Newfield Exploration Company (NFX) shifts future resources toward oil. Capital is being reinvested for its oil plays, shifting the production mix towards oil over the next several quarters.
We believe the gravitation of investors over the past year has been its ever improving asset mix. The company’s high cost and traditional asset base, centered mostly around the Rockies and Gulf Coast regions, has been criticized. The asset base is now constructed of high quality gas plays in the Woodford Shale play, with high growth potential in the Granite Wash, balanced out with growing oil volumes in Monument Butte and additional potential in the Bakken play.
Additionally, the company’s exploration success in offshore China, accelerated development drilling in lease developments in Malaysia have resulted in better production visibility and made the stock more attractive for investors.
Newfield’s diversified portfolio of assets provides both flexibility and significant growth potential. We expect Newfield’s recent entry into the Marcellus Shale as a positive to the stock as the company can leverage its expertise gained from other resource plays.
However, since about three-fourths of Newfield’s reserves and production accounts for natural gas, the company’s performance remains vulnerable to fluctuations in natural gas prices. We are keeping our Neutral recommendation unchanged.
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