The recent uptick in oil prices has given shares of Cimarex Energy ([stock_market_widget type="inline" template="generic" color="default" assets="XEC" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] a nice shot in the arm, with the stock gaining more than 10% so far in 2019. The stock’s appreciation is deserved as it seems on track to deliver impressive financial growth this year on the back of improving oil prices and its disciplined capital expenditure strategy.
Let’s take a closer look at the reasons why Cimarex’s rally is just getting started.
Impressive Growth Ahead
Cimarex expects to deliver production of 250,000 to 270,000 barrels of oil equivalent per day in 2019. Oil production, in particular, is expected to average between 78,000 and 88,000 barrels per day for the year. This level of production will be achieved with an exploration and development capital of $1.35-$1.45 billion, allowing Cimarex to achieve cash-flow neutrality at an oil price of $50 per barrel.
For comparison, Cimarex’s capital expenditure stood at $1.67 billion last year. But despite a lower capital outlay in 2019, the company’s production is expected to increase in the range of 13% to 22%. The company will direct 85% of its capital expenditure toward the Permian basin, which will allow it to achieve efficient production growth.
Cimarex’s conservative capital budget for the year will not only help it achieve higher production but also help deliver stronger free cash flow given the recent rise in oil prices. According to Chairman and CEO Tom Jorden:
Jorden also added that the company will continue to look for avenues to further improve capital efficiency so that it can sustain its dividend using the cash flow. In fact, Cimarex’s growth is expected to accelerate in the next fiscal year as compared to the current one, with analysts anticipating double-digit growth in both revenue and earnings.
The Oil Price Rally Will Be a Boon for Cimarex
Last year, Cimarex recorded a company-wide average realized price of $56.61 per barrel of oil, $1.99 per Mcf of natural gas, and $22.28 per barrel of natural gas liquids. The prices of all three commodities have picked up the pace in 2019.
WTI oil is now trading at over $63 per barrel, while the NYMEX natural gas price is at $2.66 per Mcf. Looking ahead, the price of these commodities, especially oil, could get better thanks to the production cuts taking place across the globe.
In such a scenario, investors holding shares of Cimarex can expect the company’s financial performance to improve, which will eventually help the stock deliver more upside.
