Cimarex Energy

XEC : NYSE : US$88.88
Target: US$99.00

Cimarex Energy is a US E&P company with principal operations in the Mid-Continent, Permian Basin and Gulf Coast.
All amounts in US$ unless otherwise noted.

Pioneer in Delaware
XEC has led the industry in the evolution of the Delaware Basin. In addition to successful exploration, development, and production from the 2nd Bone Spring trend in Eddy/Lea counties, XEC has continued to test the limits of the basin and has now developed 3rd Bone Spring and Wolfcamp trends as well. Today, XEC’s Permian portfolio comprises an inventory of all three Bone Spring sands, Avalon and Wolfcamp shales, and Cisco/Canyon formations. In a complex, multi-stratigraphic,
discontinuous basin like the Delaware, the learning curve is steep, and in our opinion XEC is relatively ahead of the curve vs. its peers.

We believe it will stay among the leaders as it tests stacked laterals, new benches, downspacing, etc., in the near term.
Strong balance sheet supports exploration, provides options We have always maintained that a multi-stacked play is best exploited by those that can afford continuous testing of new benches and play concepts, and can accelerate drilling to advance NAV. XEC maintains a strong balance sheet with debt/capital at ~20% and FY13E debt/EBITDAX of 0.7x. With low debt levels and liquidity of ~$2.1B, XEC is extremely well poised to pursue organic or acquisitive growth.
Key catalysts
 Stacked Wolfcamp C/D lateral in Culberson in Q4/13.
 Currently drilling first Culberson Wolfcamp A well.
 Currently testing 10,000’ lateral in Reeves and planning one in Q3.
 Expected to begin an 80-acre Wolfcamp D downspacing pilot in Culberson in Q1/14
These catalysts, in their initial phase, are not included in our base case NAV, but their successful testing could have a material impact going forward.



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