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Cimarex's Resolute Energy Acquisition to Add to March Output

Zacks Equity Research

Cimarex Energy Co. XEC recently announced that the company has closed the $1.6 billion cash-and-stock acquisition deal with Resolute Energy Corporation. Notably, Cimarex had issued around 5.7 million common shares for former shareholders of Resolute Energy. It also paid $325.6 million in cash.

Additionally, Cimarex announced that it is committed to achieve cashflow neutrality (after paying dividends) in 2019, with an assumed oil price of $52.50 per barrel.

The Resolute Energy acquisition, effective Mar 1, 2019, is anticipated to add 28,000 barrels of oil equivalent per day (BOED) of production (52.9% oil) to total output in March. For 2019, the company expects overall production to rise 18%, with oil output expected to increase 23%. It expects overall output to average 250,000-270,000 BOED in 2019. Including the effects from the acquisition, production in first-quarter 2019 is expected within the range of 245,000-257,000 BOED.

The strategic acquisition is expected to lead to significant commercial, financial and operational synergies, courtesy of integration of assets and systems. Cimarex holds about 94.4% stake in the combined entity, following the closing of the deal. The move is expected to be a prudent one as the deal is likely to be accretive to the company’s earnings and non-GAAP cash flow. The agreement added around 21,100 net acres of Reeves County acreage to Cimarex’s Permian portfolio, expanding its position by 34% to a total of 83,158 acres.

Notably, in 2019, the company plans to invest $1.1-$1.2 billion for drilling and completion of 83 net wells, of which 66 are from the Permian Basin. As a result, around 85% of its total drilling and completion capital will be directed toward the Permian Basin.

Price Performance

Cimarex has lost 22.9% in the past year compared with 23.8% collective decline of its industry.

Zacks Rank and Stocks to Consider

Currently, Cimarex carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

Austin, TX-based Jones Energy, Inc. JONE is an exploration and production company. For 2019, its bottom line, which has witnessed one upside revision over the past 60 days, is expected to grow 19% year over year. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Denver, CO-based Antero Resources Corporation AR is an upstream energy company. Its top line for 2019 is expected to increase 11.8% year over year. The stock currently has a Zacks Rank #2.

Enbridge Inc. ENB is a Calgary, Canada-based energy infrastructure provider. The company delivered average positive earnings surprise of 31.8% in the trailing four quarters. It currently has a Zacks Rank #2.

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