Cimarex Energy Co. (NYSE:XEC)

CAPS Rating: 3 out of 5

The Company is an independent oil and gas exploration and production company. Its operations are presently focused in Oklahoma, Texas, New Mexico, Kansas, Louisiana, and the Gulf of Mexico.


Player Avatar NtscrbEnergy (43.89) Submitted: 3/1/2007 8:27:14 AM : Underperform Start Price: $33.10 XEC Score: -169.04

Formed in February 2002, Cimarex Energy operates as an oil and gas exploration and production company. Its operations are mainly located in Texas, Oklahoma, New Mexico, Louisiana and the Gulf of Mexico. Proved oil and gas reserves as of year-end 2006 totaled nearly 1.45 tcfe, consisting of 1.1 tcf of gas and 59.8 million barrels of oil and natural gas liquids.

The financial health of the company primarily depends on the prices of gas and oil as gas and oil exploration revenues currently account for about 64% and 32% respectively. Despite, the peak in the oil prices in the mid of 2006, Cimarex’ topline tumbled in the third quarter of 2006 due to the weakness in the natural gas prices. Moving ahead, the price trend again worked against the company’s favour as natural gas prices declined by over 41% along with cooling oil prices resulting in over 31% drop in the fourth quarter’s total turnover. Its bottom-line has also collapsed by 65% in the fourth quarter owing to the galloping drilling and production costs. In 2007, Energy Information Administration (EIA) estimates average rate for natural gas and oil to plunge as compared to the previous year which means rough weather for Cimarex Energy.

Technical faults in company’s three major well namely Harrington, Galloway and Laguna deep has cost heavily for the company affecting daily natural gas production of about 26 million cubic feet. Management hopes to recover from this crisis by the end of 2007 and thereby expects flattish production growth for fiscal 2007. Looking ahead, the ‘Plaquemines Parish’ project could prove to be a gold mine for Cimarex. However, it is a high-risk project with an estimated failure of 75%. Given these factors, Cimarex energy could face difficulties in climbing the growth ladder in the near future.

Member Avatar NtscrbEnergy (43.89) Submitted: 6/7/2007 12:49:01 AM
Recs: 1

Cimarex Energy, the oil and gas exploration and production company seems to be intent on expanding its business. This has resulted in a huge increase in expenses. The company invested around $245 million in its energy exploration and development program in the first quarter. Cimarex’s first quarter revenues however declined 9% to $293.5 million due to lower commodity prices and gas production volumes. Realized oil prices decreased from $59.5 per barrel in the first quarter of 2006 to $55.22 per barrel in the first quarter of 2007. Realized gas prices also declined 6.4% to $6.73 per Mcf. Consequently, net income declined 41.4% to $64.6 million. It is not all bad news as the company completed 94% of 62 net wells drilled during the quarter.

Meanwhile, the company has continued to drill at the Coquille Point prospect in Plaquemines Parish, Louisiana, even though it is a high risk project. The results of this project will be known by the end of the next quarter. The Comanche prospect is another high risk project in the company’s portfolio. The Harrington rig continues to cause problems for Cimarex and it has designated to a respud.

The FY 07 exploration and development expenditures are expected to be in the $800 million to $1 billion range. The Energy Information Administration has forecast that the 2007 natural gas consumption is expected to increase 3.4% in fiscal 07 and 0.9% in fiscal 08. This will come as good news for the company. But the company’s first quarter production volumes declined 4% over the prior year period. Cimarex’s share price is at the high end of its 52 week high which leads us to believe that the company will have a tough year ahead.

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