Buy-recommended Cimarex (NYSE:XEC) offers unlevered appreciation potential of 16% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of $60 a share. Yet, NPV looks low again despite two successive upward revisions in the past few months. Four booming wells, each producing at 40 million cubic feet equivalent daily (mmcfed) at year-end, help us to boost estimated production 18% for the year 2010.
While those big wells on the Texas Gulf Coast will likely decline rapidly, Cimarex also has a backlog of high rate wells in the Cana Shale play in western Oklahoma. A 15% increase in year-end proved reserves is matched by Cana Shale reserves at 15% of the total. Higher production and higher reserves in an industry context point to higher NPV than $60 a share.
We await final financial disclosures expected on February 17 following operating results and reserves that were released today. Meanwhile, after more than a year of decline, one-year natural gas continues in an uptrend in place for the past five months.
Originally published on February 8, 2010.