Cimarex Energy Enjoys Stable Volume

Buy-recommended Cimarex (XEC) offers unlevered appreciation potential of 86% to estimated net present value [NPV] of $76 a share, revised up from $68 a share on May 29 when we raised long-term oil price to $66 a barrel from $60. Second quarter results reported on August 1 disclosed unlevered cash flow (Ebitda) in line with stable production volume.

NPV for the low McDep Ratio recommendation is supported by comparison to our estimates for other stocks in our coverage. The likelihood of a surprise volume gain may be improving with new emphasis on more high-flow horizontal wells, stepped up drilling in the Gulf Coast after a restorative lull, and eventually from a new Woodford shale play building in Arkansas and Oklahoma.

With NPV concentrated 68% on natural gas, Cimarex stock should respond to an uptrend in long-term natural gas price. For now, XEC stock has neither positive nor negative momentum as it trades near its 200-day average.

Originally published on August 1, 2007.

XEC 1-yr chart: