NFX Newfield Exploration Company

Newfield Exploration Company (NFX) appears all set to build an oil-centric growth profile in future, while remaining committed to the monetization of its non-strategic assets. This is evident from the company’s full-year 2011 production update, which comprises 20% year-over-year growth in oil or liquids.

Newfield is also concentrating on its asset sale program, which aims to generate proceeds of approximately $735 million. Around $400 million of sales were closed in 2011, while an additional $335 million in sales are expected in early 2012. Newfield added that its non-strategic assets include properties in the Gulf of Mexico (GoM) deepwater division, which experienced a 16% production downfall for the three months ended September 2011. Consequently, the company is not planning to drill any additional exploratory well and is seeking further options in the region in 2012.

In 2011, Newfield’s oil and liquids production increased more than 20%, while its natural gas volumes declined approximately 5% due to reduced capital investments in gas assets and field declines. The company’s total production for the year came in at 300 billion cubic feet equivalent (Bcfe). As part of its strategy to focus on oil-rich properties, Newfield plans to employ sales proceeds from asset divestment to boost oil and liquids production to about 50% of its total output this year, up from some 33% three years ago.

Houston-based Newfield’s focus on oil growth and development of onshore resource plays reflects its intent to deploy its full financial resources to oil and liquids-rich opportunities this year. The company has onshore operations in the U.S. mid-continent, Rocky Mountains, Texas and Appalachia, and off Malaysia and China.

We believe Newfield Exploration’s exposure to emerging resource plays, along with its shift of resources away from natural gas into liquids, like independent company Murphy Oil Corporation (MUR), will help it to grow in the exploration and production space. The decision to monetize its non-strategic assets is also expected to provide an impetus for the deployment of cash proceeds in more high yielding assets. We expect the company’s reserve potential in Southern Alberta Bakken, Wasatch Oil, Uinta Basin and a new resource play to be a liquid-rich catalyst for the stock.

We are maintaining our Neutral recommendation for the company. Newfield holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

 
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