Balanced View on Newfield Exploration - Analyst Blog

On Jun 4, 2014, we issued an updated research report on Newfield Exploration Company NFX. Success at Uinta Basin, South Cana, Bakken and Eagle Ford should drive the company's performance. We expect the yields from these plays to nearly double in 2014. Further, Newfield's international asset divestitures like the Malaysia business, which was a drag on earnings, will help in improving profitability.

On Apr 30, the independent energy company reported strong financial results for the first quarter of 2014 with both the top and the bottom lines beating the Zacks Consensus Estimate.

Adjusted first-quarter earnings of 44 cents per share beat the Zacks Consensus Estimate of 40 cents by 10.0%. The company's total revenue jumped 50.0% year over year to $553.0 million, surpassing the Zacks Consensus Estimate of $533.0 million.

Estimates for this Zacks Rank #3 (Neutral) company mostly moved upward in response to the solid quarterly results and a bullish outlook for 2014. The Zacks Consensus Estimate for fiscal 2014 and 2015 increased by a penny over the last 30 days. Newfield failed to deliver positive earnings surprise in only one of the last four quarters. The average beat in the trailing four quarters was 4.94%.

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 from these plays is soon expected to touch 31,000 BOE/d. To date, Newfield has drilled seven wells in STACK and SCCOP, 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

Better-ranked stocks in the oil and gas industry include Enerplus Corporation ERF, Matrix Service Co. MTRX and Ultra Petroleum Corp. UPL. All these sport a Zacks Rank #1 (Strong Buy).
 

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