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Betting On America's 2 Best Oil Plays Through Cimarex Energy

Summary

Cimarex Energy Co.'s strong stock performance is rooted in its top tier asset base and rock solid balance sheet.

This firm is a play on the two best unconventional plays around, the Meramec and the Delaware Basin.

Cash flow neutrality is possible in the next couple quarters, especially as Cimarex Energy's production picks up in 2H on the back of increased completion activity.

Underpinning Cimarex Energy Co.'s (NYSE:XEC) strong stock price performance is that its asset base is concentrated on two of the best unconventional plays around and it has a strong financial position. Cimarex Energy Co. has a significant presence in the Mid-Continent region, which includes the prolific STACK play and the Permian Basin with its stacked payout potential.

In the STACK region upstream players like Cimarex Energy are targeting the Woodford horizon, which has been a focus for some time, and the emerging Meramec oil play. Over the past 18 months industry results have pointed towards the oil window of the Meramec being very economical, opening up an opportunity to co-develop both intervals in the region. The Woodford is also economical but doesn't sport quite as strong incremental well returns as the Meramec. As the delineation process gets underway the upstream sector should be able to map out the true extent of the high return oil window of the Meramec.

Over in the Permian Basin there are three main regions oil & gas companies have been targeting, the Delaware Basin, the Midland Basin, and the Central Basin Platform. The Midland and Delaware basins are receiving the most attention as wells in those two regions generally sport much stronger drilling economics than the rest of the Permian and compared to other unconventional plays overall.

Cimarex is focused on the Delaware Basin in the Permian, with its drilling activity targeting the Wolfcamp, Bone Springs, and Avalon (sometimes referred to as the Leonard) horizons. The Delaware Basin is arguably the most economical of the three basins within the Permian when it comes to oil & gas development, and is considered in the running for the most lucrative unconventional play in the world alongside portions of the STACK and Midland Basin plays.

Delaware overview

In the Delaware Basin, Cimarex Energy has teamed up with Chevron Corporation (NYSE:CVX) in Culberson County, Texas, to develop 104,000 acres through a joint development agreement. Cimarex Energy and Chevron Corporation are primarily targeting the Wolfcamp benches, with some activity directed towards the Second Bone Spring interval as well. Overall, Cimarex Energy owns roughly 230,000 net acres in the Delaware that is prospective for the Wolfcamp and other horizons.

The partnership, led by Cimarex the operator, has been very successful with longer laterals and has shown that after 360 days of production, 15 wells targeting the Lower Wolfcamp intervals with 10,000-foot laterals produced just under 600,000 BOE. 70% more than wells with standard lateral lengths.

Source: Cimarex Energy Co. Presentation

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