NFX selling stock

[dan_s]

THE WOODLANDS, Texas, Feb. 25, 2016 /PRNewswire/ -- Newfield Exploration Company (NFX) today announced that it has commenced a registered underwritten public offering of 29,000,000 shares of its common stock. The underwriters intend to offer the shares from time to time for sale in one or more transactions on the New York Stock Exchange, in the over-the-counter market, through negotiated transactions or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. Newfield expects to grant the underwriters a 30-day option to purchase up to 4,350,000 additional shares of its common stock. The net proceeds from the offering will be used for general corporate purposes, which may include repaying outstanding borrowings under Newfield's credit facility and money market lines of credit, funding capital expenditures and working capital.

I hate the dilution, but the proceeds will more than fund the entire 2016 capital program. The improved balance sheet should justify a higher trading multiple.

I will update my valuation and forecast model.

[dan_s]

I have updated my forecast to include the increased share count and the obvious dilution of earnings and cash flows.

My valuations drops from $52/share to $48.10.

An argument can be made that the improved balance sheet ratios will justify a higher multiple of cash flow for the valuation. I remain very bullish on what Newfield has going up in Oklahoma. They have now completed over 50 horizontal stack wells and the results just keep getting better.

Just maybe they will use half of the proceeds to buy Gastar!!!!!!!!!!!!!

[mkarpoff]

Why would any Gst shareholder want that now when the most it could get at today's price is probably $1.50, or a little less?

[dan_s]

Because they would cash out the pfd stock at par and they would have to pay a premium to market for the common to get the GST board to approve the deal.

[setliff]

dan, do you have any reason to believe they would go after gst other than a wild hair thought?

[dan_s]

It is just my SWAG. NFX has made bolt on acquisitions in the past and Gastar's acreage is a classic "bolt on" at a much lower price than what leasehold is going for in STACK. Plus, Gastar would bring over 6,000 boepd of production and hundreds of P1 and P2 horizontal drilling locations in the play.

All of the large-caps have business development teams who's job it is to look for good acquisitions. I worked on one at Hess for three years.

Something else to keep in mind: There are dozens of venture capital firms that have $Billions who have teams looking at this sector. The logical first step in making a play to take over control of Gastar is to go into the market and buy up as much of their debt and preferred stock at today's depressed prices before they make a move on the company. That's what I'd do.

Go look at what Devon paid for Felix to get a nice block of STACK leasehold. If Gastar's STACK leasehold is worth half the price per acre, it is Screaming Buy at today's beaten down price.