Newfield Exploration Lays An Egg

By Eric Fox | October 29, 2012 AAA

Newfield Exploration Company (NYSE:NFX) reported continued progress on the development of various domestic resource plays during the third quarter of 2012, but the stock was nevertheless crushed by investors after the company disclosed that oil production from its international operations will decline in 2013.

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International Operations
Newfield Exploration has interests in Malaysia and China and reported net production of 36,000 barrels of oil equivalent (BOE) per day from its International portfolio as of late October 2012. During the earnings conference call, the management of Newfield Exploration said that international oil volumes in 2013 would decline up to 25% from 2012 levels.

Newfield Exploration said that the expected decline in net production volumes in 2013 was due to accelerated oil production from the company's Malaysian oil fields as well as higher than expected realized oil prices in 2012. Newfield Exploration's net production levels in 2013 are determined by production sharing contracts, and the accelerated production will reduce the company's share next year.

Newfield Exploration expects production growth to resume the following year as the company's Pearl oil project in offshore China comes on line in 2014. The company expects peak net production here to reach 15,000 barrels of oil per day.

Investors were not happy with the decline in International oil volumes and punished Newfield Exploration after the earnings report was released, sending the stock down 17%.

SEE: Oil And Gas Industry Primer

Domestic Plays
Newfield Exploration also disclosed updated operational results on its domestic plays during the third quarter of 2012. The company completed its first horizontal well into the Hogshooter Wash and reported an initial production rate of 5,045 BOE per day, with 90% of the production composed of oil and liquids.

While this was certainly a productive well, it was well below the production rate of a Hogshooter well completed by Chesapeake Energy (NYSE:CHK) in June 2012. The company reported an average production rate of 7,350 BOE per day on this well during the first eight days, and 5,100 BOE per day after two months of production. Newfield Exploration also progressed on its development programs targeting the Bakken play, the Eagle Ford Shale, Woodford Shale and in the Uinta Basin during the third quarter of 2012.

SEE: A Guide To Investing In Oil Markets

Other Malaysian Operators
Other exploration and production companies with operations in Malaysia include Murphy Oil (NYSE:MUR), which has 25% of its total estimated resource base in this country. The company has production from six development projects starting up over the next 12 months and plans to drill two exploration wells in the final months of 2012.

Talisman Energy (NYSE:TLM) has interests in various offshore blocks and reported net production of 36,000 BOE per day from Malaysia at the end of 2011. The company is scheduled to become operator of the Kinabalu project in December 2012 and has exploration prospects across its Malaysian portfolio.

The Bottom Line
Shareholders of Newfield Exploration were not happy with the company's International operations in the third quarter of 2012 earnings report, despite continued progress in the development of domestic plays. Investors should investigate whether the selloff is a good opportunity to initiate or add to a position in this company.

At the time of writing, Eric Fox did not own any shares in any company mentioned in this article.

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