Stock Analysis & Valuation Cimarex Energy Co. (0HYB.L)

• Previous Close: £98.99
• Sector Valuation Confidence Level: Low

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	n/a	n/a
Intrinsic value (DCF)		n/a
Graham-Dodd Method		n/a
Graham Formula	365.60	269

Strategic Investment Analysis

Company Overview

Cimarex Energy Co. is an independent oil and gas exploration and production company primarily operating in the prolific Permian Basin and Mid-Continent regions of Texas, Oklahoma, and New Mexico. Founded in 2002 and headquartered in Denver, Colorado, Cimarex focuses on developing high-quality reserves, with proved reserves totaling 619.6 million barrels of oil equivalent as of December 31, 2019. The company's asset portfolio includes 2,782 net productive oil and gas wells, emphasizing natural gas, crude oil, and natural gas liquids. Cimarex leverages advanced drilling and completion technologies to optimize production efficiency in one of North America's most competitive energy basins. As a key player in the U.S. energy sector, Cimarex contributes to domestic energy security while navigating volatile commodity markets. The company's strategic positioning in low-cost, resource-rich regions enhances its operational resilience and long-term growth potential.

Investment Summary

Cimarex Energy Co. presents a high-risk, high-reward investment opportunity due to its exposure to volatile oil and gas prices, as evidenced by its negative net income of -$1.97 billion in FY 2020. The company's beta of 2.6 indicates significant sensitivity to market fluctuations. However, its strong operating cash flow of $904 million and strategic Permian Basin assets provide a foundation for recovery in favorable commodity price environments. The dividend yield of $1.92 per share may appeal to income-focused investors, but sustainability depends on sustained commodity price improvements. High total debt of $2.18 billion relative to cash reserves ($273 million) raises leverage concerns. Investors should weigh Cimarex's prime asset locations against cyclical industry risks.

Competitive Analysis

Cimarex Energy competes in the fiercely competitive Permian Basin, where scale and operational efficiency determine profitability. The company's competitive advantage lies in its concentrated asset base in low-breakeven cost regions, enabling resilience during price downturns. Unlike diversified majors, Cimarex's pure-play E&P focus allows for specialized expertise in horizontal drilling and completion optimization. However, its mid-tier size (market cap not specified) limits economies of scale compared to Permian leaders like Pioneer Natural Resources. The 2019 reserve base of 619.6 MMBOE demonstrates resource depth, but reserve replacement costs and production decline rates require monitoring versus peers. Cimarex's 2020 negative EPS (-$19.68) underperformed many Permian-focused independents, reflecting operational challenges during the COVID-19 demand shock. The company's leverage ratio (debt-to-capital) appears elevated versus sector norms, potentially constraining flexibility. Technological capabilities in multi-zone development provide offsetting advantages in well productivity. Going forward, Cimarex must balance capital discipline with reserve growth to compete against better-capitalized independents consolidating the Permian.

Major Competitors

• Pioneer Natural Resources (PXD): Pioneer dominates the Permian with superior scale (market cap ~$50B) and lowest-quartile breakevens. Its vertically integrated operations and premium acreage position outperform Cimarex, but higher exposure to pure Permian risk lacks Cimarex's Mid-Continent diversification. Pioneer's stronger balance sheet allows consistent dividends.
• Diamondback Energy (FANG): Diamondback's pure-play Permian focus and industry-leading cash margins (sub-$30/bbl breakevens) pressure smaller operators like Cimarex. Its automated drilling tech and midstream partnerships drive efficiency, though Cimarex's gas-weighted portfolio provides different commodity price exposure.
• Matador Resources (MTDR): Matador's smaller Permian footprint competes directly with Cimarex in the Delaware Basin. Its 2020 positive net income contrasts with Cimarex's losses, but with higher per-unit costs. Matador's integrated midstream assets provide cost advantages Cimarex lacks.
• Ovintiv (OVV): Ovintiv's multi-basin strategy (Permian, Anadarko, Montney) mirrors Cimarex's regional diversity but with greater Canadian exposure. Its 2020 $6B debt reduction initiative sets a benchmark for Cimarex's leverage management. Ovintiv's gas-heavy production aligns with Cimarex's commodity mix.
• APA Corporation (APA): APA's international operations (North Sea, Egypt) differentiate it from Cimarex's domestic focus, but its Permian assets compete directly. APA's 2020 reserve replacement ratio of 111% outperformed most peers, though higher geopolitical risks offset this advantage versus Cimarex.