Entering text into the input field will update the search result below

Cimarex Energy: Improved Permian Natural Gas Prices Partially Cushion The Impact Of Low Oil Prices

May 06, 2020 6:52 AM ETCoterra Energy Inc. (CTRA)2 Comments


  • Cimarex's production is over 40% natural gas, of which 60% is from the Permian.
  • Permian natural gas prices have fallen to zero or below at times due to lack of spare takeaway capacity.
  • The fall in associated gas production due to low oil prices, plus new takeaway capacity, should alleviate this issue.
  • Improved realized natural gas prices should offset part of the impact of low oil prices on Cimarex's financials.
  • At $40-45 WTI oil, the company may be worth 50% more than its current price, and it also has the financial strength to survive until oil prices get back to that.
  • This idea was discussed in more depth with members of my private investing community, Distressed Value Investing. Get started today »

Cimarex Energy (XEC) may end up doing better than expected due to the effect of low oil prices on its natural gas production. Over 40% of its projected 2020 production is natural gas, and around 60% of that (25% of its total production) is Permian natural gas.

One side effect of low oil prices is that it reduces associated natural gas production. This should particularly help Permian natural gas prices, which have been at or below zero at times due to production reaching or exceeding takeaway capacity.

Permian Natural Gas Takeaway

Permian natural gas production butting up against the limits of takeaway capacity has been an issue for a while. WAHA averaged under $1 during 2019, and at times went negative. The Gulf Coast Express began full commercial service in September 2019, helping to temporarily alleviate this problem, but continued Permian natural gas production growth was expected to continue to pressure prices.


When I looked at Cimarex in February, WAHA futures for July 2020 were under $0.50. The oil price crash and resulting expectation for declining Permian natural gas production has significantly improved matters. The July 2020 WAHA futures are now around $2, and the December 2020 WAHA futures are now around $2.60.

The combination of declining production and increased takeaway capacity (in the form of the Q1 2021 Permian Highway pipeline) should result in there being plenty of excess capacity for 2021. This has pushed 2021 WAHA futures up to around $2.20 as well. It should be noted that the Permian Highway pipeline has been running into some regulatory challenges, although it is still progressing as it works through those challenges.


While the increase in natural gas prices does not fully make up for the fall in oil prices, for Cimarex's financials, a $2 improvement in WAHA prices offsets a

Free Trial Offer

We are currently offering a free two-week trial to Distressed Value Investing. Join our community to receive exclusive research about various energy companies and other opportunities along with full access to my portfolio of historic research that now includes over 1,000 reports on over 100 companies.

This article was written by

Elephant Analytics profile picture
Unique insight into distressed opportunities to target outsized returns.
Elephant Analytics has 15 years of analytical experience and unique skills in numerical analysis and practical mathematics. He is currently ranked in the top 2% of analysts by TipRanks.
Elephant Analytics has also achieved a top 50 score on the Bloomberg Aptitude Test measuring financial aptitude (out of nearly 200,000 test takers). He has also achieved a score (153) in the 99.98th percentile on the WAIS-III IQ test and has led multiple teams that have won awards during business and strategy competitions involving numerical analysis. In one such competition, he captained his team to become North American champions, finishing ahead of top Ivy League MBA teams, and represented North America in the Paris finals.

Elephant Analytics co-founded a company that was selected as one of 20 companies to participate in an start-up incubator program that spawned several companies with $100+ million valuations (Lyft, Life360, Wildfire). He also co-founded a mobile gaming company and designed the in-game economic models for two mobile apps (Absolute Bingo and Bingo Abradoodle) with over 30 million in combined installs.

Legal Disclaimer: Elephant Analytics' reports, premium research service and other writings are personal opinions only and should not be considered as investment advice. Only registered investment advisors can provide personalized investment advice. While Elephant Analytics attempts to provide reports that include accurate facts, investors should do their own diligence and fact checking prior to making their own decisions.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.