I3 January 2015
NY Corporate Credit
Energy
Overall, XEC is well positioned for the current situation driven by strong
financial profile, quality assets, solid operating momentum and conservative
management. The only negative in the overall positive picture is XEC's
unhedged nature; that being said this hedging approach is not new to
management and in the medium term this is largely offset by positive
operating momentum. Also worth noting, given its extremely deep inventory
in the highest IRR play in the US (Permian), Cimarex is the rare company that
remains on the M&A radar for large integrateds despite the drop in commodity
prices - this is observed by looking at XEC's strong stock performance other
oily BB names (NFX, CXO, SM and DNR) over the last six months. We also
believe this strong profile does not preclude XEC from still being upgraded to
IG despite the commodity backdrop. On the whole we like XEC's positioning
in the current situation and possible catalysts in the form of either IG upgrade
or possible M&A. We believe it could still see tightening from current levels on
a probability weighted basis (4.375% Sr Notes +320 STM). We maintain our
BUY rating on both the bonds. Downside risks include possible leveraging
acquisitions.
Deutsche Bank Securities Inc. Page 61
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