Newfield Exploration Co. said it will spend about $1.7 billion this year on exploration and production activity, with two-thirds directed to oil plays and the rest focused on liquids-rich natural gas. The amount is equivalent to the company's estimate of 2011 cash flow from operations.
Production this year is expected to be in the 312-323 Bcfe range, representing an 8-12% increase from 2010. Domestic oil production is expected to increase 50% while gas production is to remain flat, "despite a significant reduction in natural gas investments," Newfield said.
CEO Lee Boothby said the company would continue to live within its means.
"Since the beginning of 2009, we have funded our capital expenditures within cash flow, including a large portion of our acquisitions along the way. We have proved the merits of a diversified asset portfolio and are making improved capital allocation decisions throughout the company," he said. "With our continuing view that natural gas prices will remain challenged in 2011, we are directing our investments to oil plays that deliver premium returns."
Newfield also disclosed a new resource play located on a significant portion of its Woodford Shale acreage in the Arkoma Basin of southeast Oklahoma. Newfield said it believes the play is prospective on approximately 15% of its 172,000 net acres. The company has drilled six wells in the new play. Peak gross production (24-hour) from five of the six wells averaged 1,410 boe/d. Approximately 35% of the hydrocarbon stream is oil, with the remaining 1,300 Btu gas.
"We have been assessing this play throughout 2010 and our results create excitement for its potential on the western portion of our existing Woodford acreage, including about 11,000 net acres we leased in 2009 and 2010. Because our Woodford gas play is substantially held by production, our 2011 efforts can focus on our oily Woodford inventory," Boothby said.
Newfield said it plans to drill 12 to 18 additional wells in the play this year and to date has identified more than 100 drilling locations.
Approximately 70% of the company's expected 2011 gas production is hedged, with 45% hedged at a weighted-average fixed price of $6.26/MMBtu and 25% hedged using three-way collars with weighted-average prices of $4.50, $5.95 and $7.71 per MMBtu.
Approximately 70% of Newfield's expected 2011 domestic oil production is hedged, with 28% hedged at a weighted-average fixed price of $81.51/bbl and 42% hedged using three-way collars with weighted-average prices per barrel of $61.61, $77.58 and $107.76.
The company said its proved oil reserves at year-end 2010 totaled more than 200 million bbl, a 20% increase over year-end 2009 proved oil reserves. The growth in oil reserves was primarily attributed to the Rocky Mountain business unit, where proved reserves grew nearly 30%.
Due to the shift toward oil investments, Newfield reclassified about 315 Bcfe of proved reserves (nearly all natural gas), primarily in the Midcontinent, to "probable" reserves because the deferral of development activity placed them beyond the five-year development horizon.