of 63,000 BOPD.

Cimarex Energy Co. (NYSE: XEC) reported a second quarter 2020 net loss of $925.1 million , or $9.28 per share, compared to net income of $109.3 million , or $1.07 per share, in the same period a year ago. Second quarter results were negatively impacted by non-cash charges related to the impairment of oil and gas properties.
Second quarter adjusted net income (non-GAAP) was $(52.4) million , or $(0.51) per share, compared to second quarter 2019 adjusted net income (non-GAAP) of $83.0 million , or $0.82 per share. < Adjusted Net Loss compares to my forecast of $(43.2) million.
Net cash provided by operating activities was $144.7 million in the second quarter of 2020 compared to $414.0 million in the same period a year ago. Adjusted cash flow from operations (non-GAAP) was $144.5 million in the second quarter of 2020 compared to $336.4 million in the second quarter a year ago.

Outlook
Cimarex Chairman and CEO, Tom Jorden, said, "The second quarter required drastic and prudent action. Our response to the challenging price environment included a significant decrease in activity and curtailing May production volumes. With improved oil prices we have elected to resume activity. We are bringing three additional drilling rigs back to work in the third quarter and will begin completing wells again in September with two completion crews on the schedule. As a result, we expect capital investment for the year to total approximately $600 million, in line with expectations of an operational restart from our previous guidance range."

Cimarex is also giving production and expense guidance for the remainder of 2020. Third quarter 2020 production volumes are expected to average 230 - 250 MBOE per day, with oil volumes estimated to average 69.0 - 74.0 MBbls per day. Total 2020 daily production volumes are expected to average 240 - 250 MBOE per day, with annual oil volumes estimated to average 75.0 - 78.0 MBbls per day. < Production guidance is above what I had in my forecast model, so my valuation should be going up.

I am updating the XEC forecast/valuation model and it will be posted to the EPG website this afternoon.

[dan_s]

I am increasing my valuation of XEC by $3.50 to $41.50

What I like:
> Production beat my forecast in Q2
> "Gassy" production mix is now a plus
> Free Cash Flow will shore up the balance sheet
> If gas prices meet my forecast of $2.50 in 2021 and NGL prices rebound, then XEC has a lot of upside for us.
> Their guidance is always conservative
> They expect to have 46 high potential DUC wells heading into 2021

XEC is trading at $28.74 today.