Highlights
Guidance
- Production
- 2Q11 initiated 71 to 78 Bcfe
- 2011 reiterated at 312 to 323 Bcfe, up 10% on the mid
- Liquids are set to become 39% of 2011 volumes vs 33% 2010.
- Costs - up slightly
- LOE up slightly on workovers
- G&A unchanged
- Net total cash costs up less about 4% from prior guidance
Guidance Nutshell: With flat production guidance from their last spoon feeding look for some analysts to inch back their 2011 CFPS estimates. The smart ones will let the higher oil price deck absorb the estimate change as they will only have to revise the numbers higher later in the year when the production guidance range solidifies around the upper end of the current band.
Operations Update - Not Everything Just The New/High Points
Williston Basin - Bigger Bakken IP's
- Starting to get more results of long lateral program as we'd only had two 9,000' lateral wells prior to today. This PR gives details on last three long laterals with average IP's of 3,900 BOEpd, considerably besting prior results including one well East of Nesson in McLean County with an IP of 4,468 BOEpd and another in each McKenzie county (on top of the Nesson) coming in at 4,005 BOEpd.
- Net basin production is ~ 5,000 BOEpd, down from recent comments of 7,000 BOEpd, could be weather delays in completions during the quarter.
- Acreage at 161,000 net (including 54,000 net at Elm Coulee.
- Will be interested to see the longer time frame rates of these recent wells. Also interested to hear their current thoughts on spacing.
Uinta Basin - Monument Butte - Bigger, Better.
- Position continues to grow as they recently announced three transactions bringing total acreage to 250,000 net acres.
- That should put them at over 6,000 remaining locations if we assume they eventually go to 40 acre spacing over most of the acreage. 20 acre spacing will work in some areas as well.
- Quick to drill (just a few days at last mention), they are keeping 5 rigs busy here this year so I'd bet on about 400 wells getting drilled.
- This is the core of NFX's domestic oil production at 18,200 Bopd net current with designs on mid teens growth this year and into the future.
Woodford - Oily Stuff
- ~ 25,000 net acres (over 100 locations), on the west side of their otherwise gassy 172,000 net acre Woodford position.
- Well results continue to impress with IP's that remind one of typical initial long lateral results two years ago in the Bakken.
- IP's averaging 1,500 BOEpd
- But more impressive are the longer term rates which many Bakken players are not seeing relative to that initial rate (data based on 5 wells but so far, so good):
- 30 day rates of 930 BOEpd
- 60 day rates of 830 BOEpd
- 90 day rates of 760 BOEpd
- 2-3 rig program will probably see a total of 20 wells drilled here this year.
- NFX has a 96% working interest.
Eagle Ford - Getting Faster
- 335,000 net acre position (but still not sure how many locations that translates into as this is still early days). NFX thinks that almost all of its position is within the oil window.
- IP's so far averaging 630 BOEpd
- Drilling efficiencies coming into play with average spud to cased rate at 10 days, with a recent well drilled and cased in 7.
- Also expecting to run a 2-3 rig program drilling 30 to 35 wells. Completion costs are running $4.5 to $5.0 per well (short laterals) due to play tightness but I would expect the rate of inflation here to flatten and slightly reverse towards year end as gas play equipment is moved in.
Future Potential
Southern Alberta Basin (NW Montana) - getting closer to realization
- 280,000 net acres, flat with the last acreage count.
- Cores from ROSE look very promising but other details out of ROSE, KWK, and NFX have been few and far between.
- NFX has 2 horizontal wells completed and on production but did not provide details. 7 more verticals have been drilled so look for a lot more color on today's call or in the near future.
Deepwater Gulf of Mexico - Back to the Future
- First, holy cow, we get to contemplate work in the deepwater Gulf of Mexico since BOEM has, in its infinite wisdom, approved nearly a dozen deepwater permits (granted many of these are for wells that were in progress and halted by the moratorium but let's not dampen the mood … meek hooraa).
- OK, actually not much in the press release as we already knew about the new Gladden production and Pyrenees is more of a 2012 production event and they didn't really comment on their other positions. Perhaps more will be on the call as someone just has to ask when is the time to really get rolling on things like Winter and the other 80 or so deepwater blocks they currently hold.
CapEx
- Budget inched up from $1.7 B to $1.9 B
- NFX saying the bump will still be covered by higher cash flow due to oil prices
- Saying part of the increase is inflation, part is drilling efficiencies that means more wells than previously expected will get drilled this year, and part is due to acquisition of leases in a new stealth play …. everybody has to have at least one these days.
Balance Sheet:
- Cash of $56 mm
- Debt to Cap of 42%
- Not a problem and plenty of firepower on the revolver.
Nutshell: Good quarter, good outlook. Not surprised at the lack of increase in production guidance but likely to see a bump in the second quarter as NWX typically bags the Street early in the year. The increase in capex is modest and covered by expected cash flow and while that may cause a minor bout of indigestion pre-call, I don't expect it to be lasting and would look at it as a potential buying opportunity.
Operationally, the name continues to hone results on nearly all fronts again leading to the conclusion that the guidance bar has been set low enough to hop over if not tip toe over. At 5.8x and 5.0x Street consensus 2011 and 2012 CFPS respectively, NFX remains on the cheap end of the midcap E&Ps, especially so given its large inventory of highly repeatable drilling prospects, increasing oiliness, strong balance sheet, and low per unit costs. It will make a nice snack for a large cap desiring oily growth some day not too far down the road. I continue to hold the NFX common in the ZLT.
