Buy-recommended Cimarex (XEC) offers unlevered appreciation potential of 62% to a McDep Ratio of 1.0 and levered appreciation potential of 122% to Net Present Value (NPV) of $55 a share. During the first quarter, according to results released today, the company generated cash from oil and gas production of about $15 a barrel of oil equivalent as the difference between price of about $27 and cash operating costs of about $12.
Unlevered cash flow (Ebitda) met our expectations from three months ago. We project gradual increases in Ebitda in the second half of 2009. Our valuation capitalizes cash flow at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) for natural gas and oil.
Pointing to expected oil price recovery, futures prices for the next six years averaged near $71 a barrel recently. Low-debt, well managed Cimarex has weathered the storm and is ready to drill for more natural gas in its new Cana shale play in Western Oklahoma when the supply is needed.
Originally published on May 5, 2009.