Newfield Exploration Company (NFX)

Q3 2010 Earnings Conference Call

October 21, 2010 9:30 AM EST

Executives

Lee Boothby – Chairman, President and CEO

Gary Packer – COO

George Dunn – VP, Mid-Continent

John Jasek – VP, Gulf of Mexico

Analysts

Scott Wilmoth – Simmons and Company

Gil Yang – Bank of America

Joe Allman – JPMorgan

Bob Morris – Citi

Joe Magner – Macquarie Capital

Ankit Ram [ph] – Global Data [ph]

Brian Singer – Goldman Sachs

Rehan Rashid – FBR Capital Markets

Dan McSpirit – BMO Capital Markets

Brian Lively – Tudor, Pickering, Holt

Gordon Steuart

[ph] – Wells Fargo

Jack Aydin – KeyBanc Capital Markets

TJ Schultz – RBC Capital

Richard Tullis – Capital One Southcoast

Presentation

Operator

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Previous Statements by NFX
» Newfield Exploration Co. Q2 2010 Earnings Call Transcript
» Newfield Exploratio Q1 2010 Earnings Call Transcript
» Newfield Exploration Company Q4 2009 Earnings Call Transcript

Good day, everyone, and welcome to Newfield Exploration Third Quarter 2010 Conference Call. Just a reminder, today’s call is being recorded. And, before we get started, one housekeeping matter.

Our discussion with you today will contain forward-looking statements such as estimated production and timing, drilling and development plans, expected cost reductions and planned capital expenditures.

Although, we believe the expectations reflected in these statements are reasonable, they’re based up on 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.newfield.com

.

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

Lee Boothby

Thank you. Good morning, everyone. I appreciate you hanging with us through what appeared to be some technical difficulties. And those of you who had to call back in, I appreciate you calling back in. So I apologize for the delay, but we’ll get moving with the call.

Welcome to the third quarter conference call. I’d like to thank all of you for your continued interest in Newfield. Very quickly, by a way of introduction, I’ll announce that Gary Packer, our Chief Operating Officer; Terry Rathert, our Chief Financial Officer; Brian Rickmers, our Controller; Steve Campbell, VP of Investor Relations; and John Jasek, VP of Gulf of Mexico are with me here in Houston. And, remotely, we have George Dunn, who runs our Mid-Continent Business on the line as well.

Along with our earnings release, we issued a separate operations release yesterday, updating you on our core focus areas. We don’t address your questions in our prepared remarks this morning. We’ll have plenty of time at the end of the call.

If you’ve seen us recently on the road, you know that our focus is clear. We are delivering on our promises and have our sights fixed on meeting our 2010 year-end objectives. From our guidance, you will see that our production growth will not be less than 11% year-over-year, the upper end of our original guidance range entering 2010.

We’re investing in our oil projects and soaring our activities in natural gas plays. Our most recent tally shows that more than 50% of this year’s $1.6 billion capital budget is now oil directed. And I’m proud to report that the $1.6 billion remains unchanged since our beginning of year announcement.

Our domestic oil volumes are expected to increase nearly 25% in 2010 over 2009. We’ve improved our portfolio management and our margins have increased. Better margins are a result of higher returns in the oil plays, they’re constant efforts of lower costs and improved efficiencies, and a strong oil and gas hedge position. Through the optionality of our diversified portfolio of assets, we’re able to make improved capital allocation choices while continuing to live within cash flow.

And, finally, we are committed to building for our future. We have several significant assessments underway that could provide additional options and have a material positive impact on our future. We continue to look for attractive deals or bolt-ons in our current focus areas and we are steadfast in our focus to build a portfolio which can outperform through the inevitable cycles.

2011, well it’s now just around the corner. So for the remainder of today’s call, I would like to focus on 2011 and our assets that will continue to drive our evaluation and performance.

Our entire management team spent three days together in an offsite meeting last week working on our initial game plan for 2011. Our collective work product will go to the Board of Directors in early November. So here is a brief summary of our current thoughts.

First, the macro environment will remain challenged. In our view, 2011 will be a challenging environment in E&P. Natural gas supply continues to exceed demand, the domestic rig count particularly the horizontal gas directed rig count remains higher than warranted by pure economics. We recognized this climate [ph] early enough to build a strong hedge position. We’re very well insulated by these hedges and have oil opportunities and our portfolio today that is delivering both growth and excellent returns.

Next, we will continue to stay focused on oil over gas. It’s oil over gas once again. We will remain far more constructive on oil than we do natural gas going into 2011. We will continue to defer significant new investments in our natural gas development which were substantially held by production today and require limited drilling to retain primary term acreage. The Rocky Mountains will remain a centerpiece of our domestic oil story. And we are confident that we can continue deliver strong oil growth in 2011.

We are fortunate that our acceleration of oil investments began back in 2009. Because of this, we are guiding toward a 25% increase in our 2010 domestic oil volumes and a 12% increase from our total company oil volumes. With this, we will have great momentum on the oil growth as we move into 2011.

Our domestic oil growth stems largely from the Monument Butte Field in the Williston Basin. A continuing acceleration of our drilling programs here creates strong incremental net present value by shortening our full fuel development cycle. At Monument Butte, we have optimized our drilling programs to drill more well more efficiently and previously thought possible. We will drill about 375 wells this year at Monument Butte and grow production more than 20%.

Our pace today provides us with operational momentum as we enter 2011. Our development drilling continues in the Williston Basin with four operated rigs running today. Three of these rigs are working on our off Anticline acreage. We have successfully assessed our Catwalk, Aquarium and Watford areas, west of the Nesson and have moved these project areas into the development drilling phase.

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