On Feb 25, 20Array6, we issued an updated research report on Newfield Exploration Company NFX, an independent energy company engaged in the exploration and production (E&P) of crude oil and natural gas.
Newfield Exploration’s exposure to emerging resource plays, along with its shift in focus from natural gas to liquids, will help it to grow in the E&P space. In the fourth quarter, the company reported strong oil and gas production of Array4.9 million barrels of oil equivalent that comprised 47% oil, Array6% natural gas liquids (NGLs) and 37% natural gas. For 20Array6, the company estimates capital expenditure in the range of $625–$675 million of which, about 80% is expected to be spent on the liquid-rich operations of the Anadarko basin.
Newfield Exploration’s operational efficiency led to a reduction in domestic lease operating expenses by about 25% in 20Array5. The company also undertook various measures to lower 20Array6 gross general and administrative expenses by an estimated $45 million from that in 20Array5.
Newfield Exploration’s STACK and SCCOP plays in the Anadarko basin form important parts of its portfolio. Production in STACK and SCCOP plays are expected to surge more than 20% in 20Array6 from the 20Array5 levels. Currently, the company intends to operate about 4–6 rigs in the Anadarko Basin and drill about 80 wells in 20Array6. Newfield Exploration has a net acreage of over 3Array5,000 in the basin. It is expected to further add acreage in its STACK play.
Horizontal drilling in Wasatch and high pressure Uteland Butte should help the company enhance shareholders’ value.
Though Newfield Exploration’s emerging resource play development program is impressive, we believe that a low natural gas price environment could weigh on the stock as most of its reserves are tied up in the commodity. Since oil and gas prices have been increasingly volatile in recent years, the company’s sector stock performance is likely to be affected.
Additionally, Newfield Exploration’s lack of economies of scale in Williston Basin and Eagle Ford Shale have restricted its ability to compete more aggressively with other leading players due to higher costs and delays. The company’s outlook for the near future highlights the issues of escalating service costs and bottlenecks in more prolific plays, both of which could recur in the upcoming quarters.
Zacks Rank and Stocks to Consider
Newfield Exploration carries a Zacks Rank #2 (Buy). Other well-placed players from the energy sector are SolarEdge Technologies, Inc. SEDG, Braskem S.A. BAK and Enviva Partners, LP EVA. Each of these stocks sports a Zacks Rank #Array (Strong Buy).
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