Newfield Exploratio Q1 2010 Earnings Call Transcript

Newfield Exploratio Q1 2010 Earnings Call Transcript
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Newfield Exploratio (NFX)

Q1 2010 Earnings Call

April 28, 2010 8:30 am ET

Executives

George Dunn - Head of Division Headquarters Office and Vice President of Mid Continent

Gary Packer - VP, Rocky Mountains

Unknown Speaker -

Terry Rathert - Chief Financial Officer and Executive Vice President

William Schneider - Vice President of Onshore Gulf Coast & International

Lee Boothby - Chief Executive Officer, President and Director

Daryll Howard - Vice President of Rocky Mountains

Gary Packer - Chief Operating Officer and Executive Vice President

Analysts

Rehan Rashid - FBR Capital Markets & Co.

Stephen Richardson - Morgan Stanley

Peter Kissel

Dan McSpirit - BMO Capital Markets U.S.

Joseph Magner - Macquarie Research

Subash Chandra - Jefferies & Company, Inc.

Gil Yang - BofA Merrill Lynch

David Tameron - Wells Fargo Securities, LLC

David Kistler - Simmons & Company

Irene Haas - Canaccord Adams Ltd.

Brian Singer - Goldman Sachs Group Inc.

Michael Jacobs - Private Investor

Presentation

Operator

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Good day, everyone, and welcome to Newfield Exploration's First Quarter 2010 Conference Call. [Operator Instructions] And before we get started, one housekeeping matter.

Our discussion with you today will contain forward-looking statements such as estimated product and timing, drilling and development plans, expected cost reductions and planned capital expenditures. Although we believe that the expectations reflected in these statements are reasonable, they are based upon assumptions and anticipated results that are subject to numerous uncertainties and risks. Please see Newfield's annual report on Form 10-K and quarterly reports on Form 10-Q for a discussion of factors that may cause actual results to vary. In addition, reconciliations of non-GAAP financial measures to GAAP financial measures, together with Newfield's earnings release and any other applicable disclosures, are available on the Investor Relations page of Newfield's website at www.newfld.com.

At this time, for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr. Lee Boothby. Please go ahead, sir.

Lee Boothby

Thank you, operator, and good morning. Good morning, everyone. Thanks for dialing in this morning. We certainly appreciate your interest and investment in our company. With me today here in Houston, I have Gary Packer, our Chief Operating Officer; Terry Rathert, our Chief Financial Officer; John Jasek, our Vice President, Gulf of Mexico; Bill Schneider, Vice President of Gulf Coast International; Brian Rickmers, our Controller; and of course, Steve Campbell, Investor Relations; and remotely, we've got George Dunn, our Mid-Continent Region out of Tulsa; and Daryll Howard, who runs our Rockies operation out of Denver, is actually calling in today from Utah.

On Monday, we published the detailed operations report. This release carried lots of information about each of our focus areas. But more importantly, we announced a reallocation of our capital budget to allow for increased investments in all the projects in 2010. Newfield has real oil projects in its portfolio today, delivering real results. These projects are meaningful and offer us the ability to combine production growth and profitability. There are benefits to a diverse portfolio, and we fully intend to continue using these to our advantage to deliver value to our shareholders. Let me briefly summarize the most significant steps we are taking.

We plan to invest $700 million or about 45% of our 2010 budget on oil projects. These are projects we have in hand today. Keep in mind, our initial shift to oil actually began months ago as we accelerated development drilling in Malaysia, added rigs in Monument Butte and the Williston Basin at year end and significantly increased our natural gas hedges to protect returns. You are seeing the benefits of these positions in our guidance today.

Second, we expect our domestic oil volumes to grow about 20% in 2010, with the most significant drivers being Monument Butte, Malaysia and the Williston Basin. I'll spend more time on this call discussing our improved outlook for Monument Butte growth.

Third, our foundational gas assets are held by production and give us great flexibility in our investment timing. We plan to reduce our active rig count in the Woodford from the current pace of eight rigs to a 2010 exit of around four to five rigs. With continued great results from our Super Extended Laterals, we still expect that Woodford production should grow 20% in 2010. So when you combine all of the above, we expect that our production for 2010 will be more oily and will land in the upper half of our beginning-of-year guidance. We expect to grow at least 10% in 2010.

Last night, we published our first quarter financial results. From a financial reporting standpoint, it was a very simple quarter. Pre-FAS 133, we earned $1.19 per share, surpassing First Call estimates due primarily to lower operating expenses in the quarter. In yesterday's earnings release, we provided enhanced guidance for the remainder of the year, showing our second quarter expectations, as well as full year expectation for various metrics helpful in your modeling and analysis. As always, we'll be happy to take your questions at the end of the call.

The call today will be very brief, and our comments will be focused around three main topics. First, the benefits of a diverse portfolio. Although there are times that it would be fashionable to be 100% gas or 100% oil, we think that having a diverse and balanced portfolio to invest in at the appropriate times is the best formula to create long-term value. Second, I want to spotlight our in-hand oil projects that will drive top-tier production growth within cash flow in 2010 and 2011. The cornerstone of this program is Monument Butte, and the recent results from our Rockies teams are excellent. And finally, I'll quickly cover our planned activities in the new exploration areas that we are hopeful could become a play of the future for Newfield.

Many of you have visited our headquarters and regional offices and have seen our founding business principles prominently displayed in our lobbies. We talked often about these, and they are ingrained in our DNA. One of those principles is balance. And to us, that means a lot of things: balance between exploration and development, between onshore and offshore, conventional and unconventional. But perhaps the most important today is a balance between oil assets and gas assets. This is a great time to have oil opportunities to invest in.

For some time, we've had a view that oil was good, and that we needed a solid representation in oil plays, both in the U.S. and in Southeast Asia. In 2004, we took two large steps on our path to transforming Newfield. We entered the shallow water arena in Malaysia, and we acquired the giant Monument Butte field in Utah. The time the Monument Butte acquisition, the field was producing about 7,000 barrels a day, and oil was about $30 per barrel. Today, both field production and oil prices have nearly tripled. This was a great acquisition and is the cornerstone of our domestic oil production growth.

We're investing more in our oil projects today because it's the right economic choice. We're able to slower growth in gas developments and accelerate our oil plays. Our 2010 domestic oil production is now expected to grow about 20% over 2009 volumes. Because we are shifting more investments to oil early in the year, this will have a positive impact on our 2011 oil volumes as well.

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