Newfield Exploration (NYSE:NFX) has recently issued its new three year production and spending plans that have disappointed inventors. Although the company’s shares sank after the guidance, the business is currently focused on its core operations, which have been going strongly, and is very optimistic about its future. The energy firm will considerably increase its output from Anadarko, one of its core operating areas, through 2016 as it plans to invest hundreds of millions each year in the region while it moves away from its international operations.
In the meantime, during the course of the next three years, Newfield Exploration will also focus on improving the shareholders’ returns. The company's shares have dropped by 9% this year to $24.30 and are currently trading at just 1.4 times their trailing sales.
- Warning! GuruFocus has detected 2 Warning Signs with NFX. Click here to check it out.
- NFX 15-Year Financial Data
- The intrinsic value of NFX
- Peter Lynch Chart of NFX
Next year, Newfield expects the production to be in the range of 44 million to 48 million barrels of oil equivalent (boe), which is going to show a growth of around 10% to 20% from the current year’s estimated production of 40 million boe. The new guidance still shows that the company is expecting double digit growth in 2014, which isn’t bad. However, investors were rightly disappointed as Newfield has tightened its forecast by lowering the higher-end and increasing the lower-end of the previous guidance. In its last quarterly results, the company pointed out that it was anticipating the production to be in the range of 43 million to 49 million boe in 2014.
Moreover, Newfield is now expecting a 30% increase in domestic oil production from 2013, as opposed to its previous expectations of 38% growth.
The details of the new guidance are presented in the picture below.
During a recent conference held a couple of weeks ago, Newfield Exploration’s CEO Lee Boothby pointed out the drop in the guidance was due to project delays. Specifically, Boothby talked about the delay experienced by HollyFrontier Corp (NYSE:HFC) in receiving the necessary permits for the expansion of the heavy crude processing project at Woods Cross refinery, located near the Salt Lake City. Both companies were hoping to get the permit in summer, but they received it last month.
Newfield signed a 10-year agreement with HollyFrontier in 2012 for the supplying 20,000 barrels of black and yellow wax crude oil daily from Uinta Basin.
HollyFrontier has now rescheduled the startup to late 2015 and Newfield will get the full capacity by 2016. This has caused a change in the oil volumes which the company will now move to Salt Lake City.
As shown in the picture above, Newfield will spend between $1.6 billion and $1.8 billion per year through 2016 as capital investment. In 2014, a significant portion of this expenditure, nearly $700 million, would be invested at Anadarko Basin. The region will be the focal point of Newfield’s capital expenditure in 2014.
On the back of this investment at Anadarko, Newfield is expecting 100% annual production growth in 2014 from the area. In 2014, production from this region, where the company holds 225,000 net acres, is expected to be 50,000 barrels of oil equivalent per day (boepd).The business will run eight drilling rigs here, at the SCOOP and STACK plays, both of which are its largest producing areas.
While nearly 44% of the 2014 capital expenditure would go towards Anadarko, the remaining will be invested at Uinta, Williston and Eagle Ford plays. At Uinta Basin, company will spend around $400 million and is expecting a 5% production growth in 2014. At Williston Basin, Newfield is targeting 40% growth on the back of $330 million investment on drilling around 40 to 50 wells. Lastly, nearly $170 million will be go towards Eagle Ford where Newfield will drill around 20 development wells while annual growth for 2014 is estimated to be around 30%
Over the long term, through 2016, Newfield is targeting more than 20% compounded annual growth rate (CAGR) in terms of liquids production. A significant portion of this growth is going to come from Anadarko. This is shown in the picture below.
Like its peers, ConocoPhillips (NYSE:COP) and Marathon Oil Corp. (NYSE:MRO), Newfield Corporation has been divesting from its international and less productive assets to increase its focus on its core assets mentioned above. The business will also exit from China by the end of 2014.
In the last two years, Newfield has sold $2 billion of international assets in the last two years, including the recent sale of the Malaysian assets to Malaysia’s oil company, SapuraKencana, for $898 million.
Disclosure: This article was written by Sarfaraz A. Khan, with valuable contribution from Gohar Yousuf, research assistant at Half Bridge Business Review. Neither Sarfaraz A. Khan, nor Gohar Yousuf have any positions in the stock(s) mentioned in this article.