Newfield Exploration Co. (NFX - Analyst Report) has reported adjusted second-quarter 2012 earnings of 61 cents per share, which missed the Zacks Consensus Estimate of 64 cents and came in below the year-earlier profit of $1.02. The deterioration can be traced back to lower oil and gas price realizations.
The company’s total revenue climbed 1.1% year over year to $628 million. However, it failed to meet the Zacks Consensus Estimate of $676 million.
Total quarterly production of 76.4 billion cubic feet equivalent (Bcfe), comprising 52% natural gas, rose 4.4% year over year. Natural gas volumes were 39.8 Bcf, down 15.3% year over year. Oil, condensate and natural gas liquids (NGLs) volume expanded 38.6% year over year to 6.1 million barrels (MMBbls).
Newfield’s oil and natural gas price realizations (including the effect of hedges) averaged $9.08 per thousand cubic feet equivalent (Mcfe), down 1.7% from the year-earlier level. Natural gas prices dropped 36.7% to $3.65 per Mcf. Liquid prices dipped 3.1% to $88.35 per barrel.
Recurring lease operating expenses (LOE) during the quarter were $1.07 per Mcfe, up 7% from the year-ago level. Production and other taxes increased to $1.17 per Mcfe from the year-earlier level of $1.10. General and administrative expenses increased 32.3% year over year to 82 cents per Mcfe.
At quarter end, Newfield had a cash balance of $656 million, while long-term debt was $3,595 million, representing a debt-to-capitalization ratio of 46.2% (versus 41.9% at the end of the previous quarter). Capital expenditure (capex) was approximately $400 million in the reported quarter.
For 2012, Newfield has increased its estimated output to the 296 Bcfe to 304 Bcfe range from 292 Bcfe to 302 Bcfe. LOE is expected at $1.10 per Mcfe.
Newfield maintained its full-year 2012 capital budget program in the range of $1,500 to $1,700 million. The company intends to spend the capital mostly for liquid-rich operations and expects to generate more than 30% year-over-year production growth in oil and liquids.
Newfield’s diversified portfolio of assets provides both flexibility and a significant growth potential. We expect the company’s reserve potential in the Southern Alberta Bakken, Wasatch Oil, Uinta Basin and Williston play to be a liquid-rich catalyst for the stock.
Earlier this year, the company inked a 10-year crude oil agreement with HollyFrontier Corporation (HFC - Snapshot Report). Per the agreement, Newfield intends to secure capacity of around 40,000 barrels per day for the planned growth of the Uinta Basin.
Though we remain positive on Newfield Exploration’s emerging resource plays’ development program, we believe that its sensitivity to gas price volatility, as well as drilling results, costs, geo-political risks and project timing delays will weigh on the stock. Increasing cost pressure in the highly competitive shale plays is also a cause for concern.
Newfield shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. Longer-term, we are maintaining our Neutral recommendation on the stock.