Energy Prospectus

For the third quarter of 2014, Newfield reported consolidated net income of $278 million, or $2.02 per diluted share (all per share amounts are on a diluted basis). Net income from continuing operations would have been $72 million, or $0.52 per share, excluding an unrealized gain on commodity derivatives of $323 million ($207 million after-tax), or $1.50 per share.

My forecast was Adjusted Earnings of $0.50/share. They beat my forecast because production was 6,700 boepd above my forecast, with both oil and NGL production above my forecast. This is a very good thing.

Third quarter consolidated net cash provided by operating activities before changes in operating assets and liabilities was $321 million. My forecast was for $291 million cash flow from operations.

An updated forecast model for NFX has been posted under the Sweet 16 Tab.

My Fair Value Estimate has increased $5.85/share to $58.35 (compare to First Call's Price Target of $44.08)

Take the time to see what NFX is saying about their SCOOP and STACK areas in Oklahoma and you will understand why I like it so much.

China sale should be announced soon.

Below are comments from the NFX conference call. My take on the Sweet 16 is that the market has not factored in the impact of the hedging programs these companies have in place. Today's stock prices are only justified if you assume oil prices are going lower (say to $60-$70 for Brent) and staying there. IMO the chances of that happening are 0% because at those prices oil supply will decline rapidly.

Here is what NFX had to say:

We have significantly hedged our oil production for 2015 and 2016, and recently added positions in 2017. Newfield has long believed in hedging as a proven way to mitigate risks to the business plan by ensuring cash flow and returns.

We are one of the most hedged companies in the peer group today, and our hedges are well above the current strip prices. Today, we are about 80% hedged for 2015, and have protected a $90 oil price. Our 2016 volumes are about 60% hedged at a similar price, and the recently added hedges in 2017 total about 20% of production, protecting a high-$80s oil price.

Our three-year plan is based on a $90 oil forecast. We estimate that a $10 drop in oil price would impact our 2015 cash flows by about $65 million. Again, illustrating our hedges go a long way to protect cash flow, and preserve the foundation of our three-year plan.

If oil prices navigate to an $80 world, service costs will undoubtedly reset. By design, we typically hedge forward a significant portion of our production over a two- to three-year period. This protects our returns while service costs reset and margins improve.

I believe NFX is going to announce the sale of their China assets for Big Bucks this quarter. I think the winning bid will be north of $1.5 Billion. That will SIGNIFICANTLY deleverage the company's balance sheet. - Dan

The cornerstone of this (the 2015 capital) program is the Anadarko Basin. The STACK and SCOOP plays have years of drilling inventory, and are providing us with 30% to 50% rates of return even at today's lower oil price. [This is great news for GST, CLR, XEC, DVN and UNT.]

Our hedges are very strong, and ensure that approximately 70% of our oil production over the next two years will get $90 price, without further deterioration. The foundation of our three-year plan is sound, and it will continue to be optimized as we adjust our plan to the market. We intend to deliver on our objectives.

Let me quickly update you on the sales process for China business. In August, we set our production facility at Pearl, and are today drilling development wells in the field. We expect to have first oil production in November. In early 2015, we expect the facility to produce at a peak gross rate of 40,000 barrels of oil per day.

We continue to work with our bid group to divest our China business, and anticipate resolution later this year. We will keep you informed on the progress of this sale