Energy Prospectus

STACK results get better each quarter.

Newfield Exploration Reports Results for First Quarter 2016

- 1Q16 net domestic production of 13.5 MMBOE topped guidance mid-point by 0.5 MMBOE
- 1Q16 Anadarko Basin average net production topped 78,400 BOEPD
- Total oil production was up nearly 20% year-over-year; domestic oil production was up 8% year-over-year
- 1Q16 domestic lease operating expense per BOE was down nearly 40% year-over-year
- Adjusted 1Q16 diluted loss per share of $0.09
- Continued successful drilling in northern STACK, two infill spacing pilots planned for 2H16

"Newfield posted solid results for the first quarter and we are delivering on the objectives outlined in our near-term business plan," said Newfield Chairman Lee K. Boothby. "We have taken strategic steps to preserve liquidity and strengthen our balance sheet while reducing expenses across the organization. Despite today's backdrop of lower commodity prices, we are improving our margins and outlook on future returns – particularly in the Anadarko Basin (STACK) where well costs and margins continue to move in the right direction. Today, we raised our outlook for 2016 production and reiterated our guidance around lower operating expenses."

Newfield is planning to commence drilling later this year on two infill spacing pilots in STACK. The pilots will test well spacing and include multiple wells on single pad locations. If successful, these pilots could significantly increase the number of horizontal drilling locations within Newfield's STACK leasehold and significantly increase recoverable oil & gas in this world class play.

I will update the forecast model tonight.

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

The company has increased their production guidance, STACK keeps getting better results and their operating expense and completed well costs keep coming down. My valuation increases $4.25/share to $52.50, compared to First Call's Price Target of $39.44.

The big ceiling test impairment charge in Q1 lowers the DD&A rate going forward. With commodity prices improving there should not be more impairment charges and most of the proven reserve writedowns will come back on the books in the future, which will lower the DD&A rate even more. Just timing difference on non-cash charges, but it does have a big impact on reported earnings.

NFX is now generating cash flow from operations above their capital expenditure program. The equity raise in March shores up the balance sheet and they will be poised for production and reserve growth heading into 2017. STACK is the "real deal". Well economics are good at $40 oil and they are FANTASTIC at $60 oil.

NFX and Devon Energy (DVN) hold the best leasehold positions in STACK.

If you don't know much about SCOOP and STACK start learning. These are both World Class oil fields that will just keep getting bigger.

Stifel comments on May 4:

Following a solid quarter, we continue to like NFX's potential resource upside, strong balance sheet, and emerging top-tier
core asset base. As such, we are reiterating our Buy rating and $40 target price.

1Q16 Beats Consensus, FY16 Production Guidance Boosted: NFX reported
1Q16 EPS/CFPS of ($0.09)/$0.96, below our estimates of ($0.04)/$1.00 but above
consensus of ($0.11)/$0.95. Higher production (4%) and lower per unit LOE
(-12%), G&A (-4%) and production taxes (-6%) were offset by a lower composite
realized price (-6%) (Exhibit 1). The domestic production mix stayed relatively
constant sequentially (Exhibit 2). NFX increased its domestic FY16 production
guidance 2% (or 1 MMBoe, at the mid-point) to 51-52 MMBoe and its total
company guidance 2.2% (or 1.2 MMBoe, at the mid-point) to 54.5-56.5 MMBoe.
Strong Early-Time Results in Northern STACK Region: NFX completed 12 new
STACK wells during 1Q16, all located in the northern portion of its acreage in
Kingfisher and Blaine Counties, OK (Exhibit 3). Despite moving away from its core
to the northernmost portion of its acreage, management reported the 12 new 1Q16
wells had an average 30/60/90-day IP of 1,067/980/991 Boe/d, which is
-5%/-6%/+3% versus its 2015 averages and 0%/8%/45% above the type curve
underpinning our NAV. The 12 new well's 30-day rate was directly in line with our
type curve, but exhibited an oil cut of 69%, well above our type curve estimate of
only 59%.
STACK Pilots Upcoming, NAV Upside Visible: NFX's competitors are currently
in various stages of Meramec pilots: On 5/3/16, DVN announced successful initial
results from its two-well staggered Meramec pilot (Exhibit 4) and plans to test
8-wells/unit in the primary Meramec interval; XEC is drilling its 19 well spacing pilot
- 10 Meramec and 9 Woodford per section (Exhibit 5). With NFX focused on
HBP'ing its STACK acreage it had previously chosen to defer spacing tests.
However, management announced today it plans to commence its own spacing
tests during 2H16 (while remaining within its previously disclosed FY16 capital
budget). We believe positive results from future tests could provide insight
regarding optimum spacing and ultimate inventory across NFX's acreage. Should
NFX complete a successful test of 10 Meramec wells per section (similar to XEC's
test), which is more than the 8-wells/section currently in our NAV (Exhibit 6), we
see a potential $5.50/share, or 13%, upside to our current risked NAV.
Furthermore, recent STACK well costs have been as low as $6.9 million, below our
$7.3 million estimate. Incorporating a $6.9 million well cost into our NAV would
increase our total NAV 4% to $44/share.