Cimarex To Cut 2020 Capex Without Denting Production Levels

Cimarex Energy Co. (NYSE:XEC) recently announced that its 2020 capital investment program will likely be down 40-50% from its original guidance of $1.25-$1.35 billion. The revised outlook is based on the assumption of WTI Crude price being pegged at $30 per barrel for the rest of this year.

Per Cimarex’s original projection provided in fourth-quarter 2019 earnings, it estimated a $100-million worth investment in midstream operations for 2020, indicating a decline from $149 million reported in 2019. Investment in drilling and completion was expected in the range of $950-$1,050 million earlier.

The company expects no additional debt this year. As of Dec 31, 2019, the company had net long-term debt of almost $2 billion, which represents a debt-to-capitalization ratio of nearly 37%, below the industry average of 41.7%. Moreover, the company intends to generate sufficient free cash flow in the current weak oil price environment, which should enable it to maintain its dividend payouts. It generated $141 million in free cash flow last year and had $59 million left following dividend payments.

Cimarex expects its 2020 production volumes to be in line with the 2019-level of 278,480 barrels of oil equivalent per day (BOED), despite reducing capex, indicating increasing operational efficiencies. The company’s original projection for 2020 production volumes was in the band of 270,000-286,000 BOED.

With the capex reduction move, Cimarex enters the bracket of other energy players including Pioneer Natural Resources Company (NYSE:PXD) , Apache Corporation (NYSE:APA) and Occidental Petroleum Corporation (NYSE:OXY) . These companies intend to navigate through this tough phase while sustaining a solid financial footing and strong operational efficiency. Strikingly, fortifying the companies’ capital position at a time when oil prices are unprofitable for most producers, is touted to be a prudent strategy. Notably, there are only 16 companies in the U.S. shale plays operating in fields wherein average new well costs are lower than $35 per barrel, per Rystad Energy.

Price Performance

Shares of this Zacks Rank #4 (Sell) company have lost 74.8% year to date compared with 65.1% decline of the industry it belongs to.

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