Newfield Exploration Co. (NYSE:NFX)
Wells Fargo Securities Research, Economics & Strategy, 2013 Energy Symposium Conference
December 11, 2013, 1:45 PM ET
Lee Boothby - Chairman, President and Chief Executive Officer
Dave Tameron - Wells Fargo
Dave Tameron - Wells Fargo
The next company for today will be Newfield Exploration. As many of you well know, it's a diversified E&P company, has operations domestically and internationally, although is now in the process of divesting much of its international operations. It is my great pleasure to introduce Mr. Lee Boothby, Chairman and CEO of Newfield Exploration.
Good morning. Going to go through 2013 highlights today. Talk a little bit about goals for the 2014 through '16 time horizon kind of our updated three-year plan horizon. Give you some details on 2014 capital allocation between the four domestic project areas. And then we'll go into some level of detail on the results that have been posted today on STACK and SCOOP. And close with some comments on what we think matters most today at Newfield.
So first on the highlight real, I think that the shift that was mentioned, the focus on North American resource plays coming into 2013, I think has been very good to us. And I think that we're better focused in terms of the people and the capital on domestic resource plays today.
We initiated in 2013 the process of divesting international assets. We have a deal announced on Malaysia that is scheduled to close in the first quarter of 2014. And we will notionally call for bids on China, early next year hopefully sometime in the first quarter and hope to have that process completed to exit China by yearend 2014.
As far as executions, I think that on multiple fronts particularly across the domestic U.S. inventory, I think our team has delivered on the 2013 plan towards high-end of the guidance range, just announced back in February. And as mentioned here this week, we've announced the revised three-year plan horizon 2014 through 2016. And I'll give you the color on the capital allocation shortly.
STACK play, in the Anadarko Basin, certainly a strong incremental add in terms of acreage footprint on the east flank of the Anadarko, strong addition in terms of oil inventory and we continue to post good well results there. And again, I'll give you some color on the broader presentation. And throughout the course of the year, we've continue to post good operating efficiency gains. Certainly, we had embedded learning curve forecast in each of our major project areas, and I'd say our teams have been running ahead of plan in 2013.
So goals, 2014 through 2016, our three-year planning horizon, achieve free cash flow generation. Get back to the point, where our cash flow from operations and CapEx are in balance. Notionally, that will be in the 2016 time horizon with the plan and pricing assumptions built in with plan.
Continue to build quality inventory. I think the addition of over a 100,000 acres in the Anadarko Basin in 2013, certainly a major step in the right direction there and certainly the well results being posted are very exciting as well. And then a focus on improving shareholder returns during the course of that three-year plan.
Down to lower portion of the slide, you can see the forecast in the domestic operations in terms of production, inclusive of the production mix, and you can see a good growth trajectory across that time horizon. And then on the upper right-hand corner, you can see a pie chart, which gives the allocations of the $1.6 billion capital budget by project area.
Look at that a little differently, 2014, again capital budget around $1.6 billion for the domestic assets, excluding capitalized internal costs; expected production ranges 44 million to 48 million barrels to be up 16% over 2013. Importantly, liquids will continue to increase at an outsized cliff around 30%, year-over-year. Our three-year plan will deliver CAGR on cash flow about 25% per year.
Top to bottom on the right-hand side of the slide, you can see the capital allocations, Williston Basin will get about $330 million. Uinta Basin to be down year-over-year, get around $400 million of capital. Anadarko Basin with the results being posted in the addition of STACK is up around $700 million or just under half the total capital allocation for 2014. And the Eagle Ford will get about $170 million.
As far as results, 30% CAGR on liquids growth, 20% since 2012 on CAGR; 25% per year in the 2014 through 2016 timeframe, continue to stay liquids focus in terms of that production growth. The liquids growth driving the cash flow growth and continue to deliver on operating efficiencies down at the grass roots level.
This is slide that we published, the original three-year plan earlier this year. It's been updated for the revised plan. You can see the four project areas drawing capital allocation domestically. And you can see the production growth rate from the beginning of 2013 through yearend 2016. CAGR right around 30% during that time horizon.
So I'll move now quickly to the Mid-Continent region, where our SCOOP and STACK plays are located. Talk a little bit about that business that we have on the ground there in the Mid-Continent execution. It's been a proven operating team well over a decade now. A decade-plus experience in unconventional resources, certainly a track record of value creation, really, really pleased with the results being posted and the cumulative result of that effort there in the Mid-Continent headquartered in Tulsa.
As far as inventory, I mentioned the expansion in 2013, currently in the Anadarko Basin SCOOP and STACK plays. We have a total footprint over 225,000 net acres that's plus 100,000 net acres of where we were at the beginning of this year. There are multiple play horizons, hence the acronym STACK. And between the Woodford Shale, SCOOP play and the STACK plays we've got well over a decade of drilling inventory there in that region.
As far as growth, 2014 three-year plan, we expect to see over a 100% year-over-year production growth. Entering 2014, the Anadarko Basin, the east flank SCOOP and STACK plays are now our largest producing project area. For the planning horizon, which we have five-year period, starting with 2012, including the four years of the three plan that we were talking about, seeing a CAGR on growth through this area of about 80% per year and good resource.
The other thing we like about the Anadarko [technical difficulty] I mean certainly Oklahoma is operator friendly, activity friendly, a lot of infrastructure to take advantage of there in the area, and certainly reasonable regulatory environment to operate in.
Let's now move into some level of detail. As described at this point to 225,000 net acres, we feel good about a 170,000 of that as perspective in the Woodford Shale, over a 150,000 perspective in the Meramec Shale. The STACK play in the north is essentially a combo play of Woodford and Meramec.
The SCOOP play down in the south as described is presently still only a Woodford Shale target. Although, there are other horizons there that logically will be tested during the course of the next couple of years. And hopefully we can carry some of the STACK thinking down into the southern portion of the play as well. So 75,000 of SCOOP, about a 150,000 or so in the STACK portion of the play.
So STACK as described, it includes Meramec and Woodford Shale. The Meramec itself is 300 to 500 feet thick. Woodford Shale would be at the bottom of that section generally a 100 to 200 feet thick. Overall, it's over 700 feet of oil saturated column height, this being evaluated there in the STACK play.
At this stage, we've got a core in the eastern flank of the acreage and a core on the western flank of the acreage that confirm all of those oil saturations and confirm consistency at the petrophysical parameters. So plays are progressing very, very well. There are other horizons that we might logically test as the play continues to develop, but at this point our focus is on the Meramec and Woodford Shales.
Talking about the acreage footprint in the previous slide, so I'll move on, in terms of compelling economics to STACK play. EURs are 800,000 to 1 million barrels. We're drilling 10,000 foot laterals. Generally, the yield is about 70% liquids over the life of the well.
And what's exciting about the STACK play is the first 10 wells in the play have generated an average return project level return in excess of 35%. So we're generating good solid return right out of the sheet in this play, and we expect as we continue to progress the play that those returns will only improve overtime.
Looking in more detail, you can see acreage footprint shown in yellow. You've got two overlays. The green outline is kind of the Meramec Shale outline. The purplish blue outline is outlined for the Woodford Shale that we carried for a number of years. Portion on here, all of the wells that have been drilled and completed 10,000 foot laterals in the STACK play to date, you can see that there are eight wells, four in the Woodford, four in the Meramec.
And the most recent edition was a step out well to the west, probably a townships-and-a-half or so to the west, that's 10 miles to the west and probably six or seven miles north to the center point of the previous drilling. While the Yost well, that Yost has a 24-hour IP of just under 1,400 barrels a day. So pretty strong results there, back that's a highest result posted to date. And we continue to see strong oil cap with 75% oil in that well.
If you look at the end inset box as each of those have the 24-hour IPs and the two phase oil percentage, so separated volumes you can see, 75%, 71%, 79%, 90%, 91%, 84%, 95% and 68%. So very high oil cuts across the play area and good strong performance. Down in the lower right, you can see the type curve that went into the plays, that'd be the mid-point type curve on that 800,000 to 1 million barrel EUR type points or call it a 900,000 barrel well. You can see good performance out through the first year drilling.
One the inset, lower left, you can see the wells listed sequentially, and you've got a 24-hour IP, 30 day and 60 days rates, where they exist. And of course, the Yost being a very new well, only been on for about a-week-and-a-half, all we have is the IP data, but another good strong data point and good strong results.
So year-to-date 2013 in this play, these eight wells had average IP just under 100,000 barrels a day, 90 day average just under 600 barrels a day. And again, the Yost is now the highest IP well at over a 1,000 barrels of oil just under 1,400 barrels of oil equivalent per day. So pretty exciting early results in this play.
Looking at these results in a little different way, one of the questions we got asked at the end of the third quarter is what portion of the acreage had been derisked with drilling. We answered that somewhere around 30% to 35%. This kind of gives you an illustration of that parallelogram, some 15 miles long and 10 miles or so.
North-south yield is about a 150 square miles that we feel like we've derisked with the drilling to date. So clearly there is additional drilling to do on the periphery, as you move East and North of that parallelogram, but all of the results to date have been strong.
So move now down to the southern portion the acreage block and to what we call the SCOOP oil play. And again, the data is presented very similar to the presentation for the STACK play. Inset boxes give you oil cut, which are separated volume. You can see good oil cuts, good strong rates, and you can see a good distribution of wells across the acreage footprint.
Got about 45,000 acres in this play. We're moving towards pad drilling. We've been under development mode all of 2013. So we'll fully drill out a section and then move to another section and do the same. We're drilling two and three well pads is the plan for 2014, but we'll continue to attack each section as a development target, full developments, so we'll have pad drilling and pad-type operations dominate the landscape in '14.
We continue to see the wells outperforming the type curve. You can see in the lower right, good strong performance, well above the forecast type curve for the play. All yields here for the seven wells returned on '13, about 76% working interest, 55% oil on IP basis, just under 50%. 48% oil for a 90 day rate at 1,500 and 1,100 barrels of oil equivalent per day.
On the lower left, again, you can see details of each of the wells drilled kind of sequentially, gross perforated intervals, the lateral lengths in zone, so you can see most of the wells are 9,000 or 10,000 feet. There are a couple of wells that are shorter, one of which, the Sublette, which is 4,900 foot well. But good strong performance and most of the wells here have production data through 60 days.
Wet gas is the area just to the west of the oil window. Again, you can see the wells distributed here. We've got another new well the Yandell at 1,448 barrels of oil equivalent. What you see here is a lower two phase oil percentage, generally running around 20% to 30%, as far as condensate volumes, got good strong NGL yields from the processed gas. Got about 30,000 acres in this footprint.
Active pad development underway here, 11 wells have been turned on in 2013 year-to-date. Average working interest is around 71%, oil average 24% on IP, 22% for the 90-day average. And again, you see good strong performance in lower right, of the wells that have been drilled and completed this year relative to the type curve. So really, really pleased in each of these three project area, the well results, and it's going to be an important part of the 2014 through 2016 plan.
So today, think about what matters most at Newfield, I'd say, focus. And the focus today is on North America, its resource plays and furthermore liquids. So we're focused on these four project areas. They are the project areas that drew capital in 2013. Again, they're going to dominate capital allocations during the 2014 through 2016 timeframe.
Returns, we continue to high-grade investment opportunities within the portfolio. The shift to capital towards the Anadarko Basin has taken advantage of the returns that are being generated there, both in the southern portion of the SCOOP acreage as well as in the STACK play that we talked about in some detail.
Inventory, we had material inventory expansion in the Anadarko Basin in 2013. So we really like where we sit there. So quality returns with a 100,000 plus acres added into the inventory, and a whole new play in the Meramec Shale, strong performance by the technical team in terms of keeping the pipeline of opportunity open. And we'll continue to pursue additional opportunities during the course of the three-year plan.
And lastly, control of operations is something that's been good at the company since its founding. And we're going to continue to focus in areas, where we can control operations. And our teams are working daily to continue to reduce cost and improve efficiencies. Had good performance in '13, we expect to build on that in the 2014 plan.
So with that, I'll conclude the presentation, and open the floor to questions.
Dave Tameron - Wells Fargo
Dave Tameron - Wells Fargo
You talked about 2014 capital. Can you talk about the decision to slowdown a little bit in Uinta? Some people are speculating those well performance, but can you just address that?
Well, I don't know where the speculation of well performance would come from. I'd say the well performance has actually been very strong. In the third quarter we announced that Patterson well, which is a short lateral Wasatch well, had about 3,200, 3,300 foot lateral that was in the EUR north of 700,000 barrels, so very, very strong performance out of that well. We've now drilled and completed four 9,900-foot laterals in the Uteland Butte.
We've seen the uplift in rate, and EUR forecast that we anticipated. Now that's the upper-200 feet of the 1,400-foot oil saturated section that we're exploiting in the Central Basin. We're presently drilling the first 9,900-foot Wasatch well. So the first SXL in the Wasatch is going down now. Should have that well TD'd by yearend.
And again, we've been very, very pleased with the production performance. The issue that we ran into for the 2014 through 2016 timeframe, and I know you follow this fairly closely is the HollyFrontier permit for their expansion was delayed. When we went into 2013 Holly expected to have the permit in place.
I believe it was early summer that they were shooting for. That permit did not get approved until last month. And so we now have the permit in hand, but they've revised their schedule to where startup is now late 2015 and full capacity is not available to us until 2016. That's about a 10,000 barrel a day expansion.
So notionally, what we had to do is take full advantage of the Tesero turnaround '13, '14. Wait for the Holly startup in '15 and then build the full capacity in '16. So there is a little bit of a change in the oil volumes that we can move into Salt Lake City in the 2014, 2015 timeframe.
Not all bad, we rotate into high-return projects in the Anadarko Basin. And yes, the NGL yield goes up because we're drilling 2 million barrel EUR wells down there in South Cana, but I know that several of those wells have paid out in start of the year. So we're getting really, really strong returns there. And with the new STACK play, we have a need to move capital into that play and accelerate activity there as well.
So I could play as well to the optionality in the portfolio. And we're exercising that optionality. Hopefully, Holly can get their work done in a little bit faster schedule, but as of today we have delayed the project startup about nine months for Holly, overall as originally forecasted.
The share price has declined down pretty vigorously over the last two days. In light of the fact that you issued your reduction and spending guidance, so just like to get your views on that.
Clearly, I'll just go with your comment. That has declined fairly vigorously over the last few days, I agree with that. I would say that operationally everything is clicking. So no change there and a lot of positives and certainly there is couple of pieces of information in this presentation that weren't out with that release.
The shift in capital is related to the question that David asked about in terms of refining in the Uinta Basin. I think it plays lot of the optionality in the portfolio, and frankly we just readjust the capital allocations and end up with the little bit higher NGL mix, that's true, but it's not that you're chasing NGLs, you're chasing those $2 million barrel of EUR wells down there in the southern portion of the SCOOP acreage.
So the essence of the three-year plan remains intact. And we're able to deliver the volumes that were described in February as lofty and ambitious. And I suspect there were some people that wanted to see the volumes up appreciably, but we think the three-year plan that we're on if the $1.6 capital spend is a right plant, we're going to execute against that plan.
Can you just update on internationally, where you have assets sale, the timing?
International, that the process that we're under there is, you'll recall that we have a successful bidder that signed purchase agreement in Malaysia, SapuraKencana. They had a December shareholder growth, which was positive. We'll now move towards closing. Closing will occur in the first quarter of 2014, so that project is on schedule. We hope to go out for bids maybe as early as the first quarter of 2014 for China. And if we're able to do that then we would expect to close China in 2014, sometime before yearend, but I'd say the international process is on schedule.
With the opening up of the southern portion of the Keystone XL, maybe narrows basis some for some of the Anadarko crude production. What do you see going forward in terms of NGLs. And of the 30% liquid growth, what's the oil cut on a go forward basis to '16?
Well, see we had that all oil cut under 30%. I don't have that oil cut rolling around of my head, so we'll get that to here shortly. The other part had to do with SXLs.
Like the Keystone. What do you see as far as the credit market, is that what you're asking?
I mean what's the situation that's on build with you going forward and [indiscernible].
Well, everything we're moving out of South Cana has moved out of an agreement that we signed about a year ago. And those NGLs are moving in Mont Belvieu under the terms of that agreement. We've had the ability to expand. So I would say relative to the Southern portion of the SCOOP acreage, I think we're in good shape. We do not have an agreement in place in STACK. Now STACK's a black oil play.
All the wells drill there to date have been up on a well-to-well basis. We are entertaining proposals on the northern portion of that acreage and I would expect that we'll work on trying to get an agreement in place up there, hopefully some time in 2014, but that's still very early in terms of the process.
As far as the broader impacts on light oil and pricing and certainly there is overhang that's been part of the concern in the marketplace. I think my reaction to that is our planning promise is $90. If you look at our hedge position you will see that we're very strongly hedged in '14 and '15. So if there were a short-term disruption, I think it protects our cash flows and our ability to execute as we complete our turn.
Beyond that if we reset to a different market environment, our low side planning premise for our strategy session with the board in November was $75 on oils. We already have a plan in place and we're able to execute our plan and complete the turn. Continue to shift capital and human resources between the various project areas, but I think we get enough optionality in the portfolio that we can navigate through an adjustment if one is necessary.
So you have a split rating through S&P and that really should be A1. Just wondered if you have any or if you could talk about your outlook for credit rating, if you have any incentive to improve it at Moody's IG?
Well, we are split rated. Obviously, I think that's something that has been valuable to the company here in the last couple of three years. I think we've used it to get effect, to restructure the debt maturity ladder. Prior to going out with the three-year plan, we've met with all the rating agencies, and let them see what the plan was, so they know we're executing against the plan. I think that the understanding with rating agencies, we'd give them regular updates.
And as long as we're negotiating well against that plan, that there is no reason to expect any change. I would tell you that that's something we're just going to have to manage over time. I don't know that it's a significant issue relative to cost. When you look at the split rated, one side or the other of the ledger, that we're navigating forward with the intention of preserving that to the extent we can.
The Anadarko produces an awful lot of water. Can you talk a little bit about your various areas and your water production, and what you guys the facilities to handle that?
You're saying in the Anadarko that there is plenty of water production, that's your question.
If you could just talk about the associated water production?
So first thing I would say is to remember, when you go to the STACK play, we're actually south of the high water volume play, to the north, where people are attacking the Mississippi and [indiscernible]. We're actually producing out of the shale, so our water cuts are modest by comparison.
So that's one of the things that we like about the play area that it's very low in terms of water cut, and I'm not aware of any appreciable water cuts down in the southern portion of our acreage. So we think our acreage is favorably placed relative to the high water handling place to the north in the Mississippian sections, which should be northern Oklahoma and Kansas, but we're dealing with a completely different set of geology.
No further questions. Thank you very much.
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