NFX: My take on 4th quarter results and CC
Posted: Thu Feb 17, 2011 5:24 pm
Below is a portion of my report that will appear in the next "Sweet 16 Detailed Update". Normally, I would send this out as an "EPG Special Report" to our members. Since Kim is traveling, I thought it important enough to post here. My updated forecast model should be available on the website (under the Sweet 16 Tab) tomorrow. - Dan
Newfield Exploration (NYSE: NFX) has significant growth potential with its existing asset base and the operating cash flow to grow without adding more debt. The company’s core asset is Greater Monument Butte Field in Utah’s Uinta Basin.
Newfield also has long-term growth potential in several major liquids rich resource plays; the Bakken Shale, Granite Wash, “Oily” Woodford Shale and the Eagle Ford Shale. They currently hold a large (280,000 acre) position in the new Alberta Basin Bakken / Three Forks play in western Montana.
• My Fair Value estimate for NFX to $82/share. See my forecast under the Sweet-16 tab for details.
• What I like the most about Newfield is that they have the flexibility within their existing asset base to shift capital between liquids and natural gas development projects.
The company’s 4th quarter earnings of only 17 cents per share were disappointing to the market on the surface. I believe the resulting dip in share price gives investors and attractive entry point.
Several onetime accounting adjustments (primarily the mark-to-market adjustment on their hedges) and an increase in their DD&A rate cause them to miss analysts’ forecast earnings. Earnings per share are overrated. My focus continues to be on cash flow per share. Newfield’s 4th quarter operating cash flows came in above my forecast for CFPS.
• Newfield generated ~$12.15 per share of operating cash flow in 2010.
• Based on my updated forecast model, the company should generate over $13.50 per share in operating cash flows in 2011, which is more than enough to cover their 2011 capital budget.
Newfield is focused on increasing liquids production
Newfield has allotted $1.7 billion for capital spending for 2011, marginally lower than the 2010 level of $1.83 billion. The 2011 spend on capital is more skewed toward oil, as 67% of the planned expenses are for oil projects with the balance in the liquid rich gas business.
Newfield expects 2011 production to outstrip levels achieved in 2010. More important to us, they are expecting a 50% increase in domestic oil production. The company expects production in 2011 to range from 312–323 billion cubic feet equivalent (Bcfe), exceeding 2010 levels by 8-10%.
Newfield also announced that its proved oil reserves at year-end 2010 totaled more than 200 MMBbls, a 20% increase over year-end 2009 proved oil reserves. The significant rise in the quantity of proved oil reserves contributed to more than an 80% increase in the present value of Newfield's proved reserves, discounted at 10%, (PV-10 Value), which totaled $6.8 billion at year-end 2010.
NFX has ~1.5 Tcfe of “proven” reserves that are not included in their year-end reserves because, under current plans, won’t be developed within five years. Today’s accounting rules exclude these reserves from the present value calculation as well.
Newfield Exploration (NYSE: NFX) has significant growth potential with its existing asset base and the operating cash flow to grow without adding more debt. The company’s core asset is Greater Monument Butte Field in Utah’s Uinta Basin.
Newfield also has long-term growth potential in several major liquids rich resource plays; the Bakken Shale, Granite Wash, “Oily” Woodford Shale and the Eagle Ford Shale. They currently hold a large (280,000 acre) position in the new Alberta Basin Bakken / Three Forks play in western Montana.
• My Fair Value estimate for NFX to $82/share. See my forecast under the Sweet-16 tab for details.
• What I like the most about Newfield is that they have the flexibility within their existing asset base to shift capital between liquids and natural gas development projects.
The company’s 4th quarter earnings of only 17 cents per share were disappointing to the market on the surface. I believe the resulting dip in share price gives investors and attractive entry point.
Several onetime accounting adjustments (primarily the mark-to-market adjustment on their hedges) and an increase in their DD&A rate cause them to miss analysts’ forecast earnings. Earnings per share are overrated. My focus continues to be on cash flow per share. Newfield’s 4th quarter operating cash flows came in above my forecast for CFPS.
• Newfield generated ~$12.15 per share of operating cash flow in 2010.
• Based on my updated forecast model, the company should generate over $13.50 per share in operating cash flows in 2011, which is more than enough to cover their 2011 capital budget.
Newfield is focused on increasing liquids production
Newfield has allotted $1.7 billion for capital spending for 2011, marginally lower than the 2010 level of $1.83 billion. The 2011 spend on capital is more skewed toward oil, as 67% of the planned expenses are for oil projects with the balance in the liquid rich gas business.
Newfield expects 2011 production to outstrip levels achieved in 2010. More important to us, they are expecting a 50% increase in domestic oil production. The company expects production in 2011 to range from 312–323 billion cubic feet equivalent (Bcfe), exceeding 2010 levels by 8-10%.
Newfield also announced that its proved oil reserves at year-end 2010 totaled more than 200 MMBbls, a 20% increase over year-end 2009 proved oil reserves. The significant rise in the quantity of proved oil reserves contributed to more than an 80% increase in the present value of Newfield's proved reserves, discounted at 10%, (PV-10 Value), which totaled $6.8 billion at year-end 2010.
NFX has ~1.5 Tcfe of “proven” reserves that are not included in their year-end reserves because, under current plans, won’t be developed within five years. Today’s accounting rules exclude these reserves from the present value calculation as well.