Houston-based independent energy company Newfield Exploration Company (NFX - Analyst Report), is set to report its first-quarter 2013 results on Apr 23, 2013. Let’s see how things are shaping up prior to the announcement.
In the last quarter, the company’s earnings of 28 cents per share decreased 70.5% from 95 cents per share earned in the year-ago quarter. The results were adversely impacted by lower oil and gas volume. The results also missed the Zacks Consensus Estimate of 44 cents by 36.4%.
Growth Factors this Past Quarter
In the fourth quarter, Newfield’s earnings dipped owing to lower volumes. Total quarterly production of 71.6 billion cubic feet equivalent (Bcfe), comprising 47% natural gas, dropped 9.7% year over year. Natural gas volumes were 33.4 Bcf, down 24.4% year over year. However, Oil, condensate and natural gas liquids (NGLs) volume expanded 5.1% year over year to 5.6 million barrels (MMBbls).
Newfield’s fourth quarterly 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.
Going forward, Newfield’s exposure to emerging resource plays, along with its shift of resources away from natural gas into liquids, will help it to grow in the exploration and production space.
Newfield’s overseas operations, especially in Malaysia, hold immense potential. This is evident from the natural gas find it made off Sarawak, Malaysia, which is considered as the largest conventional exploratory success in its history. The company has estimated the discovery to hold 1.5 trillion to 3 trillion cubic feet of gas initially in place.
Looking forward, the company intends to focus mostly on liquids-rich operations and expects to generate about 35% year-over-year growth in oil and liquids production in 2013. The company also expects to generate about 60% of the annual production growth in the first half of 2013. Newfield expects output in the range of 44.2–47.2 million barrels of oil equivalent (MMBOE) in 2013.
Though we remain positive on Newfield’s emerging resource plays’ development program, we believe that a low natural gas price environment could weigh on the performance of the company since most of its reserves are tied up in natural gas. Specifically, oil and gas prices have been increasingly volatile in recent years. This volatility tends to impact sector performance in general and Newfield in particular.
Newfield is expected to report poor first quarter earnings with analysts expecting a -46.79% drop in earnings from a year ago. The Zacks Consensus Estimate currently stands at 48 cents per share, down from earnings of 91 cents per share a year ago.
Our proven model does not conclusively show that Newfield is likely to beat first quarter earnings. That is because a stock needs to have both a positive Zacks earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -10.42%. This is because the Most Accurate estimate stands at 43 cents while the Zacks Consensus Estimate is higher at 48 cents.
Zacks Rank #3 (Hold): Newfield’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with an ESP of -10.42% makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Exterran Partners, L.P. has an earnings ESP of +4.35% and a Zacks Rank #1 (Strong Buy).
Epl Oil & Gas Inc. has an earnings ESP of +12.50% and a Zacks Rank #1 (Strong Buy).
SM Energy Company (SM) has an earnings ESP of +14.29% and a Zacks Rank #1 (Strong Buy).