Newfield Exploration Co.
) reported adjusted fourth-quarter 2012 earnings of 28 cents per
share, which failed to match our expectation of 44 cents by
36.4%. The quarterly results also fell 70.5% from the
year-earlier adjusted profit of 95 cents per share. The
deterioration can be traced back to lower oil and gas volume.
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The company's total revenue dropped 4.6% year over year to $646.0
million. However, it surpassed the Zacks Consensus Estimate of
Full-year 2012 adjusted earnings of $2.28 per share decreased
43.7% from the year-ago adjusted profit level of $4.05 a share.
It also failed to meet the Zacks Consensus Estimate of $2.42.
Total revenue in 2012 improved 3.9% on a year-over-year basis to
$2,567.0 million. The reported figure came in below our
expectation of $2,629.0 million.
Total quarterly production of 71.6 billion cubic feet equivalent
(Bcfe), comprising 47% natural gas, dropped 9.7% year over year.
The downfall was mainly due to the impact of non-core asset sale.
Natural gas volumes were 33.4 Bcf, down 24.4% year over year.
Oil, condensate and natural gas liquids (NGLs) volume expanded
5.1% year over year to 5.6 million barrels (MMBbls).
Newfield's fourth quarter oil and natural gas price realizations
(including the effect of hedges) averaged $9.44 per thousand
cubic feet equivalent (Mcfe), up 2.2% from the year-earlier
level. Natural gas prices sank 28.8% from the year-earlier
quarter to $3.34 per Mcf. However, liquid prices improved 7.5% to
$94.66 per barrel.
Recurring lease operating expenses (LOE) during the quarter were
$1.10 per Mcfe, up 2.8% from the year-ago level. Production and
other taxes increased to $1.36 per Mcfe from the year-earlier
level of $1.10. General and administrative expenses increased
10.1% year over year to 76 cents per Mcfe.
At quarter end, Newfield had a cash balance of $88 million, while
long-term debt was $3,045 million, representing a
debt-to-capitalization ratio of 52.3%.
For 2013, Newfield expects estimated output in the range of
44.2-47.2 million barrels of oil equivalent (MMBOE). LOE is
expected between $10.80 and $12.00 per Mcfe.
The company expects to generate about 60% of the annual
production growth in the first half of 2013.
Newfield Exploration's diversified portfolio of assets provides
both flexibility and a 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.
During 2012, the company remained focused on its exposure to the
emerging resource plays. It also concentrated on its shift
towards liquids that will likely help it to grow in the
exploration and production space. Newfield Exploration aims to
increase its cash flow by boosting oil and liquids growth from
its onshore oil-rich assets in the United States and Southeast
After adjusting the impact of asset sales in 2012, liquids
production increased about 35% on an annualized basis. It also
grew about 50% from 2011 in the international market.
Though we remain positive on Newfield Exploration's emerging
resource plays' development program, we believe that its
sensitivity to gas price volatility, as well as drilling results,
costs, geo-political risks and project timing delays will weigh
on the stock. Increasing cost pressure in the highly competitive
shale plays is also a cause for concern.
Newfield Exploration shares currently retain a Zacks Rank #3,
which translates into a short-term Hold rating. There are other
stocks in the oil and gas industry that appear more attractive.
Range Resources Corporation
Breitburn Energy Partners L.P.
Memorial Production Partners L.P.
). Range Resources and Breitburn Energy hold a Zacks Rank #2
(Buy), while Memorial Production holds a Zacks Rank #1 (Strong