Cimarex Energy (XEC) Update - July 3
Posted: Tue Jul 03, 2018 11:19 am
Cimarex Energy recently announced that they are selling some of their assets in Ward County, Texas to Callon Petroleum (CPE) for $570 million. The sale is expected to close in the 3rd quarter and the cash proceeds will reduce Cimarex's long-term debt by a third.
Cimarex already has a SUPER STRONG balance sheet and their cash flow from operations exceeds their 2018 drilling & completions budget.
In the last 3 months, 11 ranked analysts set 12-month price targets for XEC. The average price target among the analysts is $128.00. The valuations range from $101.00 to $180.00 per share. However, none of the 11 forecast/valuation models submitted to Reuters has been updated to reflect the recent increase in oil prices. The lower valuations look like they are based on $50.00/bbl oil price or even lower.
Here is why I decided to take a hard look at XEC today: On July 2 Stifel issued a detailed report on the upstream sector, primarily focused on the pipeline takeaway issue in the Permian Basin. In the report, their revised Net Asset Valuation for Cimarex is $221.48/share. Included in the valuation is an extensive inventory of low-risk high-potential horizontal drilling locations in two of the world's most valuable oil producing basins.
I have updated my forecast/valuation model for Cimarex and posted it to the EPG website. My model includes a sizeable cushion for both 2H 2018 and for 2019 for the potential impact of the Permian Basin regional oil price differentials. Keep in mind that Cimarex has a growing position in the STACK play where they should be selling their oil for a slight premium to WTI. My valuation of XEC increases to $170.00/share.
Cimarex has not announced what they intend to do with the money from the Ward County sale, but my guess is that they will increase their drilling program in STACK.
Cimarex already has a SUPER STRONG balance sheet and their cash flow from operations exceeds their 2018 drilling & completions budget.
In the last 3 months, 11 ranked analysts set 12-month price targets for XEC. The average price target among the analysts is $128.00. The valuations range from $101.00 to $180.00 per share. However, none of the 11 forecast/valuation models submitted to Reuters has been updated to reflect the recent increase in oil prices. The lower valuations look like they are based on $50.00/bbl oil price or even lower.
Here is why I decided to take a hard look at XEC today: On July 2 Stifel issued a detailed report on the upstream sector, primarily focused on the pipeline takeaway issue in the Permian Basin. In the report, their revised Net Asset Valuation for Cimarex is $221.48/share. Included in the valuation is an extensive inventory of low-risk high-potential horizontal drilling locations in two of the world's most valuable oil producing basins.
I have updated my forecast/valuation model for Cimarex and posted it to the EPG website. My model includes a sizeable cushion for both 2H 2018 and for 2019 for the potential impact of the Permian Basin regional oil price differentials. Keep in mind that Cimarex has a growing position in the STACK play where they should be selling their oil for a slight premium to WTI. My valuation of XEC increases to $170.00/share.
Cimarex has not announced what they intend to do with the money from the Ward County sale, but my guess is that they will increase their drilling program in STACK.