Newfield Exploration Co. (NFX) reported better-than-expected fourth-quarter results on increased production volumes and higher average realized prices. Quarterly earnings came in at $1.40 per share, above the Zacks Consensus Estimate of $1.36 and year-earlier earnings of 20 cents. Including one-time items, the company reported earnings of 86 cents per share. 

Estimate Revisions Trend 

There is a positive trend in estimate revisions. For the last 30 days, 5 of 23 analysts covering the stock raised estimates for the full fiscal 2010 while 2 analysts moved in the opposite direction. No up and downside movements were recorded in the last 7 days. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $4.79 per share, which is well below the full fiscal 2009 earnings of $5.13 per share. 

The company’s earnings surprise for the preceding four quarters varies between a negative 57.5% and a positive 21.4%, with the average being a positive 0.1%. 

Year-end 2009 Reserves 

Proved reserves for 2009 was up 23% over prior year to 3.6 Tcfe. Proved reserves in the company’s two largest divisions, the Mid-Continent and Rocky Mountains, increased 34%. Importantly, Newfield replaced 250% of its 2009 production. 

Operational Performance 

Total quarterly production of 64.6 billion cubic feet equivalent (Bcfe) was up approximately by 4% year over year. Natural gas volumes in the company’s domestic operations were up more than 4% from the year-ago level to 45.7 Bcf. Oil and condensate volume was flat year-over-year to 3.1 million barrels (MMBbls) during the quarter. 

Newfield’s oil and natural gas price realizations (including the effect of hedges) averaged $9.27 per thousand cubic feet equivalent (Mcfe), up 56% from the year-earlier level. Natural gas prices increased nearly 23% year-over-year to $6.72 per Mcf. Overall liquids prices nearly doubled to $91.31 per barrel. 

Newfield’s recurring lease operating expenses (LOE) during the quarter were 91 cents per Mcfe, down 16% from the year-ago level. However, production and other taxes significantly increased year over year to 39 cents per Mcfe. 

General and administrative (G&A) expenses increased 10% to 60 cents per Mcfe. Newfield generated cash flows from operating activities of $442 million and spent $478 million on capital expenditures. At the end of the quarter, Newfield’s debt-to-capitalization ratio stood at 42.4%. 

Outlook 

For 2010, management is guiding towards production volumes in the 278 Bcfe to 288 Bcfe, an increase of 8 – 12% over 2009. Newfield intends to increase its capital budget for this year to $1.6 billion (from $1.4 billion in 2009), which will be funded by cash flow from operations. Approximately 70% and 65% of the company’s expected 2010 gas production and domestic oil production, respectively, hedged at attractive prices. 

Newfield’s move from high cost and traditional asset base to high quality gas plays and unconventional acreage in Marcellus play as well as growing oil volumes in Monument Butte and additional potential in the Bakken play is well appreciated. However, the company’s natural gas weighted production and reserve base remains our concern. 

We are currently Neutral on Newfield shares.
Read the full analyst report on “NFX”
Zacks Investment Research