Newfield Earnings Fall on Lower Gas Vol

Newfield Exploration Co. (NFX) reported adjusted second-quarter 2013 earnings of 37 cents per share, in line with the Zacks Consensus Estimate. The quarterly results fell 39.3% from the year-earlier adjusted profit of 61 cents per share. The deterioration can be traced back to lower gas volumes.

The company’s total revenue increased nearly 24.3% year over year to $435.0 million from $350.0 million in year-earlier quarter. However, it failed to meet the Zacks Consensus Estimate of $634.0 million.

Operational Performance

Total quarterly production was 11.8 million barrels of oil equivalent (MMBoe), comprising 55.1% crude oil, condensates and natural gas liquids (NGLs). Natural gas volumes were 31.9 billion cubic feet (Bcf), down 19.8% year over year. Oil, condensate and natural gas liquids (NGLs) volume expanded 6.6% year over year to 6.5 million barrels (MMBbls).

Newfield’s second quarter oil and natural gas price realizations (including the effect of hedges) averaged $55.02 per Boe. Natural gas prices improved 7.1% year over year to $3.91 per Mcf. Liquid prices also rose 3.4% to $91.36 per barrel.

Recurring lease operating expenses (LOE) were $7.65 per Boe. Production and other taxes were $7.57 per Boe, while general and administrative expenses came in at $5.16 per Boe.

Financials

At quarter end, Newfield had cash balance of $51 million, while long-term debt was $3,276 million, representing a debt-to-capitalization ratio of approximately 53%.

Guidance

For 2013, Newfield increased its estimated output to the range of 45.8–47.4 million barrels of oil equivalent (MMBOE) from its earlier forecast of 44.2–47.2 MMBOE. LOE is expected between $9.90 and $11.25 per Mcfe.

Outlook

Newfield Exploration’s diversified portfolio of assets provides both flexibility and 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. The company has also increased its production expectations from Cana Woodford and Williston Basin for 2013.

After adjusting the impact of asset sales in 2013, liquids production is expected to increase by over 40% in 2013.

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 of concern.

Newfield Exploration shares currently retain a Zacks Rank #3 (Hold). But there are other stocks in the oil and gas industry that appear more attractive. These include Memorial Production Partners L.P. (MEMP), Gulfmark Offshore, Inc. (GLF) and Dril-Quip, Inc. (DRQ), which hold a Zacks Rank #1 (Strong Buy).