Newfield Exploration (NFX) Q2 Results

[dan_s]

Second Quarter 2018 Highlights

For the second quarter, the Company recorded net income of $119 million, or $0.59 per diluted share (all per share amounts are on a diluted basis). Earnings were impacted by an unrealized derivative loss of $78 million, or $0.39 per share, and a gain from a favorable legal settlement of $8 million, or $0.04 per share. After adjusting for the effects of the unrealized derivative loss and legal settlement during the period, net income would have been $189 million, or $0.94 per share. < This compares to my Q2 forecast of $0.79 EPS.

•Domestic and Anadarko Basin net production exceeded the high-end of the Company's guidance ranges. Second quarter 2018 domestic net production was 186,700 BOEPD (39% oil and 62% liquids). Stronger than expected production results were driven primarily by the Anadarko Basin which averaged 131,100 BOEPD (mid-point of guidance was 123,000 BOEPD), an increase of 13% relative to the prior quarter and approximately 48% year-over-year. Second quarter average net liquids production in the Anadarko Basin grew approximately 15% relative to the prior quarter to over 80,000 BOEPD. The Company's net crude oil production from the Anadarko Basin averaged over 42,000 BOPD (up more than 40% year-over-year), in line with guidance.
•Consolidated production for the second quarter of 2018 was approximately 195,300 BOEPD (42% oil, and 64% liquids). The Company lifted 782,000 net barrels from its offshore oil field in China. < Compares to my Q2 forecast of 179,500 Boepd
•Second quarter 2018 capital investments were $365 million, or approximately $5 million above original guidance. For the full-year 2018, the Company increased its capital budget by approximately 4% to $1.35 billion, excluding capitalized interest and overhead costs of approximately $114 million.
•Realized prices for crude oil and NGLs remained stable relative to the prior quarter. Specifically, STACK realized crude oil prices during the quarter averaged 100% of NYMEX WTI. Domestic natural gas prices in the quarter averaged approximately 79% of Henry Hub pricing.
•During the second quarter, discretionary cash flow exceeded capital investments by $11 million. As a result, available liquidity expanded to $2.4 billion ($2 billion in undrawn credit facility, $125 million money market lines of credit and nearly $300 million of available cash on hand). Additionally, the Company's ratio of Net Debt to adjusted EBITDA decreased to 1.7x as of June 30, 2018. This is ahead of the prior guidance of decreasing the ratio below 1.8x by year-end 2018. The Company remains focused on further improving its credit profile and reaching sustainable positive free cash flow generation.
•The Company continues to advance its Sycamore, Caney, Osage, Resource Expansion (SCORE) initiative. Recent positive drilling results were released in Northwest STACK, located in northeast Dewey County, Oklahoma, where the Company holds approximately 24,000 net acres (>70% operated). Results on several recent wells can be found in @NFX. By year-end, over 80% of this position is expected to be HBP.
•In the Williston Basin, Newfield's net production in the quarter averaged 21,000 BOEPD. Importantly, the Williston Basin program is expected to deliver discretionary cash flow that exceeds capital expenditures by more than $130 million at today's strip oil prices. Uinta Basin net production averaged approximately 21,000 BOEPD during the quarter.

[dan_s]

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

My valuation increases by $0.50 to $53.50 and I could justify a much higher valuation.
1. NFX has a strong balance sheet
2. Production growth of ~24% YOY is now being totally funded by cash flow from operations
3. They have lots of running room in STACK where well results continue to be impressive

Two Wall Street firms have submitted new reports to Reuters/First Call since the company released Q2 results. They both rate NFX a BUY with price target of $44 and $48 per share.

NFX is currently trading at ~$27.50/share.

[bobs]

lots of positives yet stock dropped off which seems to be the case often in the upstream sector??

[dan_s]

All I can to is tell you guys what I see. Sometimes it does take a few days or weeks for this stuff to sink in. There is so much information coming in that it is like trying to drink water from a fire hose.

As I posted earlier, I was interviewed for over 30 minutes today by a West Coast radio show. The average investor has lots of "fear" and worst of all they believe that these companies can only make money if oil goes back to $100/bbl. They also don't understand how tight the global oil market really is.

All of you guys need to read the new Raymond James report. Send me an email and I will forward it to you. dmsteffens@comcast.net.