Newfield Exploration Co. (NFX) reported adjusted first-quarter 2011 earnings of 98 cents per share, beating the Zacks Consensus Estimate of 91 cents. The outperformance was based on higher production and lower general and administrative (G&A) expenses.
However, the quarter’s earnings were below the year-earlier profit of $1.19 a share due to higher operating expenses (up nearly 30% on an annualized basis) and lower price realizations.
The company’s oil and gas revenues climbed 19% year over year to $545 million. However, the quarter’s figure fell short of the Zacks Consensus Estimate of $590 million.
Operational Performance
Total quarterly production of 71.5 billion cubic feet equivalent (Bcfe) – 63% natural gas – climbed nearly 7% year over year. Natural gas volumes were down more than 5% at 45.3 Bcf from the year-earlier level. Oil and condensate volume expanded 37.5% year over year to 4.4 million barrels (MMBbls) during the quarter.
Newfield’s oil and natural gas price realizations (including the effect of hedges) averaged $8.59 per thousand cubic feet equivalent (Mcfe), up 2.3% from the year-earlier level. Natural gas prices decreased 13% to $5.51 per Mcf. Liquid prices improved almost 2% to $81.86 per barrel.
Newfield’s recurring lease operating expenses (LOE) during the quarter were 92 cents per Mcfe, up 1.1% from the year-ago level. However, production and other taxes increased significantly to $1.02 per Mcfe from the year-earlier level of 38 cents per Mcfe. G&A expenses decreased 3.6% year over year to 53 cents per Mcfe.
Financials
At the end of the quarter, Newfield had a cash balance of $56 million. The debt balance stood at $2,428 million, representing a debt-to-capitalization ratio of 42.2% (versus 40.8% at the end of the previous quarter). Capital expenditure (capex) was approximately $434 million.
Guidance
For the second quarter of 2011, Newfield projected output in the 71–78 Bcfe range. LOE is expected to range between 83 cents and 92 cents per Mcfe.
For 2011, management reiterated its production volume guidance at 312–323 Bcfe, or 8–12% higher than last year. Newfield’s liquids are expected to be 39% of 2011 volumes compared with 33% in 2010. Newfield expects LOE per Mcfe to range between 76 cents and 85 cents.
Newfield announced a $200 million increase in its capital budget program for the full year to $1,900 million. The budget excludes capitalized costs and the recently announced $308 million acquisition in the Uinta Basin. The increase is mainly due to the rise in service and labor costs, increase acquisition activities and efficiency gains in drilling.
Outlook
Newfield’s high quality gas plays, unconventional acreage in the Marcellus play, growing oil volumes in Monument Butte and additional potential in the Bakken play (Williston Basin) are also appreciated. Results from the company’s Maverick Basin Eagle Ford drilling program keep us optimistic on Newfield. It appears that Newfield’s exposure to the emerging resource plays and shifting money away from natural gas into liquids will help it in the exploration and production space.
While we appreciate the company’s focus on drilling activities through a hike in capex, we remain cautious on the full year production guidance as well as escalating costs. Again, competition from peers such as Cabot Oil & Gas Corporation (COG) and Forest Oil Corp. (FST) is an added cause for concern.
Newfield shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. Longer-term, we are maintaining our Neutral recommendation on the stock.
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