Cimarex Energy (XEC) Q1 Results - May 6

[dan_s]

Cimarex Reports First Quarter 2020 Results; Issues Abridged Guidance

Cimarex Energy Co. (NYSE: XEC) today reported a first quarter 2020 net loss of $774.3 million , or $7.77 per share, compared to net income of $26.3 million , or $0.26 per share, in the same period a year ago. First quarter results were negatively impacted by non-cash charges related to the impairment of oil and gas properties and the impairment of goodwill. First quarter adjusted net income (non-GAAP) was $59.7 million , or $0.58 per share, compared to first quarter 2019 adjusted net income (non-GAAP) of $117.3 million , or $1.20 per share. < Adjusted Net Income compares to my forecast of $44.7 million, or $0.44 per share.

Net cash provided by operating activities was $308.8 million in the first quarter of 2020 compared to $250.1 million in the same period a year ago. Adjusted cash flow from operations (non-GAAP) was $306.4 million in the first quarter of 2020 compared to $351.1 million in the first quarter a year ago. < Cash flow exceeded my forecast of $294.9 million.

Oil production averaged 89.8 thousand barrels (MBbls) per day, up 13 percent from the same period a year ago and down two percent sequentially. Total company production volumes for the quarter averaged 276.6 thousand barrels of oil equivalent (MBOE) per day. < Compares to my Q1 production forecast of 285,000 Boepd with 90,000 barrels of oil per day.

Realized product prices (not including cash settlements on hedges) were down in the first quarter compared to the same quarter a year ago.
> Realized oil prices averaged $44.18 per barrel, down 10 percent from the $48.87 per barrel received in the first quarter of 2019.
> Realized natural gas prices averaged $0.55 per thousand cubic feet (Mcf), down 71 percent from the first quarter 2019 average of $1.91 per Mcf.
> NGL prices averaged $9.84 per barrel, down 40 percent from the $16.44 per barrel received in the first quarter of 2019.

Natural gas prices were negatively impacted by local price differentials. Cimarex's average differential to Henry Hub on its Permian natural gas production was $1.85 per Mcf in the first quarter of 2020 compared to $1.91 per Mcf in the first quarter of 2019 and $1.67 in the fourth quarter of 2019. In the Mid-Continent region, the company's average differential to Henry Hub was $0.57 per Mcf versus $0.46 per Mcf in the first quarter of 2019 and $0.74 in the fourth quarter of 2019. Our realized Permian oil differential to WTI Cushing improved and averaged $2.00 per barrel in the quarter, compared to $6.90 per barrel in the first quarter of 2019 and $2.18 per barrel in the fourth quarter of 2019. < Differentials on natural gas should decline and the gas market tightens up.

Cimarex invested a total of $274 million during the first quarter, of which $214 million was attributable to drilling and completion activities, $18 million to saltwater disposal assets, and $9 million to midstream assets. First quarter investments were funded with cash flow from operating activities.

Total debt at March 31, 2020 consisted of $2.0 billion of long-term notes, with no debt maturities until 2024. Cimarex had no borrowings under its revolving credit facility and a cash balance of $89 million at quarter end. Debt was 43 percent of total capitalization. < Cimarex generated FCF in Q1 and they going to "Survive 2020 so they can Thrive in 2021".

Outlook
Cimarex has taken a number of steps to protect employees in the wake of the COVID-19 pandemic including the implementation of remote work for all office staff and the adoption of COVID-19 protocols for field staff. In addition to the health crisis, the pandemic has caused extreme weakness in oil prices due to lower demand. Because of price uncertainty and resultant production curtailments, Cimarex will forgo quarterly and annual production guidance as well as guidance on per unit operating costs. The company withdraws any previous guidance on these measures. < My forecast valuation model assumes that the Company's production will dip below 200,000 Boepd in Q2 and Q3 before rebounding to 210,000 Boepd in Q4.

Cimarex Chairman and CEO, Tom Jorden , said, "Investors expect us to be good stewards of capital. As stated in our April 15th press release, Cimarex's current outlook for capital investment in 2020 is down 55-60% from original plans and expected to be $500 - 600 million." < This compares to my full year operating cash flow forecast of approximately $800 million.
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My updated forecast/valuation model for XEC will be posted to the EPG website tomorrow morning.

[dan_s]

I have updated my forecast/valuation model for Cimarex and it will be posted to the EPG website this afternoon.

> The Company generated $306.4 million of cash flow from operations in Q1, which is more than half of their full-year CapEx Budget of $500 to $600 million.
> More than 50% of their Q2 production is hedged with collars that have $48.29 floors
> My forecast assumes a 25% reduction in production from Q1 to Q2, but that s/b on the conservative side.
> Cimarex has nothing drawn on their revolving credit facility AND they now have FREE CASH FLOW FROM OPERATIONS LOCKED IN.
> Cimarex passes the test of "Survive 2020 to Thrive in 2021". They are going to have a significant and valuable DUC inventory at year-end.
> My valuation increases by $2.00 to $34.00.