Energy Prospectus

NFX Q1 Adjusted EPS came in 7 cents below my forecast. Operating results were good. Realized NGL prices were much lower than I had forecast.

For those of you that own Gastar (GST) you need to read carefully what NFX is saying about their Anadarko Basin results:
"Approximately 70% of the Company's planned capital investments in 2015 are being allocated to the Anadarko Basin SCOOP and STACK plays. SCOOP and STACK net production grew nearly 80% over the comparable quarter in 2014 and is expected to grow more than a 45% year-over-year." This area is now the #1 focus for NFX.

I have updated my forecast model for NFX and it will be posted to the website this evening.

I am increasing my Fair Value Estimate by $9.50/share to $62.50/share. Here is why:
> First quarter production exceeded my forecast.
> More important, the company confirmed their production guidance and their capital program. I now think they are on-track to hit the top of their production guidance, but my forecast model assumes the mid-point.
> 12% to 14% year-over-year production growth now locked in
> Stronger balance sheet due to equity and long-term debt sold in March
> Huge upside in Central Oklahoma where economic returns are good even at $60 oil
> All this justifies an increase from 6X to 7X CFPS multiple.

Upside to my forecast is that I now believe natural gas prices in 2016 could be much higher than what I am using in my forecast models. See the newsletter for why I believe this. NFX production mix in 2015 is 37% natural gas, 48% crude oil and 15% NGLs.

NOTE: Reported earnings for upstream companies that use the Full Cost Accounting Method are very distortive during periods of falling commodity prices. Think of the Ceiling Test writedown of the Full Cost Pool as "accelerated DD&A", a big non-cash charge to earnings. Focus on cash flow from operations. See the red box on the forecast model.