Newfield Surpasses Estimates

Newfield Exploration Company (NFX - Analyst Report) reported third quarter results of $1.58 per diluted share, compared to the Zacks Consensus Estimate of $1.34 and year-earlier earnings of $1.02 per diluted share. We have adjusted the reported income of 58 cents per diluted share for commodity derivatives loss and tax benefit associated with deferred tax assets. The positive comparisons came on the back of higher average realized prices and production volumes.
 
Total quarterly production of 65.5 billion cubic feet equivalent (Bcfe) was up approximately 7% year over year. Natural gas volumes in the company’s domestic operations were down nearly 5% from the year-ago level to 42.5 Bcf. Oil and condensate volumes were up approximately 41% year-over-year to 3.8 million barrels (MMBbls) during the quarter, of which approximately 45% came from domestic operations.
 
For the fourth quarter of 2009, management is guiding towards production volumes in the 44.7 Bcf to 45.5 Bcf range for natural gas and 3.1 MMBbl to 3.3 MMBbl for liquids. 

Newfield’s oil and natural gas price realizations (including the effect of hedges) averaged $9.31 per thousand cubic feet equivalent (Mcfe), up 2% from the year-earlier level. Natural gas prices decreased 5% year-over-year to $6.88 per Mcf. Overall liquids prices were down more than 3% year-over-year at $82.61 per barrel. 

Newfield’s recurring lease operating expenses (LOE) during the quarter were 88 cents per Mcfe, down 20% from the year-ago level. Production and other taxes significantly decreased year-over-year to 21 cents per Mcfe. 

General and administrative (G&A) expenses increased slightly to 61 cents per Mcfe. Newfield generated cash flows from operating activities of $451 million and spent $284 million on capital expenditures. At the end of the reported quarter, the company had invested about $950 million out of its 2009 total capex budget of $1.45 billion. At the end of the quarter, Newfield’s debt-to-capitalization ratio stood at 44.4%. 

The Woodford, Granite Wash and Monument Butte plays will all be important components for the company’s production growth story. We believe that Newfield’s recent entry in the Marcellus Shale play will benefit the company in the long run. It is also benefiting from a combination of ebbing service costs and improved cost structure.
 
Though we remain positive on Newfield’s hitting pace in its Woodford Shale development program, we believe that a tentative natural gas price could weigh on the stock since most of its reserves are tied up in natural gas. 

Cosequently, we maintain our Neutral recommendation