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BP (NYSE:BP) is not the only oil company pulling out of the Gulf of Mexico. Newfield Exploration (NYSE:NFX) has decided to sell all 78 of its offshore operations to W&T Offshore (NYSE:WTI) for $228 million. Reuters reported that Newfield's management made the move because it wants to focus on operations on dry land in the U.S. and offshore drilling in China Southeast Asia.

The sale will reduce Newfield's production capacity by the equivalent of 8,350 barrels of oil a day. The sale leaves Newfield with operations in the Williston Basin of North Dakota, the Cana Woodford Shale in Oklahoma, the Maverick Basin in Texas, and offshore operations in Malaysia and China. Before the sale, Newfield had proven reserves of 263 million barrels of oil and 2.3 trillion cubic feet of natural gas reserves. The sale appears to be part of Newfield's policy of reducing its dependence on natural gas because of lower natural gas prices.

So how is the market reacting to Newfield's new strategy? Well, the initial reaction was not very good if the charts are anything to go on.

As you can see, Newfield's share price has been falling throughout September. That was a reversal of a steep rise that occurred through the summer after an even bigger drop in June. The interesting thing is that the erratic performance of Newfield's shares ignores the fact that the company's fundamentals actually look pretty good.

At last glance, Newfield had a net profit margin of 22.52% and sales growth of 31.2%. The company also displayed an income growth of 3.1% and earnings per share figure of $4.36. It also had a debt-to-equity ratio of .86%, which seems a little high. The $220 million from the sale of the offshore assets in the gulf may help reduce the debt-to-equity ratio.

Getting out of Gas a Smart Move

Newfield was doing pretty well, despite the share price. Selling off the Gulf fields, which are heavily reliant on natural gas, was a very smart move. Natural gas prices have been falling for the past year and may continue to fall. The U.S. Energy Information Agency reported that natural gas prices fell by 26¢ an MMBtu during the week of September 17th through the 21st. Getting out of the natural gas business seems like a smart move for Newfield, and so does putting an extra $220 million in the bank.

An American Oil Company with Wells in China

Yet the really interesting thing about Newfield is its potential for growth. The company's overseas assets, which are in close proximity to China, are its greatest potential assets. Newfield is planning to begin production at offshore wells in the Pearl River Mouth Basin, which is right off the coast of southern China, in late 2013 or early 2014. It is conducting exploratory drilling at another oil field farther north off the Chinese coast.

That's right, the company is developing a new offshore field right off the coast of the world's fastest growing market for oil. Cars are selling like hotcakes in China: General Motors (NYSE:GM) alone has sold two million vehicles in China so far this year. It did that in a year in which Chinese car sales are down.

All those cars in China are going to have to run on something, probably gasoline or diesel fuel, which are made from oil. Newfield has two oilfields right off the Chinese Coast and large oilfields nearby off the coast of Malaysia. Newfield projections call for it to produce the equivalent of 33,000 barrels of oil from its Malaysian offshore operations this year. The company also estimates that its Malaysian production will increase by 40% in 2011.

Newfield doesn't just have oilfields in Chinese waters; it owns other oilfields that are a short trip from China. That puts the company in a good position to tap the Chinese market at a time when the Chinese are flocking to the car dealerships.

The market's take on Newfield is wrong. At a share price of $32.05, this company seems like a bargain. It has a management team with the good sense to get out of a questionable business natural gas, and more importantly, a good position overseas. Newfield might just be the most interesting opportunity in oil because of its position in Chinese waters. Since the company has demonstrated a proven capacity to develop offshore oilfields in Asia, it has the expertise to put those Chinese fields into production.

Source: Newfield Exploration: On Sale At Current Prices