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Newfield Kept at Neutral Rec
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ShareWe are maintaining our Neutral recommendation on Texas-based Newfield Exploration Company (NFX - Analyst Report). Newfield is an independent energy company engaged in the exploration and production of crude oil and natural gas. The company’s domestic operation spreads over the Mid-Continent, Rocky Mountains, onshore Texas, Appalachia and the Gulf of Mexico, while overseas exposure includes Malaysia and China.
Newfield’s diversified portfolio of assets provides both flexibility and significant growth potential. We expect the company’s reserve potential in Southern Alberta Bakken, Wasatch, Uinta Basin and a new resource play to be a liquid-rich catalyst for the stock.
We believe 2012 will see production gain from 2011’s delayed completions. Newfield has 16 wells in its backlog and its execution in 2012 will lead to vigorous growth in 2013, whereas the Uinta Basin should drive capital efficiencies.
The company entered into an agreement with Holly Frontier Corporation (HFC - Snapshot Report) for the supply of crude oil at the latter’s refinery in Woods Cross, Utah for a period of 10 years, beginning in 2014.
Earlier in December 2011, Newfield inked a seven-year supply agreement with Tesoro Corporation (TSO - Analyst Report) to provide 18,000 barrels of crude oil to the latter’s refinery in Salt Lake City, Utah, from 2013.
Newfield’s management is considering the sale of non strategic assets like the Bakken – where the company has seen robust well results that are offset by cost inflation and delays – and deployment of cash proceeds into high yielding assets.
Though we remain positive on Newfield Exploration’s emerging resource plays 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.
Further, Newfield’s Rockies and Gulf Coast-centered asset portfolio, along with its lack of meaningful exposure to the emerging shale plays, is a competitive disadvantage.
Lastly, the company lacks economies of scale in Bakken and Eagle Ford Shale that has restricted its ability to compete more aggressively with other leading players due to higher costs and delays.
Newfield holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months.
Read the full analyst report on NFX
Read the full analyst report on HFC
Read the full analyst report on TSO
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