1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission file number 1-12534
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NEWFIELD EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 72-1133047
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
363 N. Sam Houston Parkway E.
Suite 2020
Houston, Texas 77060
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (281) 847-6000
---------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of April 28, 2000, there were 42,333,760 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
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2
TABLE OF CONTENTS
Page
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PART I
Item 1. Financial Statements:
Consolidated Balance Sheet as of March 31,
2000 and December 31, 1999 . . . . . . . . . . . . . 1
Consolidated Statement of Income for the three
months ended March 31, 2000 and 1999 . . . . . . . . 2
Consolidated Statement of Cash Flows for the
three months ended March 31, 2000 and 1999 . . . . . 3
Consolidated Statement of Stockholders' Equity
for the three months ended March 31, 2000. . . . . . 4
Notes to Consolidated Financial Statements . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 9
PART II
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 20
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3
NEWFIELD EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share data)
(Unaudited)
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $ 26,322 $ 41,841
Accounts receivable-oil and gas . . . . . . 70,546 67,744
Inventories . . . . . . . . . . . . . . . . 8,990 9,962
Other . . . . . . . . . . . . . . . . . . . 5,702 6,382
------------ ------------
Total current assets. . . . . . . . . . . 111,560 125,929
------------ ------------
Oil and gas properties (full cost method, of
which $114,126 at March 31, 2000 and $77,732
at December 31, 1999 were excluded from
amortization) . . . . . . . . . . . . . . . 1,394,091 1,210,895
Less-accumulated depreciation, depletion and
amortization. . . . . . . . . . . . . . . . (607,000) (566,053)
------------ ------------
787,091 644,842
------------ ------------
Furniture, fixtures and equipment, net. . . . 3,459 3,369
Other assets. . . . . . . . . . . . . . . . . 6,706 7,421
------------ ------------
Total assets. . . . . . . . . . . . . . . $ 908,816 $ 781,561
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities. . $ 89,208 $ 88,670
Advances from joint owners. . . . . . . . . 4,104 2,057
------------ ------------
Total current liabilities . . . . . . . . 93,312 90,727
------------ ------------
Other liabilities . . . . . . . . . . . . . . 8,420 10,586
Long-term debt. . . . . . . . . . . . . . . . 228,687 124,679
Deferred taxes. . . . . . . . . . . . . . . . 35,645 36,801
------------ ------------
Total long-term liabilities . . . . . . . 272,752 172,066
------------ ------------
Company-obligated, mandatorily redeemable,
convertible preferred securities of Newfield
Financial Trust I. . . . . . . . . . . . . . 143,750 143,750
------------ ------------
Commitments and contingencies . . . . . . . . --- ---
Stockholders' equity:
Preferred stock ($0.01 par value, 5,000,000
shares authorized, no shares issued). . . --- ---
Common stock ($0.01 par value, 100,000,000
shares authorized; 42,322,710 and
41,734,884 shares issued and outstanding
at March 31, 2000 and December 31, 1999,
respectively) . . . . . . . . . . . . . . 423 417
Additional paid-in capital. . . . . . . . . . 278,019 267,352
Unearned compensation . . . . . . . . . . . . (5,809) (3,685)
Accumulated other comprehensive - loss -
foreign currency translation adjustment. . . (1,867) (179)
Retained earnings . . . . . . . . . . . . . . 128,236 111,113
------------ ------------
Total stockholders' equity. . . . . . . . 399,002 375,018
------------ ------------
Total liabilities and stockholders' equity $ 908,816 $ 781,561
============ ============
The accompanying notes to consolidated financial statements are an integral
part of this statement.
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4
NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-------------------------
2000 1999
----------- -----------
Oil and gas revenues. . . . . . . . . . . . . $ 95,039 $ 52,914
----------- -----------
Operating expenses:
Lease operating . . . . . . . . . . . . . . 15,007 9,295
Production and other taxes. . . . . . . . . 1,589 ---
Depreciation, depletion and amortization. . 41,160 36,790
General and administrative
(exclusive of stock compensation) . . . . 6,346 3,063
Stock compensation. . . . . . . . . . . . . 589 530
----------- -----------
Total operating expenses. . . . . . . . . 64,691 49,678
----------- -----------
Income from operations. . . . . . . . . . . . 30,348 3,236
Other income (expenses):
Interest income . . . . . . . . . . . . . . 515 148
Interest expense, net . . . . . . . . . . . (2,260) (3,525)
Dividends on convertible preferred
securities of Newfield Financial Trust I. (2,336) ---
----------- -----------
(4,081) (3,377)
----------- -----------
Income (loss) before income taxes . . . . . . 26,267 (141)
Income tax provision:
Current . . . . . . . . . . . . . . . . . . 3,717 ---
Deferred. . . . . . . . . . . . . . . . . . 5,427 29
----------- -----------
9,144 29
----------- -----------
Net income (loss) . . . . . . . . . . . . . . $ 17,123 $ (170)
=========== ===========
Basic earnings per common share . . . . . . . $ 0.41 $ ---
=========== ===========
Diluted earnings per common share . . . . . . $ 0.40 $ ---
=========== ===========
Weighted average number of shares outstanding
for basic earnings per share. . . . . . . . . 41,882 40,512
=========== ===========
Weighted average number of shares outstanding
for diluted earnings per share. . . . . . . . 42,841 40,512
=========== ===========
The accompanying notes to consolidated financial statements are an integral
part of this financial statement.
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5
NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------------
2000 1999
------------ -----------
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . $ 17,123 $ (170)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion
and amortization. . . . . . . . . . . 41,160 36,790
Deferred taxes. . . . . . . . . . . . . 5,427 29
Stock compensation. . . . . . . . . . . 589 530
------------ -----------
64,299 37,179
Changes in assets and liabilities:
(Increase )decrease in accounts
receivable, oil and gas . . . . . . . (2,802) 13,539
Decrease in inventory . . . . . . . . . 972 ---
(Increase) decrease in other
current assets. . . . . . . . . . . . (1,256) 930
Decrease in other assets . . . . . . . 715 130
Decrease in accounts payable
and accrued liabilities . . . . . . . (1,202) (20,837)
Increase (decrease) in advances
from joint owners . . . . . . . . . . 2,047 (156)
Increase (decrease)in other liabilities (2,158) (207)
------------ -----------
Net cash provided by
operating activities. . . . . . . . 60,615 30,578
------------ -----------
Cash flows from investing activities:
Additions to oil and gas properties . . (181,456) (28,713)
Additions to furniture, fixtures and
equipment . . . . . . . . . . . . . . (303) (269)
------------ -----------
Net cash used in
investing activities. . . . . . . . (181,759) (28,982)
------------ -----------
Cash flows from financing activities:
Proceeds from borrowings. . . . . . . . 120,000 81,000
Repayments of borrowings. . . . . . . . (16,000) (84,000)
Proceeds from issuances of common
stock, net. . . . . . . . . . . . . . 3,313 1,451
------------ -----------
Net cash provided by (used in)
financing activities . . . . . . . 107,313 (1,549)
------------ -----------
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . (1,688) ---
------------ -----------
Increase (decrease)in cash and cash
equivalents.. . . . . . . . . . . . . . (15,519) 47
Cash and cash equivalents,
beginning of period . . . . . . . . . . 41,841 92
------------ -----------
Cash and cash equivalents, end of period. . . $ 26,322 $ 139
============ ===========
The accompanying notes to consolidated financial statements are an integral
part of this financial statement.
-3-
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NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN UNEARNED RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS LOSS EQUITY
---------- ------ ---------- ------------ -------- ------------- -------------
BALANCE, DECEMBER 31,
1999...................... 41,734,884 $417 $267,352 $(3,685) $111,113 $(179) $375,018
Issuance of common
stock................... 496,820 5 3,308 3,313
Issuance of restricted
stock, less amortization
of $71.................. 91,006 1 2,712 (2,642) 71
Amortization of stock
compensation............ 518 518
Tax benefit from exercise
of stock options........ 4,647 4,647
Comprehensive Income:
Net income................ 17,123 17,123
Foreign currency
translation adjustment
net of tax.............. (1,688) (1,688)
--------
Total Comprehensive
Income............ 15,435
---------- ---- -------- ------- -------- ------- --------
BALANCE, March 31,
2000....................... 42,322,710 $423 $278,019 $(5,809) $128,236 $(1,867) $399,002
========== ==== ======== ======= ======== ======= ========
The accompanying notes to consolidated financial statements are an integral
part of this statement.
-4-
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NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Accounting Policies
Basis of Presentation
Unless the context otherwise requires, references to the "Company"
include Newfield Exploration Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated. The unaudited
consolidated financial statements of the Company reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly the Company's consolidated financial
position at March 31, 2000 and the Company's consolidated results of
operations and cash flows for the three-month periods ended March 31, 2000
and 1999. The consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore do not include all
disclosures required for financial statements prepared in conformity with
generally accepted accounting principles. Interim period results are not
necessarily indicative of results of operations or cash flows for a full year.
These consolidated financial statements and the notes thereto should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, including the financial statements and notes thereto.
Earnings per Share
Basic earnings (loss) per common share ("EPS") is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities were exercised for or converted into common stock.
There are no adjustments to reported net income (loss) for purposes of
calculating earnings per share. The following is a calculation of basic and
diluted weighted average shares outstanding for the three months ended March
31, 2000 and 1999, respectively:
Three Months Ended
March 31,
-----------------------
2000 1999
---------- ----------
Shares outstanding for basic EPS . . . . 41,882,487 40,511,882
Dilution effect of stock options
outstanding at end of period. . . . . 958,038 ---
---------- ----------
Shares outstanding for diluted EPS . . . 42,840,525 40,511,882
========== ==========
The calculation of diluted EPS for 2000 does not include the effect of
3,923,225 shares underlying the 6.5% quarterly income convertible preferred
securities because to do so would have been antidilutive. Additionally, the
calculation of shares outstanding for diluted EPS for 1999 does not include the
effect of outstanding stock options to purchase 3,642,320 shares, because to do
so would have been antidilutive.
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NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
Hedging
The Company enters into various commodity price hedging contracts with
respect to its oil and gas production. While the use of these hedging
arrangements limits the downside risk of adverse price movements, they may
also limit future revenues from favorable price movements. The use of
hedging arrangements also involves the risk that the counterparties will be
unable to meet the financial terms of such transactions. Hedging contracts are
accounted for as hedges in accordance with Statement of Financial Accounting
Standards No. 80. Gains and losses on these contracts are recognized in revenue
in the period in which the underlying production is delivered. These contracts
are measured for correlation at both the inception of the contract and on an
ongoing basis. If these instruments cease to meet the criteria for deferral
accounting, any subsequent gains or losses are recognized in revenue. If these
instruments are terminated prior to maturity, resulting gains and losses
continue to be deferred until the hedged item is recognized in revenue.
(2) Property Acquisition
In February 2000, the Company acquired interests in three producing gas
fields in South Texas for approximately $137 million. The acquisition has been
accounted for as a purchase and, accordingly, income and expenses from the
properties have been included in the Company's statement of income from the
date of purchase.
The unaudited pro forma results of operations assuming that such
acquisition occurred on January 1 of the respective periods are as follow (in
thousands, except per share amounts):
Three Months Ended
March 31,
-------------------
2000 1999
----- -----
(In thousands)
(Unaudited)
Proforma:
Revenue . . . . . . . . . . . . . . . . . . $100,539 $57,428
Income from operations. . . . . . . . . . . 32,890 2,811
Net income (loss) . . . . . . . . . . . . . 18,153 (1,553)
Basic earnings (loss) per common share. . . $0.43 $(0.04)
Diluted earnings (loss) per common share. . $0.42 $(0.04)
The proforma financial information does not purport to be indicative of
the results of operations that would have occurred had the acquisition taken
place at the beginning of the periods presented or future results of
operations.
(3) Contingencies
The Company has been named as a defendant in certain lawsuits arising in
the ordinary course of business. While the outcome of these lawsuits cannot
be predicted with certainty, management does not expect these matters to have
a material adverse effect on the financial position, cash flows or results of
operations of the Company.
Management believes that the Company is in substantial compliance with
current applicable U.S. federal, state and local environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse effect on the Company's financial position, cash flows
or results of operations. The Company's foreign operations are potentially
subject to similar governmental controls and restrictions relating to the
environment. Management believes that the Company is in substantial compliance
with any such foreign requirements pertaining to the environment. There can be
no assurance, however, that current regulatory requirements will not change,
currently unforeseen environmental incidents will not occur or past
non-compliance with environmental laws or regulations will not be discovered.
-6-
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NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
(4) Geographic Information
OTHER
UNITED STATES AUSTRALIA INTERNATIONAL TOTAL
------------- --------- ------------- --------
(In thousands)
Three months ended March 31, 2000
- ------------------------------------------------
Oil and gas revenues............................ $ 82,537 $12,502 $ -- $ 95,039
Operating expenses:
Lease operating............................... 11,474 3,533 -- 15,007
Production and other taxes.................... 692 897 -- 1,589
Depreciation, depletion and amortization...... 39,086 2,074 -- 41,160
Allocated income taxes........................ 10,950 2,039 --
-------- ------- -------
Net income from oil and gas operations..... $ 20,335 $ 3,959 $ --
======== ======= =======
General and administrative (exclusive of stock
compensation).............................. 6,346
Stock compensation............................ 589
--------
Total operating expenses.............. 64,691
--------
Income from operations.......................... 30,348
Interest expense, net......................... (4,081)
--------
Income before income taxes...................... $ 26,267
========
Total Long-Lived Assets......................... $766,478 $10,055 $10,558 $787,091
======== ======= ======= ========
Additions to Long-Lived Assets.................. $175,049 $ 8,019 $ 128 $183,196
======== ======= ======= ========
Three months ended March 31, 1999
- ------------------------------------------------
Oil and gas revenues............................ $ 52,914 $ -- $ -- $ 52,914
Operating expenses:
Lease operating............................... 9,295 -- -- 9,295
Production and other taxes.................... -- -- -- --
Depreciation, depletion and amortization...... 36,790 -- -- 36,790
Allocated income taxes........................ 2,390 -- --
-------- ------- -------
Net income from oil and gas operations..... $ 4,439 $ -- $ --
======== ======= =======
General and administrative (exclusive of stock
compensation).............................. 3,063
Stock compensation............................ 530
--------
Total operating expenses.............. 49,653
--------
Income from operations.......................... 3,236
Interest expense, net......................... (3,377)
--------
Loss before income taxes........................ $ (141)
========
Total Long-Lived Assets......................... $554,626 $ -- $ 9,919 $564,545
======== ======= ======= ========
Additions to Long-Lived Assets.................. $ 21,995 $ -- $ 755 $ 22,750
======== ======= ======= ========
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NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
(5) Hedging Transactions
As of April 28, 2000, the Company had entered into commodity price hedging
contracts with respect to its 2000 and 2001 natural gas and oil production,
some of which were entered into subsequent to March 31, 2000, as follows:
NATURAL GAS Swaps Collars Floor Contracts
------------------------ ------------------------- -------------------
Weighted
Weighted NYMEX Average
Average Contract Price NYMEX
NYMEX per MMBtu Contract
Volume in Contract Price Volume in ---------------- Volume in Price
PERIOD MMMBtus per MMBtu MMMBtus Floors Ceilings MMMBtus per MMBtu
- ------------------------------ --------- --------- ------- ------ ------- ------- ---------
April 2000 - June 2000........ 4,360 $2.85 1,920 $2.65 $3.24 5,380 $2.53
July 2000 - September 2000.... 8,460 $2.87 3,420 $2.65 $3.24 4,500 $2.54
October 2000 - December 2000.. 11,260 $3.00 1,110 $2.69 $3.24 -- --
January 2001 - March 2001..... 10,050 $3.05 630 $2.75 $3.21 -- --
April 2001 - May 2001......... 5,640 $2.80 210 $2.75 $3.21 -- --
OIL Swaps Collars
-------------------- ----------------------------------
Weighted
Average NYMEX
NYMEX Contract Price
Contract Per Bbl
Volume in Price Volume in --------------------
PERIOD Bbls per Bbl Bbls Floors Ceilings
- ------------------------------ --------- -------- ------- ------- --------
April 2000 - June 2000........ 546,000 $22.08 182,000 $18.28-$19.50 $20.10-$21.00
July 2000 - September 2000.... 736,000 $22.38 92,000 $18.28 $21.00
October 2000 - December 2000.. 736,000 $22.09 --- --- ---
January 2001 - March 2001..... 540,000 $21.99 --- --- ---
April 2001 - June 2001........ 364,000 $21.70 --- --- ---
July 2001 - September 2001.... 184,000 $21.28 --- --- ---
October 2001 - December 2001.. 184,000 $20.68 --- --- ---
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As an independent oil and gas producer, our revenue, profitability and
future rate of growth are substantially dependent upon prevailing prices for
natural gas, oil and condensate, which are dependent upon numerous factors
beyond our control, such as economic, political and regulatory developments and
competition from other sources of energy. The energy markets have historically
been very volatile, and there can be no assurance that oil and gas prices will
not be subject to wide fluctuations in the future. A substantial or extended
decline in oil and gas prices could have a material adverse effect on our
financial position, results of operations, cash flows, quantities of oil and
gas reserves that may be economically produced and access to capital.
Our results of operations and cash flows may vary significantly
from quarter to quarter as a result of development operations, commodity
prices, the curtailment of production in association with workover and
recompletion activities and the incurrence of expenses related thereto, the
timing and amount of reimbursement for customary overhead costs we receive and
other factors, and, the results of operations and cash flows for any one
quarter may not be indicative of results for the full fiscal year.
We use the full cost method of accounting. Under this method, all costs
incurred in the acquisition, exploration and development of oil and gas
properties are capitalized into cost centers that are established on a
country-by-country basis. For each cost center, at the end of each quarter, the
net capitalized costs of oil and gas properties are limited to the lower of
unamortized cost or the cost center ceiling, defined as the sum of the present
value (10% discount rate) of estimated future net revenues from proved
reserves, based on period-end oil and gas prices; plus the cost of properties
not being amortized, if any; plus the lower of cost or estimated fair value of
unproved properties included in the costs being amortized, if any; less related
income tax effects. If net capitalized costs of oil and gas properties exceed
the ceiling limit, we are subject to a ceiling test writedown to the extent of
such excess. A ceiling test writedown is a non-cash charge to earnings. If
required, it would reduce earnings and impact stockholders' equity in the
period of occurrence and result in lower depreciation, depletion and
amortization expense in future periods.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement, as amended, requires companies to
report the fair value of derivatives on the balance sheet and record in income
or other comprehensive income, as appropriate, any changes in the fair value of
the derivative. Statement No. 133 will become effective for us on
January 1, 2001. We are currently evaluating the impact of this statement.
Explanation of some commonly used oil and gas terms can be found under the
caption "Commonly Used Oil and Gas Terms" at the end of Management's Discussion
and Analysis.
-9-
12
RESULTS OF OPERATIONS
The following table presents information about our oil and gas operations.
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------ ------
PRODUCTION:
UNITED STATES
Natural gas (Bcf).................................. 22.7 21.1
Oil and condensate (MBbls)......................... 914 908
Total production (Bcfe)............................ 28.2 26.5
AUSTRALIA*
Oil and condensate (MBbls)......................... 448 --
Total (Bcfe)....................................... 2.7 --
TOTAL
Natural gas (Bcf).................................. 22.7 21.1
Oil and condensate (MBbls)......................... 1,362 908
Total (Bcfe)....................................... 30.9 26.5
AVERAGE REALIZED PRICES:
UNITED STATES
Natural gas (per Mcf).............................. $ 2.68 $ 2.02
Oil and condensate (per Bbl)....................... 23.79 11.28
AUSTRALIA*
Oil and condensate (per Bbl)....................... $27.88 $ --
TOTAL
Natural gas (per Mcf).............................. $ 2.68 $ 2.02
Oil and condensate (per Bbl)....................... 25.14 11.28
- ----------------
* In July 1999, we acquired oil producing assets offshore Australia.
PRODUCTION
NATURAL GAS. Our first quarter of 2000 natural gas volumes increased 7.6%
over the first quarter of 1999. The increase was primarily related to the
success of our drilling program at West Cameron 522 and 617, onshore South
Louisiana at our Broussard prospect and the acquisition of three producing gas
fields in South Texas in February 2000. Gains in production were partially
offset by natural declines from other producing properties.
CRUDE OIL AND CONDENSATE. Our oil production increased 50% in the first
quarter of 2000 over the comparable quarter of 1999. The primary reason for
the increase was the acquisition of interests in two oil fields in the Timor
Sea, offshore Australia, during the third quarter of 1999. Increases in
domestic oil production were mainly due to the acquisition of an oil producing
property in the Gulf of Mexico in 1999 at Main Pass 138 and production from
drilling success at Ship Shoal 69. These increases were offset by natural
production declines from other producing properties.
-10-
13
REALIZED PRICES
NATURAL GAS. Our average realized gas price in the first quarter of 2000
was $2.68 per Mcf, an increase of 33% over an average realized price of $2.02
per Mcf in the first quarter of 1999. Hedging activities in the first quarter
of 2000 resulted in a price that was 103% of what otherwise would have been
received. Hedging activities in the first quarter of 1999 resulted in a price
that was 120% of what otherwise would have been received.
CRUDE OIL AND CONDENSATE. Crude oil and condensate prices in the first
quarter of 2000 averaged $25.14 per barrel compared to an average price of
$11.28 per barrel in the first quarter of 1999. Our average crude oil price in
the first quarter of 2000 was 87% of what would have been received without
hedging activities. Our average crude oil price in the first quarter of 1999
was 105% of what would have been received without hedging activities.
NET INCOME AND REVENUES
For the first quarter of 2000, we reported net income of $17.1 million, or
$0.40 cents per diluted share. This compares to a net loss of $0.2 million, or
$0.00 per diluted share, in the first quarter of 1999. Revenues for the first
quarter of 2000 increased 80% to $95.0 million compared to revenues of $52.9
million in the first quarter of 1999. The increase in net income and revenues
in the first quarter of 2000 was primarily due to sharp increases in commodity
prices coupled with higher production volumes.
-11-
14
OPERATING EXPENSES
THREE MONTHS ENDED
MARCH 31,
---------------
2000 1999
------ ------
AVERAGE COSTS (PER MCFE):
UNITED STATES
Lease operating........................................ $0.41 $0.35
Depreciation, depletion and amortization............... 1.39 1.39
General and administrative (exclusive of stock
compensation)......................................... 0.22 0.12
AUSTRALIA
Lease operating........................................ $1.31 $ --
Depreciation, depletion and amortization............... 0.77 --
General and administrative (exclusive of stock
compensation)......................................... 0.02 --
TOTAL
Lease operating........................................ $0.49 $0.35
Depreciation, depletion and amortization............... 1.33 1.39
General and administrative (exclusive of stock
compensation)......................................... 0.21 0.12
During the first quarter of 2000, our operating expenses increased 30%
over the first quarter of 1999. Operating expenses in the first quarter of 2000
were impacted by the following:
- Lease operating expense, stated on a unit of production basis, increased
40% to $0.49 per Mcfe in the first quarter of 2000 compared to $0.35 per
Mcfe in the first quarter of 1999. Domestic lease operating expense
increased 17% on a unit of production basis to $0.41 per Mcfe in the
first quarter of 2000 compared to $0.35 per Mcfe in the first quarter of
1999. This increase reflects the impact of higher operating cost
properties acquired in the Gulf of Mexico in 1999. Relatively high
Australian lease operating expense of $1.31 per Mcfe is primarily due to
the high cost of operations and maintenance of the two floating, storage
and off-loading vessels.
- Depreciation, depletion and amortization expense decreased 4% on a unit
of production basis to $1.33 per Mcfe. Our domestic DD&A rate remained
flat at $1.39 per Mcfe as compared to the first quarter of 1999. The
Australian DD&A rate was $0.77 per Mcfe, an increase over the fourth
quarter of 1999 due to costs incurred in unsuccessful wells drilled
during the first quarter of 2000 and included in the full cost pool.
- General and administrative expense was up $3.3 million, or 107%, due
primarily to an increase in performance-based pay, some non-recurring
expenses and our growing workforce. Performance based compensation
excluding stock compensation expense, as a component of general and
administrative expense, increased from $0.2 million, or $0.01 per Mcfe,
for the three months ended March 31, 1999, to $1.8 million, or $0.06 per
Mcfe, for the three months ended March 31, 2000.
Additionally, the increase in production and other taxes of $1.6 million
primarily relates to the production tax on our Australian operations but also
includes lease taxes for domestic onshore production.
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INTEREST EXPENSE AND DIVIDENDS
THREE MONTHS ENDED
MARCH 31,
---------------
2000 1999
----- -----
(In millions)
Gross interest expense...................................... $ 3.4 $ 3.9
Capitalized interest........................................ (1.1) (0.4)
----- -----
Net interest expense........................................ 2.3 3.5
Dividends on preferred securities........................... 2.3 --
----- -----
Total interest expense and dividends........................ $ 4.6 $ 3.5
===== =====
Our net interest expense decreased as a result of higher average debt
levels during the first quarter of 1999 and a higher percentage of total
interest costs being capitalized during the first quarter of 2000. In total,
interest expense and dividends increased in the first quarter of 2000 over the
comparable quarter of 1999 as a result of dividends on $143.8 million of 6.5%
convertible preferred securities issued by Newfield Financial Trust I in August
1999 and the funding of our February 2000 South Texas acquisition with
borrowings under our credit facility.
LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $18.2 million at March 31, 2000. This compares
to working capital of $35.2 million at December 31, 1999. Long-term debt
increased to $228.7 million at March 31,2000 from $124.7 million at
December 31, 1999. The $17.0 million decrease in working capital and the
increase in long-term debt is primarily due to the acquisition of producing
properties in South Texas in February 2000 for $137 million. Working capital
balances may fluctuate from quarter to quarter to the extent we increase or
decrease borrowings under our revolving credit facility. Historically, we have
funded our oil and gas activities through cash flow from operations, equity
capital from private and public sources, public debt and bank borrowings.
We maintain our reserve-based revolving credit facility with Chase Bank
of Texas, National Association, as agent. As of March 31, 2000, there was
$104.0 million outstanding under the credit facility. The credit facility
provides a $225 million revolving credit maturing on October 31, 2002. The
amount available under the credit facility is subject to a calculated borrowing
base determined by a majority of the banks participating in the credit
facility, which is reduced by the aggregate principal outstanding on our senior
unsecured notes (currently $125 million). The borrowing base is redetermined at
least semi-annually and, after reduction for the senior unsecured notes, is
currently $255 million. No assurances can be given that a majority of the banks
will not elect to redetermine the borrowing base in the future. We have an
option, subject to the borrowing base, to increase the facility to $250
million.
We have also established money market lines of credit with various banks
in an amount limited by the credit facility to $25 million. As of
March 31, 2000, there were no borrowings outstanding under these lines of
credit. Without so increasing the facility, we have approximately $155 million
of available capacity under the credit facility and money market lines.
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CASH FLOW FROM OPERATIONS. Our net cash flow from operations for the first
quarter of 2000 increased 98% over the first quarter of 1999 to $60.6 million.
The increase in the first quarter of 2000 cash flow is primarily due to higher
commodity prices for oil and gas and higher production volumes. Net cash flow
from operations before changes in operating assets and liabilities for the
first quarter of 2000 was $64.3 million compared to $37.2 million in the first
quarter of 1999. The increase in net cash flow from operations before changes
in operating assets and liabilities in the first quarter of 2000 over the first
quarter of 1999 is primarily attributable to higher commodity prices and
production volumes offset slightly by increased operating expenses.
CAPITAL EXPENDITURES. We made capital expenditures of $183 million in the
first quarter of 2000. This includes $31 million for exploration, $13 million
for exploitation and development projects and $139 million for property
acquisitions. We have budgeted $141 million for capital spending for the
remainder of 2000. Approximately $39 million has been budgeted for domestic
exploration projects and $102 million for domestic exploitation and development
drilling and the construction of platforms, facilities and pipelines.
International spending is estimated at $23 million for the remainder of 2000.
Acquisitions are opportunistic and are generally not budgeted under our capital
program. We continue to pursue attractive acquisition opportunities, however,
the timing, size and purchase price of acquisitions are unpredictable. Actual
levels of capital expenditures may vary significantly due to many factors,
including drilling results, oil and gas prices, industry conditions, the prices
and availability of goods and services and the extent to which proved
properties are acquired.
Our February 2000 South Texas acquisition was funded with working capital
and borrowings under our credit facility. We anticipate that our remaining
capital expenditure budget for 2000 will be funded principally from cash flow
from operations and working capital. We do not anticipate additional borrowings
under our credit facility and money market lines of credit during 2000 unless
we make another significant acquisition.
HEDGING
We utilize and expect to continue to utilize hedging transactions with
respect to a portion of our oil and gas production. These derivative financial
instruments are used to hedge our exposure to changes in the market price of
natural gas and crude oil and to achieve more predictable cash flow. While the
use of these hedging arrangements limits the downside risk of adverse price
movements, they may also limit future revenues from favorable price movements.
The use of hedging transactions also involves the risk that the counterparties
will be unable to meet the financial terms of such transactions. All of our
hedging transactions to date were carried out in the over-the-counter market.
We account for these transactions as hedging activities and, accordingly, gains
or losses are included in oil and gas revenues when the hedged production is
delivered.
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As of April 28, 2000, we had entered into commodity price hedging
contracts with respect to our 2000 and 2001 natural gas production, some of
which were entered into subsequent to March 31, 2000, as follows:
Swaps Collars Floor Contracts
------------------------ ------------------------- -------------------
Weighted
Weighted NYMEX Average
Average Contract Price NYMEX
NYMEX per MMBtu Contract
Volume in Contract Price Volume in ---------------- Volume in Price
PERIOD MMMBtus per MMBtu MMMBtus Floors Ceilings MMMBtus per MMBtu
- ------------------------------ --------- --------- ------- ------ -------- ------- ---------
April 2000 - June 2000........ 4,360 $2.85 1,920 $2.65 $3.24 5,380 $2.53
July 2000 - September 2000.... 8,460 $2.87 3,420 $2.65 $3.24 4,500 $2.54
October 2000 - December 2000.. 11,260 $3.00 1,110 $2.69 $3.24 -- --
January 2001 - March 2001..... 10,050 $3.05 630 $2.75 $3.21 -- --
April 2001 - May 2001......... 5,640 $2.80 210 $2.75 $3.21 -- --
These hedging transactions are settled based upon the average of the
reported settlement prices on the NYMEX for the last three trading days or,
occasionally, the penultimate trading day of a particular contract month (the
"settlement price"). With respect to any particular swap transaction, the
counterparty is required to make a payment to us in the event that the
settlement price for any settlement period is less than the swap price for
such transaction, and we are required to make payment to the counterparty in
the event that the settlement price for any settlement period is greater than
the swap price for such transaction. For any particular collar transaction, the
counterparty is required to make a payment to us if the settlement price for
any settlement period is below the floor price for such transaction, and we are
required to make payment to the counterparty if the settlement price for any
settlement period is above the ceiling price for such transaction. For any
particular floor transaction, the counterparty is required to make a payment to
us if the settlement price for any settlement period is below the floor price
for such transaction. We are not required to make any payment in connection
with the settlement of a floor transaction.
We believe that we have no material basis risk with respect to gas swaps
because substantially all of our natural gas production is sold under spot
contracts that have historically correlated with the swap price.
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As of April 28, 2000, we had entered into commodity price hedging
contracts with respect to our domestic oil production for 2000 and 2001, some
of which were entered into subsequent to March 31, 2000, as follows:
Swaps Collars
-------------------- ----------------------------------
Weighted
Average NYMEX
NYMEX Contract Price
Contract Per Bbl
Volume in Price Volume in ----------------------
PERIOD Bbls per Bbl Bbls Floors Ceilings
- ------------------------------ --------- -------- ------- -------- ---------
April 2000 - June 2000........ 546,000 $22.08 182,000 $18.28-$19.50 $20.10-$21.00
July 2000 - September 2000.... 736,000 $22.38 92,000 $18.28 $21.00
October 2000 - December 2000.. 736,000 $22.09 --- --- ---
January 2001 - March 2001..... 540,000 $21.99 --- --- ---
April 2001 - June 2001........ 364,000 $21.70 --- --- ---
July 2001 - September 2001.... 184,000 $21.28 --- --- ---
October 2001 - December 2001.. 184,000 $20.68 --- --- ---
Because substantially all of our domestic oil production is sold under
spot contracts that have historically correlated to the NYMEX West Texas
Intermediate price, we believe that we have no material basis risk with respect
to these transactions. The actual cash price we receive in the U.S., however,
generally is about $2.00 per barrel less than the NYMEX West Texas Intermediate
price when adjusted for location and quality differences.
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Drilling Activity
We have five company-operated rigs running in the Gulf of Mexico, two
operated rigs running onshore along the U.S. Gulf Coast and one in Australia.
In addition, five outside-operated rigs are running, including two in the Gulf
of Mexico, two onshore U.S. Gulf Coast and one in Bohai Bay, China. A summary
of our first quarter 2000 drilling results by focus area is outlined below.
Gulf of Mexico
To date in 2000, we have drilled five discoveries and one dry hole in the
Gulf of Mexico. We are operating, or have an interest in, five additional wells
that are currently drilling in the Gulf of Mexico. The wells include:
Working
Well Name Status Interest Operator
- ---------------------- ------------------ --------- ----------
East Cameron 38 #8 discovery 65% NFX
High Island A-521 discovery 41% NFX
Ship Shoal 139 #1 discovery/testing 82% NFX
South Timbalier 107 #2 discovery/drilling 30% NFX
West Cameron 532 #A-12 discovery 33% outside
Ship Shoal 139 #2 drilling 82% NFX
Grand Isle 103 #2 drilling 48% NFX
East Cameron 64 #H-6 drilling 18% NFX
Ship Shoal 28 #39 drilling 33% outside
Brazos 542 drilling 16% outside
Eugene Island 199 #10 dry hole 75% NFX
We plan to drill at least 25 wells in the Gulf of Mexico in 2000.
U.S. Onshore Gulf Coast
Year-to date, We have drilled or participated in two discoveries and a
successful development well along the Texas coast. Two wells are currently
drilling -- one each in Louisiana and Texas. Results follow.
Working
Prospect Location Status Interest Operator
- -------- -------- ------------------ -------- --------
Cash Texas discovery/drilling 75% NFX
Real Texas discovery/testing 75% NFX
Davis A-5 Texas successful development well 35% outside
McCoy Texas drilling 33% outside
Wright Louisiana drilling 60% NFX
We plan to begin drilling development wells in the our East Sarita Field,
located in Kenedy County, Texas. The East Sarita Field was acquired in early
2000 and is currently producing 22 MMcf/d (net). We plan to drill eight
additional wells in the coastal regions of Texas and Louisiana during 2000.
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International
We plan to drill at least five wells in international waters during
2000. The program includes four wells offshore Australia and at least one well
in China's Bohai Bay.
Australia
To date in 2000, we have drilled three wells offshore Australia.
Brontosaurus #1, an outside-operated wildcat drilled on Exploration
Permit AC/P 20, was a dry hole. We also drilled two infill wells
year-to-date. The Jabiru #14 well did not find sufficient oil pay to
warrant completion at this time and was temporarily abandoned. The
Challis #15 well was unsuccessful and plugged and abandoned. We
operate the Jabiru and Challis Fields with a 50% interest.
China
A wildcat well on license area 05/36 in China's Bohai Bay began
drilling on April 25, 2000 to test a large structure directly east of a
recent discovery on adjoining license area 04/36. We own a 35%
working interest in this outside operated well.
Forward Looking Information
Certain of the statements set forth in this document regarding planned
capital expenditures, drilling plans and other capital activities are forward
looking and are based upon assumptions and anticipated results that are subject
to numerous uncertainties. 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 and the availability of capital
resources. In addition, the drilling of oil and gas wells and the production
of hydrocarbons are subject to governmental regulations and operating risks.
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Commonly Used Oil and Gas Terms
Below are explanations of some commonly used terms in the oil and gas
business.
Basis risk. The risk associated with the sales point price for oil or gas
production varying from the reference (or settlement) price
for a particular hedging transaction.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume of
crude oil or other liquid hydrocarbons.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined by using the ratio
of six Mcf of natural gas to one Bbl of crude oil, condensate
or natural gas liquids.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 degrees to
59.5 degrees Fahrenheit.
MBbls. One thousand barrels of crude oil or other liquid
hydrocarbons.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet equivalent, determined using the
ratio of six Mcf of natural gas to one Bbl of crude oil,
condensate or natural gas liquids.
MMBbls. One million barrels of crude oil or other liquid
hydrocarbons.
MMbtu. One million Btus.
MMMbtu. One billion Btus.
MMcf. One million cubic feet.
MMcfe. One million cubic feet equivalent, determined using the ratio
of six Mcf of natural gas to one Bbl of crude oil, condensate
or natural gas liquids.
NYMEX. The New York Mercantile Exchange
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Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (included only in the electronic
filing of this document)
(b) Reports on Form 8-K:
On January 3, 2000, the Company filed a Current Report on Form 8-K
reporting the Company's revised natural gas and crude oil hedge
volumes at December 31, 1999.
On March 9, 2000, the Company filed a Current Report on Form 8-K
reporting the acquisition of interests in three producing gas fields
in South Texas on February 25, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWFIELD EXPLORATION COMPANY
Date: April 28, 2000 By: /s/ TERRY W. RATHERT
Terry W. Rathert
Vice President and Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
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EXHIBIT INDEX
Exhibit
Number Description of Exhibits
--------- -----------------------
27 Financial Data Schedule (included
only in the electronic filing of
this document)