1
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------------
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, 2001
Commission file number 1-12534
---------------------------------------------
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 May 14, 2001, there were 44,670,147 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
==============================================================================
2
TABLE OF CONTENTS
Page
----
PART I
Item 1. Financial Statements:
Consolidated Balance Sheet as of March 31, 2001
and December 31, 2000 ...................................... 1
Consolidated Statement of Income for the three months
ended March 31, 2001 and 2000 .............................. 2
Consolidated Statement of Cash Flows for the
three months ended March 31, 2001 and 2000 ................. 3
Consolidated Statement of Stockholders' Equity
for the three months ended March 31, 2001 .................. 4
Notes to Consolidated Financial Statements .................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 14
PART II
Item 6. Exhibits and Reports on Form 8-K ................................ 23
-ii-
3
NEWFIELD EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share data)
(Unaudited)
March 31, December 31,
2001 2000
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 63,606 $ 18,451
Accounts receivable-oil and gas ................ 122,097 147,643
Inventories .................................... 9,366 7,164
Commodity derivatives .......................... 13,121 --
Other current assets ........................... 4,208 5,891
----------- -----------
Total current assets ......................... 212,398 179,149
----------- -----------
Oil and gas properties (full cost method, of which
$141,585 at March 31, 2001 and $106,783 at
December 31, 2000 were excluded from
amortization) ................................. 2,126,922 1,589,558
Less-accumulated depreciation, depletion and
amortization ................................... (816,957) (756,243)
----------- -----------
1,309,965 833,315
----------- -----------
Furniture, fixtures and equipment, net ........... 6,049 4,028
Commodity derivatives ............................ 6,012 --
Other assets ..................................... 10,745 6,758
----------- -----------
Total assets ................................. $ 1,545,169 $ 1,023,250
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 13,565 $ 10,209
Other accrued liabilities ...................... 168,992 128,190
Advances from joint owners ..................... 4,842 2,661
Commodity derivatives .......................... 43,571 --
----------- -----------
Total current liabilities .................... 230,970 141,060
----------- -----------
Other liabilities ................................ 13,040 6,030
Commodity derivatives ............................ 14,880 --
Long-term debt ................................... 349,599 133,711
Deferred taxes ................................... 173,456 79,244
----------- -----------
Total long-term liabilities .................. 550,975 218,985
----------- -----------
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; 44,667,447 and
42,607,301 shares issued and outstanding
at March 31, 2001 and December 31, 2000,
respectively) ................................ 447 426
Additional paid-in capital ....................... 358,388 286,412
Unearned compensation ............................ (9,337) (6,201)
Accumulated other comprehensive loss -
Foreign currency translation adjustment ........ (7,941) (4,644)
Commodity derivatives .......................... (23,896) --
Retained earnings ................................ 301,813 243,462
----------- -----------
Total stockholders' equity ................... 619,474 519,455
----------- -----------
Total liabilities and stockholders' equity ... $ 1,545,169 $ 1,023,250
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
-1-
4
NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
----------------------------
2001 2000
---------- ----------
Oil and gas revenues .............................. $ 209,326 $ 97,822
---------- ----------
Operating expenses:
Lease operating ................................. 20,824 15,491
Production and other taxes ...................... 7,118 1,665
Transportation .................................. 1,262 1,536
Depreciation, depletion and amortization ........ 61,146 41,211
General and administrative (includes
non-cash stock compensation of
$595 and $589 for 2001
and 2000, respectively) ...................... 11,285 6,935
---------- ----------
Total operating expenses ...................... 101,635 66,838
---------- ----------
Income from operations ............................ 107,691 30,984
Other income (expenses):
Interest income ................................. 613 515
Interest expense, net ........................... (5,652) (2,260)
Dividends on convertible preferred
securities of Newfield Financial Trust I ...... (2,336) (2,336)
Unrealized commodity derivative expense ......... (1,558) --
---------- ----------
(8,933) (4,081)
---------- ----------
Income before income taxes ........................ 98,758 26,903
Income tax provision:
Current ......................................... 21,089 3,717
Deferred ........................................ 14,524 5,643
---------- ----------
35,613 9,360
---------- ----------
Income before cumulative effect of change in
accounting principles ........................... 63,145 17,543
Cumulative effect of change in accounting
principles, net of tax
Adoption of SAB 101 ........................... -- (2,360)
Adoption of SFAS 133 .......................... (4,794) --
---------- ----------
Net income ........................................ $ 58,351 $ 15,183
========== ==========
Earnings per share
Basic -
Income before cumulative effect of
change in accounting principles ............. $ 1.43 $ 0.42
Cumulative effect of change in
accounting principles ....................... (0.11) (0.06)
---------- ----------
Net income .................................... $ 1.32 $ 0.36
========== ==========
Diluted -
Income before cumulative effect of
change in accounting principles ............. $ 1.32 $ 0.41
Cumulative effect of change in
accounting principles ....................... (0.10) (0.05)
---------- ----------
Net income .................................... $ 1.22 $ 0.36
========== ==========
Weighted average number of shares outstanding
for basic earnings per share ................... 44,125 41,882
========== ==========
Weighted average number of shares outstanding
for diluted earnings per share ................. 48,882 46,764
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this financial statement.
-2-
5
NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net income .................................. $ 58,351 $ 15,183
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion
and amortization ........................ 61,146 41,211
Deferred taxes ............................ 14,524 5,643
Stock compensation ........................ 595 589
Unrealized commodity derivative expense ... 1,558 --
Cumulative effect of change in
accounting principles ................... 4,794 2,360
---------- ----------
140,968 64,986
Changes in assets and liabilities, net of
business acquired:
(Increase) decrease in accounts
receivable - oil and gas ................ 53,716 (2,802)
(Increase) decrease in inventories ........ (2,872) 285
Increase in other current assets .......... (710) (1,256)
Increase (decrease) in other assets ....... (3,902) 715
Increase (decrease) in accounts payable
and accrued liabilities ................. 5,000 (1,202)
Increase in advances from joint owners .... 2,181 2,047
Increase (decrease) in other liabilities .. 7,150 (2,158)
---------- ----------
Net cash provided by
operating activities .................. 201,531 60,615
---------- ----------
Cash flows from investing activities:
Acquisition of Lariat Petroleum,
net of cash acquired .................... (264,089) --
Additions to oil and gas properties ....... (107,846) (181,456)
Additions to furniture, fixtures and
equipment ............................... (1,112) (303)
---------- ----------
Net cash used in investing activities ... (373,047) (181,759)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings .................. 663,000 120,000
Repayments of borrowings .................. (622,000) (16,000)
Proceeds from issuances of senior notes ... 174,879 --
Common stock, net ......................... (45) 3,313
---------- ----------
Net cash provided by financing
activities ............................ 215,834 107,313
---------- ----------
Effect of exchange rate changes on cash and
cash equivalents .......................... 837 (1,688)
---------- ----------
Increase (decrease) in cash and cash
equivalents ................................... 45,155 (15,519)
Cash and cash equivalents, beginning of period .. 18,451 41,841
---------- ----------
Cash and cash equivalents, end of period ........ $ 63,606 $ 26,322
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this financial statement.
-3-
6
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,
2000.................. 42,607,301 $ 426 $286,412 $ (6,201) $243,462 $ (4,644) $ 519,455
Issuance of common
stock............... 1,959,146 20 67,788 67,808
Issuance of
restricted stock,
less amortization
of $88.............. 101,000 1 3,730 (3,642) 89
Cancellation of
restricted stock...
Amortization of stock
compensation........ 506 506
Tax benefit from
exercise of
stock options....... 458 458
Comprehensive Income:
Net income............ 58,351 58,351
Foreign currency
translation
adjustment.......... (3,297) (3,297)
Cumulative effect of
accounting change,
net of tax of $39,964 (74,218) (74,218)
Reclassification
adjustments for
settled contracts,
net of tax of
$30,140............. 55,975 55,975
Changes in fair value
of outstanding
hedging positions,
net of tax of
$3,044.............. (5,653) (5,653)
-------------
Total
Comprehensive
Income........ 31,158
---------- ------ -------- ------------ -------- -------------- -------------
Balance, March 31,
2001................... 44,667,447 $ 447 $358,388 $ (9,337) $301,813 $ (31,837) $ 619,474
========== ====== ======== ============ ======== ============== =============
The accompanying notes to consolidated financial statements are an integral
part of this statement.
-4-
7
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 statements for the periods
presented. 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, 2000, including the financial statements and notes thereto.
Accounting Changes
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging
Activities" as amended by SFAS Nos. 137 and 138. See Note 5, "Commodity
Derivative Instruments and Hedging Activities."
As a result of the adoption of Emerging Issues Task Force (EITF)
No. 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company
has reclassified to operating expenses, for all periods presented, third party
costs incurred to transport production to its sales point to cost of sales,
instead of as a reduction of the related revenues as previously reported. This
reclassification had no effect on previously reported net income. Approximately
$1.3 million and $1.5 million were reclassified pursuant to EITF No. 00-10 for
the three month periods ended March 31, 2001 and 2000, respectively.
The Company adopted SEC Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," effective January 1, 2000. The adoption of
SAB No. 101 requires the Company to report crude oil inventory associated with
its Australian offshore operations at lower of cost or market, which is a change
from the historical policy of recording such inventory at market value on the
balance sheet date, net of estimated costs to sell. The cumulative effect of the
change from the acquisition date of the Company's Australian operations in July
1999 through December 31, 1999 was a reduction in net income of $2.36 million,
or $0.05 per diluted share, and is shown as the cumulative effect of change in
accounting principle on the consolidated statement of income for the quarter
ended March 31, 2000.
-5-
8
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Earnings per Share
Basic earnings per common share (EPS) is computed by dividing net income 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.
The following is a calculation of basic and diluted weighted average shares
outstanding for each of the three month periods ended March 31, 2001 and 2000:
Three Months Ended
March 31,
-------------------------
2001 2000
---------- ----------
(In thousands, except per share data):
Income (numerator):
Income before cumulative effect
change in accounting principles.......... $ 63,145 $ 17,543
Cumulative effect change in
accounting principles, net
of tax................................... (4,794) (2,360)
---------- ----------
Income - basic............................. 58,351 15,183
After tax dividends on convertible
trust preferred securities.............. 1,518 1,518
---------- ----------
Income - diluted........................... $ 59,869 $ 16,701
========== ==========
Shares (denominator):
Shares - basic............................. 44,125 41,882
Dilution effect of stock options
outstanding at end of period............. 834 959
Dilution effect of convertible
trust preferred securities............... 3,923 3,923
---------- ----------
Shared - diluted........................... 48,882 46,764
========== ==========
Earnings per share:
Basic before change in
accounting principles................... $ 1.43 $ 0.42
Basic..................................... $ 1.32 $ 0.36
Diluted before change in
accounting principles................... $ 1.32 $ 0.41
Diluted................................... $ 1.22 $ 0.36
The calculation of shares outstanding for diluted EPS for the three months
ended March 31, 2001 and 2000 does not include the effect of outstanding stock
options to purchase 594,100 and 43,500 shares, respectively, because to do so
would have been antidilutive.
-6-
9
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
Hedging
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires
enterprises to recognize all derivatives as either assets or liabilities on
their balance sheet and measure those instruments at fair value. See Note 5 -
"Derivative Instruments and Hedging Activities."
For all periods prior to January 1, 2001, the Company accounted for
commodity price hedging contracts in accordance with SFAS No. 80. Gains and
losses on these contracts are recognized in revenue in the period in which the
underlying production is delivered. These instruments 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. Neither the hedging contracts
nor the unrealized gains or losses on these contracts are recognized in the
financial statements.
(2) Acquisitions
On January 23, 2001, the Company acquired all of the outstanding capital
stock of Lariat Petroleum, Inc. ("Lariat") by merging Lariat with and into
Newfield Exploration Mid-Continent Inc., a wholly owned subsidiary of the
Company. The total consideration for the acquisition was approximately $333
million, inclusive of the assumption of debt and certain other obligations of
Lariat. The transaction has been accounted for as a purchase.
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
acquisitions occurred on January 1 of the respective periods are as follow (in
thousands, except per share amounts):
Three Months Ended
March 31,
-----------------------
2001 2000
--------- ---------
Pro forma Pro forma
(Unaudited)
Revenue.................................... $ 214,968 $ 115,336
Income from operations..................... 108,832 34,388
Income before cumulative effect of change
in accounting principles................. 62,927 16,416
Cumulative effect of change in accounting
principles............................... (4,794) (2,360)
Net income................................. 58,133 14,056
Basic earnings per common share............ $1.32 $0.34
Diluted earnings per common share.......... $1.22 $0.33
-7-
10
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
The pro forma financial information does not purport to be indicative of
the results of operations that would have occurred had the acquisitions 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.
-8-
11
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, 2001
- ------------------------------------
Oil and gas revenues $ 203,031 $ 6,295 $ -- $ 209,326
Operating expenses:
Lease operating 18,285 2,539 -- 20,824
Production and other taxes 4,445 2,673 -- 7,118
Transportation 1,262 -- -- 1,262
Depreciation, depletion and
amortization 59,993 1,153 -- 61,146
Allocated income taxes 42,857 (21) --
----------- ----------- -----------
Net income (loss) from oil and
gas operations $ 76,189 $ (49) $ --
=========== =========== ===========
General and administrative
(inclusive of stock
compensation) 11,285
-----------
Total operating expenses 101,635
-----------
Income from operations 107,691
Interest expense and
dividends, net (7,375)
Unrealized commodity derivative
expense (1,558)
-----------
Income before income taxes $ 98,758
===========
Total Long-Lived Assets $ 1,283,766 $ 9,497 $ 16,702 $ 1,309,965
=========== =========== =========== ===========
Additions to Long-Lived Assets $ 537,300 $ (16) $ 458 $ 537,772
=========== =========== =========== ===========
Three months ended March 31, 2000
- ---------------------------------
Oil and gas revenues $ 84,073 $ 13,749 $ -- $ 97,822
Operating expenses:
Lease operating 11,475 4,016 -- 15,491
Production and other taxes 692 973 -- 1,665
Transportation 1,536 -- -- 1,536
Depreciation, depletion and
amortization 39,093 2,118 -- 41,211
Allocated income taxes 11,260 1,993 --
----------- ----------- -----------
Net income from oil and
gas operations $ 20,017 $ 4,649 $ --
=========== =========== ===========
General and administrative
(inclusive of stock
compensation) 6,935
-----------
Total operating expenses 66,838
-----------
Income from operations 30,984
Interest expense and
dividends, net (4,081)
-----------
Income before income taxes $ 26,903
===========
Total Long-Lived Assets $ 766,478 $ 10,055 $ 10,558 $ 787,091
=========== =========== =========== ===========
Additions to Long-Lived Asset $ 175,049 $ 8,019 $ 128 $ 183,196
=========== =========== =========== ===========
-9-
12
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
(5) Commodity Derivative Instruments and Hedging Activities
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133, and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (referred to hereafter as "FAS 133"), on January 1, 2001. In accordance with
the transition provisions of FAS 133, on January 1, 2001, the Company recorded
as cumulative effect adjustments a loss of $74.2 million (net of tax of $40.0
million) in accumulated other comprehensive loss and a loss of $4.8 million (net
of tax of $2.6 million) in 2001 earnings. In addition, the adoption resulted in
the recognition of $17.7 million of derivative assets and $139.3 million of
derivative liabilities on the balance sheet on January 1, 2001.
The Company expects that within the next twelve months it will reclassify
to earnings $75.3 of the transition adjustment loss that was recorded in
accumulated other comprehensive loss at January 1, 2001.
The Company maintains a commodity-price risk management strategy that
utilizes derivative instruments in order to hedge against the variability in
cash flows associated with the forecasted sale of its oil and gas production.
While the use of these derivative instruments limits the downside risk of
adverse price movements, they may also limit future revenues from favorable
price movements. The use of derivatives also involves the risk that the
counterparties to such instruments will be unable to meet the financial terms of
such contracts.
All derivatives are recognized on the balance sheet at their fair value. On
the date that the Company enters into a derivative contract, it designates the
derivative as a hedge of the variability in cash flows associated with the
forecasted sale of its oil and gas production; Changes in the fair value of a
derivative that is highly effective as and that is designated and qualifies as a
cash flow hedge, to the extent that the hedge is effective, are recorded in
other comprehensive loss, until earnings are affected by the variability of cash
flows of the hedged transaction (e.g., until the sale of the Company's oil and
gas production is recorded in earnings). Such gains or losses are reported in
oil and gas revenues on the consolidated statement of income. For the quarter
ended March 31, 2001, the Company had the following activity in the "Commodity
derivatives" component of Accumulated other comprehensive loss (in thousands):
Cumulative effect of accounting change, net of tax............ $ 74,218
Reclassification adjustments for settled contracts,
net of tax.................................................. (55,975)
Change in fair value of outstanding hedging positions,
net of tax.................................................. 5,653
--------
$ 23,896
The Company expects that within the next twelve months it will reclassify
to earnings $20.5 of the $23.9 recorded in accumulated other comprehensive loss
at March 31, 2001.
-10-
13
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
Any hedge ineffectiveness (which represents the amount by which the changes
in the fair value of the derivative exceed the variability in the cash flows of
the forecasted transaction) is recorded in current-period earnings. For the
quarter ended March 31, 2001, the Company recorded an unrealized loss of $1.5
million under the income statement caption "Unrealized commodity derivative
expense" representing the ineffective portion of the Company's commodity
derivative positions during the quarter as well as the change in the time value
component of the option contracts used in the Company's hedging strategy.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as cash flow hedges to the specific
forecasted sale of oil or gas at its physical location. The Company also
formally assesses (both at the hedge's inception and on an ongoing basis)
whether the derivatives that are used in hedging transactions have been highly
effective in offsetting changes in the cash flows of hedged items and whether
those derivatives may be expected to remain highly effective in future periods.
If it is determined that a derivative is not (or has ceased to be) highly
effective as a hedge, the Company will discontinue hedge accounting
prospectively. The gain or loss on the derivative will remain in accumulated
other comprehensive loss and will be reclassified into earnings when the
forecasted transaction affects earnings. If hedge accounting is discontinued and
the derivative remains outstanding, the Company will carry the derivative at its
fair value on the balance sheet, recognizing all subsequent changes in the fair
value in current-period earnings. Hedge accounting was not discontinued during
the period for any hedging instruments.
NATURAL GAS. As of March 31, 2001, the Company had entered into the commodity
derivative instruments set forth in the table below as a cash flow hedge of the
forecasted sale of its 2001 and 2002 U.S. Gulf Coast natural gas production.
NYMEX CONTRACT PRICE PER MMBTU
--------------------------------------------------
COLLARS
VOLUME IN SWAPS -------------------------- FLOOR FAIR MARKET
PERIOD MMMBTUS (AVERAGE) FLOORS CEILINGS CONTRACTS VALUE
- ----------------------------- --------- --------- ----------- ------------ --------- ---------------
April 2001 -- June 2001
Price Swap Contracts....... 8,380 $3.61 -- -- -- $ (13.8 Million)
Collar Contracts........... 9,580 -- $2.75-$5.00 $3.21-$6.30 -- $ (4.0 Million)
Floor Contracts............ 2,000 -- -- -- $5.35 $ 1.0 Million
July 2001 -- September 2001
Price Swap Contracts....... 4,880 $5.14 -- -- -- --
Collar Contracts........... 12,100 -- $3.25-$5.00 $3.85-$6.30 -- $ (4.0 Million)
Floor Contracts............ 3,000 -- -- -- $5.35 $ 2.1 Million
October 2001 -- December 2001
Price Swap Contracts....... 2,270 $5.20 -- -- -- --
Collar Contracts........... 1,900 -- $4.00-$4.75 $5.55-$6.00 -- $ (0.2 Million)
Floor Contracts............ 450 -- -- -- $4.54 $ 0.4 Million
January 2002 -- December 2002
Collar Contracts........... 9,300 -- $4.00-$4.25 $4.80-$9.25 -- $ (0.1 Million)
-11-
14
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
In connection with the acquisition of Lariat in January 2001, the Company
assumed certain commodity derivative instruments and designated them as cash
flow hedges of the forecasted natural gas sales of the Company's production in
Oklahoma. The table below presents the outstanding derivative instruments as of
March 31, 2001.
CONTACT PRICE PER MMBTU
------------------------------------
COLLARS
VOLUME IN SWAPS ------------------------
PERIOD MMMBTUS (AVERAGE) FLOORS CEILINGS FAIR MARKET VALUE
- -------------------------------------------- --------- --------- ----------- ---------- -----------------
April 2001 -- June 2001
Price Swap Contracts...................... 1,860 $3.97 -- -- $ (2.0 Million)
Collar Contracts.......................... 610 -- $2.27 $2.69 $ (1.5 Million)
July 2001 -- September 2001
Price Swap Contracts...................... 2,420 $4.11 -- -- $ (2.2 Million)
October 2001 -- December 2001
Price Swap Contracts...................... 2,420 $4.11 -- -- $ (2.4 Million)
January 2002 -- December 2002
Price Swap Contracts...................... 3,650 $2.62 -- -- $ (6.3 Million)
January 2003 -- March 2003
Price Swap Contracts...................... 900 $2.61 -- -- $ (1.4 Million)
OIL AND CONDENSATE. As of March 31, 2001, the Company had entered into commodity
derivative instruments set forth in the table below as a cash flow hedge of the
forecasted sale of its U.S. Gulf Coast oil production for 2001 and 2002.
NYMEX CONTRACT PRICE PER BBL
---------------------------------------------------------
COLLARS
VOLUME IN SWAPS ----------------------------- FLOOR FAIR MARKET
PERIOD BBLS (AVERAGE) FLOORS CEILINGS CONTRACTS VALUE
- ----------------------------- --------- --------- ------------- ------------- ------------- -------------
April 2001 -- June 2001
Price Swap Contracts....... 436,800 $22.80 -- -- -- $(1.5 Million)
Collar Contracts........... 364,000 -- $25.00-$27.25 $30.05-$30.75 -- $ 0.1 Million
Floor Contracts............ 186,550 -- -- -- $22.17-$28.28 $ 0.2 Million
July 2001 -- September 2001
Price Swap Contracts....... 391,000 $23.88 -- -- -- $(0.6 Million)
Collar Contracts........... 414,000 -- $24.00-$26.25 $27.30-$32.45 -- $(0.1 Million)
Floor Contracts............ 207,000 -- -- -- $22.17-$27.04 $ 0.4 Million
October 2001 -- December 2001
Price Swap Contracts....... 386,400 $23.24 -- -- -- $(0.9 Million)
Collar Contracts........... 345,000 -- $24.00-$25.25 $27.30-$30.75 -- $ 0.2 Million
Floor Contracts............ 262,200 -- -- -- $22.17-$26.00 $ 0.6 Million
January 2002 -- March 2002
Collar Contracts........... 517,500 -- $22.00-$25.00 $25.75-$30.75 -- $ 0.2 Million
April 2002 -- June 2002
Collar Contracts........... 455,000 -- $22.00-$25.00 $25.75-$30.75 -- $ 0.2 Million
July 2002 -- September 2002
Collar Contracts........... 345,000 -- $23.00-$25.00 $26.75-$30.75 -- $ 0.5 Million
October 2002 -- December 2002
Collar Contracts........... 184,000 -- $25.00 $28.00-$30.75 -- $ 0.4 Million
-12-
15
NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
With respect to any particular swap transaction, the counterparty is
required to make a payment to the Company in the event that the settlement price
for any settlement period is less than the swap price for such transaction, and
the Company is 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 the Company if the settlement price for any
settlement period is below the floor price for such transaction, and the Company
is required to make payment to the counterparty if the settlement price for any
settlement period is above the ceiling price of such transaction. For any
particular floor transaction, the counterparty is required to make a payment to
the Company if the settlement price for any settlement period is below the floor
price for such transaction. The Company is not required to make any payment in
connection with the settlement of a floor transaction.
SFAS 133 is complex and subject to a potentially wide range of
interpretation in its application. As such, In 1998 the FASB established the
Derivatives Implementation Group (DIG) task force specifically to consider and
publish official interpretations of issues arising from implementation of SFAS
133. There are currently several issues before the DIG and the potential exists
for additional issues to be brought under its review. If subsequent DIG
interpretations of SFAS 133 are different than the Company's current
interpretation, it is possible that the application of SFAS 133 on the Company's
financial statements will be modified.
(6) Subsequent Events
On May 4, 2001, the Company announced that its Board of Directors
authorized the expenditure of up to $50 million to repurchase shares of the
Company's common stock. The Company has approximately 45 million shares of
common stock outstanding. The Company anticipates that it will fund the
repurchases through cash flow from operations and borrowings under its revolving
credit facility. The repurchases may be effected from time to time in accordance
with applicable securities laws, through solicited or unsolicited transactions
in the market or in privately negotiated transactions. No limit was placed on
the duration of the repurchase program. Subject to applicable securities laws,
such purchases will be at times and in amounts as the Company deems appropriate.
As of May 11, 2001, no shares had been repurchased under this program.
-13-
16
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 and access to capital and
on the quantities of oil and gas reserves that may be economically produced.
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 and the timing of
crude oil offloadings from inventory in Australia. Consequently, 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.
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133, and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (referred to hereafter as "FAS 133"), on January 1, 2001. In accordance with
the transition provisions of FAS 133, on January 1, 2001, the Company recorded
as cumulative effect adjustments a loss of $74.2 million (net of tax of $40.0
million, in accumulated other comprehensive loss and a loss of $4.8 million (net
of tax of $2.6 million) in 2001 earnings. In addition, the adoption resulted in
the recognition of $17.7 million of derivative assets and $139.3 million of
derivative liabilities on the balance sheet on January 1, 2001.
In the fourth quarter of 2000 we adopted SEC Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No. 101
requires us to report crude oil inventory associated with our Australian
offshore operations at lower of cost or market, which is a change from our
historical policy of recording such inventory at market value on the balance
sheet date, net of estimated costs to sell. The cumulative effect of the change
from the acquisition date of our Australian operations in July 1999 through
December 31, 1999 is a reduction in net income of $2.36 million, or $0.05 per
-14-
17
diluted share, and is shown as the cumulative effect of change in accounting
principle on our consolidated statement of income for the three month period
ended March 31, 2000. SAB No. 101 would not have effected periods prior to the
acquisition of the Company's Australian operations in July 1999.
As a result of the adoption of Emerging Issues Task Force (EITF) No. 00-10,
"Accounting for Shipping and Handling Fees and Costs," we have reclassified to
operating expenses, for all periods presented, third party costs incurred to
transport production to our sales point to cost of sales, instead of as a
reduction of the related revenues as previously reported. This reclassification
had no effect on previously reported net income. Approximately $1.3 million and
$1.5 million were reclassified pursuant to EITF No. 00-10 for the three month
periods ended March 31, 2001 and 2000, respectively.
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.
RESULTS OF OPERATIONS
The following table presents information about our oil and gas operations.
Three Months Ended
March 31, Percentage
------------------ Increase
2001 2000 (Decrease)
------ ------ ----------
PRODUCTION:
UNITED STATES
Natural gas (Bcf)........................ 30.8 22.7 36%
Oil and condensate (MBbls)............... 1,241 914 36%
Total (Bcfe)............................. 38.2 28.2 35%
AUSTRALIA (2)
Oil and condensate (MBbls)............... 240 508 (53%)
Total (Bcfe)............................. 1.4 3.0 (53%)
TOTAL
Natural gas (Bcf)........................ 30.8 22.7 36%
Oil and condensate (MBbls)............... 1,481 1,422 4%
Total (Bcfe)............................. 39.6 31.2 27%
AVERAGE REALIZED PRICES: (1)
UNITED STATES
Natural gas (per Mcf).................... $ 5.56 $ 2.68 107%
Oil and condensate (per Bbl)............. 24.69 23.79 4%
AUSTRALIA (2)
Oil and condensate (per Bbl)............. $26.28 $27.06 (3%)
TOTAL
Natural gas (per Mcf).................... $ 5.56 $ 2.68 107%
Oil and condensate (per Bbl)............. 24.95 24.96 --
- ----------
(1) Average realized prices for natural gas and oil and condensate are
presented net of all applicable transportation expenses, which reduces the
realized price of natural gas by $0.03 and $0.04 in 2001 and 2000,
respectively, and the realized oil and condensate price by $0.24 and $0.43
in 2001 and 2000, respectively. Average realized prices include the effect
of hedges.
(2) Represents oil and condensate sold during the period from inventory and
current period production.
PRODUCTION
NATURAL GAS. The increase in gas production was primarily related to the
acquisition of producing properties in South Texas in February 2000, the
acquisition of Lariat Petroleum in January 2001, development projects in the
Gulf of Mexico and the success of our drilling program. Gains in production
were partially offset by natural declines from other producing properties.
CRUDE OIL AND CONDENSATE. The increase in oil and condensate production is
mainly due to the acquisition of Lariat Petroleum in January 2001 and
development projects at Vermilion 215 and Eugene Island 198/199/202. These
increases were offset by the decrease in reported Australian crude oil
production caused by the timing of liftings of the crude oil from our two
FPSOs.
-15-
18
EFFECT OF HEDGING ON REALIZED PRICES
NATURAL GAS. Hedging activities in the first quarter of 2001 resulted in a
price that was 78% of what otherwise would have been received. Hedging
activities in the first quarter of 2000 resulted in a price that was 103% of
what otherwise would have been received.
CRUDE OIL AND CONDENSATE. Our average crude oil price in the first quarter
of 2001 was 90% of what would have been received without hedging activities. Our
average crude oil price in the first quarter of 2000 was 88% of what would have
been received without hedging activities.
OPERATING EXPENSES
UNIT OF PRODUCTION (PER MCFE) AMOUNT (IN MILLIONS)
------------------------------ ------------------------------
Three Months Ended Three Months Ended
March 31, Percentage March 31, Percentage
------------------ Increase ------------------- Increase
2001 2000 (Decrease) 2001 2000 (Decrease)
------ ------ ---------- ------- ------- ----------
UNITED STATES
Lease operating........................... $0.48 $0.41 17% $18,285 $11,475 59%
Production and other taxes................ 0.12 0.02 500% 4,445 692 542%
Transportation............................ 0.03 0.05 (40%) 1,262 1,536 (18%)
Depreciation, depletion and amortization.. 1.57 1.39 13% 59,993 39,093 53%
General and administrative (exclusive of
stock compensation). ................... 0.27 0.22 23% 11,036 6,887 60%
AUSTRALIA
Lease operating........................... $1.77 $1.32 34% $ 2,539 $ 4,016 (37%)
Production and other taxes................ 1.86 0.32 481% 2,673 973 175%
Transportation............................ -- -- -- -- -- --
Depreciation, depletion and amortization.. 0.80 0.69 16% 1,153 2,118 (46%)
General and administrative (exclusive of
stock compensation)..................... 0.17 0.02 750% 249 48 419%
TOTAL
Lease operating........................... $0.53 $0.50 6% $20,824 $15,491 34%
Production and other taxes................ 0.18 0.05 260% 7,118 1,665 328%
Transportation............................ 0.03 0.05 (40%) 1,262 1,536 (18%)
Depreciation, depletion and amortization.. 1.54 1.32 17% 61,146 41,211 48%
General and administrative (exclusive of
stock compensation)..................... 0.27 0.20 35% 11,285 6,935 63%
Operating expenses during the three month period ended March 31, 2001 were
impacted by the following:
- The per unit of production increase in domestic lease operating
expense reflects higher oilfield service and related costs in the Gulf
of Mexico. The 34% increase in our Australian lease operating expenses
per Mcfe is due mainly to several non-routine maintenance operations
we performed on our FPSOs during the first quarter of 2001 which had
the effect of increasing expenses and lowering production as a result
of downtime for such maintenance.
- The significant increase in production and other taxes in the first
quarter of 2001 is primarily due to our acquisition of three producing
gas fields in South Texas in February 2000, the acquisition of Lariat
Petroleum in January 2001 and a higher natural gas price environment
during the first three months of 2001. The increase in production and
other taxes in Australia is due to revised estimates of such taxes
during the first quarter of 2001 as a result of changes in the timing
of anticipated future capital expenditures in Australia.
- As a result of EITF No. 00-10, we have reclassified to operating
expense in 2000, third party cost incurred to transport production to
our sales point instead of as a reduction of the related reserves as
previously reported. See "General" under Management's Discussion and
Analysis.
-16-
19
- The increase in our domestic depreciation, depletion and amortization
rate is primarily the result of increases in the cost of drilling
goods and services, platforms and facilities construction, industry
transportation cost and the completion of several higher cost wells.
The increase in our Australian DD&A rate is a result of our
unsuccessful drilling activities during 2000 in Australia.
- The increase in general and administrative expense for the first
quarter of 2001 is due primarily to an increase in performance based
pay and our growing workforce. Performance based compensation
excluding stock compensation expense, as a component of general and
administrative expense, increased from $1.8 million, or $0.06 per
Mcfe, for the three months ended March 31, 2000, to $5.2 million or
$0.13 per Mcfe, for the three months ended March 31, 2001. The
increase in performance based compensation is a result of higher
earnings during the first quarter of 2001 as compared to the
comparable quarter of 2000. Performance based pay is limited by
profitability. The significant increase in general and administrative
expenses on a unit of production basis in Australia is due to the
timing of liftings from the two FPSOs during the first quarter of 2001
as compared to the comparable period of 2000.
-17-
20
INTEREST EXPENSE AND DIVIDENDS
We incur interest expense on our $125 million principal amount 7.45% Senior
Notes due 2007, our $175 million principal amount 7 5/8% Senior Notes due 2011
and on borrowings under our reserve-based revolving credit facility and money
market credit lines. Outstanding borrowings under the credit facility and money
market lines of credit may vary significantly from period to period. Dividends
are paid on the 6.5% convertible trust preferred securities we issued in August
1999.
Three Months Ended
March 31,
------------------
2001 2000
------ ------
(In millions)
Gross interest expense................................ $ 7.4 $ 3.4
Capitalized interest.................................. (1.3) (1.1)
------ ------
Net interest expense.................................. 6.1 2.3
Dividends on preferred securities..................... 2.3 2.3
------ ------
Total interest expense and dividends.................. $ 8.4 $ 4.6
====== ======
In the first quarter of 2001, our higher total interest expense was the
result of borrowings in January 2001 to partially finance the acquisition of
Lariat Petroleum. On February 22, 2001, we issued $175 million of 7 5/8% Senior
Notes due 2011. The net proceeds from the sale of the senior notes was used to
repay outstanding indebtedness under our revolving credit facility. At March 31,
2001, borrowings under our credit facility were $50 million.
UNREALIZED COMMODITY DERIVATIVE EXPENSE
As a result of our adoption of SFAS 133 effective January 1, 2001, we are
now required to record all derivative instruments on the balance sheet at fair
value. The $1.5 million unrealized loss represents the ineffective portion of
our commodity derivative hedge positions and the time value component of the
option contracts used in our hedging strategy.
TAXES
The effective tax rate for the three month period ended March 31, 2001 was
36% as compared to 35% for the comparable period in 2000. The effective tax rate
was greater than the statutory tax rate in 2001 as a result of state income
taxes associated with the acquisition of the producing properties from Lariat
Petroleum.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. We had a working capital deficit of $18.6 million at March
31, 2001. This compares to a working capital surplus of $38.1 million at
December 31, 2000. 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, public debt and bank borrowings.
-18-
21
DEBT. On January 23, 2001, we acquired Lariat Petroleum for total
consideration of approximately $333 million, inclusive of the assumption of debt
and certain other obligations of Lariat. The consideration included 1.9 million
shares of our common stock. We financed the cash portion of the consideration
under a new reserve-based revolving credit facility obtained on January 23, 2001
with The Chase Manhattan Bank, as Agent.
The banks participating in the new facility have committed to lend the
Company up to $425 million. The amount available under the facility is subject
to a calculated borrowing base determined by banks holding 75% of the aggregate
commitments, which is reduced by the aggregate outstanding principal amount of
any senior notes issued by us (currently $300 million). The borrowing base is
currently $510 million and is redetermined at least semi-annually. No assurances
can be given that the banks will not elect to redetermine the borrowing base in
the future. The new facility contains restrictions on the payment of dividends
and the incurrence of debt as well as other customary covenants and
restrictions. The new facility matures on January 23, 2004. We also have money
market lines of credit with various banks in an amount limited by the credit
facility to $40 million. At March 31, 2001, we had outstanding borrowings under
the credit facility of $50 million and no outstanding borrowings under the money
market lines of credit. Consequently, at March 31, 2001, we had approximately
$200 million of available capacity under these credit agreements.
On February 22, 2001, we placed $175 Million of 7 5/8% Senior Notes due
2011. The offering was done under an existing shelf registration statement. Net
proceeds from the sale of the senior notes were used to repay outstanding
indebtedness under our revolving credit facility. The notes were issued at
99.931% of par to yield 7.635%, with interest payable on each March 1 and
September 1, commencing September 1, 2001.
CASH FLOW FROM OPERATIONS. Our net cash flow from operations for the three
months ended March 31, 2001 increased 232% over the comparable period of 2000 to
$201.5 million. This increase in cash flow is primarily due to sharply higher
commodity prices for gas, higher production volumes and changes in working
capital.
CAPITAL EXPENDITURES. We made capital expenditures of $432.7 million in the
first three months of 2001. This includes $19.7 million for exploration, $70.6
million for exploitation and development projects and $342.4 million for
property acquisitions including the $333 million paid for Lariat Petroleum and
the appropriate purchase accounting related amounts. We have budgeted $286
million for capital spending for the remainder of 2001. Approximately $92
million has been budgeted for domestic exploration projects and $176 million for
domestic exploitation and development drilling and the construction of
platforms, facilities and pipelines. International spending is estimated at $20
million for the remainder of 2001. 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.
-19-
22
HEDGING
We enter into various commodity price hedging contracts with respect to a
portion of our anticipated future natural gas and crude oil production. During
2000, approximately 47% of our equivalent production was subject to hedge
positions. At May 11, 2001, approximately 56% of our anticipated production
for 2001 was or is subject to hedge positions. 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. Such contracts are accounted for
as derivatives in accordance with SFAS No. 133. Please see the discussion
under "General" above and in Note 5, "Derivative Instruments and Hedging
Activities," to our consolidated financial statements appearing earlier in this
report.
Historically, we have entered into hedging arrangements with respect to a
portion of our anticipated future production offshore and onshore the Gulf
Coast. In connection with our acquisition of Lariat Petroleum in January 2001 we
assumed natural gas hedges entered into by Lariat with respect to a portion of
its anticipated future production in Oklahoma.
Please see the tables in Note 5, "Commodity Derivative Instruments and
Hedging Activities," to our consolidated financial statements appearing earlier
in this report for a description of our hedging contracts as of March 31, 2001
and the fair value of those contracts as of that date. We continue to evaluate
additional hedging transactions for 2001 and future years.
-20-
23
Stock Repurchase Program
On May 4, 2001, we announced that our Board of Directors authorized the
expenditure of up to $50 million to repurchase shares of our common stock. We
anticipate that we will fund repurchases through cash flow from operations and
borrowings under our revolving credit facility. The repurchases may be effected
from time to time in accordance with applicable securities laws, through
solicited or unsolicited transactions in the market or in privately negotiated
transactions. No limit was placed on the duration of the repurchase program.
Subject to applicable securities laws, purchases will be at times and in amounts
as we deem appropriate. As of May 11, 2001, no shares had been repurchased under
this program.
Estimated Operating and Financial Data; Operating Activities
We continue to maintain our home page located at www.newfld.com. In
conjunction with our web page, we also maintain our electronic publication
entitled @NFX. @NFX will be periodically published to provide updates on our
current operating activities. @NFX also includes our latest publicly announced
estimates of expected production volumes, costs and expenses for the then
current quarter. All recent additions of @NFX are available on our web page. To
receive @NFX directly by e-mail, please forward your e-mail address to
pmcknight@newfld.com or visit our web page and sign up.
Forward Looking Information
Certain of the statements set forth in this document regarding planned
capital expenditures, drilling plans, other capital activities and the financing
of capital expenditures 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, the
availability of capital resources and other factors described in our annual
report on Form 10-K for the year ended December 31, 2000. In addition, the
drilling of oil and gas wells and the production of hydrocarbons are subject to
governmental regulations and operating risks.
-21-
24
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
-22-
25
Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
On January 8, 2001, we filed a Current Report on Form 8-K reporting
that we had entered into a definitive agreement to acquire Lariat
Petroleum for approximately $333 million.
On February 7, 2001, we filed a Current Report on Form 8-K reporting
that we had acquired all of the outstanding capital stock of Lariat
Petroleum on January 23, 2001.
On February 13, 2001, we filed Amendment No. 1 to Form 8-K to file the
financial statements of Lariat Petroleum for the year ended December
31, 1999, for the nine months in the period ended September 30, 2000
and the pro forma combined financial statements of Lariat Petroleum and
Newfield for the year ended December 31, 1999 and the nine months in
the period ended September 30, 2000.
On February 16, 2001, we filed a Current Report on Form 8-K reporting
our financial and operational highlights for 2000.
On February 28, 2001, we filed a Current Report on Form 8-K reporting
our agreement on February 21, 2001 to offer, issue and sell
$175 million of its 7 5/8% Senior Notes Due 2011, and to file certain
agreements and documents related to such offering.
-23-
26
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: May 14, 2001 By: /s/ TERRY W. RATHERT
------------------------------
Terry W. Rathert
Vice President and Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
-24-