We maintained our recommendation on
Newfield Exploration Company
) at Neutral on Apr 4, 2013.
EPL OIL&GAS INC (EPL): Free Stock Analysis
NEWFIELD EXPL (NFX): Free Stock Analysis
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STONE ENERGY CP (SGY): Free Stock Analysis
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Newfield, an independent energy company, is expected to benefit
from its exposure to emerging resource plays, along with its
shift of resources from natural gas to liquids, which will help
it to grow in the E&P space.
During the fourth quarter, Newfield completed drilling three
wells in the Cana Woodford play, the performance of which
exceeded expectations. Further, favorable results from the Uinta
Basin, South Cana, Bakken and Eagle Ford validate the upside
exploration potential of these plays. Horizontal drilling in the
Wasatch and the high pressure Uteland Butte are also expected to
help the company enhance shareholders' value.
For 2013, the company intends to spend the majority of its
capital for liquid-rich operations and expects to generate about
35% year-over-year growth in oil and liquids production.
Newfield's operations abroad, especially in Malaysia, hold
immense potential. This is evident from the natural gas find it
made off Sarawak, Malaysia, which is considered the largest
conventional exploratory success in its history. The
discovery is estimated to hold 1.5 trillion to 3 trillion cubic
feet of gas initially in place.
Though we remain positive on Newfield Exploration's emerging
resource plays' development program, we believe that a low
natural gas price environment could remain an overhang since most
of the company's reserves are tied up in natural gas.
Specifically, oil and gas prices have been increasingly volatile
in recent years. This volatility tends to impact sector stock
Moreover, Newfield's Rockies and Gulf Coast-centered asset
portfolio, along with its lack of meaningful exposure to the
emerging shale plays, is a competitive disadvantage. Newfield's
lack of economies of scale in Bakken and Eagle Ford Shale has
also restricted its ability to compete more aggressively with
other leading players due to higher costs and delays. The outlook
for 2013 is quiet uncertain with the pending international asset
Other Stocks to Consider
While we prefer to remain on the sidelines for Newfield, there
are other stocks in the sector that appear rewarding. Among
Stone Energy Corporation
Range Resources Corporation
EPL Oil & Gas, Inc
), which are expected to outperform the broader market over the
next few months, carry a Zacks Rank #1 (Strong Buy).