Bloomberg News

Newfield Exploration Drops as Production Forecast Cut

October 20, 2011

(Updates with closing share price in second paragraph.)

Oct. 20 (Bloomberg) -- Newfield Exploration Co., the petroleum producer with properties from the U.S. Rocky Mountains to China, had its biggest drop in almost three years after cutting its production forecast and missing third-quarter estimates.

Newfield, based in The Woodlands, Texas, fell 15 percent to $35.81 at the close in New York. Earlier the stock fell as much as 18 percent, the largest intraday decline since November 2008. The shares have dropped 50 percent this year.

The company reduced its production outlook for 2011 to the equivalent of 300 billion cubic feet to 304 billion cubic feet of natural gas, from a previous range of 312 billion cubic feet to 316 billion cubic feet, according to a statement issued late yesterday. Newfield reiterated its $1.9 billion spending plan and said cash flow will remain a guide for its capital program.

“It doesn’t sound like they’re resource-constrained, it’s more of they are trying to employ a very disciplined program,” said Michael McAllister, an analyst at Sterne Agee in New York who has a “neutral” on Newfield shares and owns none. “When you buy an E&P company, unfortunately, you’re not buying it for capital discipline most of the time.”

Production was affected by increasing service costs that prompted the company to cut back drilling in North Dakota’s Williston Basin. Newfield has reduced its rig count in the basin and is delaying the completion of 13 wells until early 2012.

Adverse Weather

Asset sales, adverse weather in the Gulf of Mexico and reduced spending in some areas also contributed to the lower production forecast, the company said.

The company said sales of “non-strategic” assets have reached $200 million this year and it plans additional deals to bring it to $400 million to $550 million in proceeds by the end of 2011. Further asset sales are possible in 2012, Chairman and Chief Executive Officer Lee Boothby said on a conference call with analysts and investors today.

He said the company will seek higher margins and cash flow over absolute production growth. Boothby said the company could have chosen to spend more to hit its output goal.

“We thought a more prudent decision at this point is to adjust our program, start repositioning assets within the corporation to the 2012 game plan, and we’re doing that as we speak,” Boothby said.

Newfield has been seeking to increase its oil output as natural gas traded in New York has averaged less than $5 per million British thermal units in 11 straight quarters.

‘Lost Confidence’

The company needs to regain some “lost confidence” that it can increase production at a reasonable cost as it transitions to more oil output, said Leo Mariani, an analyst at RBC Capital Markets in Austin, Texas, who has an “outperform” rating on Newfield and doesn’t own any shares.

Third-quarter net income rose 67 percent to $269 million, or $1.99 a share, compared with $161 million, or $1.20 a share, from the same period a year ago, the company said. Profit included a $129 million after-tax gain related to energy contracts that boosted quarterly earnings by 95 cents a share.

Excluding the one-time gain, Newfield’s profit was $1.04 a share, 12 cents less than the average of 26 analysts’ estimates compiled by Bloomberg.

--Editors: Charles Siler, Jasmina Kelemen

To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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