Energy Prospectus

Cimarex has large position in the Permian Basin and the STACK play in Oklahoma. Plus, it has a very strong balance sheet and double digit production growth locked in for many years. Yet it seems to get little attention from Wall Street. Management is conservative and committed to live within cash flow. Cash flow from operations s/b around $1.2 Billion this year, so they have a lot of capital to fund growth.

First quarter results beat my forecast and the company raised full year production guidance.

Cimarex is a large upstream company with 178,000 BOE per day of current production. This year's production mix will be approximately 45% natural gas, 31% crude oil and 24% NGLs.

My valuation has increased by $2.00 to $174.00/share, which compares to First Call's price target of $154.76.

Cimarex is one of our "Elite Eight" and it is a Core Holding quality company. The break-up value of this company is worth a heck of a lot more than it's current share price. They hold some extremely valuable real estate.

My forecast/valuation model will be posted to the EPG website this evening.

TPH comments after XEC conference call;

XEC update – Continue to view transformational oil mix story as underappreciated, look for oil growth to drive share performance ($117.19 – B) – Simply put, XEC’s stock performance has been frustrating as all signs continue to point to a pronounced swing in oil cut, from 29% in Q1’17 to ~40% by 2020, driven by a shift to the company’s oilier New Mexico acreage as TX HBP drilling demands less capital, as well as oilier mega-pads in the eastern Cana Woodford. While this is still gassier than large-cap Permian peers CXO and PXD, both at ~67% in 2020, we view the rate of change as factor on which investors should be focused. We model XEC’s 27% and 35% 3-year oil and cash flow CAGRs outpacing its peers at ~20% / 30%, respectively, at $55/bbl in ’17-20. Given that we see a sustainable runway to oilier drilling, another point likely overlooked due to mgmt’s conservative disclosure, we see XEC’s EV / EBITDA gap vs. peers as unwarranted. Along with fundamental upside to our $172/sh NAV at $65 LT, we see the valuation gap vs. peers narrowing over time (currently 4.6x in 2020 vs. peer avg. ~5.5x). We’ll look out for guidance to confirm our thesis, as we model ~30% oil growth in ’18 (16% boe) vs. Street oil / boe growth of 24% / 17%. Please contact your TPH representative for a copy of our XEC Northern Delaware analysis.

BTW: TPH is forecasting $65 WTI oil price by year-end.