NFX Newfield Exploration Company

Newfield Announces Second Quarter Results** HOUSTON, July 27 /PRNewswire-FirstCall/ -- Newfield Exploration Company (NYSE:NFX) today announced its financial and operating results for the second quarter of 2004. A conference call to discuss the results is planned for 8:30 a.m. (CDT), Wednesday, July 28. To participate in the call, dial 719-457-2665. A listen-only broadcast will also be provided over the Internet. Simply go to the Investor Relations section at http://www.newfld.com/ . Second Quarter 2004 For the second quarter of 2004, Newfield reported net income of $67.4 million, or $1.18 per share (all per share amounts are on a diluted basis). Stated without the effect of $1.3 million ($0.8 million after-tax), or $0.01 per share, of income related to unrealized commodity derivative transactions, net income for the second quarter was $66.6 million, or $1.17 per share. Revenues in the second quarter of 2004 were $282.7 million. Net cash provided by operating activities before changes in operating assets and liabilities was $185.1 million in the second quarter of 2004. See Explanation and Reconciliation of Non-GAAP Financial Measures. Newfield's results for the second quarter of 2004 compare favorably to the same period of the prior year. Net income from continuing operations in the second quarter of 2003 was $53.1 million, or $0.95 per share. Net income from continuing operations in the second quarter of 2003 was impacted by a $10.5 million one-time charge ($6.8 million after tax), related to the redemption of all of the outstanding 6 1/2% convertible trust preferred securities (QUIPS). Revenues in the second quarter of 2003 were $255.6 million. Net cash provided by continuing operating activities before changes in operating assets and liabilities was $178.9 million in the second quarter of 2003. Newfield's production in the second quarter of 2004 of 56.0 billion cubic feet equivalent (Bcfe) remained flat when compared to the second quarter 2003 production of 56.2 Bcfe. The following tables detail production and average realized prices for the second quarter of 2004 and 2003. Production 2Q04 2Q03 % Change Natural gas (Bcf) 47.5 46.8 1% Oil and condensate (MMBbls) 1.4 1.6 (10%) Total (Bcfe) 56.0 56.2 --- Average Realized Prices+ 2Q04 2Q03 % Change Natural gas (per Mcf) $4.89 $4.50 9% Oil and condensate (per Bbl) 34.18 27.54 24% Natural gas equivalent (per Mcfe) 5.02 4.51 11% +Prices shown are net of all applicable transportation expenses, which reduced the realized price of natural gas by $0.03 and $0.02 per Mcf for the three months ended June 30, 2004 and 2003, respectively. The realized price of oil and condensate was reduced by $0.46 and $0.45 per Bbl for the three months ended June 30, 2004 and 2003, respectively. Average realized prices also include the effects of hedging other than our three-way collar contracts, which do not qualify for hedge accounting under SFAS No. 133. Had we included the realized loss on our three-way collar contracts, our average realized price for natural gas would have been $4.82 per Mcf and our average realized price for oil and condensate would have been $31.95 per Bbl for the second quarter of 2004. The settlement of our three-way contracts had no impact on our realized prices for the second quarter of 2003. We did not enter into any three-way collar contracts prior to August 2003. Stated on a unit of production basis, Newfield's lease operating expense (LOE) in the second quarter of 2004 was $0.52 per Mcfe compared to LOE from continuing operations of $0.48 per Mcfe in the same period of 2003. Production taxes in the second quarter of 2004 increased to $0.16 per Mcfe compared to production taxes from continuing operations of $0.13 per Mcfe in the same period of 2003. DD&A expense in the second quarter of 2004 was $1.88 per Mcfe compared to DD&A expense from continuing operations of $1.76 per Mcfe in the same period of 2003. G&A expense (including stock compensation) in the second quarter of 2004 was $0.34 per Mcfe compared to G&A expense from continuing operations of $0.27 in the same period of 2003. G&A expense in the second quarter of 2004 is net of capitalized direct internal costs of $9.2 million compared to $7.4 million in the second quarter of 2003. Capital expenditures in the second quarter of 2004 were $236 million. Year-to-Date 2004 For the first six months of 2004, Newfield posted net income of $145.3 million, or $2.55 per share. Revenues for the first half of 2004 were $588.1 million. This compares to net income from continuing operations of $112.4 million, or $2.02 per share, on revenues of $523.4 million for the first half of 2003. Net cash provided by continuing operating activities before changes in operating assets and liabilities was $393.2 million in the first half of 2004 compared to $353.3 million in the same period of 2003. See Explanation and Reconciliation of Non-GAAP Financial Measures. Production volumes for the first half of 2004 increased 4% above the same period last year. The Company produced 113.3 Bcfe in the first six months of 2004 compared to production from continuing operations of 109.3 Bcfe in the first six months of the prior year. The following tables detail production and average realized prices for the first half of 2004 and 2003: Production 1H04 1H03 % Change Natural gas (Bcf) 95.5 90.8 5% Oil and condensate (MMBbls) 3.0 3.1 (4%) Total (Bcfe) 113.3 109.3 4% Average Realized Prices+ 1H04 1H03 % Change Natural gas (per Mcf) $5.10 $4.77 7% Oil and condensate (per Bbl) 32.87 28.27 16% Natural gas equivalent (per Mcfe) 5.16 4.76 8% +Prices shown are net of all applicable transportation expenses, which reduced the realized price of natural gas by $0.02 per Mcf and the realized price of oil and condensate by $0.39 per Bbl for the first half of both years. Average realized prices include the effects of hedging other than our three- way collar contracts, which do not qualify for hedge accounting under SFAS No. 133. Had we included the realized loss on our three-way contracts our average realized price for natural gas would have been $5.06 per Mcf and our average realized price for oil and condensate would have been $31.80 per Bbl for the six months ended June 30, 2004. The settlement of our three-way contracts had no impact on our realized prices for the first half of 2003. We did not enter into any three-way collar contracts prior to August 2003. In the first half of 2004, LOE, stated on a unit of production basis, averaged $0.52 per Mcfe, compared to LOE from continuing operations of $0.50 per Mcfe in the same period of 2003. Production taxes in the first half of 2004 decreased to $0.15 per Mcfe compared to production taxes from continuing operations of $0.16 per Mcfe in the same period of 2003. DD&A expense in the first half of 2004 was $1.86 per Mcfe compared to DD&A expense from continuing operations of $1.76 per Mcfe in the same period of 2003. G&A expense (including stock compensation) in the first half of 2004 was $0.33 per Mcfe compared to G&A expense from continuing operations of $0.29 per Mcfe in the prior year. G&A expense in the first half of 2004 is net of capitalized direct internal costs of $16.0 million compared to $14.2 million in the first half of 2003. Capital expenditures in the first half of 2004 totaled $389 million. Explanation and Reconciliation of Non-GAAP Financial Measures Earnings stated without the effect of unrealized commodity derivative transactions, a non-GAAP financial measure, exclude certain items that affect the comparability of operating results. Earnings without the effect of these items are presented because the amount of these items cannot be reasonably estimated and because earnings without the effect of these items are more comparable to earnings estimates provided by securities analysts. Commodity derivative expense as stated in our consolidated statement of income for the second quarter of 2004 includes an unrealized increase in the fair value of our three-way collar contracts of $0.9 million, a realized loss of $6.9 million for our three-way collar contracts and a decrease in hedge ineffectiveness of $0.4 million associated with our cash flow hedges. A reconciliation of earnings stated without the effect of the unrealized commodity derivative transactions to net income is shown below: 2Q04 Net income $67.4 Unrealized commodity derivative (income) expense (1.3) Income tax provision adjustment for above item 0.5 Earnings stated without the effect of unrealized commodity derivative transactions $66.6 Net cash provided by operating activities before changes in operating assets and liabilities is presented because of its acceptance as an indicator of an oil and gas exploration and production company's ability to internally fund exploration and development activities and to service or incur additional debt. This measure should not be considered as an alternative to net cash provided by operating activities as defined by generally accepted accounting principles. A reconciliation of net cash provided by operating activities from continuing operations before changes in operating assets and liabilities to net cash provided by operating activities from continuing operations is shown below: 2Q04 2Q03 Net cash provided by operating activities from continuing operations $195.5 $215.8 Less: (Increase) decrease in operating assets and liabilities 10.4 36.9 Net cash provided by operating activities from continuing operations before changes in operating assets and liabilities $185.1 $178.9 1H04 1H03 Net cash provided by operating activities from continuing operations $414.3 $276.8 Less: (Increase) decrease in operating assets and liabilities 21.1 (76.5) Net cash provided by operating activities from continuing operations before changes in operating assets and liabilities $393.2 $353.3 Third Quarter 2004 Estimates Natural Gas Production and Pricing The Company's natural gas production in the third quarter of 2004 is expected to be 47 - 51 Bcf (510 - 560 MMcf/d). The price the Company realizes for natural gas production from the Gulf of Mexico and onshore Gulf Coast typically averages $0.15 - $0.20 less than Henry Hub Index after basis differentials, transportation and handling charges. Realized gas prices for our Mid-Continent properties typically average $0.70 - $0.80 less than Henry Hub Index after basis differentials, transportation and handing charges. Hedging gains or losses will affect price realizations. Crude Oil Production and Pricing Oil production in the third quarter of 2004 is expected to be 1.8 - 2.0 million barrels (19,000 - 21,000 BOPD). The price the Company receives for Gulf Coast production has typically averaged about $2 below the NYMEX West Texas Intermediate (WTI) price. Oil production from the Mid-Continent has typically sold at a $1.00 - $1.50 per barrel discount to WTI. Hedging gains or losses will affect price realizations. Lease Operating and Other Expenses LOE is expected to be $43 - $48 million ($0.72 - $0.80 per Mcfe) in the third quarter of 2004. Production taxes in the third quarter of 2004 are expected to be $12 - $14 million ($0.20 - $0.24 per Mcfe). These expenses vary and are subject to impact from, among other things, production volumes and commodity pricing, tax rates, service costs, the costs of goods and materials and workover activities. General and Administrative Expense G&A expense for the third quarter of 2004 is expected to be $17 - $19 million ($0.29 - $0.32 per Mcfe), net of capitalized direct internal costs. Capitalized G&A expense is expected to be $6 - $7 million. G&A expense includes stock and incentive compensation expense. Incentive compensation expense depends largely on net income. Interest Expense The non-capitalized portion of the Company's interest expense for the third quarter of 2004 is expected to be $6 - $7 million ($0.10 - $0.11 per Mcfe). As of July 26, 2004, borrowings under the Company's credit arrangements are $265 million. The remainder of long-term debt consists of three separate issuances of notes that in the aggregate total $550 million in principal amount. Capitalized interest for the third quarter of 2004 is expected to be about $5 - $7 million. Income Taxes Including both current and deferred taxes, the Company expects its consolidated income tax rate in the third quarter of 2004 to be about 35 - 39%. About 35% of the tax provision is expected to be deferred. The Company provides information regarding its outstanding hedging positions in its annual report and quarterly reports filed with the SEC and in its electronic publication -- @NFX. This publication can be found on Newfield's web page at http://www.newfld.com/ . Through the web page, you may elect to receive @NFX through e-mail distribution. Newfield Exploration Company is an independent crude oil and natural gas exploration and production company. The Company relies on a proven growth strategy that includes balancing acquisitions with drill bit opportunities. Newfield's areas of operation include the Gulf of Mexico, the U.S. onshore Gulf Coast, the Anadarko and Arkoma Basins and select international ventures. **The statements set forth in this release regarding estimated or anticipated third quarter results and production volumes are forward looking and are based upon assumptions and anticipated results that are subject to numerous uncertainties. Actual results may vary significantly from those anticipated due to many factors, including drilling results, oil and gas prices, industry conditions, the prices of goods and services, the availability of drilling rigs and other support services, the availability of capital resources, labor conditions and other factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. In addition, the drilling of oil and gas wells and the production of hydrocarbons are subject to governmental regulations and operating risks. Newfield Exploration Company For information, contact: 363 N. Sam Houston Parkway East, Ste. 2020 Steve Campbell Houston, TX 77060 (281) 847-6081 http://www.newfld.com/ CONSOLIDATED STATEMENT OF INCOME (unaudited, in thousands, except share and per share data) For the For the Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 Oil and gas revenues $ 282,737 $ 255,552 $ 588,092 $ 523,443 Operating expenses: Lease operating 28,965 26,917 58,830 54,724 Production and other taxes 9,094 7,463 17,453 17,670 Transportation 1,942 1,859 3,382 3,422 Depreciation, depletion and amortization 105,172 99,191 211,077 192,509 General and administrative (A) 19,061 15,190 37,621 32,196 Gas sales obligation settlement and redemption of securities --- 10,477 --- 20,475 Total operating expenses 164,234 161,097 328,363 320,996 Income from operations 118,503 94,455 259,729 202,447 Other income (expenses): Interest expense (11,935) (14,982) (24,467) (31,668) Capitalized interest 4,388 3,899 8,323 7,718 Dividends on convertible preferred securities of Newfield Financial Trust I --- (2,245) --- (4,581) Commodity derivative expense* (5,594) (1,629) (17,835) (2,846) Other 340 (9) 1,000 511 (12,801) (14,966) (32,979) (30,866) Income from continuing operations before income taxes 105,702 79,489 226,750 171,581 Income tax provision 38,288 26,434 81,428 59,180 Income from continuing operations 67,414 53,055 145,322 112,401 Loss from discontinued operations, net of tax --- (7,240) --- (8,020) Income before cumulative effect of change in accounting principle 67,414 45,815 145,322 104,381 Cumulative effect of change in accounting principle, net of tax** --- --- --- 5,575 Net income $ 67,414 $ 45,815 $ 145,322 $ 109,956 Earnings per share: Basic Income from continuing operations $ 1.20 $ 1.00 $ 2.59 $ 2.13 Loss from discontinued operations --- (0.14) --- (0.15) Cumulative effect of change in accounting principle, net of tax** --- --- --- 0.11 Net income $ 1.20 $ 0.86 $ 2.59 $ 2.09 Diluted Income from continuing operations $ 1.18 $ 0.95 $ 2.55 $ 2.02 Loss from discontinued operations --- (0.13) --- (0.14) Cumulative effect of change in accounting principle, net of tax** --- --- --- 0.10 Net income $ 1.18 $ 0.82 $ 2.55 $ 1.98 Weighted average number of shares outstanding for basic earnings per share 56,114 53,468 56,019 52,679 Weighted average number of shares outstanding for diluted earnings per share 57,029 57,701 56,884 56,956 (A) Includes non-cash stock compensation of $969 and $807 for the three months June 30, 2004 and 2003, respectively, and $1,960 and $1,486 for the six months ended June 30, 2004 and 2003, respectively. * Associated with SFAS No. 133. ** Associated with the adoption of SFAS No. 143. PRODUCTION DATA FROM CONTINUING OPERATIONS For the For the Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 Average daily production: Oil and condensate (Bbls) 15,629 17,356 16,312 17,104 Natural gas (Mcf) 521.4 513.8 524.9 501.4 Average realized price: Oil and condensate (Bbls) $ 34.18 $ 27.54 $ 32.87 $ 28.27 Natural gas (Mcf) $ 4.89 $ 4.50 $ 5.10 $ 4.77 CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited, in thousands of dollars) June 30, Dec. 31, 2004 2003 ASSETS Current assets: Cash and cash equivalents $ 27,853 $ 15,347 Accounts receivable, oil and gas 184,359 134,774 Inventories 3,664 553 Derivative assets* 12,031 13,786 Deferred taxes 25,431 12,893 Other current assets 43,371 61,563 Total current assets 296,709 238,916 Oil and gas properties, net (full cost method) 2,601,795 2,418,500 Floating production system and pipelines 35,000 35,000 Furniture, fixtures and equipment, net 5,369 5,875 Derivative assets* 3,228 2,223 Other assets 17,644 16,197 Goodwill 16,378 16,378 Total assets $ 2,976,123 $ 2,733,089 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 349,284 $ 255,522 Derivative liabilities* 81,693 44,696 Total current liabilities 430,977 300,218 Other liabilities 13,040 13,203 Derivative liabilities* 13,190 13,244 Long-term debt 579,559 643,459 Asset retirement obligation** 158,283 151,548 Deferred taxes 267,994 242,839 Total long-term liabilities 1,032,066 1,064,293 Commitments and contingencies --- --- STOCKHOLDERS' EQUITY Common stock 576 571 Additional paid-in capital 811,422 796,256 Treasury stock (27,081) (26,679) Unearned compensation (9,664) (10,912) Accumulated other comprehensive income (loss): Foreign currency translation adjustment 1,124 851 Commodity derivatives* (43,538) (26,428) Minimum pension liability (833) (833) Retained earnings 781,074 635,752 Total stockholders' equity 1,513,080 1,368,578 Total liabilities and stockholders' equity $ 2,976,123 $ 2,733,089 * Associated with SFAS No. 133. ** Associated with SFAS No. 143. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in thousands of dollars) For the For the Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 Cash flows from operating activities: Net income $ 67,414 $ 45,815 $ 145,322 $ 109,956 Loss from discontinued operations, net of tax --- 7,240 --- 8,020 Depreciation, depletion and amortization 105,172 99,191 211,077 192,509 Deferred taxes 12,781 13,710 25,340 23,600 Stock compensation 969 807 1,960 1,486 Commodity derivative (income) expense* (1,251) 1,629 9,511 2,846 Gas sales obligation settlement and redemption of securities --- 10,477 --- 20,475 Cumulative effect of change in accounting principle** --- --- --- (5,575) 185,085 178,869 393,210 353,317 Changes in operating assets and liabilities 10,448 36,897 21,051 (76,468) Net cash provided by continuing activities 195,533 215,766 414,261 276,849 Net cash provided by (used in) discontinued activities --- (3,911) --- 661 Net cash provided by operating activities 195,533 211,855 414,261 277,510 Cash flows from investing activities: Additions to oil and gas properties (200,351) (105,857) (347,409) (228,519) Additions to furniture, fixtures and equipment (957) (523) (1,659) (2,302) Net cash used in continuing activities (201,308) (106,380) (349,068) (230,821) Net cash used in discontinued activities --- (1,714) --- (3,155) Net cash used in investing activities (201,308) (108,094) (349,068) (233,976) Cash flows from financing activities: Proceeds from borrowings under credit arrangements 253,000 275,000 385,500 1,019,000 Repayments of borrowings under credit arrangements (244,000) (340,000) (446,500) (915,000) Repurchases of secured notes --- (25,726) (2,895) (59,595) Deliveries under the gas sales obligation --- --- --- (8,442) Proceeds from issuances of common stock 7,694 136,957 11,321 137,683 Repayments of secured notes --- --- --- (11,215) Gas sales obligation settlement --- --- --- (62,017) Purchases of treasury stock (31) (23) (402) (362) Redemption of trust preferred securities --- (148,448) --- (148,448) Net cash provided by (used in) continuing activities 16,663 (102,240) (52,976) (48,396) Net cash provided by (used in) discontinued activities --- --- --- --- Net cash provided by (used in) financing activities 16,663 (102,240) (52,976) (48,396) Effect of exchange rate changes on cash and cash equivalents 32 315 289 387 Increase (decrease) in cash and cash equivalents 10,920 1,836 12,506 (4,475) Cash and cash equivalents from continuing operations, beginning of period 16,933 35,951 15,347 33,798 Cash and cash equivalents from discontinued operations, beginning of period --- 6,636 --- 15,100 Cash and cash equivalents, end of period $ 27,853 $ 44,423 $ 27,853 $ 44,423 * Associated with SFAS No. 133. ** Associated with the adoption of SFAS No. 143. DATASOURCE: Newfield Exploration Company CONTACT: Steve Campbell of Newfield Exploration Company, +1-281-847-6081, or Web site: http://www.newfld.com/

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