Newfield Slips in Q2 - Analyst Blog

Newfield Exploration Co. (NFX) reported second-quarter earnings of $1.06 per share, below the Zacks Consensus Estimate of $1.08 and year-earlier profit of $1.28. The weaker-than-expected results were due to lower natural gas price realizations and higher operating expenses, partially offset by perked-up production volumes.
 
Revenues in the quarter were $448 million, substantially below the Zacks Consensus Estimate of $556 million.
 
Operational Performance
 
Total quarterly production of 72.9 billion cubic feet equivalent (Bcfe) climbed approximately 13% year over year. Natural gas volumes in the company’s domestic operations were up more than 13% from the year-earlier level at 51.3 Bcf. Oil and condensate volume also spiked nearly 13% year over year to 3.6 million barrels (MMBbls) during the quarter.
 
Newfield’s oil and natural gas price realizations (including the effect of hedges) averaged $7.86 per thousand cubic feet equivalent (Mcfe), down 3.7% from the year-earlier level. Natural gas prices decreased nearly 12% year over year to $5.47 per Mcf. However, liquid prices were $79.94 per barrel, up 5.1% from the year-earlier level.
 
Newfield’s recurring lease operating expenses (LOE) during the quarter were 68 cents per Mcfe, down 15% from the year-ago level. However, production and other taxes increased significantly from the year-earlier level to 43 cents per Mcfe.

General and administrative expenses increased 9.6% to 57 cents per Mcfe. Newfield generated $888 million in cash flows from operating activities and incurred $993 million on capital expenditures.
 
At the end of the quarter, Newfield had a cash balance of $122 million. Capital expenditures in the reported quarter were approximately $441 million. Debt balance stood at $2.2 billion, representing debt-to-capitalization ratio of 40.9% (vs. 42.2% at the end of the previous quarter).
 
Outlook



For 2010, management reiterated its production volume guidance in the 283 Bcfe to 288 Bcfe range and expects LOE per Mcfe to range between 64 cents and 68 cents.

The drilling moratorium triggered off by the Macondo crisis has little impact on the company’s operations as it has already completed drilling activity in this area. Newfield’s high quality gas plays, its unconventional acreage in the Marcellus play, growing oil volumes in Monument Butte and additional potential in the Bakken play are appreciated. For 2010, nearly half of the capex is directed toward oil, a trend that we believe will likely continue into 2011. We are currently Neutral on the stock with Zacks #3 Rank (Hold).