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Cimarex Energy: A Great Oil Stock To Consider

Mar. 03, 2021 10:31 AM ETCoterra Energy Inc. (CTRA)7 Comments
Sarfaraz A. Khan profile picture
Sarfaraz A. Khan


  • Cimarex Energy, like other shale drillers, struggled last year but the company remained profitable and delivered free cash flows.
  • The company has a low cash flow breakeven point of under $35 per barrel and will report strong levels of free cash flows in 2021.
  • With nearly half of its future oil production covered with hedges and a decent balance sheet, the company can stand firm if oil prices drop.

Cimarex Energy (XEC) struggled in 2020 but it will bounce back this year as it benefits from the increase in oil prices. The Denver-based shale oil producer will likely deliver strong levels of free cash flows in 2021, even as it increases capital expenditures. It will then use the excess cash to create value for shareholders through dividend growth and other measures. Furthermore, Cimarex Energy can also withstand any potential oil price shocks. In my opinion, this is a great oil stock for investors to consider.

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A Tough 2020

Last year was one of the most challenging periods ever for the US shale oil drillers and Cimarex Energy was no exception. Although the company fared better than the vast majority of its peers, its earnings and cash flows still came under pressure while its financial health got worse. The company released its financial results last month. Cimarex realized oil prices of just $35.59 per barrel in 2020, down from $52.77 in 2019. The company, along with other shale drillers, curtailed drilling activity in the first half of 2020 after oil prices crashed to historic lows, with the WTI futures briefly dropping into the negative territory. Cimarex, which gets a majority of its output from the Permian Basin, produced around 252,500 boe per day in 2020, down 9.3% from 2019. Its oil production fell by 11% to 76,740 barrels per day.

Due to the large drop in realized prices and declining production, Cimarex’s net profits (as adjusted) plunged by almost 70% to $1.39 per share. The drop in earnings also pushed the company’s leverage (measured in terms of debt-to-adjusted EBITDA ratio) higher to 2.1x by the end of 2020 from 1.4x in 2019. The company’s received support from the crude oil hedges but its cash flow from operations (ahead of working capital changes) still fell by 36% to $944.2 million. Its free

This article was written by

Sarfaraz A. Khan profile picture
Hey there, I'm Sarfaraz A. Khan - a seasoned financial writer and investor with a passion for uncovering hidden gems. I have a deep understanding of fundamental analysis and I specialize in writing about mid-cap and small-cap companies that are poised for significant growth. My investment philosophy is heavily influenced by the strategies of legendary investors like Warren Buffett and Benjamin Graham. I look for investment opportunities in companies that have strong fundamentals and can grow substantially over the long-term. I'm not afraid to venture into other areas of the market either. While I primarily write about mid and small-cap stocks, I also delve into ETFs and economic trends occasionally. I always aim to provide a balanced view and discuss risk factors in my articles so investors can make better decisions. Although I've been away from Seeking Alpha for a while, I'm excited to get back to writing and sharing my expertise with the community. Moving forward, you can expect to see two to three articles a week from me. When I'm not analyzing stocks or writing about finance, I enjoy reading about history, religion, science, economy, and following the latest developments in the energy and technology sectors.

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.

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