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Newfield Exploration Co. (NFX - Analyst Report) reported adjusted fourth-quarter 2012 earnings of 28 cents per share, which failed to match our expectation of 44 cents by 36.4%. The quarterly results also fell 70.5% from the year-earlier adjusted profit of 95 cents per share. The deterioration can be traced back to lower oil and gas volume.
The company’s total revenue dropped 4.6% year over year to $646.0 million. However, it surpassed the Zacks Consensus Estimate of $632.0 million.
Full-year 2012 adjusted earnings of $2.28 per share decreased 43.7% from the year-ago adjusted profit level of $4.05 a share. It also failed to meet the Zacks Consensus Estimate of $2.42.
Total revenue in 2012 improved 3.9% on a year-over-year basis to $2,567.0 million. The reported figure came in below our expectation of $2,629.0 million.
Total quarterly production of 71.6 billion cubic feet equivalent (Bcfe), comprising 47% natural gas, dropped 9.7% year over year. The downfall was mainly due to the impact of non-core asset sale. Natural gas volumes were 33.4 Bcf, down 24.4% year over year. Oil, condensate and natural gas liquids (NGLs) volume expanded 5.1% year over year to 5.6 million barrels (MMBbls).
Newfield’s fourth quarter oil and natural gas price realizations (including the effect of hedges) averaged $9.44 per thousand cubic feet equivalent (Mcfe), up 2.2% from the year-earlier level. Natural gas prices sank 28.8% from the year-earlier quarter to $3.34 per Mcf. However, liquid prices improved 7.5% to $94.66 per barrel.
Recurring lease operating expenses (LOE) during the quarter were $1.10 per Mcfe, up 2.8% from the year-ago level. Production and other taxes increased to $1.36 per Mcfe from the year-earlier level of $1.10. General and administrative expenses increased 10.1% year over year to 76 cents per Mcfe.
At quarter end, Newfield had a cash balance of $88 million, while long-term debt was $3,045 million, representing a debt-to-capitalization ratio of 52.3%.
For 2013, Newfield expects estimated output in the range of 44.2–47.2 million barrels of oil equivalent (MMBOE). LOE is expected between $10.80 and $12.00 per Mcfe.
The company expects to generate about 60% of the annual production growth in the first half of 2013.
Newfield Exploration’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.
During 2012, the company remained focused on its exposure to the emerging resource plays. It also concentrated on its shift towards liquids that will likely help it to grow in the exploration and production space. Newfield Exploration aims to increase its cash flow by boosting oil and liquids growth from its onshore oil-rich assets in the United States and Southeast Asia.
After adjusting the impact of asset sales in 2012, liquids production increased about 35% on an annualized basis. It also grew about 50% from 2011 in the international market.
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 Exploration shares currently retain a Zacks Rank #3, which translates into a short-term Hold rating. There are other stocks in the oil and gas industry that appear more attractive. These include Range Resources Corporation (RRC - Analyst Report), Breitburn Energy Partners L.P. (BBEP - Snapshot Report) and Memorial Production Partners L.P. (MEMP - Snapshot Report). Range Resources and Breitburn Energy hold a Zacks Rank #2 (Buy), while Memorial Production holds a Zacks Rank #1 (Strong Buy).