We maintained our recommendation on
Newfield Exploration Company
) at Neutral on Aug 14, 2013. The company posted
weaker-than-expected second quarter earnings attributable to
lower gas volumes. The company holds a Zacks Rank #3, which is
equivalent to a short-term Hold rating.
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.
Newfield Exploration's diversified portfolio of assets
provides both flexibility and significant growth potential. We
expect the company's reserve potential in the Southern Alberta
Bakken, Wasatch Oil, Uinta Basin and Williston play to be a
liquid-rich catalyst for the stock. The company has also
increased its production expectations from Cana Woodford and
Williston Basin for 2013.
It appears that Newfield Exploration's exposure to emerging
resource plays, along with its shift of resources from natural
gas to liquids, will help it to grow in the E&P space. In the
second quarter, the company reported strong oil and liquids
domestic production of 10.0 million barrels, representing a 17%
increase on a sequential basis. For 2013, the company intends to
spend the majority of its capital for liquid-rich operations and
expects to generate about 40% year-over-year growth in oil and
During the first half of 2013, Newfield increased its rig
count in the Cana Woodford play to 7 from 5 at the end of 2012
and oil production increased 31% sequentially, while total
production was up 17%sequentially. Further, favorable results
from the Uinta Basin, South Cana, Bakken and Eagle Ford validate
the upside exploration potential of these plays. Further,
horizontal drilling in the Wasatch and high pressure Uteland
Butte are expected to enhance shareholders' value.
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.
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
Abraxas Petroleum Corp.
Matador Resources Company
Range Resources Corporation
), which are expected to outperform the broader market over the
next few months, carry a Zacks Rank #1 (Strong Buy).
ABRAXAS PETE/NV (AXAS): Free Stock Analysis
MATADOR RESOURC (MTDR): Free Stock Analysis
NEWFIELD EXPL (NFX): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
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