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Executives

Lee K. Boothby - Chairman of the Board, Chief Executive Officer and President

Gary D. Packer - Chief Operating Officer and Executive Vice President

Terry W. Rathert - Chief Financial Officer and Executive Vice President

Stephen C. Campbell - Vice President of Investor Relations

Analysts

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

David W. Kistler - Simmons & Company International, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Gregg Brody - JP Morgan Chase & Co, Research Division

Newfield Exploration (NFX) Q4 2012 Earnings Call February 20, 2013 9:30 AM ET

Operator

Good day, everyone, and welcome to Newfield Exploration's Fourth Quarter and Full Year 2012 Earnings Conference Call. Just a reminder, today's call is being recorded. And before we get started, one housekeeping matter. Our discussion with you today will contain forward-looking statements such as strategic initiatives and plans, estimated production and timing, drilling and development plans, expected cost reductions and planned capital expenditures

Although we believe that the expectations reflected in these statements are reasonable, they are based upon assumptions and anticipated results that are subject to numerous uncertainties and risks.

Actual results may vary significantly from those anticipated due to many factors and risks, some of which may be unknown. Please see Newfield's 2011 Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q for a discussion of factors that may cause actual results to vary.

Forward-looking statements made during this call speak only as of today's date, and unless legally required, Newfield undertakes no obligation to publicly update or revise any forward-looking statements.

In addition, reconciliations of non-GAAP financial measures to GAAP financial measures, together with Newfield's earnings release and any other applicable disclosures, are available on the Investor Relations page of Newfield's website at www.newfield.com.

Before turning the call over to the Chairman, President and Chief Executive Officer, Mr. Lee Boothby, please provide a housekeeping request. [Operator Instructions] Mr. Lee Boothby, please go ahead, sir.

Lee K. Boothby

Thank you, operator. Good morning, and welcome. Thanks for dialing in to our conference call today. We are excited to host this call and discuss Newfield's strategy going forward. We've taken some decisive actions recently and are confident that these moves will lead to long-term value creation for our shareholders. Our strategy today is clear. We are focused on our 4 liquids-driven domestic resource plays.

Our call today will focus on 3 key topics. First, we will begin with some summary comments in our 2012 financial and operating results. Most significant factors contributed to our 2012 financial results and year-end reserves were previously released, so today, we'll keep our comments high level but we'll be happy to answer and address any specific questions after the call.

Second, I will articulate our business strategy and how our recent steps will make us stronger, more profitable and more valuable in the future.

And third, Gary Packer, our Chief Operating Officer, will discuss how we are using our core organizational strengths to deliver on our targets. He'll also provide highlights on our 2013 through 2015 plan and some color on our deep, high-quality domestic inventory.

So let's get started with the summary of our recent financial results. In last week's news release, we disclosed 2 noncash charges that totaled about $2 billion. These one-time noncash charges impacted our fourth quarter and full year results and made the comparison to first call estimates a little difficult. The first was a $1.5 billion noncash, full-cost ceiling test write-down. The largest contributor to this write-down were low natural gas prices. As you saw on our proved release last week, low gas prices removed more than 600 billion cubic feet of proved reserves at year end 2012. The second is related to our focus on U.S. operations and the decision to repatriate the accumulated profits from our international subsidiaries. This was the primary component of the $550 million noncash tax charge. We repatriated international cash at year end 2012 and used the funds to reduce short-term borrowings. For the full year 2012, we produced 50 million barrels of oil equivalent or about 500,000 barrels above our full year guidance. Our operating results were largely in line with previous guidance ranges, and as a result, our fourth quarter revenues were $646 million and our cash flow per share was $2.25, just ahead of First Call consensus. For the full year of 2012, we posted a net loss of $1.2 billion or $8.80 per share. The loss is primarily related to the fourth quarter one-time charges. Without the impact of those items, 2012 earnings would've been $2.17 per share.

For the remainder of today's call, we will focus on Newfield's bright future and how our near-term plans align with our long-term strategic direction.

Our strategic direction is the result of our work over much of the last decade to assemble a domestic portfolio of oil and natural gas assets. In recent years, we began to streamline and refocus our portfolio through the sale of nonstrategic assets. This culminated in our decision to pursue strategic alternatives for Newfield's International business that we announced last week. This decision followed a comprehensive review of the company's strategy, asset base and future direction with our Board of Directors and highlights the confidence we have in the depth and quality of our domestic portfolio and our ability to execute.

Liquids remain our priority. After the last 3 years -- over the last 3 years, our focus has been on liquids project where we've delivered a CAGR of more than 20% growth while greatly expanding our opportunity set. Today, as we transition to development drilling in our key onshore plays, we're realizing the tangible benefits of these efforts. Our production trajectory on liquids growth is top-tier, as we expect to more than double our domestic liquids volumes by year end 2015. The decision to pursue alternatives for international assets was based on the accelerated growth trajectory from our domestic U.S. business, as well as the opportunity to unlock the value of our highly profitable international business, which we believe has not been fully reflected on our share price. In addition, any future international growth would've come at the expense of not fully accelerating our domestic oil and liquids plays. We simply cannot do both.

International assets are well-positioned businesses in China and Malaysia with near-term production and cash flow growth from producing fields and development assets and a very deep inventory of oil and natural gas drilling prospects. We recently signed new agreements for 2 blocks in Malaysia totaling a combined 1.7 million acres. The new areas have multi-trillion cubic feet potential and the license areas are in and around producing fields in existing infrastructure. Our international team has a great track record and is known as one of the best in the region.

As we move forward, our people and capital resources will now be laser-focused on our U.S. domestic business where our future view of inventory, improving project returns, profitable growth, will all serve as a foundation for our continued success. The ingredients for our future's success lies within our portfolio of assets and the team of people who assemble them. We have a deep and high-quality inventory, of drilling opportunities on our domestic portfolio.

This morning we released a new slide deck on our website. This packet provides you with additional information about the resource potential within our asset base, our project economics and our track record of driving continued efficiency gains and improved returns.

As you can see on Slide 7, we have more than 11,000 potential liquid drilling locations, which at our current pace of drilling activity, equates to decades of inventory.

Lastly, know that we have carefully considered the financing applications of executing this strategy. Yes, we will outspend cash flow in 2013 but we are confident that the potential returns in the cash flow growth embedded within our 4 domestic plays warrants our plan. We will finance these near-term developments with cash flow from operations, the use of our credit facility, and as mentioned, we recently commenced the process to explore strategic alternatives for our international business. Newfield has a successful track record of selling nonstrategic assets, raising more than $1 billion over the last 2 years, the proceeds of which funded drilling programs.

We see our future clearly today and we are accelerating the development of our domestic asset portfolio to achieve it. We believe that our recent decisions will create value for our shareholders. Our people at every level in the organization are united and focused to deliver on our plans.

In line with our domestic resource focus, we added a new board member last week, Dick Stoneburner. Many of you know Dick from his Petrohawk days and his most recent role with BHP as President of the North American Shale Production Division. Dick is a great addition to our Board and we will use his experience and help us execute the strategy we are laying out for you today.

I'll now turn the call over to Gary Packer. Gary?

Gary D. Packer

Thanks, Lee. Good morning, everyone. We executed well across the company in 2012 and this execution was due to the continued application of our core competencies at Newfield. There's a slide in today's packet, located on our website, that outlines some of our core organizational strengths. We are using these across the company today to add value and improve returns. It's worth talking about one of these in particular today, that's the fact that Newfield is a proven operator.

As Lee mentioned in his opening remarks, our focus today is clearly on our 4 domestic oil resource plays. These plays are more alike than different and lend themselves very well to consistent application of best practices to quickly enhance our learning curve, drive efficiency gains, lower unit development cost and improve returns. We've come a long way in these plays over the last 12 months and our forward guidance reflects our efforts.

We're a proven operator and best-in-class driller in multiple areas today. We will see many of you on the road in the next several days and this is one of the topics that we'll certainly want to talk to you more about. Here are just a few examples.

In the Uinta, we have identified several new plays, captured them through creative ventures and/or acquisitions and are rapidly transitioning to a more cost-efficient horizontal drilling. We are leading change in the Uinta. In fact, Newfield is drilling some of the first successful horizontal wells in the state of Utah. Today, we are working in partnerships with regulators to make more horizontal drilling as common in Utah as it is in Texas, Oklahoma and North Dakota. These are not easy plays to tackle, but our operational teams are showing tangible improvements and we will change the game for us ultimately in the Uinta basin and allow us to reduce the footprint of our total development of this resource.

In the Cana, we've lowered our drilling days from more than 100 days in our initial wells to less than 40 days today, all with increasing lateral lengths.

In the Bakken, we decreased our drilling days as we moved the pad developments across our acreage and we also have improved our completion practices to increase EUR, decrease our unit development cost and continue to lower our operating expenses.

In the Eagle Ford, we are drilling 7,500-foot laterals in 8 to 12 days. We have dramatically improved our completion and flowback practices and we've nearly doubled our EURs when comparing our results today to our initial wells in 2011. There is a slide in our packet today that shows lateral lengths growing while days to total depth decrease.

In my role, I get to see drilling and completion cost across all plays in which Newfield is simply a partner and not the operator. Based on an apples-to-apples comparison, I would put our results up against anyone's in our core areas. We are a proven operator and our teams are focused and are delivering superior results across the company.

So let's talk about how we will use these core competencies to deliver on our accelerated domestic growth trajectory.

Each of our 4 key plays have a plan to create value over the next 3 years. This value will come from aggressively converting our undeveloped reserves in our deep prospect inventory to cash flow. Given our confidence and increased visibility, we were able to provide more detailed and long-term guidance than in the past. You will now be able to track our progress as we begin a significant ramp up in our second half of 2013 liquids production.

Our 2013 liquids production should grow by more than 35% and our black oil growth is about 25%. This momentum will propel us to double-digit composite growth in 2014 and '15. More importantly, our growth is being driven by liquids.

Our domestic teams entered 2013 with great momentum. Over the last 2 years, we have proved the depth of our inventory and the ability of our assets to perform. In our slide deck this morning, we outlined our key plays and the resource potential of each. In summary, it's more than 11,000 potential liquids drilling locations and 2 billion net barrels of unrisked resource potential. At our current drilling pace, we have decades of liquid drilling inventory. We've come a long way from the Gulf of Mexico routes when we could count our prospects on our fingers and our toes.

We know that the ultimate goal is to create timely value from this inventory. This value will come through the acceleration of our domestic business and returning the industry competitive composite growth rates while constantly improving efficiencies and returns in our operating regions. Recent results have led to the expansion of our economic inventory in multiple areas. I'll briefly summarize our 2013 through '15 capital investments and some highlights from each area. In addition, our slide packet today focuses on our near-term capital plans with cost and rates of return. In addition, we provided type curves for each of our key plays.

Our capital budget is $1.7 billion to $1.9 billion, approximately 80% of our investments will go to our 4 domestic growth engines. The additional 20% will be used to keep our large international exploration and development projects on track.

In the Uinta basin, we are accelerating the tremendous value in our giant waterflood asset, the Greater Monument Butte Unit. The largest federal secondary recovery unit in the Lower 48, with 2 billion barrels of oil in place. We continue to develop the waterflood with 40-acre 5-spud patterns that consists of 20-acre infill drilling locations and offset injectors. Additionally, we continue to develop the primary area of the field with our 40-acre drilling program and have more than 1,300 remaining wells in total to drill. This year, we will test 10-acre spacing in an inventory of horizontal opportunities within the legacy Green River section.

We have converted a record number of wells to injection this year and increased water injection rates 50% to 75,000 barrels per day. The bottom line, there is far more to this asset than an unconventional drilling program. It's held by production, we retain great discretion in capital investments and are on the verge of free cash generation that will last for over 20 years at the current pace of activity, our strong economics in the Greater Monument Butte field allowing us to test and develop high reward horizontal plays in the Central Basin.

In the slide deck, we outlined more than 760 million barrels of oil equivalent of incremental unrisked resource potential in the Central Basin across our 67,000 acres. Our 2 primary focus plays today are the Uteland Butte and the Wasatch, but there are other highly prospective targets that we are studying and evaluating today.

In the Uteland Butte, we are focused on the pressured portion of the play. About 1/3 of the wells we have drilled in the play to date are in the pressured areas. Our production rates are solid. 1,000 barrels of oil equivalent per day IP rates, 350 barrels per day, 60-day average rates. By comparison, these rates are tenfold what our traditional Monument Butte wells produce. Although good, we have plans to make the wells better, improve productivity, improve EUR, lower F&D and deliver higher returns. The future development of the Central Basin's resource will likely be horizontal drilling and the overwhelming benefits of longer laterals have been proven in all of our focus areas. We are excited about what they could mean in the Central Basin.

In December, we received approval to drill our first super extended laterals for multiple pads to test the Uteland Butte. Our first well will spud in March with a planned lateral length of up to 9,800 feet.

In the Wasatch play, we confirmed productivity throughout the greater than 1,200-foot pressured section with more than 40 producing vertical wells. Today, we better understand the true potential of the play. The future here is most likely in multi-horizon stacked horizontal development. We are very encouraged by the production results from our first 2 well -- Wasatch wells, which were brought online in the second half of 2012. After more than 6 months, we estimate that these wells have an average EUR of more than 550,000 barrels of oil equivalent. Keep in mind that due to the regulatory requirements, these wells only average 3,200 feet lateral length.

Now in yesterday's release, we incorrectly captured the average rates for the 2 wells. The release should have said our IP rate was 1,225 barrels of oil equivalent per day with a 30- and 60-day average rate of 890 and 750 barrels of oil per day, respectively. Our 90- and our 120-day average wells -- rates on these wells were 625 and 530 barrels of oil equivalent per day respectively. These are great wells and leave us encouraged with the ultimate potential of display. We are looking forward to the day when we can drill SXL wells in the Wasatch to capture the efficiency gains, higher returns and full benefit of the enhanced EUR. We will be working with the regulatory authorities to make this happen and hope to have more to report on this later this year in the next steps in this really exciting play.

With increased marketing expansions around the corner, our production from the Uinta basin is expected to increase 10% in '13 and 20% in 2014. In the Cana Woodford, we will run 6 rigs on targeted growth areas within our acreage. Our successful drilling campaign in the play has allowed us to move 2 key areas into early development. This was roughly 1/3 of our total acreage. We are moving to pad developments while building out midstream infrastructure to get our products to the best markets. Like the early days of the Bakken, activity was concentrated in specific geographic regions to take advantage of infrastructure. Over time, with concentrated developments, areas will expand.

We recently signed an agreement with a large midstream company that allows our Cana NGLs to receive Mt. Belvieu pricing. This agreement provides for initial volumes up to 200 million equivalent per day of rich gas. But that can be increased as our production continues to grow.

Our wells continue to perform extremely well. In our operations report, we outlined 3 recent wells with 30-day average production rates between 900 and 1,900 barrels of oil equivalent per day. Keep in mind, these wells are all uncontrolled flow back and IP rates are intentionally restrained to lessen early declines and maximize EUR. I'll gladly trade flashy IP rates for more EUR and better returns over time.

Our production from the Cana is expected to increase 200% in 2013 and exit the year at more than 20,000 barrels of oil equivalent per day. In less than 2 years, we have moved this play from an idea phase to development and we have significant remaining resource potential to pursue.

In the Eagle Ford, our efforts in 2013 will be focused on efficient development drilling in our 2 fields, West Asherton and Fashing. We expect to drill 35 wells for the 2 rig program throughout most of the year. Remember, these wells are drilled in about 2 weeks.

Our production ramp in the Eagle Ford in 2013 will be back-end weighted due to pad drilling in the timing of our simultaneous completions. We expect that our Eagle Ford production will grow 75% this year and 50% next year. Our Eagle Ford economics today are very strong. We estimate that our SXL wells have EURs in excess of 550,000 barrels with a production stream that is largely comprised of black oil. We have a large Eagle Ford position in the Maverick Basin with a tremendous amount of oil in place. We've challenged our technical teams to expand the economic footprint and convert more of this large resource into reserves, production and ultimately, cash flow.

Our Williston team could easily receive the most improved award for 2012. They successfully tackled industry issues with innovative solutions and lowered well cost, reduced the timing of rig release to first oil sales and transitioned to an efficient development drilling program. Our fourth operated rig is being added in about 2 weeks and we plan to drill about 45 wells in 2013. We are looking for oil growth this year in the Williston basin of about 15% and 25% next year. Although most of our efforts are focused today on the Middle Bakken, we have more than 40,000 net acres that are prospective for the Three Forks. For 2013, we have 10 to 15 Three Forks wells planned. In addition, we'll also be investigating the various deeper benches within the section.

I'll turn the call back to Lee for any closing comments.

Lee K. Boothby

Thanks, Gary, and thanks to all of you for joining us today. We're excited about the next phase at Newfield. The decisive actions that were taken over the last 2 weeks, coupled with our strategic decisions made over the last 2 years, align us to realize our ultimate goal being a profitable North American focused resource company. Our domestic portfolio of liquids inventory is deep today and we're high grading portions of it to focus on development. We intend to deliver our stated production growth objectives while working every day to lower cost, improve EURs and expand the economic footprint of our acreage. Our success will come from the conversion of resource potential to cash flow from operations. We have a solid plan in place to finance our near-term growth, and we're confident that we will become a larger, stronger, more predictable and profitable company because of the recent strategic steps.

I'll turn the call over to the operator to kick off our Q&A session. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Leo Mariani with RBC.

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Just a question on the international assets. Obviously, you guys are looking to divest these. What's the plan for the proceeds there? Are you guys just going to use that for drilling up your existing liquids inventory? Or potentially, could you use that to make some additional tack-on acquisitions in the U.S.?

Lee K. Boothby

I'll let Terry Rathert take that question.

Terry W. Rathert

The first priority is going to be the funded domestic drilling program. Then depending upon the amounts of proceeds we have for that, we'll decide what the next steps are. But first priority really is to fund the growth we can drive in the Lower 48.

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Okay, that's helpful. And I guess, in terms of the Cana Woodford, you guys talked about midstream deal for 200 million a day. Trying to get a sense of when that will take effect?

Terry W. Rathert

It's already in place, Leo.

Operator

And we'll take our next question from the Dave Kistler with Simmons & Company.

David W. Kistler - Simmons & Company International, Research Division

Focusing on the international side for a second. If we look at current production and then in your release, you indicated you'll be adding about 15,000 barrels of oil a day, kind of early '14 when Pearl comes online. How do we think about production this year and how it may decline so we can kind of get to a production number to think about valuing the asset from a divestiture standpoint?

Terry W. Rathert

Dave, if you look at our guidance that we've provided in the press release and in the guidance packet, we have equated our total international production to 7.2 million barrels for the year and we estimated that about 60% of the total volume would be in the first half of the year. So that gives you an indication of the decline we expect. As a reminder, we talked about a 25% to 30% decline for international for the entirety of the year. But 60% of that production will come to us in the first half, 40% in the second half.

David W. Kistler - Simmons & Company International, Research Division

Okay. I guess what I'm trying to get at is, is there a number that you guys would not sell the international assets for? And obviously, then how do we think about 3 or 4 production guidance when we're trying to triangulate to that?

Terry W. Rathert

Well, that's a very interesting question. I think the process we intend to go through is one that provide us all the time in the world to realize the full value of the assets. The process is just now being undertaken. We expect it to go into the third quarter. And we'll kind of wait-and-see. There are a lot of things can change between now and the third quarter in terms of commodity price and other things and I think, we just have to cross that bridge when we get to it.

Operator

[Operator Instructions] And we'll take our next question from Brian Singer with Goldman Sachs.

Brian Singer - Goldman Sachs Group Inc., Research Division

In the Uinta basin, were you surprised by the oversupply that led to lower volumes during the quarter? And can you refresh us on what percent of Uinta oil volumes in 2013 and '14 are locked up by firm contracts versus what percent you may be depending on spot market availability?

Lee K. Boothby

I'll let Gary answer that question, Brian.

Gary D. Packer

Sure, Brian. Rather than the oversupply, naturally, it's a marriage of what our capital investments, the resulting production with the capacity that's available. We had 1 anticipated turnaround in the fourth quarter that came out slower than expected and 1 unanticipated interruption in the fourth quarter that resulted in some lower capacity in the Salt Lake City refining community. As a result, we had to curtail our production because we are limited in the overall capacity. Now fortunately, the contracts that we have in place allow for a significant expansion in 2013 with our Tesoro contract and our Holly contract in 2014 and 2015. So it really wasn't a matter of whether they were contracted or spot. It was just due to interruptions in the refining business. We have, essentially, all of our refining obligations committed in 2013. So we're not going to be reliant on spot markets and we have anticipated the turnarounds that are taking place midyear at Tesoro's refinery and we feel like we can navigate through that. But there will be some down time and we have to build some inventory during this period.

Brian Singer - Goldman Sachs Group Inc., Research Division

I guess, on the flip side, do you see opportunities to lock in more contracts or do you see opportunities for growth to potentially exceed some of the numbers that you put out, 10% to 20%, as more capacity becomes available? Or do you kind of feel you have the capacity that you need today and there's not necessarily that much upside?

Gary D. Packer

We do have the opportunity to deliver growth outside of 10% in 2013 and our capital program is directly linked to that 10% growth. Because of the opportunities that we're so excited about in some of the other plays, we've pulled capital out of the Uinta basin and deployed it there to marry the capacity in the refining with our expected production results. If we have more capacity, we would be inclined, because of the returns that we can enjoy there, to invest more and we could achieve higher growth rates. But that's all a matter of our capital allocation.

Operator

And we'll take our next question from Richard Tullis, Capital One Southcoast.

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Lee, what were the well costs associated with the 2 unsuccessful wells in Malaysia?

Lee K. Boothby

I don't have that rattling around in my brain. Steve?

Stephen C. Campbell

I'd have to dig it up for you.

Lee K. Boothby

Yes, Steve can get that information for you.

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Okay. That's fine. And on the international side, I noticed that you had gas production listed for 2012 but nothing for 2013. What's the driver there?

Lee K. Boothby

We're going to use that gas to reinject into the reservoirs as part of the production. So it was a pretty insignificant amount of gas but it's going to be used in reinjection.

Operator

And we'll take our next question from Brian Lively - Tudor, Pickering, Holt.

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Lee, as you reflect on the stock reaction over the last week following the decision to sell the international assets and then the key for operating results, what -- or can you articulate maybe what the market is missing here? And just in a sense, how do you sort of convert that perception into being more positive?

Lee K. Boothby

Well, I think that when you focus on what we've been up to for the last 4 years, we've been working to transform the asset base towards liquids proving more organizational focus. We've made those steps in '12 and I'd say today, that we are in fact a north American-focused liquids company. We're now realizing tangible benefits of that cumulative effort both organizationally and operationally. Gary outlined the execution that we had in multiple plays in North America and we are at a point where we're able to accelerate development into these plays. Point of fact, along the way, we've had to sell nonstrategic assets. I think that one of the questions we regularly answer 3 or 4 years ago was about complexity, and we've reduced complexity and improved focus. And in doing so, you inevitably take some steps on the path to transition transformation that creates some choppiness on a calendar year basis. I'd say at this point, that's largely behind us. The 3-year plan that we put out, that's a first for Newfield. Hopefully, it gives you some visibility and some reflection of the confidence we have in the portfolio and the ability to execute. At this point, I'd say it's up to us to execute and deliver those results. But I think the steps that we've taken in terms of pursuing options for international are the right steps, from a strategic standpoint, and we've worked hard to get ourselves into this position, and we're excited about 2013 through 2015 planning horizon.

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

So I guess then the read on would just be that to see the conversion and the equity price would just -- is just related to you guys doing the job and executing the strategy from here in terms -- rather than doing incremental strategic moves?

Lee K. Boothby

Yes. I think, Brian, when you get a chance to work through some of the details that Steve put out in the presentation and get some color and you take the opportunity to reflect in some of the comments that Gary made in terms of execution in the plays, and then you think back to the several plays that we've taken from idea all the way through to successful development, I think the track record speaks for itself. We're highly confident that we're going to be able to execute. Our drilling teams and geoscience teams that are focused in these plays are top of the heap, in our opinion, at delivering best-in-class results. So we expect it to get better from here forward, and with that, you'll see those results rollout and you will see us executing the plan that we've put forward.

Operator

[Operator Instructions] And we'll take our next question from Gregg Brody, JPMorgan.

Gregg Brody - JP Morgan Chase & Co, Research Division

Just curious, I don't know how much color you can give us, but if you were to affect the sale, what's the tax implications for putting the cash back to the U.S.? How should we think about that?

Terry W. Rathert

Gregg, the way that will work is we basically have no U.S. tax implications on proceeds up to a pretty substantial amount. The result of having large net operating loss carry forwards, which -- a portion which we used when we decided to no longer reinvest internationally, and having foreign tax credits, which shelter the gain we would have in the international side. In country, in China, depending upon the nature of the sale, that would be subject to an in-country tax. I think the limit of that would be 10% of the total proceeds for all the businesses in China combined. So that would -- that really is the tax exposure that I think of in the context of bringing that net cash as a result of an exit from those businesses.

Gregg Brody - JP Morgan Chase & Co, Research Division

So how do you think about the basis in that -- in those assets over there?

Terry W. Rathert

Well, we're actually heading down the path to sell the entities themselves is a going concern. There is an international business that has holding -- is a holding company that has both Malaysian and China subsidiaries. The employees are a very valuable part of the business. They have created tremendous amount of value over there and we believe that it's a very attractive business, so we're really not thinking about asset sale because it raises other complications and there's a lot more value with the employees as a team than just selling assets.

Operator

And we'll take our next question from Dave Kistler with Simmons & Company.

David W. Kistler - Simmons & Company International, Research Division

When I look at the Uinta and I look at the returns on the vertical wells where you guys have pretty substantial inventory, it looks like they're generating higher rates of return at this point than the horizontal wells. Just kind of thinking about capital deployment going forward, can you just walk us through why you're pushing towards the horizontal development there when the vertical wells are still generating higher rates of return, or am I misunderstanding your slide deck at this point?

Gary D. Packer

No, Dave, you're right on. The only thing that you'd be missing is the fact that Greater Monument Butte is a waterflood and it's not your typical resource development play. We need to carefully match the water that we're putting in the ground with the amount of withdrawals that we take, which are a function of the wells that we ultimately drill. We believe that the improved responses that we are seeing today that were very closely tied with approximately a 3-rig program, there are opportunities to expand that somewhat but we probably would cap out at about 4 or 5 rigs where we would start actually outrunning the water that we're injecting. So at this point, we've made the election to keep approximately a 3-rig running -- rig program running or so, and in the investments that we're making in the Central Basin are less about being return driven today, but as you can see, we have a tremendous resource. So we have a rather modest investment program there from a rig count standpoint. We're there to drill and unlock this value that we already recognized in the well results and I've articulated on the Wasatch and the Uinta and really drive those learning curves. I believe that over time, we'll see more parity in the returns generated from the Central Basin horizontal program with those of the vertical program, even though they are not apparent today and I appreciate that.

David W. Kistler - Simmons & Company International, Research Division

Okay. I appreciate that. And then one last one of the refining side of things. As you guys look at growth out of that platform, and you secured refining agreements already to drive it through '15, can you talk a little bit about maybe the pilot rail programs that are going on? Are you participating in those? How do you see those kind of moving forward? And could that add an additional leg of growth for production out of that asset base?

Gary D. Packer

Sure, Dave. There are some refining projects -- or excuse me, some rail projects that are taking crude out of the basin, and we're having some discussions about doing that. We have taken a very modest amount of crude by rail out to both -- and I know those markets are in the East and West Coast and some actually up in Canada. So we find it interesting. I have to tell you that we see an opportunity to continue to expand the local market. And I don't think that we are reliant upon using rail over the long term to get it out. But we do find it interesting and it is something that we're going to continue to explore.

Operator

[Operator Instructions]

Lee K. Boothby

Operator, if are there no further questions, I would like to thank...

Operator

Yes, there are no further questions in the queue.

Lee K. Boothby

Okay. There are no further questions, I would like to thank everybody for dialing in this morning. We look forward to visiting with many of you in the days and weeks ahead and updating you on our progress as 2013 unfolds. So thank you, again, for your time and interest in Newfield. Have a good day.

Operator

This concludes today's presentation. Thank you for your participation.

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