Buy-recommended Cimarex (XEC) offers unlevered appreciation potential of 19% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of $46 a share. On July 14 we reduced NPV from $55 when we reduced estimated Present Value of North American Natural Gas by 20%. Released today, second quarter results exceeded our estimate for unlevered cash flow (Ebitda) from three months ago. Costs were lower than expected by more than the impact of lower than expected volume.
Cimarex’s metrics hold up well in our in our valuation, which capitalizes cash flow at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). Meanwhile we took keen notice in the emphasis Devon Energy (DVN) management gave in its conference call to the Cana Woodford shale play in western Oklahoma. Cimarex and Devon dominate the play. Devon’s chief of exploration and production opined that the economics of the Cana play were as good as or slightly better than for the Barnett, the industry’s leading shale producer.
Originally published on August 7, 2009.