Tags: Cimarex | Energy | unleveraged | XEC

Cimarex Energy: Unleveraged Natural Gas Play

By    |   Tuesday, 20 Dec 2011 09:07 AM

Energy exploration and production company Cimarex Energy (XEC) has a well-managed drilling plan to increase production. The company is unleveraged and pays capital costs to drill natural gas out of current cash flow. Investors interested in a natural gas play might take notice.

Cimarex Energy drills and produces primarily natural gas, but also oil and natural gas liquids in three Texas energy production regions. The largest amount of production comes from the Mid-Continent area of North Texas and Oklahoma, followed by the Permian basin in West Texas and finally production from the Texas Gulf coast. Approximately 55 percent of proven reserves are in the Mid-Continent, but production is more evenly spread at 45, 30 and 25 percent from the three regions.

For the first nine months of 2011, Cimarex Energy reported net income of $413 million or $4.79 per share, down from $457 million or $5.33 per share a year earlier. Cash flow from operations for the first three quarters was $1 billion, up from $8.7 billion.

The consensus earnings estimate for full year 2011 is $6.07 compared to earnings of $6.60 in 2010.

Gas prices

Cimarex production increased by 22 percent and 15 percent in the Permian and Mid-Continent areas, respectively, in the third quarter. However, Gulf Coast production declined by 51 percent, resulting in an overall 1 percent decline.

The biggest factor causing lower earnings is lower natural gas prices. The spot price for natural gas dropped sharply in the second half of 2011 and the XEC share price mirrored the decline.

For 2012, Wall Street analyst estimates range from $3.39 to $7.40 per share, reflecting the uncertain path of future energy values. How Cimarex Energy performs is primarily dependent on energy prices throughout the year.

Recently, Barclays Capital analysts reiterated their overweight rating on XEC and increased their target price by $10. The analysts at Howard Weil lowered their rating to market perform from outperform.

The company next reports on Feb. 2.

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Energy exploration and production company Cimarex Energy (XEC) has a well-managed drilling plan to increase production. The company is unleveraged and pays capital costs to drill natural gas out of current cash flow. Investors interested in a natural gas play might take...
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Tuesday, 20 Dec 2011 09:07 AM
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