Buy-recommended Cimarex (XEC) offers unlevered appreciation potential of 8% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of $80 a share. On the strength of rising production, NPV is up from $75 on May 10, $65 on February 19, $60 on January 19 and $50 at the beginning of 2010. On the call with analysts on August 4, management raised its guidance for the year and narrowed the range. The steep increase in volume in the first quarter held at a high level in the second quarter. Might reserves also get a lift? We heard financial chief Paul Korus exclaim that the company would report its “largest reserve increase ever at year end.” Reserve life and cash flow drive NPV.
More big wells have been added to Gulf Coast Yegua Cook Mountain successes. Always skeptical how long high flow rates will last, operations chief Joe Albi has successfully managed production with no diminution of reserves. In the Permian Basin, exploration chief Tom Jorden has a new trend in the “Avalon Shale” that helps him justify a boost in spending as oil booms again in West Texas. Finally, partners Cimarex and Devon (DVN) are seeing early positives in the pilot program concentrating more wells in the same area to enhance reserves and production in the Cana Shale of Oklahoma.
Originally published on August 5, 2010.