On Mar 5, 2014, we issued an updated research report on Newfield Exploration Company (NFX). The company should benefit from the positive results of the Uinta Basin, South Cana, Bakken and Eagle Ford. We expect the yields from these plays to nearly double in 2014. Further, Newfield’s international asset divestitures like the Malaysia business, which was reducing earnings, will help in improving profitability.
On Feb 25, the independent energy company reported mixed financial results for the fourth quarter of fiscal 2013 with the bottom line beating the Zacks Consensus Estimate but the top line missing it.
Adjusted earnings of 49 cents per share rose 75% year over year driven by solid expansion in oil and gas volume. Revenues also grew 41.5% year over year.
Estimates for this Zacks Rank #3 (Neutral) company mostly moved upward in response to the solid quarterly result and a bullish outlook for 2014. The Zacks Consensus Estimate for fiscal 2014 and 2015 increased 96.8% and 4.9%, respectively, over the last 30 days. Newfield failed to deliver positive earnings surprise in two of the last four quarters, with an average beat of 0.88%.
For 2014, the company intends to spend capital mostly on liquid-rich operations and expects to generate about 10–20% year-over-year growth in oil and liquids domestic production.
Newfield’s new STACK and SCCOP plays in the Anadarko basin form important parts of its portfolio. Production in STACK and SCCOP plays is soon expected to touch 31,000 BOE/d. To date, Newfield has drilled seven wells in these plays, with initial production rates averaging 961 Boe/d in STACK play.
Newfield has increased its operated rig count in the Anadarko Basin to eight rigs, with at least two rigs committed to its STACK development. The results from this area have been encouraging and are likely to augment earnings going forward.
On the downside, Newfield’s Rockies and Gulf Coast-centered asset portfolio, along with its lack of meaningful exposure to the emerging shale plays, is a competitive disadvantage. We believe the company is dependent on the successful development of its liquid-rich plays in the Uinta Basin, Granite Wash and North Dakota Bakken to reach its production targets and thereby investor expectations. Hence, any region-specific recurrence of issues could adversely affect the company.
Stocks That Warrant a Look
Other stocks in the oil and gas industry include Helmerich & Payne, Inc. (HP), Matrix Service Co. (MTRX) and Patterson-UTI Energy Inc. (PTEN). All three have a Zacks Rank #1 (Strong Buy).
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