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) -- Every exploration and production company talks a big game about shifting from natural gas to liquids growth, but it's easier said than done. The latest results from the E&P universe show that company by company targets will be missed and costs will come in above expectations as these E&Ps rely more and more on increased oil production as the narrative with which they sell their stories to the market.

Take the latest results from

Newfield Exploration


, down 10% on Wednesday after lowering its 2012 estimates significantly and raising costs. On a day when energy was leading the sector higher and during a period of time in which rising crude oil prices have buoyed all E&Ps, results from this company show that the details vary, and the devil inevitably surfaces.

In general, E&P investors are slaves to production growth and when production growth disappoints and costs come in higher than guidance, it's a close to scientific formula for a selloff.

Newfield Exploration missed the Wall Street consensus of $1.03 in the fourth quarter with earnings of 95 cents, but it is the increased costs as a reason for the miss and more so, as an evolving headwind, that will keep the shares under pressure.

"Newfield will likely disappoint investors, with cost escalation emerging as a key issue as the company transitions toward being a liquids-focused company. While it has an industry-leading position in the Uinta, the company will likely need to show strong drilling results across its Cana Woodford acreage in 2012 to convince investors it has a third viable liquids play," wrote Sterne Agee analyst Tim Rezvan in a note.

E&Ps are by and large expected to curtail natural gas production due to the uneconomic pricing. However, the hunt for liquids is supposed to lead to production increases even with the pullback in gas drilling. But that's not the case in the Newfield outlook. It guided overall production to be flat in 2012, with 20% liquids growth not enough to more than offset a decline in natural gas drilling. At the same time, Newfield expects spending of $1.5 billion to $1.7 billion in 2012.

A lackluster production story on higher costs makes investors walk, and they may not come back again until Newfield can show that its liquids spending is paying off, meaning during the second half of 2012 when it will have to show liquids growth, particularly in the Cana Woodford, where it is spending $500 million. The company guided to 20% growth in its leading Uinta position, meaning it's the other shale plays -- Cana Woodford and Williston -- where the pressure will be on to show bang for the company's buck.

Forest Oil

(FST) - Get FAST Acquisition Corp Class A Report

showed a different version of this E&P story in its earnings and outlook.

Quarterly production was in line with guidance, but operating expenses were higher than expectations. Forest Oil increased liquids production from 27% to 30% of production, but operating costs increased meaningfully in the key Eagle Ford and Permian Basin drilling.

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Forest Oil shares were down close to 8% on Wednesday.

Also alarming for investors were results from the company's key Eagle Ford wells, which has been one of the shale boom regions for many E&Ps. Stifel analysts described the Eagle Ford results -- where the return rate was down quarter over quarter -- as a "slight negative," and said Forest Oil remains a turnaround in progress.

Just like Newfield, the pressure will remain on Forest Oil to walk the walk about the evolving liquids story in the second half of 2012.

"The company's improving liquids mix, new Wolfbone drilling starting up this quarter, EF

Eagle Ford JV potential by late 2Q, and drilling acceleration in 2H

second half 2012 should help the name reach our target price," Stifel said.

The transition to liquids continues to be the only narrative that excites investors in the U.S. independent E&P space, but execution on that narrative is another story.

-- Written by Eric Rosenbaum from New York.

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