Newfield Exploration: Post Earnings Update

Newfield (NFX) provides operations and guidance update:

I was anticipating and got improved results from the company's Woodford play. Earnings for the quarter were in-line after you back out several charges ($0.92 a vs $0.92 e). Guidance looked good (although costs continue to drift higher) and individual areas of operation on the whole appear to performing at least as well as expected.

Initial Guidance For 2Q07 -- In A Word: Up

• 1Q production came in near the high-end of the range at 719 MMcfepd vs. guidance of 659 to 732 MMcfepd).
• Initial 2007 Guidance: This is the first guidance NFX has provided for the year and it equates to 7 to 11% YoY growth for 2007 which should be pretty well received.

Costs looked a little high even without the hurricane expense. LOE was a nickel plus out of the top end of the range while G&A strayed a penny over it's top. Hurricane related repair expenses, which ran a whopping $0.68/Mcfe this quarter, are expected to be largely complete following the second quarter after which I'd expect per unit LOE to fall into the $1.05 to $1.20 per Mcfe range.

NFX Looks Cheap On NTM Cash Flow: Even with the temporarily higher LOE, a 17% increase in production and a 3% in equivalent realized prices drove CFPS of $2.72, only 3 cents below year ago figures (when LOE was half as much). Looking ahead (and if this price deck holds) you're looking at a quarterly CFPS run rate > $3.00 per share. Annualize that and NFX is trading below 4.0x NTM CF. That's pretty cheap for a company with a reserve life that should by all accounts enter double digit territory this year.

Core Areas Update:

• Woodford Shale: Estimated reserve recoveries increased to 3.0 to 3.4 Bcfe for finding costs of ~ $2.25 per Mcfe. They're standardizing their drilling procedures here and plan to get F&D sub $2 based on current service costs. Nice.

• Stiles Ranch Wash play -- nothing new in terms of numbers but a cool description of how they're attempting to minimize costs by maximizing rig efficiency.
• Sarita joint venture with (XOM) announced a high test-rate in one well and a record 700 feet of pay in another. I didn't break this area out in my report on the 19th but all systems are go here.
• Uinta Basin: 20 acre infill program yielding better-than-expected results. IPs of 170 bopd gross are much higher than the 100-110 previously announced.
• Gulf of Mexico current production of 290 MMcfepd looks higher than expected:

o Wrigley -- about to commence at 50 MMcfepd (50% wi)
o Fastball (deepwater GOM) development well saw more pay than expected -- 90 net feet of gas pay. Subsea tree installed.
o Nemo spud. Shallow and deep target tests.

• North Sea:

o Grove about to commence production. Curtailing production 10 mmcfepd from a potential 60 due to the fire sale on gas in the UK right now.
o 2 dry holes this year (Auburn and Cutter prospects), Seven Seas is currently drilling.

• Malaysia

o Abu Field FSO has been moored -- expect to commence production late 2Q07 yielding production of ~5,200 net to Newfield's interest under current oil prices.

Disclosure: Author has a long position.