Energy Prospectus

I am now updating my forecast model for XEC and will have it posted to the website tonight. Adjusted EPS, cash flow from operations and production all beat my forecast for the 2nd quarter. Dan

DENVER, Aug. 4, 2015 /PRNewswire/ -- Cimarex Energy Co. (XEC) today reported a second quarter 2015 net loss of $600.2 million, or $6.47 per diluted share, including a non-cash impairment of oil and gas properties. The adjusted second quarter net income was $14.4 million, or $0.15 per diluted share(1). Second quarter 2015 adjusted cash flow from operations was $252.4 million versus $443.1 million a year ago(1).

Total company production averaged 1.0 billion cubic feet equivalent (Bcfe) per day during the second quarter, a 22 percent increase from second quarter 2014. Year-over-year natural gas volumes increased 14 percent, oil volumes grew 35 percent and NGL volumes were up 25 percent.

Cimarex invested $190 million in exploration and development during the second quarter, which was funded with cash flow from operations. Total debt at June 30, 2015, remained at $1.5 billion of long-term notes. Cimarex had no borrowings under its revolving credit facility and a cash balance of $857 million. Debt was 26 percent of total capitalization(2).

Cimarex Chairman, President and CEO, Tom Jorden, said, "In May, Cimarex issued 6.9 million shares of common stock to increase drilling in our exceptional portfolio of projects in the Delaware Basin and Mid-Continent region. These projects continue to provide highly attractive returns despite the negative commodity price backdrop." He went on to say, "We received $730 million of net offering proceeds that will supplement our exploration and development activities in 2015/16 including infill development in the Woodford Shale, our first infill development in the Wolfcamp D in the Delaware Basin, as well as continued activity in the Bone Spring and emerging Meramec plays." Cimarex plans to invest $100 million of the capital from the equity offering in the second half of 2015 with the remainder to be invested as part of the 2016 capital program.

This is why those of you that own Gastar need to hang tough. XEC is drilling very good Meramec wells close to GST's acreage block.

XEC is getting good results in Oklahoma: "Cimarex completed three additional Meramec wells in the second quarter bringing the total Meramec wells on production to ten. Average 30-day initial gross peak production from these ten wells was 9.3 MMcfe per day, with oil yields ranging from 15 barrels per MMcf to over 330 barrels per MMcf. Cimarex is currently flowing back its first 10,000-foot long lateral in the Meramec formation and has commenced drilling a second long lateral Meramec test."

XEC is drilling very close to Gastar's acreage.

XEC has a very good 2nd quarter. With production up and operating expenses down, the company generated $2.72 operating cash flow per share (compared to $2.01 in the first quarter).

My Fair Value Estimate has increased by $7.85 to $137.85/share, which compares to First Call's Price target of $132.63.

Cimarex Energy Co.: Sixteen in '16
Drew Venker, CFA – Morgan Stanley
August 5, 2015 2:42 AM GMT
XEC beat on volumes and costs, raised 2015 guidance, and outlined 2016 activity. The 2016 outlook is similar to our estimates, but consensus looks too low. Positive update.
2016 activity sharply higher. Cimarex announced preliminary plans to operate 16 rigs in 2016, up from 7 currently. The company plans to spend its cash flow plus the remainder of the proceeds from its equity offering in 2016 (we assume $630 million remaining in 2016), but did not provide specific 2016 capex numbers. 2016 production volumes were not mentioned; however, for 2016 we estimate 11% production growth on $1.45 billion of total capex (including midstream and acreage), similar to our prior estimates.
Wolfcamp and Woodford take the lion's share of capital again in 2016. The Wolfcamp and Woodford are allocated 45% and 43% of 2016 drilling and completion capex while the Bone Spring and Meramec split the remainder. We are surprised Meramec is not allocated a greater share of the spend. However, XEC may prefer to gather more production history before shifting into development mode. Mgmt is likely to provide a great deal of color on its 2016 plan on the call tomorrow.
2015 production guidance increased to 12% growth from 6-9% prior. Our estimate of 11% production growth in 2015 prior to the update is consistent with the revised guidance for 11-13%. We have reduced our oil production growth estimates slightly to be consistent with guidance for 17-19% oil growth.
2015 E&D capex guidance increased 11% from $0.9 to $1.0 billion. This compares to the original 2015 E&D capex guidance range of $0.9-1.1 billion and $100 million below our estimate of $1.1 billion.
Raising 2015/2016 estimate on lower costs. We are raising our 2015 and 2016 CFPS estimates 5% and 6%, respectively, driven by 12% lower per unit LOE and 6% lower DD&A.

My updated forecast model will be posted to the EPG website tonight.