NFX Earnings Call

[wilmawatts]

Newfield Exploration (NFX) had an earnings call last week, they are a direct play on the Oklahoma STACK and SCOOP. The following are takeaways from the call:

1. NFX exceeded production estimates by 6,000 BOE/D in the first quarter, always good to see. And increased their production forecast for the year. Well results they are reporting are outstanding.

2. The strategy to maximize net present value in the STACK is a function of spacing density, well completion technology, horizontal length, target formation and the like. Management noted that more sand, more liquid, and higher densities tended to increase returns. It takes time to evaluate the results and cost/benefit well design relationships.

3. The STACK and SCOOP have multiple zone potential, much like the Permian. Much of the upside potential is being evaluated by NFX and the players in the area. CLR and DVN have also had some very impressive well results in the prospect.

4. Water is an issue in the STACK. NFX has built a water recycling and treatment facility as well as added to the product pipeline takeaway capacity which should give them a competitive advantage.

5. From the numbers the STACK is one of the most economically viable plays in the U.S. at this point, along with the Permian. The bulk of NFX capital expenditures will go to STACK and SCOOP development.

6. The type curves are improving with the completion technology and well design, increasing recoveries and ultimately the discounted net present value. Some of the upsized completions have very impressive results, much better than forecast, but need time to produce over to see how much better the wells will ultimately preform compared to forecast.

7. For frac sand companies, Newfield is now completing their super extended reach (“SXL”) STACK wells with an average of 10 million pounds of sand per well. This is not your parent’s oil and gas well.

8. Q1 results were ‘pretty spectacular’ according to management. We would agree with that assessment. As they go forward to development mode based on a viable plan to maximize net present value the efficiencies should continue to improve.

[wilmawatts]

I am long here. Pleased with the operational results but not the share price.

But hey, longer term the trend in production and the trend in share price should track each other.

[dan_s]

My valuation of NFX is $72.00/share. They have their offshore China assets for sale. That sale will shore up the balance sheet and help define the company as almost a pure play on STACK.

NFX has been active in Central Oklahoma for decades. They have outstanding technical people.