Topic: Energy Stocks

Cimarex Energy and Devon Energy Corp renew their focus on the U.S.

While one of these two oil and gas producers raised its output 25.6% in the recent quarter, the other saw production slip by 1%. Only one saw its cash flow jump 40.5%

Still, a renewed focus on core production areas in the U.S. let both reward investors with dividend increases earlier this year.


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CIMAREX ENERGY  (New York symbol XEC;  www.cimarex.com) produces and explores for natural gas and oil. Gas makes up 41% of the company’s output; the remaining 59% is oil.

In the three months ended March 31, 2019, Cimarex produced an average 258,882 barrels of oil equivalent per day. That output is up 25.6% from 206,050 barrels of oil equivalent a year earlier. Despite the stronger output, the company’s cash flow fell 6.6% in the latest quarter. That was due to lower realized oil and gas prices.

In March 2019, Cimarex completed the acquisition of Resolute Energy (symbol REN on New York) for $1.6 billion in cash and stock. That firm was under activist-investor pressure to find a buyer.

Resolute had prime holdings in the Permian basis in West Texas and New Mexico. However, it lacked the financial strength to exploit them fully. The combined company should be much better able to negotiate with oilfield service firms, fracking sand providers and pipeline operators as production costs rise.

Cimarex’s balance sheet is strong: its long-term debt of $2.0 billion is a reasonable 44% of its $4.5 billion market cap. With the May 2019 payment, the company raised its quarterly dividend by 11.1%, to $0.20 from $0.18. The shares now yield 1.8%.

Energy Stocks: This company’s cash flow is up with a focus on 4 core areas

DEVON ENERGY CORP. (New York symbol DVN; www.dvn.com) is one of the largest explorers and producers of oil and natural gas in the U.S. The production mix for the company’s wells is 66% oil and 34% natural gas.

Devon’s output averaged 529,000 barrels of oil equivalent per day for the first quarter, ended March 31, 2019. That’s down 1.0% from 544,000 a year earlier. Cash flow per share jumped 40.5%, to $1.56 from $1.11. The increase reflects higher realized oil prices and lower costs.

The company’s long-term debt of $5.8 billion is a somewhat high 57% of its market cap. However, that’s way down from Devon’s debt of $10.3 billion at the start of last year. As well, the company holds $1.3 billion in cash.

Devon now plans to focus on four core areas in Oklahoma and West Texas. As a result, it has agreed to sell almost all of its Canadian assets to Canadian Natural Resources for $2.8 billion U.S. This includes several heavy-oil projects in eastern Alberta as well as its Jackfish Canadian oil sands production.

Those planned sales will let the company concentrate on its more-profitable and fast-growing U.S. oil properties. It also aims to use the proceeds to further pay down debt.

With the June 2019 payment, Devon raised its quarterly dividend by 12.5%, to $0.09 from $0.08. The shares now yield 1.5%.

Recommendation in Stock Pickers Digest: Cimarex Energy and Devon Energy Corp are a buy.

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