Cimarex Energy Buy Report

Following the large sell off in the Energy sector pace, XEC’s stock price has depreciated over the

past three months. In our view, this massive sell off is unwarranted and creates a buying opportunity

in a company that has strong growth potential with prime oil & gas assets and is trading at 0.86x to

its Net Asset Value (NAV) assuming a next year price of 50$ and 65$ flat WTI oil prices for the

next five years and a discount rate of 10%. Under these assumptions, we believe that there is 17%

potential upside in purchasing shares in Cimarex Energy.

Main Contributors

Undervalued by the market due to relatively slower growth rates: Historically,

Cimarex has been trading lower/in line with its peers despite having one of the largest

Permian acreage positions, stronger balance sheet and pas production growth rates. His was

mainly attributed to the fact ha hey had lower than average projected production growth

rates. Due to the recent decline in oil prices, we believe ha his situation will change since

Cimarex has the financial flexibility o grow production whereas their peers will have

difficulty even sustaining current production levels due o a lack of financial capacity.

Economic improvements in the company’s existing asset base: Through increasing

proppant loads and frac stages, XEC has consistently reported improved 30-day IP rates

across their three major portfolio assets. In 2014, XEC-operated Bone Spring wells have

posted an average 30-day IP of 1090 boe/d, an increase of 36% year-over-year while well

costs have only increased 15%.

Margin expansion potential: Cimarex has been allocating most of its capital to the

Permian basin where the reserves have a higher weighting towards oil and therefore provide

higher netbacks, higher margins and IRR’s. By the end of 2019, we expect the company’s

annual production mix to be weighted 55% in favor of oil

A strong balance sheet and financial flexibility is coveted in the current market

environment: Compared to its peers Cimarex has a great flexibility with regards to its

balance sheet. The company has a net debt/market capitalization ratio of ~11% vs. is peer

group average of ~45% as well and an LTM net debt/Ebitda of 0.5x vs. is peer group

average of 1.2x.

Cimarex Energy, NYSE: XEC ($100.25) AlexandreTang

Buy – Target Price $117.3 Alvy Mizelle

January 27th 2015

Kenneth Woods Portfolio Management Program

Business Metrics

Price (January 27th 2015) 100.25

52 Low 91.74

52 Week High 150.74

Shares Outstanding (M) 87.2

Market Cap ($M) 8,591

Enterprise Value ($M) 9,528

Proven Reserves (MMcfe) 1944.7

Fiscal Year End Dec 31st

2013A Reserve % Gas 68.2%

2013A Production (BCFE) 252.8

Financial Metrics ($M)

2013A Operating

Income

895.6

2014E Operating

Income

938.0

2013A Ebitda 1,534.0

2014E Ebitda 1,763.8

Trading multiples

LTM EV/ Ebitdax 4.9x

2015E EV/ Ebitdax 9.1x

EV/Proved Reserves 22.9

EV/Daily Production 82.6

Company Description

Cimarex Energy Co. operates as an

independent oil and gas exploration and

production company primarily in Texas,

Oklahoma, and New Mexico. The company

owns interests in 4,160 net productive oil

and gas wells. As of December 31, 2013, it

had a total proved oil and gas reserves of 2.5

trillion cubic feet equivalent, consisting of

1.3 trillion cubic feet of natural gas; 108,533

thousand barrels (MBbls) of oil; and 92,044

MBbls of natural gas liquids primarily

located in the Permian Basin and Mid-

Continent regions. The company was

founded in 2002 and is headquartered in

Denver, Colorado.

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2 January 27th 2015| KWPMP Energy Team

Contents Investment Thesis .......................................................................................................................................... 3

Company Overview ....................................................................................................................................... 4

Asset Overview .............................................................................................................................................. 5

Permian Basin ............................................................................................................................................ 5

Delaware Basin .......................................................................................................................................... 7

Increased efficiency in drilling techniques ................................................................................................ 9

Cana Woodford Shale ................................................................................................................................ 9

Production Overview ................................................................................................................................... 11

Margin Expansion Potential .................................................................................................................... 11

Capital Expenditures Budget & Allocation .................................................................................................. 12

Balance Sheet Flexibility .............................................................................................................................. 12

Valuation ..................................................................................................................................................... 15

Production Schedule ............................................................................................................................... 15

Expense Projections ................................................................................................................................ 16

Income Statement ................................................................................................................................... 17

EBITDA Schedule ..................................................................................................................................... 17

Net Asset Value ....................................................................................................................................... 18

Net Asset Value Sensitivity Analysis ........................................................................................................ 19

Appendix...................................................................................................................................................... 20

Management ........................................................................................................................................... 20

Cash Flow Statement ............................................................................................................................... 21

Ownership ............................................................................................................................................... 22

Horizontal Wells ...................................................................................................................................... 22

Comparable Company Analysis ............................................................................................................... 23

References ............................................................................................................................................... 24


Investment Thesis

We believe Cimarex Energy (XEC) is currently undervalued by the market as it continues to discount

lower growth E&P`s. Historically, the company traded at a discount relative to its peers due to

substandard production growth and the lack of exploration success in the Gulf Coast. However,

moving forward XEC should benefit from an improving resource base supported by a disciplined

spending program and a strong balance sheet. Once considered a weakness, accepting slower growth

rates in order to keep a clean balance sheet, is now coveted. North American companies who took

on huge levels of debt in order to take full advantage of the energy revolution are now faced with a

limited number of options and may even fall into bankruptcy. Additionally, the recent decline in

XEC’s stock price provides for an interesting entry point.

Main Highlights:

Economic improvements in the company’s existing asset base:

Horizontal Volume growth is driving earnings and cash flow:

Through increasing proppant loads and frac stages, XEC has consistently reported improved 30-day

IP rates across their three major portfolio assets. In 2014, XEC-operated Bone Spring wells have

posted an average 30-day IP of 1090 boe/d, an increase of 36% year-over-year while well costs have

only increased 15%.

Emerging long-lateral Wolfcamp potential provides risk/reward upside:

While XEC has only drilled a handful of long-lateral Wolfcamp D wells to-date, the initial results

have been outstanding: 30-day IPs over 2,500 boe/d (27% oil) from a 10,000’ lateral are sizeable

improvements over XEC’s typical 1,500 boe/d IP from a 5,000’ lateral.

Margin expansion potential:

Initially, Cimarex’s annual production was 70% weighted towards natural gas. Due to successful

drilling results in the Permian basin which is more weighted towards liquids, the company’s current

production mix is 51% liquids. The company should be able to further increase its annual production.

Recently has been allocating most of its capital to the Permian basin and this trend should remain

constant going forward. The stacked and multi-zone reserve characteristics of this are make it more

attractive for drilling operations since they generate higher EUR’s and IP rates. Also, these reserves

have a higher weighting towards oil and therefore provide higher netbacks, higher margins and

IRR’s. By the end of 2019, we expect the company’s annual production mix to be weighted 55% in

favor of oil.

A strong balance sheet and financial flexibility is coveted in the current market environment:

Compared to its peers Cimarex has a great flexibility with regards to its balance sheet. The company

has one of the lowest net debt/market capitalization ratios as well as the lowest net debt/Ebitda. This

will allow the company to raise more debt if needed, enable the company to remain in line with its

credit covenants or acquire distressed companies if the opportunity arises.

The company also has ~$1.5B of capital flexibility with its undrawn $1.0B revolver and ~$500M

of cash on its balance sheet. Also, both of the company’s senior notes expire after 2020 with one

expiring in 2022 and the other expiring in 2024.


Company Overview Cimarex Energy is a mid-cap E&P based in the U.S focused on developing, producing, and

marketing crude oil and natural gas. Historically, Cimarex has drilled in the Mid-Continent and

Permian Basin, while also maintaining an exploration program along the Gulf Coast. As of January

2015, the company maintains 2.5 Tcfe of proved reserves, 52% of which is weighted towards natural

gas. Additionally, Cimarex has increased daily production to ~870 MMcfe from 627 MMcfe in 2012.

Furthermore, one of the most appealing aspects of Cimarex is the company’s strong balance sheet.

As of its latest filings (Q4/14) the company harbours no bank debt, and maintains a debt to

capitalization ratio of only 18%.

Source: Societe Generale – Cross Asset Research


Asset Overview

Permian Basin

The Permian Basin spans 75,000 square miles and is composed of three sub-basins: the Midland

Basin, Central Basin Platform, and Delaware Basin. This basin has been pumping oil since the 1920s,

with production peaking at about 2 million barrels a day in the early 1970s. For decades, geologists

have known that oil could be found in different layers of rock, but now drillers are starting to tap

those layers simultaneously from a single site and are committing billions of dollars to do so. Unlike

the more continuous nature of the Eagle Ford and Bakken Shales, the Permian has several stacked

formations, from the shallow Spraberry (at 5,000-7,000 feet) to the deeper Wolfcamp Shale (at

7,000-10,000 feet) and the Mississippian (at below 11,000 feet). The multiple stacked formations

lower the drilling risk for the Permian, given that if one formation is non-commercial, another one

might be commerciable.

Source: Energy Information Administration

Also, by using horizontal drilling techniques, companies are able to drill one well with multiple

laterals in multiple stacked formations, generating higher IP’s and higher EUR’s. The EIA estimates

technically recoverable resources from tight oil Bone Springs and Spraberry formations at slightly

less than 2 billion barrels, while Pioneer Natural Resources (one of the largest Permian operators)

estimates the Midland Basin Wolfcamp Shale and Spraberry hold 50 billion barrels of resource

potential.

In shale formations of the Permian Basin of Texas and New Mexico, the rate of growth for oil

production is set to increase for the sixth consecutive month, according to data from the EIA's drilling

productivity report. The formation's growth rate is outpacing Texas' Eagle Ford, where growth

slowed between February and August, and North Dakota's Bakken fields, where growth has been

Permian Basin Map


relatively stable in recent months. Rig counts and production has been increasing significantly over

the past years, due to increased technology and new oil discoveries. The increases in rig counts and

production results are a testament to this area’s growth and reserve potential.

The company also has one of the highest net acreage positions in the Permian Basin. Due to its strong

financial flexibility and its ability to maintain its capital expenditure, Cimarex is one of the rare

Permian producers that could significantly increase its production base and as a result, we believe it

could out grow its peers.

Source: Cimarex Energy

The company has three main drilling areas: Culberson Area, Reeves County and in Ward County.

Combined, the company has over 200K net acres in those areas and has drilled 2-3 horizontal well

locations. In the coming years, the company plans on spending more than 75% of its capital

expenditure program in these three areas with the Culberson having the biggest upside potential.


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Permian Drilling Areas

Permian Acreage vs. Peers


Delaware Basin

Cimarex’s two main operating areas are the Delaware basin (west Texas and southern New Mexico)

and the Mid-Continent (primarily Oklahoma). Historically speaking, Cimarex began as a gas-

focused company until it began focusing on the Delaware Basin. The Delaware basin recently has

become a hotbed of industry activity, with multiple operators adding drilling rigs in pursuit of high-

return oil-focused drilling. In 2014, XEC began to increase the number of frac stages and proppant

amounts in its Bone Springs wells and has received positive results to date, reporting a 2014 average

30-day IP of 1090 boe/d per well vs. an average of 800 boe/d in 2013. In mid-2013, XEC entered

into a joint venture with Chevron in order to drill long-lateral wells on its Culberson acreage. Having

struggled in the past, the initial results were significant as two Wolfcamp D long-lateral wells

produced 2-stream 30-day IPs over 2,500 boe/d (26% oil).


Wolfcamp: XEC’s Wolfcamp drilling is largely focused in Culberson, Reeves, and Ward counties

(TX), where the industry is still delineating the multi-zone potential of the Wolfcamp formation. In

mid-2013, XEC entered into a joint venture with Chevron (CVX) on its checkerboard Culberson

county acreage in order to optimally drill long-lateral Wolfcamp wells, and the initial results were

significant as two Wolfcamp D long-lateral wells produced 2-stream 30-day IPs over 2,500 boe/d

(26% oil). XEC’s Culberson Wolfcamp A wells have also posted encouraging results with higher

initial oil cuts (54% oil) vs. Wolfcamp D wells (26% oil). In Reeves and Ward counties, XEC has

been drilling in the Wolfcamp A with notable short and long-lateral success in Reeves, though XEC

is still working to optimize its landing zone in the Ward Wolfcamp A as its initial well result was

mildly disappointing and contrary to broader industry results.

Cimarex Delaware Basin Map



Culberson: XEC believes its Culberson JV acreage is 100% prospective for long-lateral development

while its Reeves acreage is only 50% prospective, primarily limited by lease configuration. In 2014,

XEC began drilling 4 Wolfcamp down spacing pilots, with XEC’s initial 80-acre Culberson down

spacing pilot producing a 4-well 30-day average of 1,100 boe/d. In 3Q14, XEC announced that its

most recent 4-well 80-acre Reeves Wolfcamp A down spacing pilot produced 1,029 boe/d (49% oil),

and additional results from XEC’s stacked Reeves Wolfcamp A pilot are expected later this year.

Lastly, over the past few years XEC has built the Triple Crown gas gathering and processing system

in Culberson and Eddy counties, enabling XEC to reduce gathering costs and provide a reliable

means for gas takeaway.

Furthermore, the company has nearly tripled its Permian daily production over the past years. Since,

their Permian reserves have a higher weighting towards oil compared to their Mid-Continent

reserves, Cimarex has been able to shift its production mix to 50% liquids and generate higher

margins and netbacks


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Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14

Oil NGL Gas Total

Q1 2011 - Q3 2014 Permian Production Growth

New Mexico and Southern Texas Basins


Increased efficiency in drilling techniques

Horizontal Volume growth is driving earnings and cash flow:

Through increasing proppant loads and frac stages, XEC has consistently reported improved 30-day

IP rates across their three major portfolio assets. In 2014, XEC-operated Bone Spring wells have

posted an average 30-day IP of 1090 boe/d, an increase of 36% year-over-year while well costs have

only increased 15%.

Emerging long-lateral Wolfcamp potential provides risk/reward upside:

While XEC has only drilled a handful of long-lateral Wolfcamp D wells to-date, the initial results

have been outstanding: 30-day IPs over 2,500 boe/d (27% oil) from a 10,000’ lateral are sizeable

improvements over XEC’s typical 1,500 boe/d IP from a 5,000’ lateral.


Cana Woodford Shale

In the Mid-Continent, XEC’s focus is in the core of the Cana Woodford shale, a wet gas play in the

Anadarko basin of western Oklahoma. XEC began drilling in the Cana in 2007 and is one of two

major operators that have transitioned to full-field development in the core, drilling 9 wells per

section (8 new wells + 1 parent well). XEC and its partner (DVN) reduced drilling in the Cana after

natural gas prices collapsed in 2012, but recent improvements in fracking alongside a recovery in

natural gas prices have rejuvenated the economics of Cana drilling, and XEC now believes its

opportunities in the Cana can compete with the returns from its Permian drilling program. The

majority of the improvement has come in the form of additional frac stages (now 20 stages per well,

Wolfcamp long-lateral results


up from 10) and higher sand amounts (now 6mm lbs per well, up from 3.5mm), but XEC has also

had success drilling wells on the outskirts of the core as well as drilling an extended lateral to the

north of the field. These results point to further improvements in the economics and prospectively

of the Cana, and XEC has chosen to take advantage by increasing their 2015 rig count and embarking

on a 10-section development row in the heart of the Cana field utilizing the upsized frac technique.


Cimarex derives the majority of its daily production from its Cana Woodford Shale reserves. Even

if this portion of their reserves is more of their legacy production, the company has more than doubled

its production in this area. These reserves are also more weighted towards natural gas and has also

enabled them to withstand the recent oil price decreases. The wells in this area are also less capital

intensive to drill and will continue to be a large growth contributor for the coming years

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Cana Woodford Shale Drilling Operations

Q1 12 – Q3 14 Cana Woodford Shale Production Growth


Production Overview Initially, Cimarex’s annual production was 70% weighted towards natural gas. Due to successful

drilling results in the Permian basin which is more weighted towards liquids, the company’s current

production mix is 51% liquids. Also, the company has nearly doubled its annual production since

2009, and with strong capital flexibility, the company should be able to further increase its annual

production

Margin Expansion Potential

Cimarex has been allocating most of its capital to the Permian basin and this trend should remain

constant going forward. The stacked and multi-zone reserve characteristics of this are make it more

attractive for drilling operations since they generate higher EUR’s and IP rates. Also, these reserves

have a higher weighting towards oil and therefore provide higher netbacks, higher margins and

IRR’s. By the end of 2019, we expect the company’s annual production mix to be weighted 55% in

favor of oil.

51.0 84.8 96.1 110.8 127.5 161.4118.0

132.8 120.1 118.5125.2

153.2169.0

217.6 216.3229.3

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Gas Oil+ NGL Liquids % Annual Production

161.4 176.9 192.0 204.5 216.1 222.7

153.2 163.3 170.2 174.2 176.8 182.2314.6

340.1362.2 378.6 393.0 404.8

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2009A-2014E Production Profile

2014E-2019E Production Profile


Capital Expenditures Budget & Allocation Cimarex is budgeting $1.95B for its exploration and development this year. This includes 80% for

drilling, 14% for land, seismic, and overhead, and 6% for facilities and other expenses. The company

has not approved a CAPEX budget for 2015, which will be based on several factors. The economics

of all plays will be tested at both the current strip and in a bear case of $60/b oil and $3/mcf gas to

determine which plays best compete for capital. Currently, its highest economic areas are Culberson

County in the Permian and the Cana-Woodford, particularly with the use of new completion

techniques.


Balance Sheet Flexibility Compared to its peers Cimarex has a great flexibility with regards to its balance sheet. The company

has one of the lowest net debt/market capitalization ratios as well as the lowest net debt/ebitda.

This will allow the company to raise more debt if needed, enable the company to remain in line

with its credit covenants or acquire distressed companies if the opportunity arises.

Mid Continent24%

Permian74%

Company MKt. Cap EV Net Debt Net Debt/Market Cap Net Debt/EBITDA

Energen Corporation 4,650 5,282 631 13.6% 0.6x

Concho Resources 12,345 17,410 5,066 41.0% 2.5x

Laredo Petroleum 1,382 2,046 664 48.0% 1.1x

Pioneer Natural Resources 21,997 23,709 1,712 7.8% 0.8x

Newfield Exploration 3,882 6,532 2,650 68.3% 1.8x

SM Energy 2,544 4,534 1,990 78.2% 1.3x

Low 1,382 2,046 631 7.8% 0.6x

Median 4,266 5,907 1,851 44.5% 1.2x

High 21,997 23,709 5,066 78.2% 2.5x

Cimarex 8,591 9,528 937 10.9% 0.5x

2014 Capital Allocation


The company also has ~$1.5B of capital flexibility with its undrawn $1.0B revolver and ~$500M

of cash on its balance sheet. Also, both of the company’s senior notes expire after 2020 with one

expiring in 2022 and the other expiring in 2024. This will enable the company to increase its

annual production and pursue M&A activity if desired.

Due to its strong production base and management’s ability to keep capital efficiency high, the

company has and will be able to generate a significant amount of cash flow from operations

internally. In the past years, the company has been able to fund he majority of its capital

expenditures with internally generated cash and this has enabled them to maintain a strong balance

sheet. In the next five years, the company will have to dip into its revolver since natural gas and oil

prices should remain low in the coming year, but as oil prices rebound, the company should be able

to fund the majority of its capital expenditures with internally generated cash flow.

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$ M

Undrawn Revolver 5.88% Senior Notes 4.44% Senior Notes

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$ B

Cash Flow from Operations Capex

Debt Obligations

2014E-2019E Cash Flow from Operations vs. Capital Expenditures


Due to the company’s ability to generate cash internally, the company will be able to

withstand the recent drop in commodity prices with the cash it has on its balance sheet

and its $1.5B revolver facility.

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2014A 2015F 2016F 2017F 2018F 2019F

Revolver Capacity


Valuation

Production Schedule

In order to forecast production, we analyzed the companies capital efficiency which is calculated by dividing

how many barrels replaced and added by the capital expenditures for that year

o This number has been increasing in the past years since the company has been drilling more capital

intensive wells in the Permian Basin and should remain constant thereafter

We also looked at the yearly decline rates and since the company is shifting most of its production towards

oil, their decline rates will increase as well to 17.5% and remain constant thereafter

The company has not released their new capital budgets in light of the recent drop in oil price but according

to analyst reports, capital expenditures should not be altered due to the company’s capital availability and

cash flow generating ability.

o Capital expenditures are expected to remain at $1.8B in the coming years

The company should be able to replace declining production as well as add ~250 MMcfe/d from 2015-2019

Cimarex Energy - Production Profile

Projected Fiscal Years Ending December 31st

2009A 2010A 2011A 2012A 2013A 2014E 2015F 2016F 2017F 2018F 2019F

Days in Year 365 365 365 366 365 365 365 366 365 365 365

Average Daily Production

Gas (MMcf) 323.2 363.9 329.1 323.8 343.1 419.7 447.3 465.1 477.2 484.5 499.1

Natural Gas Liquids (MMBbls) 0.6 11.7 17.1 19.0 21.6 31.4 35.7 39.6 41.5 44.9 46.2

Oil (MMBbls) 22.7 27.0 26.8 31.5 36.7 42.3 45.0 47.8 51.9 53.8 55.5

Total Daily MMcfe 463.0 596.1 592.5 626.5 692.5 861.8 931.9 989.6 1,037.3 1,076.7 1,109.1

Total Annual Production

Gas (Bfce) 118.0 132.8 120.1 118.5 125.2 153.2 163.3 170.2 174.2 176.8 182.2

Natural Gas Liquids (MMBbls) 0.2 4.3 6.2 7.0 7.9 11.4 13.0 14.5 15.1 16.4 16.9

Oil (MMBbls) 8.3 9.9 9.8 11.5 13.4 15.4 16.4 17.5 18.9 19.6 20.2

Total Bcfe 169.0 217.6 216.3 229.3 252.8 314.6 340.1 362.2 378.6 393.0 404.8

Decline Rate 14.00% 15.00% 15.50% 17.00% 17.00% 17.50% 17.50% 17.50% 17.50% 17.50% 17.50%

Production Decline (MMcfe) 65 69 92 101 107 162 151 163 173 182 188

Production additions - 133 (4) 34 66 169 70 58 48 39 32

Capital efficieny - 10,398 5,685 8,104 7,500 8,150 8,150 8,150 8,150 8,150 8,150

Capital Expenditures

Maintenance Capex (US $M) 1,320 1,229 1,329 1,411 1,479 1,536

Growth Capex (US $M) 679.9 570.9 471.0 388.6 320.6 264.5

Total Capex Spending (US $M) 535.0 960.0 1,562.0 1,663.0 1,572.0 2,000.0 1,800.0 1,800.0 1,800.0 1,800.0 1,800.0

Total Wells Drilled

Proved Reserves

Gas (Bcf) 1,186.6 1,254.2 1,216.4 1,251.9 1,293.5

Natural Gas Liquids (MMBbls) 1.3 41.3 65.8 89.9 92.0

Oil (MBBls) 56.8 63.7 72.3 77.9 108.6

Total Proved Reserves (Bcfe) 1,534.7 1,884.0 2,045.3 2,258.8 2,497.1

Total Proved Reserves (MMBOE) 255.8 314.0 340.9 376.5 416.2

Reserve Life Ratio (Years) 9.1 8.7 9.5 9.9 9.9

Proved Reserves % Oil 22.2% 20.3% 21.2% 20.7% 26.1%


Expense Projections Excluding depreciation, Cimarex’s per MMcfe production expenses have remained constant throughout the

years

A five year average of per MMcfe expenses was used in order to project future expenses

Cimarex Energy - Expense Projections


($ in Mill ions or Per Mcfe Where Noted) 2009A 2010A 2011A 2012A 2013A 2014E 2015F 2016F 2017F 2018F 2019F

Expenses Per MMcfe of Production ($ as Stated)

Production 1.1 0.9 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1

DD&A 1.6 1.4 1.8 2.2 2.4 2.5 2.5 2.5 2.5 2.5 2.5

Accr. of Asset Retirement Obli. 0.1 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Transportation and other operating 0.2 0.2 0.3 0.3 0.4 0.4 0.3 0.3 0.3 0.3 0.3

Taxes other than income 0.4 0.6 0.6 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5

G&A (Exc. Stock-Based Comp.) 0.2 0.2 0.2 0.2 0.3 0.3 0.2 0.2 0.2 0.2 0.2

Other operating expenses 0.1 0.0 0.0 0.1 (0.5) - - - - - -

Total Expenses Per MMcfe 3.7 3.4 4.1 4.4 4.2 4.7 4.6 4.6 4.6 4.6 4.6

Total Expenses Per Mmcfe excluding depreciation 2.2 2.0 2.3 2.2 1.8 2.3 2.1 2.1 2.1 2.1 2.1

Non-Production-Linked Expenses ($ in Millions)

Gas gathering and processing 20.6 22.2 18.2 22.0 25.9 35.5 35.5 35.5 35.5 35.5 35.5

Derivative FV Gain / (Loss) (13.1) 62.7 10.3 0.2 (0.2) 0.2 0.2 0.2 0.2 0.2 0.2

Impairements 791.1 - - - - - - - - - -

Total Non-Prod.-Linked Expense 798.6 84.9 28.5 22.2 25.7 35.8 35.8 35.8 35.8 35.8 35.8

Total Production-Linked Expenses ($ in Millions)

Production 178.2 194.0 247.0 258.6 286.7 337.8 364.0 387.6 405.2 420.5 433.2

DD&A 265.7 304.2 390.5 513.9 615.9 777.8 841.0 895.6 936.2 971.7 1,000.9





Other operating expenses 24.3 4.6 10.3 25.0 (132.3) 0.0 - - - - -

Total Production-Linked Exp 631.6 730.5 892.8 1,009.3 1,062.0 1,527.7 1,560.3 1,661.7 1,736.9 1,802.8 1,857.1


Income Statement In terms of oil price projections, a price of 50$ was used for 2015 and $65 thereafter

Despite the decline in oil prices, the company should still be able to generate positive net income in the

coming years

EBITDA Schedule

Cimarex Energy - Income Statement

Projected Fiscal Year Ending December 31st

($ in Mill ions Except Per Share Data) 2009A 2010A 2011A 2012A 2013A 2014E 2015F 2016F 2017F 2018F 2019F

Revenue

Gas 485.4 653.8 530.3 340.7 471.0 693.1 587.7 612.9 627.0 636.6 655.8

Natural Gas Liquids 8.2 149.2 263.8 213.1 231.2 404.5 347.5 386.2 403.6 436.4 449.6

Oil & Condensate 468.8 755.6 909.3 1,027.8 1,250.2 1,363.6 946.9 1,176.5 1,272.2 1,320.4 1,360.2

Gas, gathering, processing and other 47.4 55.1 54.4 42.3 45.5 54.4 54.4 54.4 54.4 54.4 54.4

Total Revenue 1,009.8 1,613.7 1,757.9 1,623.9 1,998.1 2,515.6 1,936.5 2,229.8 2,357.2 2,447.8 2,519.9

Expenses

Impairment of property and equipment 791.1 - - - - - - - - - -

DD&A 265.7 304.2 390.5 513.9 615.9 777.8 841.0 895.6 936.2 971.7 1,000.9


Production 178.2 194.0 247.0 258.6 286.7 337.8 364.0 387.6 405.2 420.5 433.2


Gas gathering and processing 20.6 22.2 18.2 22.0 25.9 35.5 35.5 35.5 35.5 35.5 35.5



Stock based compensation 9.3 12.4 18.9 21.9 14.3 24.3 18.7 21.5 22.7 23.6 24.3

Derivative FV Gain / (Loss) 13.1 (62.7) (10.3) (0.2) 0.2 (0.2) - - - - -

Other operating expenses 24.3 4.6 10.3 25.0 (132.3) 0.0 - - - - -

Total Expenses 1,465.7 702.3 919.6 1,052.9 1,102.4 1,587.3 1,614.6 1,718.7 1,795.2 1,861.9 1,917.0

Operating Income (455.9) 911.4 838.3 571.0 895.6 938.0 322.0 511.1 562.0 585.8 603.0

Other (Income) / Expense

Loss on early extinguishment of long-term debt - (3.8) - 16.2 - - - - - - -

Net Interest Expense 39.8 36.6 35.6 49.3 55.0 50.3 54.7 61.3 71.3 81.1 90.7

Capitalized Interest (23.4) (29.2) (29.1) (35.2) (31.5) (37.7) (41.0) (46.0) (53.4) (60.8) (68.0)

Other income 16.3 (6.0) (9.8) (19.9) (21.5) (22.2) - - - - -

Total Other (Income) / Exp. 32.7 (2.4) (3.2) 10.5 1.9 (9.6) 13.7 15.3 17.8 20.3 22.7

Pre-Tax Income (488.5) 913.7 841.5 560.6 893.7 947.7 308.3 495.8 544.1 565.6 580.3

Income tax expense (benefit) (176.5) 338.95 311.5 206.7 329.0 348.6 113.4 182.4 200.2 208.0 213.5

Net Income (312.0) 574.8 529.9 353.8 564.7 599.1 194.9 313.4 344.0 357.5 366.8

Earnings Per Basic Share (3.81) 6.86 6.32 4.17 6.58 6.99 2.27 3.64 3.99 4.14 4.24

Earnings Per Diluted Share (3.81) 6.86 6.29 4.16 6.61 7.00 2.27 3.65 4.00 4.15 4.25

Cimarex Energy - Non-Cash and One-Time Expenses and EBITDA


($ in Millions) 2009A 2010A 2011A 2012A 2013A 2014E 2015F 2016F 2017F 2018F 2019F

Operating Income (455.9) 911.4 838.3 571.0 895.6 938.0 165.7 511.1 562.0 585.8 603.0

Plus Non-Cash Deriv. Change 14.5 (10.6) (3.6) (0.2) 0.2 11.9 3.0 4.5 2.3 3.0 2.0

Plus Impairment Charge 791.1 - - - - - - - - - -

Plus DD&A 265.7 304.2 390.5 513.9 615.9 777.8 841.0 895.6 936.2 971.7 1,000.9

Plus Asset Retirement Accr. 12.3 7.3 11.5 13.0 8.0 11.8 16.9 18.0 18.8 19.5 20.1

Plus Stock-Based Comp. 9.3 12.4 18.9 21.9 14.3 24.3 17.2 21.5 22.7 23.6 24.3

EBITDA 637.0 1,224.7 1,255.5 1,119.7 1,534.0 1,763.8 1,043.7 1,450.7 1,541.9 1,603.6 1,650.3


Net Asset Value Key Assumptions:

LT decline rates: 7.0%

Discount Rate: 10.0%

Future development costs: $700M

Proved Reserves: 2.5 Tcfe

Per acreage value:

o Permian: $12K

o Mid-continent per acreage value: $4k

o Other: $1K

Price Assumptions 2015 Oil Price LT Oil Price 2015 Gas Price LT Gas Price

50.0$ 65.00$ 3.0$ 3.75$

Value ($M) $/Share

Proved Reserves Cash Flow Undiscounted 12,468 145

PV-10 Proved Reserves Cash Flow 8,771 102

Undevelopped Acreage:

Permian 1,680 20

Mid-Continent 420 5

Other 120 1

Total Undeveloped Acreage 2,220 26

Net Asset Value (Enterprise Value) 10,991 128

Net Debt (937) (11)

Implied Equity Value 10,054

Diluted Shares Outstanding 85.7

Value/ Share 117.3

% premium / (discount) over market share price 17.0%

Cimarex Energy Net Asset Valuation


Net Asset Value Sensitivity Analysis

Sensitivity Analysis

Cimarex Energy - Net Present Value Sensitivity - Oil Prices

117.32$ 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0%

75.00 137.5 133.4 129.5 125.8 122.3 119.0 115.8

70.00 132.7 128.8 125.1 121.6 118.2 115.1 112.0

65.00 127.9 124.2 120.7 117.3 114.1 111.1 108.2

60.00 123.1 119.6 116.3 113.1 110.0 107.2 104.4

55.00 118.4 115.0 111.8 108.8 105.9 103.2 100.6

50.00 113.6 110.4 107.4 104.6 101.8 99.3 96.8

Cimarex Energy - Valuation Upside

0.17$ 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0%

75.00 37% 33% 29% 26% 22% 19% 16%

70.00 32% 28% 25% 21% 18% 15% 12%

65.00 28% 24% 20% 17% 14% 11% 8%

60.00 23% 19% 16% 13% 10% 7% 4%

55.00 18% 15% 12% 9% 6% 3% 0%

50.00 13% 10% 7% 4% 2% -1% -3%

Cimarex Energy - Net Present Value Sensitivity - Oil & Natural Gas Prices

117.32$ 50.00 55.00 60.00 65.00 70.00 75.00 80.00

5.75 117.7 122.0 126.2 130.5 134.7 139.0 143.2

4.75 111.2 115.4 119.7 123.9 128.2 132.4 136.7

3.75 104.6 108.8 113.1 117.3 121.6 125.9 130.1

2.75 98.0 102.3 106.5 110.8 115.0 119.3 123.5

1.75 91.4 95.7 100.0 104.2 108.5 112.7 117.0

0.75 84.9 89.1 93.4 97.6 101.9 106.2 110.4

Nat

ura

l Gas

Pri

ces

($/M

cfe

)

Oil

Pri

ces

($/B

bl)

Oil

Pri

ces

Discount Rate

Oil Prices ($/Bbl)

Discount Rate


Appendix

Management

Thomas E. Jorden – President & CEO

Tom Jorden was named President and Chief Executive Officer of Cimarex in September 2011 and Chairman of the

Board in August 2012. Mr. Jorden previously served as Executive Vice President of Exploration since the formation

of Cimarex in December 2003 and held that same position at Key Production Company, Inc., Cimarex’s predecessor.

He joined Key in November 1993 as Chief Geophysicist and later as Vice President of Exploration (October 1999 to

September 2002). Prior to joining Key, Mr. Jorden was with Union Pacific Resources and Superior Oil Company.

He is a graduate of the Colorado School of Mines where he earned B.S. and M.S. degrees in Geophysics.

Joseph R. Albi – Executive VP & COO

Joe Albi was named Executive Vice President and Chief Operating Officer of Cimarex and elected to its board of

directors in September 2011. He previously served as Executive Vice President of Operations since March 2005 and

Senior Vice President of Corporate Engineering since December 2003. He joined Key Production Company, Inc. in

1994 where he held positions of increasing responsibility prior to its merger with Cimarex. Prior to joining Key, Mr.

Albi was with Black Dome Energy Corporation, Apache Corporation and Nicor Exploration Company. Mr. Albi is a

graduate of the Colorado School of Mines where he earned a B.S. in Petroleum Engineering and a M.S. in Mineral

Economics.

Stephen P. Bell – Executive VP of Business Development

Steve Bell was named Executive Vice President of Business Development in September 2012. Mr. Bell was

appointed Senior Vice President of Business Development and Land in September 2002. Prior to its merger with

Cimarex, Mr. Bell was with Key Production Company, Inc. He joined Key in 1994 and in September 1999 was

appointed Senior Vice President of Business Development and Land. From February 1994 to September 1999 he

served as Vice President of Land.


Cash Flow Statement

Cimarex Energy - Cash Flow Statement


($ in Mill ions) 2009A 2010A 2011A 2012A 2013A 2014E 2015F 2016F 2017F 2018F 2018F

Operating Activities

Net Income (312.0) 574.8 529.9 353.8 564.7 599.1 194.9 313.4 344.0 357.5 366.8

Adjustments to NI

Impairment of property and equipement 806.0 - - - - - - - - - -

DD&A 265.7 304.2 390.5 513.9 615.9 777.8 841.0 895.6 936.2 971.7 1,000.9

Accr. of abondment obligations obli. 12.3 7.3 11.5 13.0 8.0 11.8 16.9 18.0 18.8 19.5 20.1

Deferred Income Tax (164.8) 292.6 357.6 208.2 329.7 338.9 156.9 360.8 355.8 359.7 353.7

Stock based compensation 9.3 12.4 18.9 21.9 14.3 14.5 18.7 21.5 22.7 23.6 24.3

Derivative Instruments, net 14.5 (10.6) (3.6) (0.2) 0.2 11.9 3.0 4.5 2.3 3.0 2.0

Settlements on derivative instruments - - - - (4.1) - - - - - -

Loss on early extinguishment of debt - - - 16.2 - - - - - - -

Changes in non-current assets and liabilities 8.9 12.8 4.4 3.1 (141.2) (1.9) (1.9) (1.9) (1.9) (1.9) (1.9)

Other, net 18.5 (5.3) 5.7 4.7 0.8 - - - - - -

(Increase) decrease in receivables, net 29.9 (83.4) (48.6) 56.4 (64.8) (44.5) (1.6) (6.0) (4.4) (3.9) (3.2)

Decrease in oil and gas well equipment and supplies 49.9 34.3 32.6 4.2 14.2 - - - - - -

Other current assets - - - - - - - - - - -

Decrease in accounts payable (63.1) (8.6) (6.6) (2.6) (13.3) (14.8) (15.8) (18.0) (19.5) (25.6) (31.6)

Cash Flow from Operations 675.1 1,130.4 1,292.3 1,192.8 1,324.3 1,692.8 1,212.1 1,587.9 1,653.9 1,703.6 1,731.2

Investing Activities

Oil and gas expenditures (535.3) (959.8) (1,562.2) (1,662.7) (1,572.3) (2,130.9) (1,800.0) (1,800.0) (1,800.0) (1,800.0) (1,800.0)

Sales of oil and gas assets 119.7 34.1 117.3 311.6 61.5 451.7 - - - - -

Sale of other assets 3.3 - 112.0 1.1 31.7 8.2 - - - - -

Other capital expenditures (31.8) (51.9) (96.6) (65.0) (51.9) (76.8) - - - - -

Cash Flow from Investing (444.1) (977.6) (1,429.4) (1,415.1) (1,531.0) (1,747.8) (1,800.0) (1,800.0) (1,800.0) (1,800.0) (1,800.0)

Financing Activities

Net bank debt borrowings (195) (25) 55 (55) 174 (174.0) - - - - -

Proceeds from other long-term debt - (19.5) - 750.0 - - - - - - -

Other long-term debt payments - - - (363.6) - - - - - - -

Financing costs incurred (18.0) (0.1) (7.4) (13.8) (0.1) - - - - - -

Dividends paid (20.2) (25.5) (32.6) (39.6) (46.7) (53.8) (53.8) (53.8) (53.8) (53.8) (53.8)

Issuance of common stock and other 3.4 28.8 10.4 11.4 14.5 10.5 13.7 13.7 13.7 13.7 13.7

Cash Flow from Financing (229.8) (41.3) 25.5 289.4 141.7 (217.3) (40.1) (40.1) (40.1) (40.1) (40.1)

Credit Facility Borrowing 272.8 29.2 252.2 186.2 136.5 108.9

Cash Used for Debt Repayment - - - - - -

Cash Increase / (Decrease) 1.3 111.6 (111.7) 67.1 (65.0) 0.5 (598.9) - - - -

Beginning Cash 1.2 2.5 114.1 2.4 69.5 603.4 603.9 5.0 5.0 5.0 5.0

Ending Cash 2.5 114.1 2.4 69.5 4.5 603.9 5.0 5.0 5.0 5.0 5.0


Ownership

Horizontal Wells

Owner Shares % Ownership

The Vanguard Group, Inc. 5,209,541 6.0%

BlackRock Institutional Trust Company, N.A. 5,004,906 5.8%

Fidelity Management & Research Company 4,446,002 5.1%

State Street Global Advisors (US) 3,030,813 3.5%

T. Rowe Price Associates, Inc. 2,557,991 2.9%

State Farm Insurance Companies 2,538,405 2.9%

Goldman Sachs Asset Management (US) 2,451,396 2.8%

Van Eck Associates Corporation 2,416,237 2.8%

Principal Global Investors (Equity) 2,209,055 2.5%

Diamond Hill Capital Management Inc. 2,205,776 2.5%

Systematic Financial Management, L.P. 2,030,703 2.3%

Lord, Abbett & Co. LLC 1,821,674 2.1%

Citadel Investment Group, L.L.C. 1,727,582 2.0%

Citi Investment Research (US) 1,579,682 1.8%

Harris Associates L.P. 1,493,219 1.7%

Artisan Partners Limited Partnership 1,446,864 1.7%

Goldman Sachs & Company, Inc. 1,123,879 1.3%

Millennium Management LLC 1,052,356 1.2%

International Value Advisers, LLC 965,706 1.1%

Fiduciary Management, Inc. 946,746 1.1%

Total 46,258,533 53.2%

Comparable Company Analysis

Capitalization EV/ EBITDAX EV/ EV/

Company Name Mkt. Cap ($M) EV ($M) TTM 31/12/2014 31/12/2015 Proved Reserves Daily Production

Energen Corporation 4,650 5,282 5.3 x 5.8 x 8.6 x 69.7 76.5

Concho Resources 12,345 17,410 8.7 x 7.5 x 10.2 x 34.6 188.9

Laredo Petroleum 1,382 2,046 3.3 x 3.8 x 6.6 x 10.0 66.6

Pioneer Natura l Resources 21,997 23,709 10.5 x 9.1 x 13.3 x 29.7 61.7

Newfield Exploration 3,882 6,532 4.4 x 4.7 x 7.5 x 10.7 89.0

SM Energy 2,544 4,534 3.0 x 2.8 x 3.8 x 10.6 34.2

Maximum 21,997 23,709 10.5 x 9.1 x 13.3 x 69.7 188.9

75th Percenti le 10,421 14,691 7.9 x 7.1 x 9.8 x 33.4 85.9

Median 4,266 5,907 4.9 x 5.3 x 8.0 x 20.2 71.6

25th Percenti le 2,878 4,721 3.6 x 4.0 x 6.8 x 10.6 63.0

Minimum 1,382 2,046 3.0 x 2.8 x 3.8 x 10.0 34.2

Cimarex Energy 8,591 9,528 4.9 x 5.4 x 9.1 x 22.9 82.6

Capitalization EBITDAX Proved Reserves Daily Production Proved Developed Oil R / P Ratio

Company Name Mkt. Cap ($M) EV ($M) TTM 31/12/2014 31/12/2015 (MMBOE) (Mbbls) / Proved Mix % (Years)

Energen Corporation 4,650 5,282 997 903 813 75.7 69.0 459.4% 41.3% 3.0

Concho Resources 12,345 17,410 1,998 2,439 2,838 502.9 92.2 60.2% 62.8% 15.0

Laredo Petroleum 1,382 2,046 618 542 616 203.6 30.7 34.4% 48.9% 18.2

Pioneer Natura l Resources 21,997 23,709 2,265 2,596 1,998 797.6 384.0 86.4% 43.9% 0.0

Newfield Exploration 3,882 6,532 1,468 1,386 1,184 612.0 73.4 54.7% 55.2% 2.2

SM Energy 2,544 4,534 1,496 1,609 1,396 428.7 132.4 49.9% 28.8% 8.9

Maximum 21,997 23,709 2,265 2,596 2,838 797.6 384.0 459.4% 62.8% 18.2

75th Percenti le 10,421 14,691 1,873 2,232 1,847 584.7 122.3 79.8% 53.6% 13.4

Median 4,266 5,907 1,482 1,498 1,290 465.8 82.8 57.4% 46.4% 5.9

25th Percenti le 2,878 4,721 1,115 1,024 905 259.9 70.1 51.1% 41.9% 2.4

Minimum 1,382 2,046 618 542 616 75.7 30.7 34.4% 28.8% 0.0

Cimarex Energy 8,591 9,528 1,958 1,764 1,044 416.2 115.4 84.1% 31.8% 9.9


References

1. Capital IQ

2. XEC BAML Q4 Energy Conference

3. XEC FQ3 2014 Earnings Call Transcript

4. XEC FQ2 2014 Earnings Call Transcript

5. Oppenheimer Q1 2015 Equity Research Report

6. Societe Generale Q1 2015 Equity Research Report

7. S&P Oil Play Return Analysis

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