Cimarex Energy Believes 10% Growth Is Sustainable

Buy-recommended Cimarex Energy (XEC), with estimated net present value [NPV] of $100 a share, offers portfolio representation about two-thirds in U.S. natural gas and one-third in crude oil production at a low McDep Ratio. On May 13 we raised NPV from $85 a share on the basis of a long-term oil price assumption of $100 a barrel, up from $80.

Released today, second quarter results scored 10% a year volume growth, restrained costs and higher earnings than estimated three months ago. Projected volumes along with current futures prices promise a high level of unlevered cash flow (Ebitda). Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV. Meanwhile long-term crude oil price remains in an uptrend where the latest quote of $119 a barrel for delivery over the next six years is above the 40-week average of $104.

With favorable production results in hand, Chief Financial Officer Paul Korus tells investors on the quarterly call that ten percent growth is sustainable. The company’s expansion in the new and exciting Woodford Shale play in Oklahoma should help that trend. Thus, despite a one-third decline in stock price from the recent high, the company is performing well and offers attractive appreciation potential.

Originally published on August 5, 2008.