Newfield Exploration Co. (NFX) is an oil and gas exploration and production company. Newfield has several strategic oil properties in the United States and abroad. As with many companies, Newfield is getting oily. They are following the same trend many companies have been incorporating to improve its profits by converting to oil and its much better margins. 
Currently Newfield is creating value through in increase interest in oil. It has also, and will continue to add to its deep inventory of oil properties. Newfield is continuing to build growth while keeping expenditures with in cash flow. This capital program is oil based. This company has several key projects including the Bakken and Eagle Ford. Newfield recently announced its entrance into the oily Woodford, a new resource play in the Arkoma Basin.
Newfield emphasizes its strong production growth, while remaining conservative with in the balance sheet's cash flow. Production growth is currently 12% and is oil focused. They have also announced significant growth in year end oil reserves. PV-10 value has increased more than 80% to $6.8 billion. Its proven oil reserves have increased 20% exceeding 200 million barrels. Newfield has been increasing margins and what they call "doing more with less". As with many of the oil and gas exploration companies they are building for the future, by adding acreages in new plays making assessments to add to those areas. They now have 1.2 million acres in resource plays, with 700K acres purchased in the last 18 months.
2010 was a good year for Newfield, as the company had 12% growth. Oil-focused assets were based in:
- Monument Butte
- Williston Basin
- Malaysia
Domestic oil increased over 30% from 2009. The work in 2010 also increased oil reserves by 20%. 2010 production was 70% gas and 30% oil. 2010 reserves showed PV-10 increasing over 80%. 2P reserves of 6.2 Tcfe. This reserve life is thought to last 20 years. Proved reserves of 3.7 Tcfe. 33% of this is oil and equal to 200 million barrels. Oil reserve life is 13 years. Looking forward 2011 to 2015 will be focused on oil. While other companies are taking on large amounts of debt, Newfield will only spend what cash flow allows. Although some may not like this conservative approach, it may prove to be a good decision.
2011 capital budget is $1.7 billion and will be spent in these areas:
- 34% Rockies
- 31% MidContinent
- 17% International
- 16% ONGC
- 2% GOM
This capital budget is 100% focused on oil and natural gas liquids. It is estimated this will provide between 8 and 12% production growth. Domestic oil production will increase approximately 50%. Newfield states its investments equate to cash flow and could be increased or decreased depending on this metric. The key areas of investment include:
- Monument Butte/Williston
- Granite Wash
- Oily Woodford
- Eagle Ford
- Malaysia
The Woodford shale has 6 wells drilled to date. Peak IP has been greater than 1400 Boe/d in 5 of the wells. Newfield's holdings in this area is 172000 net acres. They have a possible hundred locations in this play. This year it will incorporate a 2 to 3 rig program, with plans to drill 12-18 wells.
The Eagle Ford shale has had very good initial results. The plans for this year are $200 million in capital expenditures to quickly develop this acreage. The first half of this year will utilize a 2 rig program, but if results are good, it will be able to increase the number of rigs. Estimates have 20-25 wells being drilled. There is already a hydraulic fracture contract in place. Estimated drilling cost per well is $5.5 million. This play has been a low risk moderate result play, and with this development should go smoothly in my opinion.
Newfield is a compelling story. This company is not only spending within cash flow but also making what seems to be wise choices in those investments. Its reserves are oil-based and as this company moves from its gas-based portfolio, margins and profits will improve. Newfield is also hedged 70% for natural gas production this year and 50% next year. These hedges should help until it is able to increase its oil and rich gas portfolio. Newfield's gas assets are mostly HBP.
The Uinta Basin/Monument Butte play is approximately 200000 net acres and substantially a HBP location. 1500 approximate producing wells are in this area. In 2010, 375 wells were completed here and this was done with a 5 rig program. In 2011, approximately 400 wells will be completed this year. An additional 4700 locations are available, with 2 billion barrels OIP and estimated 20% recovery.
Newfield has 271000 net acres in the Williston Basin. 171,000 net acres are currently in active development while the remaining 100000 are exploratory phase. Newfield has several areas of particular interest including 55000 net acres in the Elm Coulee field, and several areas on or adjacent to the North Dakota Nesson anticline. Recent 9000 ft laterals have had IP rates of 3417 to 3311 BOEPD.
Newfield is also present in Malaysia. Production will come online at the end of 2011. This area has 5 planned discovery wells. Newfield is the operator with 70% working interest. The Southern Alberta Basin has 280,000 net acres for Newfield. Average working interest is 74%. Newfield believes there is significant upside here.
Newfield's natural gas assets are maintainable with very little drilling required. This allows for Newfield to hold the assets until gas prices improve, and its 70% hedged natural gas position also helps. Newfield's Woodford shale assets have access to both natural gas and oil. This oily Woodford will continue to be developed as oil and gas pricing allows.
In summary, Newfield seems to be headed in the right direction. Its conversion to oil and rich gas will benefit the company for years to come. Management's strategy to keep capital expenditures down to cash flow is a good strategy as they will still be able to spend $1.7 billion for growth. As with most oil and gas companies working oily horizontal plays, I think Newfield is a good investment in 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
