How Is Cimarex Energy Positioned for 2016?



Cimarex Energy

On April 11, 2016, Cimarex Energy (XEC) presented at the IPAA (Independent Petroleum Association of America) OGIS (Oil and Gas Investment Symposium) in New York. In this part of the series, we’ll see how Cimarex Energy is positioned for 2016.

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Cimarex Energy’s production

As you can see in the above chart, XEC’s total YoY (year-over-year) production volumes have been on an increasing trend since 2012. But for 2016, Cimarex Energy plans to reduce its total production volumes to 890–930 MMcfe (million cubic feet equivalent) per day. That’s a mid-point reduction of ~8% from 2015. For 2016, Cimarex Energy expects 52% liquids in its 2016 production mix.

Due to a continuous downtrend in crude oil (USO) and natural gas prices (UNG) (UGAZ) (DGAZ), operating margins of upstream companies are reduced. Many companies are taking conservative stands by reducing their activity levels. Other upstream companies, including EOG Resources (EOG), Pioneer Natural Resources (PXD), Chesapeake Energy (CHK), Apache (APA), and Southwestern Energy (SWN), have announced lower production guidance for 2016.

XEC’s capex

For 2016, Cimarex Energy expects its E&D (exploration and development) spending to be $600 million–$650 million. That’s a mid-point reduction of ~29% compared to 2015 E&D spending of $877 million. Cimarex Energy plans to spend $400 million–$460 million on drilling and completion activities. In 2016, just like 2015, Cimarex Energy plans to fund its E&D spending from cash flow and cash on hand.

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XEC’s cash and debt position

As of December 31, 2015, Cimarex Energy’s total debt stood at ~$1.5 billion. With ~$779 million in cash and cash equivalents, XEC’s net debt was ~$706 million at the end of 2015. At that time, XEC’s net debt-to-adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio was low, at ~0.91x. Net debt-to-EBITDA is a debt ratio that shows how many years it would take for a company to pay back its debt in the current situation.

In 2015, XEC’s adjusted EBITDA was ~$778 million. For 2016, Wall Street analysts estimate XEC’s EBITDA to be lower by ~30% YoY at ~$546 million.

XEC’s production costs

For 2016, Cimarex Energy expects its production cash cost to be $0.80–$0.90 per Mcfe (thousand cubic feet equivalent). That’s a mid-point increase of ~2% from XEC’s production cash cost of $0.83 in 2015. To learn more about XEC, you can read our detailed analysis of the company.

In the next part, we’ll look at WPX Energy’s (WPX) strategic transformation in a low energy price environment.


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