Newfield Exploration (NFX) Update - May 4

[dan_s]

I have updated my forecast/valuation model for NFX. It will be posted to the EPG website later today.

My valuation goes up by $3.00/share to $55.00/share, primarily because I have increased the oil price forecast for all future periods (assuming $65 WTI now). I have lowered the natural gas and NGL prices for future periods to what I believe are very conservative levels.

Newfield's Q1 results beat First Call's and my forecast. The only negative that I can figure out that might explain the share price moving lower is that they announced some "gassy" wells in the far western side of their STACK leasehold. Those wells were drilled and completed to HBP leasehold and Newfield made it clear that they don't plan on drilling more wells out there. Plus, despite being gassy, they had very strong initial production and should generate positive earnings and cash flow.

Newfield should fund 100% of this year's capital program with cash flow from operations. Production should be up 17% to 18% YOY and they have now significantly de-risked their 3-year plan.

I am using a multiple of 8X operating CFPS to value NFX. That is a low multiple for a company with 15% to 20% annual production growth locked in and many years of running room.

First Call's price target is $36.00/share, but none of the forecasts submitted to Reuters have been updated for Q1 results.

If you own NFX, I urge you to listen to the Q1 conference call and report back to us what you think. I sure didn't hear anything negative that would make me adjust my forecast model.

I have been following NFX and modeling it for many years (at least five). It never seems to get the "love" that it deserves from Wall Street.

[dan_s]

In the last 3 months, 12 ranked analysts set 12-month price targets for NFX. The average price target among the analysts is $36.08.