Back to top

Analyst Blog

Newfield Exploration Co. (NFX - Analyst Report) reported adjusted first-quarter 2013 earnings of 45 cents per share, which was a penny below the Zacks Consensus Estimate. The quarterly results also fell 50.5% from the year-earlier adjusted profit of 91 cents per share. The deterioration can be traced back to lower gas volumes and higher quantum of operating expenses.

The company’s total revenue dropped nearly 4.0% year over year to $651.0 million from $678.0 million in year-earlier quarter. However, it surpassed the Zacks Consensus Estimate of $637.0 million.

Operational Performance

Total quarterly production was 11.7 million barrels of oil equivalent (MMBoe), comprising 55.6% crude oil, condensates and natural gas liquids (NGLs). Natural gas volumes were 31.2 billion cubic feet (Bcf), down 23.3% year over year. Oil, condensate and natural gas liquids (NGLs) volume expanded 10.2% year over year to 6.5 million barrels (MMBbls).

Newfield’s first quarter oil and natural gas price realizations (including the effect of hedges) averaged $59.79 per Boe. Natural gas prices improved 10.5% year over year to $4.09 per Mcf. However, liquid prices sank 0.2% to $96.06 per barrel.

Recurring lease operating expenses (LOE) were $7.20 per Boe. Production and other taxes were $10.16 per Boe, while General and administrative expenses came in at $4.06 per Boe.

Financials

At quarter-end, Newfield had a cash balance of $44 million, while long-term debt was $3,045 million, representing a debt-to-capitalization ratio of 52.3%.

Guidance

For 2013, Newfield expects estimated output in the range of 44.2–47.2 million barrels of oil equivalent (MMBOE). LOE is expected between $11.45 and $12.70 per Mcfe.

The company expects to generate about 60% of its annual production growth in the first half of 2013.

Outlook

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.

After adjusting the impact of asset sales in 2013, liquids production increased about 30% in the first quarter on an annualized basis. It is expected to grow by 12% in the second quarter.

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. But there are other stocks in the oil and gas industry that appear more attractive. These include Range Resources Corporation (RRC - Analyst Report), Stone Energy Corp (SGY - Analyst Report) and EPL Oil & Gas, Inc. , which hold a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.