XEC
Posted: Wed Jul 15, 2015 10:19 am
Stifel just sent out an update on Cimarex (XEC). They rate it a BUY with a $150 price target. My valuation is $135. Below are their comments. I am very high on what they have going up in Oklahoma in the Meramec. It is a zone in the SCOOP/STACK play were CLR, NFX, DVN and GST also have a lot of upside. - Dan
Capex and Production Ramp On the Way, Raising Estimates
Following its May $730 million equity offering, XEC is poised to put rigs back to
work across its highest rate of return assets. While management has yet to release
specific details on the full extent of the expected activity ramp (we expect to hear
more information on its 2Q call August 5th), the company has already added its
first incremental rig targeting the 2nd Bone Spring in White City (Exhibits 1-2). In
2015, we expect XEC will spend near the high end of its previously issued
$0.9-$1.1B capex budget, approximately $150-$200 million above previous
expectations, and estimate XEC's 2016 capital program will come in at
approximately $1.3-$1.4B, an approximate 20% increase y/y. Including the effects
of the expected incremental capex in 2H15, we believe 2015 production is likely to
come in above of current guidance (+3%) and we expect XEC will grow 2016 y/y
production approximately 15% (Exhibit 3), which puts us 3% and 11% above
street consensus, respectively. As such, we are increasing our FY15 and FY16
production/CFPS estimates 2.4%/2.5% and 3.5%/2.3%.
Ramp Driven By Strong Economics, Funded with Cash Flow + Cash on BS
XEC's ability to generate strong returns at current prices, not its desire for growth,
continue to drive management's decision to ramp activity in 2H15 and 2016. We
estimate XEC's core assets are generating PVI10 and IRRs between 1.3x-1.6x and
25%-35% based on $50/bl, and 1.5x-1.7x and 35%-40% based on $60/bl
(Exhibits 4-7). Analysis of the most recent state data supports the type curves
(Exhibits 8-9) underpinning our NAV estimate (Exhibit 10). Using our
aforementioned 2015/2016 y/y production growth estimates and strip pricing, we
project XEC's estimated 2015-2016 capex will be within cash flow and
cash-on-hand and its debt/TTM EBITDA will not rise above 1.3x, below its current
peer group average of 2.3x.
Meramec Update
Anticipation continues to build for the release of XEC's first 10,000' lateral
Meramec well but it remains unclear whether management will have the
prerequisite 30-days of production to report initial results on its August call.
However, we do expect management to release production data on three new
5,000' lateral Meramec wells completed in 1H15 along with extended production
histories on its first seven wells. Despite management's contention that 60% of its
Meramec acreage is de-risked, we continue to conservatively ascribe value to only
25% of its 115,000 net acre position.
Capex and Production Ramp On the Way, Raising Estimates
Following its May $730 million equity offering, XEC is poised to put rigs back to
work across its highest rate of return assets. While management has yet to release
specific details on the full extent of the expected activity ramp (we expect to hear
more information on its 2Q call August 5th), the company has already added its
first incremental rig targeting the 2nd Bone Spring in White City (Exhibits 1-2). In
2015, we expect XEC will spend near the high end of its previously issued
$0.9-$1.1B capex budget, approximately $150-$200 million above previous
expectations, and estimate XEC's 2016 capital program will come in at
approximately $1.3-$1.4B, an approximate 20% increase y/y. Including the effects
of the expected incremental capex in 2H15, we believe 2015 production is likely to
come in above of current guidance (+3%) and we expect XEC will grow 2016 y/y
production approximately 15% (Exhibit 3), which puts us 3% and 11% above
street consensus, respectively. As such, we are increasing our FY15 and FY16
production/CFPS estimates 2.4%/2.5% and 3.5%/2.3%.
Ramp Driven By Strong Economics, Funded with Cash Flow + Cash on BS
XEC's ability to generate strong returns at current prices, not its desire for growth,
continue to drive management's decision to ramp activity in 2H15 and 2016. We
estimate XEC's core assets are generating PVI10 and IRRs between 1.3x-1.6x and
25%-35% based on $50/bl, and 1.5x-1.7x and 35%-40% based on $60/bl
(Exhibits 4-7). Analysis of the most recent state data supports the type curves
(Exhibits 8-9) underpinning our NAV estimate (Exhibit 10). Using our
aforementioned 2015/2016 y/y production growth estimates and strip pricing, we
project XEC's estimated 2015-2016 capex will be within cash flow and
cash-on-hand and its debt/TTM EBITDA will not rise above 1.3x, below its current
peer group average of 2.3x.
Meramec Update
Anticipation continues to build for the release of XEC's first 10,000' lateral
Meramec well but it remains unclear whether management will have the
prerequisite 30-days of production to report initial results on its August call.
However, we do expect management to release production data on three new
5,000' lateral Meramec wells completed in 1H15 along with extended production
histories on its first seven wells. Despite management's contention that 60% of its
Meramec acreage is de-risked, we continue to conservatively ascribe value to only
25% of its 115,000 net acre position.