Newfield Exploration Company NFX is set to report first-quarter 2015 results on May 5. Last quarter, the company delivered a negative earnings surprise of 11.63%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Newfield’s new STACK and SCCOP plays in the Anadarko basin form important parts of its portfolio. Production in STACK and SCCOP plays are expected to increase year over year by more than 40% in 2015. Currently, the company has more than 10 rigs operating in the Anadarko Basin. Newfield has a net acreage of 300,000 in the basin. It is expected to further add acreage in its STACK play and drill over 50 STACK wells in 2015.
The company also expects the well costs to lower with SCOOP wells to average $8.9 million (from $9–$13 million), while STACK well costs are estimated at about $8.5 million (from $9–12 million). These cost effectiveness will increase efficiency and enhance profitability during the first quarter.
Newfield Exploration’s exposure to emerging resource plays, along with its shift of resources away from natural gas into liquids, is expected to help it grow in the E&P space. The company's Williston Basin program is in the development phase and average well costs are projected to decrease about 15–20% from the 2014 averages. Further, horizontal drilling in the Wasatch and high pressure Uteland Butte are expected to help the company enhance shareholders’ value.
However, 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.
Though we remain positive on Newfield Exploration’s emerging resource plays development program, we believe that a low natural gas price environment could weigh on the stock since most of its reserves are tied up in natural gas. Specifically, oil and gas prices have been increasingly volatile in recent years. This volatility tends to impact sector stock performance.
Production being 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 is likely to adversely impact operations and hence earnings.
Furthermore, Newfield’s lack of economies of scale in Bakken and Eagle Ford Shale has prohibited its ability to compete more aggressively with other leading players due to higher costs and delays. Newfield’s outlook for the near future has highlighted the issues of escalating service costs and bottlenecks in more prolific plays, both of which could recur in the upcoming quarters.
Earnings Whispers
Our proven model does not conclusively show that Newfield is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: Newfield has an Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 10 cents.
Zacks Rank: Newfield carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, when combined with a 0.00% ESP, surprise prediction becomes difficult.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some stocks from the E&P sector that you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Spectra Energy Corp. SE has an Earnings ESP of +2.38% and a Zacks Rank #3 (Hold).
Spectra Energy Partners LP SEP has an Earnings ESP of +3.80% and a Zacks Rank #3.
Chesapeake Energy Corp. CHK has an Earnings ESP of +50.00% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment