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Newfield 'Making Progress' in Emerging Plays

October 29, 2012
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With non-strategic assets sales behind it, The Woodlands, TX-based Newfield Exploration Co. is focusing on multiple oil and liquids-rich projects and is placing particular emphasis on drilling longer laterals.

"Our asset sales since 2007 have allowed us to better focus our people and our capital on plays for our future while providing the funds to bridge the delta between our cash flow and our annual capital investments during our transformation," CEO Lee Boothby said during a third quarter earnings conference call. "Proceeds are being used to aid our transition to oil and accelerate our domestic liquids growth.

'When we embarked on our journey to oil in mid-2009, we knew that our absolute production growth rate would suffer. In fact, periods of flat to declining absolute production were anticipated, but we knew that our focus was on the right commodity: oil..."

Newfield's oil and natural gas liquids (NGL) liftings in the third quarter increased 20% over the year-ago period to 6.1 million bbl, or an average of more than 66,000 boe/d. Natural gas production in the third quarter was 39 Bcf, an average of 420 MMcf/d. Combined, Newfield's production in the third quarter was 75 Bcfe (43% oil and 6% NGLs). The company reiterated previous 2012 production guidance of 298 Bcfe.

"[Newfield] has now 'right sized' their portfolio, in management's eyes, and has shifted to executing operationally," wrote Wells Fargo Securities analyst David Tameron in a note Tuesday. "In our view, [there are] a number of positive well results from each region."

However, the company's international segment was a disappointment. Newfield said that due to an early field payout in Malaysia, international production would drop by up to 25% year-over- in 2013. "After adjusting for the international volumes, differentials and estimated costs, we are reducing our 2012 and 2013 EPS [earnings per share] estimates to $2.43 and $2.14, respectively, from $2.45 and $3.03, which were after 3Q2012 was announced Tuesday. We are also reducing our valuation range to $29-33, from $31-35 per share," Tameron wrote.

Investors reacted negatively, driving Newfield shares down more than 17% to $27.46 in heavy trading Wednesday.

"...[T]he market has reduced the stock price to keep the valuation flat. Move on surface appears to be overdone and, in our view, speaks to the investor mindset and type of investing currently under way," Tameron said. "Volatility continues. Operationally, [Newfield] had a good quarter [except for] the international news and appears to be making progress in many of its emerging plays."

In the Cana Woodford in central Oklahoma's Anadarko Basin, Newfield said it continued to post strong well results. Throughout this year the company has been running four to five rigs and is "aggressively assessing its acreage position," of 142,000 net acres (up 7,000 net acres since mid-year). Net production from the Cana Woodford is currently about 9,800 boe/d, 60% of it liquids. In the third quarter, Newfield drilled and completed its first Hogshooter well in Wheeler County, TX. The well had a gross initial production rate of 5,045 boe/d (90% liquids) and averaged more than 4,200 boe/d gross over a 30-day period. It has a lateral length of 4,850 feet. Newfield is operator with a 90% working interest. An operated rig is dedicated to the play and three additional wells are in progress.

Net production from the Uinta Basin hit a high during the third quarter of 39,000 boe/d, or 27,000 boe/d net, the company said. Newfield owns interest in 230,000 net acres in the Uinta. In addition to the ongoing development of the Green River formation in the Monument Butte field, assessment drilling is focused on two primary plays: the Uteland Butte and the Wasatch.

To date, the company has drilled 11 wells in the Uteland Butte, and it said it is encouraged by the results. Newfield is running two rigs in the play where it has more than 200,000 prospective net acres. Eight of the wells drilled to date are in the over-pressured Uteland Butte trend. Four wells had average gross initial production of 1,200 boe/d (87% oil) and an average gross 60-day rate of more than 550 boe/d. A fifth Uteland Butte well recently commenced production and was producing 850 boe/d. Five additional Uteland Butte wells are awaiting completion and will be online in the fourth quarter, Newfield said.

In the Wasatch since mid-2011 Newfield has drilled and completed more than 35 vertical wells. Wells to date have averaged initial gross production of nearly 900 boe/d and have averaged 400 boe/d, 275 boe/d and 250 boe/d over 30, 60 and 90 days, respectively. Newfield recently drilled and completed its first two horizontal Wasatch wells, about five miles apart and oriented in the upper-most prospective interval of the Wasatch. Lateral lengths were about 3,200 feet, and average gross initial production was more than 1,200 boe/d (88% oil). The wells averaged 750 boe/d and 625 boe/d over 60 and 90 days, respectively.

Before year-end, Newfield plans to drill six additional horizontal pressured wells in the Central Basin, targeting the Uteland Butte and Wasatch formations. Lateral lengths on horizontal wells drilled to date in the Uinta average 3,500 feet, and Newfield is working with Utah regulators for approval of a plan to drill longer laterals in the play. "In all resource plays where Newfield is active, longer laterals (up to 10,000 feet) have proven advantageous to reducing surface footprint, maximizing ultimate recoveries and improving overall returns," the company said.

In the Williston Basin Newfield's net production achieved a recent high of more than 10,500 boe/d. The company has completed 71 wells in the basin, of which 35 are super extended laterals (SXL). Year-to-date, Newfield has averaged about 25 days from spud to rig release in its Williston Basin. During the third quarter, a well was drilled and cased in 18 days. Completed well costs continue to reflect efficiency gains and Newfield estimates that its 2013 wells can be drilled and completed for about $10 million gross.

Production from the Williston Basin is expected to increase more than 35% over 2011 levels. Three operated rigs are running currently, and a fourth rig is to be added early next year. Newfield has 100,000 net acres in the Williston Basin and an expected inventory of more than 300 locations in the Bakken and Three Forks formations. During the quarter, Newfield initiated a detailed study taking cores through the Bakken and the multiple benches prevalent at deeper intervals.

In the Eagle Ford Shale Newfield has 230,000 net acres in the Maverick Basin and has been active in Maverick, Zavala and Dimmit counties since 2010. Early this year Newfield began a program to test SXLs on its Eagle Ford acreage. This year it has drilled and completed four successful SXL wells with lateral lengths of approximately 7,500 feet in Dimmit County. The company has a 100% working interest in all of the SXL wells drilled to date. Recent SXLs are being drilled and cased in as few as 12 days, Newfield said. Based on production data to date, Newfield estimates its SXL wells have a gross estimated ultimate recovery of more than 500,000 boe.

In Atascosa County, TX, Newfield has an average 65% working interest in 8,000 gross operated and outside-operated acres, which are held by production. A drilling campaign is under way. The first well recently commenced production with an initial gross production rate of 615 boe/d and average gross production of 483 boe/d over 60 days. An additional six wells are expected to be online in early 2013.

For the third quarter Newfield recorded a net loss of $33 million (minus 24 cents/share) due to an unrealized loss on commodity derivatives of $135 million (63 cents) and nonrecurring expenses of $20 million (9 cents), mainly related to a redemption of $550 million in notes in July. During the year-ago quarter, net income was $269 million ($1.99/share).

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