Newfield Exploration Co. Soars as Results Beat Expectations


Photo credit: Newfield Exploration Co.

Shares of Newfield Exploration are soaring today after the company's fourth-quarter results beat expectations. On an adjusted basis the company earned $0.48 per share, while analysts were expecting earnings of $0.45 per share. Overall its quarterly earnings surged 75% over the prior year's fourth-quarter. With that as a backdrop, let's drill down into Newfield Exploration's results.

A closer look at the numbers that matter
There were a lot of moving parts in Newfield Exploration's fourth quarter. The company is in the process of fully exiting its international operations. This included the recently completed sale of the company's assets in Malaysia as well as its planned divestiture of its business in China. Because of that the company's international business is now classified as a discontinued operation.

Photo credit: Newfield Exploration

This change resulted in the company reporting a net loss of $14 million or $0.10 per share on those discontinued operations in the fourth quarter. Further, that charge, when combined with unrealized losses from commodity hedges reduced total net income to $31 million or $0.23 per share in the fourth quarter. But when adjusting for those items the company reported fourth quarter net income of $61 million or $0.48 per share, which again exceeded expectations.

The adjustment for the change in business strategy also resulted in the company removing 2.2 million barrels of oil equivalent, or BOE production from its fourth-quarter results. Because of this fourth-quarter production was 10.6 million BOE. But the company was able to deliver an 11% increase in domestic liquids production over the third quarter, which demonstrates why the company is focusing its attention on American liquids production. Overall, 49% of the company's production is oil while 12% is NGLs and 39% is natural gas.

Drilling down into production
One of the highlights was the company's production in the Anadarko Basin of Oklahoma, which is the company's fastest growing region. Newfield Exploration grew its production to 7.1 million BOE in the Anadarko Basin last year and its expecting to double production from the basin this year.

More energy companies are looking to Oklahoma for production growth these days. Both Eagle Rock Energy Partners and Continental Resources , for example, see the SCOOP play fueling future growth. Continental Resources likes this area so much that it's devoting 25% of its 2014 capital budget to the play. Meanwhile, Eagle Rock Energy Partners sees the compelling well results detailed on the following slide as a reason for it to be optimistic about its investments in the play.

Source: Eagle Rock Energy Partners Investor Presentation (link opens a PDF)

As the slide above notes many of the wells from both Newfield Exploration and Continental Resources are producing more than 1,000 BOE/d. This is one reason why Eagle Rock Energy Partners wants to partner with Newfield Exploration on a five well development in 2014.

Another area of strength for Newfield Exploration in 2013 was in the Williston Basin of North Dakota. The company enjoyed a 40% jump in its production over 2012. That area, which has fueled the rise of Continental Resources, continues to be a big part of Newfield Exploration's future plans. Finally, the company saw its Eagle Ford Shale production surge 70% year-over-year while its Uinta Basin production remained a solid. This multibasin strategy should continue to deliver strong returns for the company, though its focus going forward will be in Oklahoma.

Investor takeaway
Newfield Exploration had a solid year in 2013 as its production in North America is growing fast. Because of that the company is exiting its international operations so it can put all of its focus on growing production in the America. That will give the company the capital to ensure that its growth trend won't be slowing down anytime soon, In fact, the company expects 28% compound annual production growth through 2016, with the bulk of the future growth coming from Oklahoma.

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