Energy Prospectus

Stifel has raised their price target on NFX by $5.00 to $40.00. My valuation is $48.25.

Stifel: "Based on recently released data from the Oklahoma Tax Commission, we are updating our STACK and SCOOP type curves and increasing our risked NAV estimate 19% to $44/share. Taking into account NFX's strong well performance, potential future NAV upside, and its strong balance sheet, we are raising our target price 14% to $40/share."

As you can see from the comments below, Stifel's valuation is conservative as there are several assumption changes that will eventually increase the valuation to over $50/share. NFX is my Top Pick for STACK. NFX is now running ten rigs in STACK as it has become their #1 growth area. Those of you that own Gastar Exploration (GST) should read this report carefully since NFX's STACK directly offsets Gastar's leasehold. Send me an e-mail and I will forward it to you. - Dan dmsteffens@comcast.net

STACK Continues to Impress: After scrubbing/analyzing state production data recently released by the Oklahoma Tax Commission, NFX's STACK wells continue to trend in line to above our expectations. After adjusting our type curves based on the new data, NFX's 2H14-2H15 wells are on average in line to above our 950 MBoe type curve on an equivalent basis. Cumulative oil production for the 2H14, 1H15 and 2H15 vintages are all in line to above our oil type curve estimate while recent natural gas/NGL performance also continues to outperform our type curve. It's worth noting, our state-data based oil type curve conservatively remains on average 15% below management's published cumulative type curve through the first five years. Dissecting well performance by area, the majority of NFX's STACK acreage appears to be beating our 950 MBoe type curve for both oil and natural gas streams (note: our cumulative scatter plot excludes non-producing months, which likely makes our estimated cumulative production plot totals below actual output).

SCOOP Update: Newly released data confirms NFX's wet gas and oil SCOOP windows continue to trend in line with our estimates.

Three-Pronged STACK NAV Upside Possible: We see potential to add $13/share to our risked STACK NAV, increasing our risked NFX total NAV 30% to $57/share.

Cost Reductions: Well costs in 2016 are expected to average $7.3 million, down 12% y/y, but still 15% higher than projected full development costs ($6 million per well). Incorporating a $6.5 million well cost, our STACK NAV would increase 12% to $28/share.

Locations: Our NAV assumes 8 Meramec wells per 1,280 section, across 75% of the company's 230,000 net acres prospective for the Meramec. Throughout the play, XEC is testing 10 wells/section (five in upper and five in lower zones) while DVN is testing 8 wells/section in the Upper Meramec (excluding the Lower Meramec). If we were to increase our development
assumptions to 10 wells/section, our STACK NAV would increase 18% to $29/share.

Well Performance: Should well optimizations/improved performance justify a 10% increase to our type curve, our STACK NAV would increase 23% to $30/share.

Four of our Sweet 16 companies are very active in SCOOP and STACK. NFX, CLR, DVN and XEC

SCOOP / STACK has very strong well level economic, equal to or better than Tier 1 Eagle Ford and Permian Basin. Even at $40/bbl WTI the ROI's are very good.

Credit Suisse Research report on NFX.

Maintaining Flexibility Through the Cycle

■ Maintain Outperform: We maintain our Outperform rating and lower our TP
to $42/sh (from $43/sh) following NFX's 4Q15 earnings release and
subsequent equity issuance. We raise our 2016/2017 EPS estimates to
($0.24)/$0.99 from ($1.03)/$0.58 primarily reflecting lower DD&A expense,
and introduce our 2018 estimate of $2.07/sh.

■ Slowing Down but Keeping STACK Focus: NFX plans to execute a $725-
$775MM budget in 2016, below its previous $900MM maintenance capex
scenario and maintains focus on its core STACK operations. We project a
2% annual production decline, toward the high-end of the company's 2-5%
decline guidance, which implies ~8% U.S. onshore decline 4Q16/4Q15. NFX
raised its 30-day IP rate expectations to 1,122 boe/d (68% oil) and noted
continued outperformance from its 2015 STACK wells relative to its type
curve (See Figure 1). NFX now expects to exit 2016 with ~65% of its STACK
acreage HBP'ed, and exit 2017 with ~75% of the STACK HBP'ed, versus the
previous target of 100% HBP in 2017.

■ Shoring Up the Balance Sheet: The company raised ~$700MM of
proceeds via a 30MM share offering last week, giving the company additional
flexibility to manage through the cycle. Assuming the current strip, we
anticipate the company will exit 2016 with leverage at 2.6x TTM EBITDA, and
the company can resume growth (4Q17/4Q16) while maintaining leverage at
roughly 3x, without further capital infusion. The company continues to pursue
non-core asset sales to enhance liquidity.

■ Valuation: Our $42 TP implies 32% potential upside to the current price. On
multiples, NFX trades 15.7x 2016 and 12.1x 2017 (unhedged at the strip),
compared to the group at 17.1x and 13.1x, respectively.