Oil prices have climbed as high as $64 US a barrel for the first time in 30 months, and this stock is already benefiting from the improvement.
The company’s decision to step up exploration and development appears to be paying off. The company’s output was up 20% in the latest quarter and its share price has jumped as well.
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CIMAREX ENERGY (New York symbol XEC; www.cimarex.com) produces and explores for natural gas and oil. Gas makes up 45% of the company’s output; the remaining 55% is oil.
The company’s operations are in Oklahoma, Texas and New Mexico. The majority of its exploration and drilling activity is in the Delaware Basin in Texas—part of the 300-mile Permian Basin—and the Mid-Continent region in Oklahoma.
In the three months ended September 30, 2017, Cimarex produced an average 190,518 barrels of oil equivalent per day. That’s up 20.8% from 157,768 a year earlier. The company puts its proved reserves at 2.9 trillion cubic feet equivalent (Tcfe).
Along with the increased output, the company’s reduced costs and higher oil and gas prices improved its cash flow. Cimarex’s share price jumped by 56.0% during the last quarter, and has risen by 34.0% over the past six months.
Energy stocks: Company benefits from strong balance sheet
The company earmarked $1.2 billion for exploration and development in 2017. That’s up 63.3% from its 2016 spending of $735 million. Over the last year, it has concentrated on multiple drilling sites in the Delaware Basin and Mid-Continent region.
Cimarex now has 14 rigs in operation (five operating in the Permian). It’s ready to add to that if oil prices continue to rise. The company estimates that its fourth quarter oil volumes will be 32% to 37% higher than in the same period a year ago.
The balance sheet is strong. The company’s long-term debt of $1.5 billion is just 12.5% of its $12.0 billion market cap; it also has $422.8 million in cash, or $4.45 a share.
Cimarex reduced its dividend early in 2016 when oil prices had fallen below $30 a barrel. The current annual dividend of $0.32 yields 0.3%.
Recommendation in Stock Pickers Digest: Cimarex Energy is a buy.
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