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Newfield Oil Production Moves Higher, But Long-Held Granite Wash Assets to Be Sold for $588M

Newfield Exploration Co. said its year-over-year (y/y) oil production rose more than 30% during the second quarter of 2014, led by gains in the Anadarko Basin but also due in part to success with wells targeting that Uinta Basin participating in its super extended laterals (SXL) program.

Meanwhile, Newfield, based in The Woodlands, TX, near Houston, has agreed to sell its assets in the Granite Wash formation of the Permian Basin to Oklahoma City-based Templar Energy LLC for $588 million.

During 2Q2014, Newfield said it produced 12.1 million boe, which included 4.5 million bbl of oil, 2.0 million bbl of natural gas liquids (NGL) and 33.1 Bcf of natural gas. By comparison, the company produced 10.0 million boe during 2Q2013, which included 3.4 million bbl of crude oil and condensate, 1.3 million bbl of NGL and 31.9 Bcf of gas.

The company expects to produce 12.1-12.3 million boe during 3Q2014, and 46.5-48.5 million boe for the full year.

In the Anadarko, net production averaged 39,000 boe/d during 2Q2014, up 32.2% sequentially when compared to 29,500 boe/d produced in 1Q2014. The company plans to drill about 70 wells targeting the South Central Oklahoma Oil Province, or SCOOP, and the related STACK formations in Oklahoma’s Mississippian Lime/Woodford Shale, and expects to exit the year with net production of nearly 50,000 boe/d (see Shale DailyMay 1).

The company said in its Yandell development in the wet gas window of the SCOOP, five wells using 4,950-foot laterals recorded individual average 24-hour initial production (IP) rates of about 1,300 boe/d gross, 41% weighted toward oil.

Newfield holds more than 250,000 net acres in the Anadarko and plans to invest more than $750 million, about 45% of its total capital expenditures (capex), in the play in 2014. The company raised its full-year production guidance for the play from 14.3 million boe to 14.8 million boe.

In the Uinta, net production averaged 26,100 boe/d in 2Q2014, up 4.8% from the 24,900 boe/d produced in 1Q2014. Based on strong well performance, primarily in the Central Basin, Newfield said it nearly doubled its production guidance and expects Uinta production to grow about 10% y/y.

According to Newfield, five SXL wells targeting the Uinta's Central Basin -- three in the Uteland Butte play and two in the Wasatch play -- recorded average gross 24-hour IP rates of 2,122 boe/d, and average gross 30-day production of 1,480 boe/d. The average gross 60- and 90-day rates were 1,401 and 1,297 boe/d, respectively.

"In the Anadarko Basin, the SCOOP and STACK plays provide more than a decade of running room, and today's update in the Uinta Basin demonstrates the economic potential for another large-scale oil play for future development with Newfield's portfolio," CEO Lee K. Boothby said during a mid-year conference call Wednesday.

Newfield expects to drill between 15 and 20 SXL wells targeting the Unita's Central Basin this year.

In 2Q2014, net production averaged 18,000 boe/d in the Williston Basin and 12,300 boe/d in the Eagle Ford Shale. Both were increases over 1Q2014 -- 21.5% in the Williston (from 14,900 boe/d), and 11.8% in the Eagle Ford (from about 11,000 boe/d).

Newfield said y/y production in the Williston has increased more than 50%, and it expects volumes produced for full-year 2014 should be 41% above 2013 levels. The company has four rigs deployed in the Williston and plans to drill more than 55 wells there in 2014. By comparison, in the Eagle Ford, Newfield is operating a single-rig program and plans to drill about 20 wells there in 2014.

For 2Q2014, the company reported a consolidated net loss of $22 million (minus 16 cents/share). Newfield said net income would have been $59 million (43 cents/share) but it had a one-time loss on derivatives (hedging) of $127 million (minus 59 cents/share), of which $87 million was after taxes.

Separately Tuesday, the company agreed to sell close to 42,000 net acres in the Granite Wash to Templar. The assets include current net production of nearly 65 MMcfe/d, 60% weighted toward natural gas. Proved net reserves from the assets were about 38 million boe at the end of 2013. Newfield plans to use the proceeds from the sale, which is expected to close during 3Q2014, to pay down debt.

During Wednesday's conference call, Boothby said the Granite Wash had served as a positive asset for the company, but has been in decline for years. Newfield hasn't drilled any wells there in three years, he noted.

"It was part of our early efforts into the unconventional space," Boothby said. "It's a great asset. It's been on decline. We've been fighting to overcome the decline. When we look at our portfolio, the opportunities are evolving. The depth and the quality [of those other opportunities] are such that as much as I love that asset -- and I was there to help build it -- [but we aren't] able to see a timeframe that makes any sense to any of us to go back there and think about drilling wells.

"It just makes sense to monetize it at an attractive price, put it in the hands of somebody that might have a different view or different need, take the proceeds and apply them constructively to the balance sheet and just continue to strengthen the company."

The Granite Wash sale is not a "2014 event,” he said.

"This has been a three- or four-year effort to get to this point," Boothby said. "We like where we're at, and I think every step that we're taking makes us a little stronger and puts us in a better position to have multiple options to optimize.

"I'll miss the Granite Wash, I really will. But I think we got a really attractive price."

In a note Wednesday, BMO Capital Markets Corp. set Newfield stock to "outperform" with a $50.00/share target price. Shares of Newfield were trading at $41.20/share (down 5.08%, minus $2.21/share) during afternoon trading on the New York Stock Exchange.

"Our $50 target price is based on an NAV [net asset value] analysis that yields $53," said BMO analyst Dan McSpirit. "Not a shocker that the stock doesn't look as cheap on 2015” earnings before interest, taxes, depreciation and amortization (EBITDA) and enterprise value (EV). “What's harder to digest is that the EV/EBITDA multiple doesn't compress as much as once observed."

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