Newfield Reports Third Quarter 2008 Financial Results
2009 Capital Spending Plans Aligned with Estimated Cash Flow
FOR IMMEDIATE RELEASE
Houston – October 21, 2008 – Newfield Exploration Company (NYSE: NFX) today reported third quarter 2008 financial and operating results. Newfield will be hosting a conference call at 3:30 p.m. CDT, Wednesday, October 22. To participate in the call, dial 719-325-2179 or listen through the website at http://www.newfield.com.
Third Quarter 2008
Newfield’s production in the third quarter of 2008 was 61.4 Bcfe. Production during the third quarter reflects the impact of the deferral of more than 2 Bcfe of production as a result of recent storms in the Gulf of Mexico. Based on the pace of storm recovery, Newfield was today able to slightly increase its full-year 2008 expected range of production to 235-238 Bcfe, an increase of approximately 25% over 2007 pro forma production (adjusted for asset sales and acquisitions). Previous guidance was 234-238 Bcfe.
For the third quarter of 2008, Newfield reported net income of $724 million, or $5.48 per diluted share (all per share amounts are on a diluted basis). Income for the third quarter of 2008 includes a net unrealized gain on commodity derivatives of $846 million ($589 million after-tax), or $4.46 per share.
Without the effect of this item, net income was $135 million, or $1.02 per share.
Revenues in the third quarter of 2008 were $680 million. Net cash provided by operating activities before changes in operating assets and liabilities was $396 million. See “Explanation and Reconciliation of Non-GAAP Financial Measures” found after the financial statements in this release.
Capital Investments, Financial Update
“Both operationally and financially, Newfield is performing very well in 2008,” said David Trice, Chairman, President and CEO. “Unfortunately, the realities of today’s broader markets have shifted investor focus away from most traditional valuation metrics. Over the last 20 years, we have weathered many cycles and each time have relied on our strong balance sheet, hedging, ample access to liquidity and the proven track record of our management team. We are focused on what matters in 2009. We will fund the best projects. Our reduction in 2009 planned capital expenditures, $450 million less than our initial planned capital expenditures, will help ensure that we balance current growth expectations with our consistent goal of building long-term value for our shareholders. We have a diverse portfolio of assets which provide us with multiple options in today’s environment.”
Capital expenditures in the third quarter of 2008 were $514 million. Newfield reiterated that it expects 2008 capital investments to total approximately $2.2 billion, which includes a $226 million acquisition in the first half of the year.
Newfield today disclosed a significant reduction in its planned spending levels in 2009. For 2009, Newfield plans to invest $1.65 billion --- matching its capital budget with cash flow expectations. The 2009 budget includes approximately $100 million for capitalized interest and overhead. This reduced budget compares to preliminary guidance of approximately $2.1 billion (including capitalized interest and overhead), announced on September 9, 2008. Newfield expects 8-13% production growth in 2009, or a range of 255-267 Bcfe. A detailed budget overview will be presented during Newfield’s conference call with analysts and investors at 3:30 p.m. CDT, October 22, 2008.
For 2009, Newfield has hedged nearly 60% of its expected natural gas production and about 90% of expected domestic oil production. These hedge positions, which help ensure cash flow in 2009, are detailed in the Company’s @NFX publication on the Company’s website.
Newfield has a $1.25 billion credit revolver funded through 18 financial institutions. The largest commitment by a member of the syndicate of financial institutions is 8% of the facility. At the end of the third quarter, Newfield had $285 million of outstanding borrowings under the facility.
For an operational update on Newfield’s focus areas, please see the @NFX publication on the Company’s website.
The Company provides information regarding its outstanding hedging positions in its annual and quarterly reports filed with the SEC and in its electronic publication -- @NFX. This publication can be found on Newfield’s web page at http://www.newfield.com. Through the web page, you may elect to receive @NFX through e-mail distribution.
Newfield Exploration Company is an independent crude oil and natural gas exploration and production company. The Company relies on a proven growth strategy of growing reserves through an active drilling program and select acquisitions. Newfield's domestic areas of operation include the Anadarko and Arkoma Basins of the Mid-Continent, the Rocky Mountains, onshore Texas and the Gulf of Mexico. The Company has international operations in Malaysia and China.
**This release contains forward-looking information. All information other than historical facts included in this release, such as information regarding estimated or anticipated fourth quarter 2008 results, estimated full-year 2008 production, estimated 2009 capital expenditures, cash flow and production growth, drilling and development plans and the timing of activities, is forward-looking information. Although Newfield believes that these expectations are reasonable, this information is based upon assumptions and anticipated results that are subject to numerous uncertainties and risks. Actual results may vary significantly from those anticipated due to many factors, including drilling results, oil and gas prices, industry conditions, the prices of goods and services, the availability of drilling rigs and other support services, the availability of refining capacity for the crude oil Newfield produces from its Monument Butte field in Utah, the availability of capital resources, labor conditions and severe weather conditions (such as hurricanes). In addition, the drilling of oil and gas wells and the production of hydrocarbons are subject to governmental regulations and operating risks.
For information, contact:
Investor Relations: Steve Campbell (281) 847-6081
Media Relations: Keith Schmidt (281) 674-2650
Email: info@newfield.com
3Q08 Actual Results
| | | 3Q08 Actual | |
| | | Domestic | | | Int’l | | | Total | |
| Production/Liftings* | | | | | | | | | |
| Natural gas – Bcf | | | 44.9 | | | | – | | | | 44.9 | |
| Oil and condensate – MMBbl | | | 1.6 | | | | 1.1 | | | | 2.7 | |
| Total Bcfe | | | 54.7 | | | | 6.7 | | | | 61.4 | |
| | | | | | | | | | | | | |
Average Realized Prices Note 1 | | | | | | | | | | | | |
| Natural gas – $/Mcf | | $ | 7.25 | | | $ | – | | | $ | 7.25 | |
| Oil and condensate – $/Bbl | | $ | 70.57 | | | $ | 106.87 | | | $ | 85.44 | |
| Mcf equivalent – $/Mcfe | | $ | 8.05 | | | $ | 17.81 | | | $ | 9.12 | |
| | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | |
| Lease operating | | | | | | | | | | | | |
| Recurring ($MM) | | $ | 44.8 | | | $ | 13.1 | | | $ | 57.9 | |
| per/Mcfe | | $ | 0.82 | | | $ | 1.94 | | | $ | 0.94 | |
| Major ($MM) | | $ | 9.5 | | | $ | – | | | $ | 9.5 | |
| per/Mcfe | | $ | 0.17 | | | $ | – | | | $ | 0.16 | |
| | | | | | | | | | | | | |
| Production and other taxes ($MM) | | $ | 20.5 | | | $ | 30.1 | | | $ | 50.6 | |
| per/Mcfe | | $ | 0.38 | | | $ | 4.46 | | | $ | 0.82 | |
| | | | | | | | | | | | | |
| General and administrative (G&A), net ($MM) | | $ | 34.6 | | | $ | 1.5 | | | $ | 36.1 | |
| per/Mcfe | | $ | 0.63 | | | $ | 0.23 | | | $ | 0.59 | |
| | | | | | | | | | | | | |
| Capitalized G&A ($MM) | | | | | | | | | | $ | (17.9 | ) |
| per/Mcfe | | | | | | | | | | $ | (0.29 | ) |
| | | | | | | | | | | | | |
| Interest expense ($MM) | | | | | | | | | | $ | 36.2 | |
| per/Mcfe | | | | | | | | | | $ | 0.59 | |
| | | | | | | | | | | | | |
| Capitalized interest ($MM) | | | | | | | | | | $ | (16.8 | ) |
| per/Mcfe | | | | | | | | | | $ | (0.27 | ) |
| | | | | | | | | | | | | |
*Reflects approximately 2 Bcfe of deferred domestic gas production related to GOM storms. Note 1: Actual average realized prices include the effects of hedging contracts. If the effects of these contracts were excluded, the average realized price for total gas would have been $8.67 per Mcf and the total oil and condensate average realized price would have been $106.04 per barrel. | |
4Q08 Estimates
| | | 4Q08 Estimates | |
| | | Domestic | | | Int’l | | | Total | |
| Production/Liftings* | | | | | | | | | |
| Natural gas – Bcf | | | 42.0 – 44.2 | | | | – | | | | 42.0 – 44.2 | |
| Oil and condensate – MMBbl | | | 1.8 – 1.9 | | | | 1.4 – 1.5 | | | | 3.2 – 3.4 | |
| Total Bcfe | | | 52.8 – 54.6 | | | | 8.3 – 8.7 | | | | 61.1 – 63.3 | |
| | | | | | | | | | | | | |
| Average Realized Prices | | | | | | | | | | | | |
| Natural gas – $/Mcf | | Note 1 | | | | | | | | | |
| Oil and condensate – $/Bbl | | Note 2 | | | Note 3 | | | | | |
| Mcf equivalent – $/Mcfe | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | |
| Lease operating | | | | | | | | | | | | |
| Recurring ($MM) | | $ | 39.4 - $43.6 | | | $ | 13.3 - $14.7 | | | $ | 52.7 - $58.3 | |
| per/Mcfe | | $ | 0.75 - $0.80 | | | $ | 1.60 - $1.69 | | | $ | 0.86 - $0.92 | |
| Major (workover, repairs, etc.) ($MM) | | $ | 8.3 - $9.1 | | | $ | 0.7 - $0.8 | | | $ | 9.0 - $9.9 | |
| per/Mcfe | | $ | 0.16 - $0.17 | | | $ | 0.08 - $0.09 | | | $ | 0.14 - $0.16 | |
| | | | | | | | | | | | | |
Production and other taxes ($MM)Note 4 | | $ | 19.7 - $21.8 | | | $ | 15.8 - $17.5 | | | $ | 35.5 - $39.3 | |
| per/Mcfe | | $ | 0.37 - $0.40 | | | $ | 1.90 - $2.00 | | | $ | 0.58 - $0.62 | |
| | | | | | | | | | | | | |
| General and administrative (G&A), net ($MM) | | $ | 35.4 - $39.1 | | | $ | 1.5 - $1.7 | | | $ | 36.9 - $40.8 | |
| per/Mcfe | | $ | 0.67 - $0.72 | | | $ | 0.18 - $0.20 | | | $ | 0.60 - $0.64 | |
| | | | | | | | | | | | | |
| Capitalized G&A ($MM) | | | | | | | | | | $ | (17.2 - $19.1 | ) |
| per/Mcfe | | | | | | | | | | $ | (0.28 - $0.30 | ) |
| | | | | | | | | | | | | |
| Interest expense ($MM) | | | | | | | | | | $ | 32.0 - $36.0 | |
| per/Mcfe | | | | | | | | | | $ | 0.52 - $0.57 | |
| | | | | | | | | | | | | |
| Capitalized interest ($MM) | | | | | | | | | | $ | (15.0 - $17.0 | ) |
| per/Mcfe | | | | | | | | | | $ | (0.25 - $0.27 | ) |
| | | | | | | | | | | | | |
Tax rate (%)Note 5 | | | | | | | | | | | 37 - 40 | % |
| | | | | | | | | | | | | |
| Income taxes (%) | | | | | | | | | | | | |
| Current | | | | | | | | | | | 15 - 20 | % |
| Deferred | | | | | | | | | | | 80 - 85 | % |
| | | | | | | | | | | | | |
*Reflects approximately 3 Bcfe of deferred domestic gas production related to GOM storms. Note 1: Gas prices in the Mid-Continent, after basis differentials, transportation and handling charges, typically average 75 – 85% of the Henry Hub Index. Gas prices in the Gulf Coast, after basis differentials, transportation and handling charges, are expected to average $0.40 – $0.60 per MMBtu less than the Henry Hub Index. Note 2: Oil prices in the Gulf Coast typically equal the NYMEX WTI price. Rockies oil prices average about $15 per barrel below WTI. Oil production from the Mid-Continent typically averages 96 – 98% of WTI. Note 3: Oil in Malaysia typically sells at a slight discount to Tapis, or about 90% of WTI. Oil production from China typically sells at $10 - $15 per barrel below WTI. Note 4: Guidance for production taxes determined using $70/Bbl oil and $7/MMBtu gas. Note 5: Tax rate applied to earnings excluding unrealized gains or losses on commodity derivatives. | |
CONSOLIDATED STATEMENT OF INCOME (Unaudited, in millions, except per share data) | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | | | | | | | | | | | |
| Oil and gas revenues | | $ | 680 | | | $ | 419 | | | $ | 1,887 | | | $ | 1,384 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
Lease operating | | | 67 | | | | 64 | | | | 184 | | | | 268 | |
Production and other taxes | | | 51 | | | | 25 | | | | 154 | | | | 63 | |
Depreciation, depletion and amortization | | | 181 | | | | 162 | | | | 504 | | | | 539 | |
| General and administrative | | | 36 | | | | 37 | | | | 105 | | | | 107 | |
Total operating expenses | | | 335 | | | | 288 | | | | 947 | | | | 977 | |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 345 | | | | 131 | | | | 940 | | | | 407 | |
| | | | | | | | | | | | | | | | | |
| Other income (expenses): | | | | | | | | | | | | | | | | |
Interest expense | | | (36 | ) | | | (29 | ) | | | (83 | ) | | | (80 | ) |
Capitalized interest | | | 16 | | | | 13 | | | | 43 | | | | 35 | |
Commodity derivative income (expense) | | | 726 | | | | 38 | | | | (247 | ) | | | (43 | ) |
Other | | | 8 | | | | 1 | | | | 10 | | | | 3 | |
| | | | 714 | | | | 23 | | | | (277 | ) | | | (85 | ) |
| | | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | | 1,059 | | | | 154 | | | | 663 | | | | 322 | |
| | | | | | | | | | | | | | | | | |
| Income tax provision | | | 335 | | | | 62 | | | | 247 | | | | 125 | |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations | | | 724 | | | | 92 | | | | 416 | | | | 197 | |
| Loss from discontinued operations, net of tax | | | — | | | | (9 | ) | | | — | | | | (60 | ) |
| Net income | | $ | 724 | | | $ | 83 | | | $ | 416 | | | $ | 137 | |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per share: | | | | | | | | | | | | | | | | |
| Basic -- | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 5.59 | | | $ | 0.72 | | | $ | 3.22 | | | $ | 1.54 | |
| Loss from discontinued operations, net of tax | | | — | | | | (0.07 | ) | | | — | | | | (0.47 | ) |
| | | $ | 5.59 | | | $ | 0.65 | | | $ | 3.22 | | | $ | 1.07 | |
| Diluted -- | | | | | | | | | | | | | | | | |
| Income from continuing operations | | $ | 5.48 | | | $ | 0.70 | | | $ | 3.15 | | | $ | 1.51 | |
| Loss from discontinued operations, net of tax | | | — | | | | (0.06 | ) | | | — | | | | (0.46 | ) |
| | | $ | 5.48 | | | $ | 0.64 | | | $ | 3.15 | | | $ | 1.05 | |
| | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding for basic earnings (loss) per share | | | 129 | | | | 128 | | | | 129 | | | | 127 | |
Weighted average number of shares outstanding for diluted earnings (loss) per share | | | 132 | | | | 131 | | | | 132 | | | | 130 | |
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited, in millions) | | September 30, 2008 | | | December 31, 2007 | |
| | | | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
Cash and cash equivalents | | $ | 35 | | | $ | 250 | |
Short-term investments | | | — | | | | 120 | |
Other current assets | | | 765 | | | | 557 | |
Total current assets | | | 800 | | | | 927 | |
| | | | | | | | | |
| Oil and gas properties, net (full cost method) | | | 7,180 | | | | 5,923 | |
| Other assets | | | 452 | | | | 136 | |
Total assets | | $ | 8,432 | | | $ | 6,986 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities | | $ | 1,003 | | | $ | 929 | |
| | | | | | | | | |
| Other liabilities | | | 206 | | | | 322 | |
| Long-term debt | | | 1,936 | | | | 1,050 | |
| Deferred taxes | | | 1,253 | | | | 1,104 | |
Total long-term liabilities | | | 3,395 | | | | 2,476 | |
| | | | | | | | | |
| Commitments and contingencies | | | — | | | | — | |
| | | | | | | | | |
| STOCKHOLDERS’ EQUITY | | | | | | | | |
| Common stock | | | 1 | | | | 1 | |
| Additional paid-in capital | | | 1,322 | | | | 1,278 | |
| Treasury stock | | | (32 | ) | | | (32 | ) |
| Accumulated other comprehensive loss | | | (10 | ) | | | (3 | ) |
| Retained earnings | | | 2,753 | | | | 2,337 | |
Total stockholders’ equity | | | 4,034 | | | | 3,581 | |
Total liabilities and stockholders’ equity | | $ | 8,432 | | | $ | 6,986 | |
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in millions) | | For the Nine Months Ended September 30, | |
| | | 2008 | | | 2007 | |
| Cash flows from operating activities: | | | | | | |
Net income | | $ | 416 | | | $ | 137 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Loss from discontinued operations, net of tax | | | — | | | | 60 | |
| Depreciation, depletion and amortization | | | 504 | | | | 539 | |
Stock-based compensation | | | 17 | | | | 18 | |
Commodity derivative expense | | | 247 | | | | 43 | |
Cash (payments) receipts on derivative settlements | | | (783 | ) | | | 174 | |
Deferred taxes | | | 213 | | | | 47 | |
| | | | 614 | | | | 1,018 | |
Changes in operating assets and liabilities | | | 8 | | | | (75 | ) |
Net cash provided by continuing activities | | | 622 | | | | 943 | |
Net cash used in discontinued activities | | | — | | | | (12 | ) |
| Net cash provided by operating activities | | | 622 | | | | 931 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
Additions to oil and gas properties and other | | | (1,551 | ) | | | (1,539 | ) |
Acquisition of oil and gas properties | | | (231 | ) | | | (578 | ) |
Proceeds from sale of oil and gas properties | | | 2 | | | | 1,281 | |
Purchases of short-term investments | | | (22 | ) | | | (43 | ) |
Redemption of short-term investments | | | 70 | | | | 24 | |
Net cash used in continuing activities | | | (1,732 | ) | | | (855 | ) |
Net cash used in discontinued activities | | | — | | | | (41 | ) |
| Net cash used in investing activities | | | (1,732 | ) | | | (896 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
Net proceeds under credit arrangements | | | 285 | | | | — | |
Net proceeds from issuance of senior subordinated notes | | | 592 | | | | — | |
Payments to discontinued operations | | | — | | | | (38 | ) |
Proceeds from issuances of common stock | | | 18 | | | | 18 | |
Stock-based compensation excess tax benefit | | | — | | | | 8 | |
Purchases of treasury stock | | | — | | | | (1 | ) |
Net cash provided by (used in) continuing activities | | | 895 | | | | (13 | ) |
Net cash provided by discontinued activities | | | — | | | | 38 | |
Net cash provided by financing activities | | | 895 | | | | 25 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | 1 | |
| | | | | | | | | |
| Increase (decrease) in cash and cash equivalents | | | (215 | ) | | | 61 | |
Cash and cash equivalents from continuing operations, beginning of period | | | 250 | | | | 52 | |
Cash and cash equivalents from discontinued operations, beginning of period | | | — | | | | 28 | |
| | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 35 | | | $ | 141 | |
Explanation and Reconciliation of Non-GAAP Financial Measures
Earnings stated without the effects of certain items is a non-GAAP financial measure. Earnings without the effects of these items are presented because they affect the comparability of operating results from period to period. In addition, earnings without the effects of these items are more comparable to earnings estimates provided by securities analysts.
A reconciliation of earnings for the third quarter of 2008 stated without the effects of certain items to net income is shown below:
| | | | 3Q08 | |
| | | (in millions) | |
| Net income | | $ | 724 | |
Net unrealized gain on commodity derivatives (1) | | | (846 | ) |
Income tax adjustment for above item | | | 257 | |
| Earnings stated without the effect of the above items | | $ | 135 | |
(1) The determination of “Net unrealized gain on commodity derivatives” for the third quarter of 2008 is as follows:
| | | | 3Q08 | |
| | | (in millions) | |
| Commodity derivative income | | $ | 726 | |
| Cash payments on derivative settlements | | | 116 | |
Option premiums associated with derivatives settled during the period | | | 4 | |
Net unrealized gain on commodity derivatives | | $ | 846 | |
Net cash provided by operating activities before changes in operating assets and liabilities is presented because of its acceptance as an indicator of an oil and gas exploration and production company’s ability to internally fund exploration and development activities and to service or incur additional debt. This measure should not be considered as an alternative to net cash provided by (used in) operating activities as defined by generally accepted accounting principles.
A reconciliation of net cash provided by operating activities before changes in operating assets and liabilities to net cash provided by operating activities is shown below:
| | | | 3Q08 | |
| | | (in millions) | |
| Net cash provided by operating activities | | $ | 451 | |
Net change in operating assets and liabilities | | | (55 | ) |
Net cash provided by operating activities before changes in operating assets and liabilities | | $ | 396 | |
