There were few naysayers to the deal struck by Newfield Exploration Co. to sell its shallow water Gulf of Mexico (GOM) producing properties to McMoRan Exploration Co. for $1.1 billion (see Daily GPI, June 22). Credit analysts, including Fitch, view the transaction as a positive for Newfield's plans now and into the future.
Fitch, which issued its review of the deal on Friday, said it was a positive move by Newfield for several reasons. McMoRan will assume the liabilities associated with future abandonment of wells and platforms. And Newfield has announced plans to use proceeds to fund its recent Rocky Mountain acquisition from Stone Energy Corp. (see Daily GPI, May 15), to repay borrowings under the company's revolving credit agreement and to fund its 2007 capital expenditure program.
"Newfield's announced divestitures have exceeded Fitch's expectations with regard to size of reserves, timing and amount of proceeds generated," the firm noted. "In addition, the asset divestment should enable the company to continue its efforts to extend its reserve life as it diversifies away from the shorter reserve life shelf production. Less hurricane related risk is expected to further benefit the company as future cash flows will be much less exposed to weather-related events or shut-ins."
Fitch had previously anticipated Newfield carrying a sizeable debt balance on its revolver at the end of this year, but it now expects Newfield to end the year with $1.05-1.3 billion of total balance sheet debt.
"In addition, after accounting for the above mentioned $1.1 billion asset sale and the $575 million Rocky Mountain acquisition and assuming Newfield is able to execute on plans for robust organic reserve replacement, Fitch expects Newfield's year-end 2007 debt/boe of proven reserves and debt/PDP (proved developed producing) metrics to be either at or below 2006 year-end levels."
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