Cimarex Energy Co. (XEC)

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.