Newfield Exploration Co. (NFX) has reported adjusted third-quarter 2012 earnings of 48 cents per share, which missed the Zacks Consensus Estimate of 52 cents and came in below the year-earlier profit of $1.10. The deterioration can be traced back to lower oil and gas price realizations.
The company’s total revenue dropped 2.1% year over year to $615 million.
Operational Performance
Total quarterly production of 75.5 billion cubic feet equivalent (Bcfe), comprising 51% natural gas, dropped 0.4% year over year. Natural gas volumes were 38.7 Bcf, down 14.8% year over year. Oil, condensate and natural gas liquids (NGLs) volume expanded 19.6% year over year to 6.1 million barrels (MMBbls).
Newfield’s oil and natural gas price realizations (including the effect of hedges) averaged $8.81 per thousand cubic feet equivalent (Mcfe), down 5.1% from the year-earlier level. Natural gas prices dropped 37.6% to $3.57 per Mcf. Liquid prices dipped 1.9% to $84.50 per barrel.
Recurring lease operating expenses (LOE) during the quarter were $1.13 per Mcfe, up 6.6% from the year-ago level. Production and other taxes increased to $1.07 per Mcfe from the year-earlier level of $1.28. General and administrative expenses increased 17.6% year over year to 80 cents per Mcfe.
Financials
At quarter end, Newfield had a cash balance of $125 million, while long-term debt was $3,190 million, representing a debt-to-capitalization ratio of 3.4% (versus 46.2% at the end of the previous quarter). Capital expenditure (capex) was approximately $450 million in the reported quarter.
Guidance
For 2012, Newfield expects its estimated output to be about 298 Bcfe versus its previous expectation of 296 Bcfe to 304 Bcfe. LOE is expected at $1.10 per Mcfe.
Earlier, Newfield had given guidance for full-year 2012 capital budget program to be in the range of $1,500 to $1,700 million. The company intends to spend the capital mostly for liquid-rich operations and expects to generate more than 30% year-over-year production growth in oil and liquids.
Outlook
Newfield’s diversified portfolio of assets provides both flexibility and a significant growth potential. We expect the company’s reserve potential in the Southern Alberta Bakken, Wasatch Oil, Uinta Basin and Williston play to be a liquid-rich catalyst for the stock.
Newfield completed its agreement with energy explorer W&T Offshore Inc. (WTI) involving divestment of all of its remaining 78 offshore assets in the Gulf of Mexico (GoM).
Newfield’s main objective behind exiting the GoM region is to concentrate on its onshore oil-rich assets in the United States and Southeast Asia. The company aims to increase its cash flow by boosting oil and liquids growth from its core assets in these regions
Though we remain positive on Newfield Exploration’s emerging resource plays’ development program, we believe that its sensitivity to gas price volatility, as well as drilling results, costs, geo-political risks and project timing delays will weigh on the stock. Increasing cost pressure in the highly competitive shale plays is also a 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 Underperform recommendation on the stock.
NEWFIELD EXPL (NFX): Free Stock Analysis Report
W&T OFFSHORE (WTI): Free Stock Analysis Report
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