If oil prices continue to climb, this U.S. energy stock is in a strong position to benefit.
Output has risen steadily in the past six months, while cash flow jumped by more than 50% in the most recent quarter. The company’s spending on exploration and development is paying off with new wells and enhanced production. A strong balance sheet supports that spending.
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CIMAREX ENERGY (New York symbol XEC; www.cimarex.com) produces and explores for natural gas and oil. Gas makes up 44% of the company’s output; the remaining 56% is oil.
In the three months ended March 31, 2018, Cimarex produced an average 206,100 barrels of oil equivalent per day. That’s up 25.0% from 154,575 a year earlier.
Along with stronger output, the company’s reduced costs and higher oil and gas prices improved cash flow: it jumped 53.1% in the latest quarter, to $4.01 a share from $2.62.
Cimarex plans to spend as much as $1.7 billion on exploration and development this year. That’s up 41.7% from its 2017 spending of $1.2 billion. In the first quarter, it devoted $313 million to exploration and development, with the largest part assigned to drilling and well completion.
Energy stocks: Company benefits from low debt and deep cash reserves
The company continues to concentrate on its top drilling sites in the Permian Basin and Mid-Continent regions of Texas and Oklahoma. Its properties are mostly in the Wolfcamp shale area of Texas and New Mexico, an area of rising production in the Permian Basin. In the first quarter, Cimarex brought two new wells on line on its New Mexico properties. The company also has sites in Oklahoma’s Cana-Woodford shale region.
Like other producers in the Permian Basin, the company is facing a potential shipping problem. Takeaway is predicted to exceed pipeline capacity by mid-2018. For Cimarex, gas shipments represent the most pressing issue. In response, the company has agreed to terms of sale for 98 per cent of its projected Permian Basin natural gas production through October 2019.
Cimarex now has 13 rigs in operation (10 operating in the Permian). It’s ready to add to that if oil prices continue to rise.
The company’s balance sheet is strong. Cimarex’s long-term debt of $1.5 billion is just 15.9% of its $9.4 billion market cap; it also has $463.8 million in cash, or $4.86 a share.
The company pays a quarterly dividend of $0.16 a share. The annualized rate of $0.64 yields 0.65%.
Recommendation in Stock Pickers Digest: Cimarex Energy is a buy.
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