Newfield's Newfound Love for Growth
This company has a newfound love for oil growth and sees production doubling by 2015. In the first quarter of 2013, Newfield Exploration produced 50,860 barrels of oil equivalent per day, and by the second quarter that increased to 58,200 boe/d. Newfield is guiding for production to hit 100,000 boe/d by 2015.
Maximizing free cash flow
To maximize the additional production Newfield is planning on increasing the liquids in its production mix. In 2012 ~35% of Newfield's production was liquids and by 2015 Newfield wants to increase that to ~65%.
In order to achieve that mix, Newfield is guiding for domestic liquid production growth of 41%, 38%, and 20% between 2013-2015. Newfield is expecting a decline in production for its international assets.
The higher the margins, the larger the free cash flow, which enables Newfield to operate more rigs.
Rig increase and diversification
With the additional cash flow Newfield is increasing its rig count. In the first quarter of 2013 it was operating 22 rigs, and in the next quarter Newfield increased that to 23 by adding an additional rig in the Uinta play.
Newfield has six rigs in the Uinta play and seven in Cana. Roughly ~70% of Newfield's production comes from these plays. Newfield has also been rapidly diversifying its output stream. Back in early 2012 the Uinta play was the majority of Newfield's output, but by 2015 the Cana field will surpass it.
Another region Newfield is expanding into is the Williston Basin. From the first quarter to the third Newfield sees production growing from 9,800 boe/d to 11,800 boe/d.
Newfield is considering selling its international assets in China and Malaysia so it can focus on domestic plays. Last year Newfield sold its Gulf of Mexico assets for $228 million.
Newfield is guiding for higher levels of production with higher margins, which will result in significant free cash flow growth. If Newfield does sell the rest of its international assets it can focus on growing domestic production and use the cash from the sale to expand its growth runway.
Another company looking at for growth is WPX Energy.
Better than expected
In New Mexico's Mancos/Gallup play, WPX found more recoverable resources than it had previously estimated. Now it sees 66 million barrels of potentially recoverable oil equivalent and sees an exit production rate of 3,400 boe/d in 2013. WPX plans on finishing 12-14 wells in 2013 and will ramp up production in 2014.
WPX is also investing in the wet natural gas Piceance Basin with 216,829 net acres in the play. WPX sees 3,010 billion cubic feet of recoverable NGL in the area. To boost production in the area WPX added two rigs to boost the total to seven, and WPX reduced the drilling time to eight days from 11.5.
Due to more rigs operating in the area and shorter completion times WPX was able to spud 51 wells in the second quarter of 2013. Going forward expect more wells to come online.
The Piceance Basin isn't the only play where WPX is seeing growth with shorter drilling times; in the Williston area drilling times are down 35% quarter over quarter. This will enable production to increase from 13,900 boe/d to 15,000 boe/d by year-end.
For 2014 management sees efficiencies driving production growth, which was up 30% for 2013. Drilling efficiencies will help WPX finish its 10,424 3P drilling inventory in the area.
Marathon Oil is also using drilling efficiencies to drive up growth.
In the Eagle Ford Marathon has reduced drilling times by 50% over the past 18 months. On top of that well completion costs are down to $7.3 million with plans on reducing this to $7 million in 2014. This allows for Marathon to bring more wells online due to more wells being completed with the same amount of money and lower drill times.
Currently production in the region is 80,100 boe/d, which is up significantly from ~20,000 boe/d in the same quarter last year. Over 75% of the production is liquids, which results in higher margins and more free cash flow.
Going forward, to maximize its reserves and boost its drilling inventory in the Eagle Ford, Marathon is going to test out downspacing. When it purchased the land, Marathon was anticipating drilling with 160 and 80 acre spacing, but year to date 80% of its wells were drilled on 60 acre spacing or smaller.
By the end of 2013 Marathon plans on drilling 90% of its wells in the region on 60 acre units or smaller. This will increase Marathon's drilling inventory and could boost the amount of recoverable reserves.
Marathon is guiding for a 5-7% compound production growth rate between 2012 and 2017. This is going to be achieved through strong growth in its North American assets while its international assets see flat or declining growth rates.
All of these companies are seeing strong production growth in their North American assets, and investors should love this growth. Drilling efficiencies allow for companies to maximize their capital expenditure budgets and bring wells online faster to boost free cash flow.
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