Cimarex Energy’s Enterprise Multiple Is on the Rise



Cimarex Energy’s enterprise multiple

As of 3Q15, Cimarex Energy’s (XEC) EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio is ~10.7x, which is much higher when compared with XEC’s historical average EV-to-EBITDA ratio of ~6.5x in the last five years. As seen in the below chart, the EV/EBITDA ratio has been increasing for the last three quarters, which is mainly due to the much steeper fall in EBITDA than EV in the same period.

Occidental Petroleum (OXY), EOG Resources (EOG), and Murphy Oil (MUR), other upstream companies within the S&P 500 (SPY), have enterprise multiples of ~10x, ~9x, and ~4x, respectively.

XEC’s forward EV-to-EBITDA multiple is ~10.7x, which is much higher than its historical average of ~6.5x. For 2016, Wall Street analysts estimate XEC’s EBITDA to be lower by ~4% year-over-year at ~$768 million.

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The enterprise multiple

The EV/EBITDA ratio is also called the enterprise multiple, and can be more useful than the PE ratio, especially for upstream companies, because it takes into account the debt of a company. In the enterprise multiple, enterprise value is the summation of market capitalization and market value of debt minus total cash and cash equivalents.

XEC’s proved reserves

As of December 31, 2014, Cimarex Energy’s proved reserves totaled ~3.1 Tcfe (trillion cubic feet equivalent), ~24% higher when compared with levels at the end of 2013. As of December 31, 2014, ~53% of XEC’s proved reserves consisted of natural gas, ~23% consisted of crude oil, and ~24% consisted of natural gas liquids. All of XEC’s proved reserves are located in the United States.

According to XEC’s 2014 annual report, the discounted value of its reserve base at the end of 2014 was ~$4.4 billion. Given the decline in commodity prices in 2015, this value will be much lower today.


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