Newfield Exploration (NFX)

Q4 2011 Earnings Call

February 22, 2012 11:00 am ET

Executives

Lee K. Boothby - Chairman, Chief Executive Officer and President

Gary D. Packer - Chief Operating Officer and Executive Vice President

Daryll T. Howard - Vice President of Rocky Mountains

Terry W. Rathert - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

William B. D. Butler - Stephens Inc., Research Division

Stephen F. Berman - Pritchard Capital Partners, LLC, Research Division

David W. Kistler - Simmons & Company International, Research Division

Subash Chandra - Jefferies & Company, Inc., Research Division

Gil Yang - BofA Merrill Lynch, Research Division

Anne Cameron - BNP Paribas, Research Division

Unknown Analyst

Brian Singer - Goldman Sachs Group Inc., Research Division

Presentation

Operator

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Good day, everyone, and welcome to Newfield Exploration's Fourth Quarter and Full Year 2011 Conference Call. Just a reminder, today's call is being recorded. Our discussion with you today will contain forward-looking statements, such as estimated production and timing, drilling and development plans and 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. Actual results may vary significantly from those anticipated due to many factors and risks, some of which may be unknown. Please see Newfield's 2010 Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q for a discussion of factors that may cause actual results to vary.

Forward-looking statements made during this call speak only as of today's date and unless legally required, Newfield undertakes no obligation to publicly update or revise any forward-looking statements.

In addition, reconciliations of non-GAAP financial measures to GAAP financial measures, together with Newfield's earnings release and 2012 capital investment program 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 K. Boothby

Thank you very much. Good morning, everyone, and thanks for joining us today for our fourth quarter and year end 2011 conference call. I'm joined in Houston this morning, our Chief Operating Officer, Gary Packer; our CFO, Terry Rathert; and our VP of IR, Steve Campbell. Following today's brief prepared remarks, we'll be happy to address your questions.

Our call today will focus on 3 main topics: First, a summary of the fourth quarter financial and operating results and our 2011 highlights; second, I'll discuss our year end 2011 proved and probable reserves and how to shift to oil that we've been presenting since 2009 is evident in our results. And lastly, I will cover our simplified game plan for 2012. Our focus is clear and I'll summarize our planned activities and capital plans in our key oil and liquids-rich plays.

So let's go through our fourth quarter financial results.

Our net income, excluding the impact of the FAS 133, was $127 million or $0.95 per share. Our results were below first call consensus primarily due to lower natural gas volumes and an increase in our DD&A rate, partially offset by higher oil volumes. Our increased DD&A reflects our ongoing shift to oil. Revenues in the fourth quarter were $677 million. For the quarter, oil and liquids comprised 40% of our total production and more than 70% of our total revenues. Our shift oil began 3 years ago and we are well on our way to becoming an oil company in 2013. Our net cash provided by operating activities before changes in operating assets and liabilities was $387 million or $2.87 per share.

In the fourth quarter, our oil and liquids liftings averaged nearly 64,000 barrels a day, they increased about 9,000 barrels a day or about 15% compared to the third quarter of 2011 and totaled 6 million barrels. When compared to our first quarter 2011 oil liftings, our fourth quarter oil sales were more than 30% higher. We are achieving strong growth from our oil plays and we will continue to focus both our people and capital on these plays in 2012. By design, our gas production is on natural decline. This the right economic decision with the today's weak natural gas prices and we are making no investments in dry gas today. Our natural gas production in the fourth quarter was 44 Bcf or 478 million cubic feet per day. Our gas production declined about 20 million cubic feet over the course of the year.

We had some great highlights in 2011 that will set us up for outperformance in the future. Let me run through a quick list. Through several transactions in 2011, we captured approximately 75,000 net acres north of Monument Butte in Uinta Basin and expanded our dominant position in the region. We are the 800-pound gorilla, with more than 230,000 net acres in the basin and a potential to develop multiple new and exciting oil plays, both vertically and horizontally. We secured our future in the Uinta with signing of 2 agreements, a 7- and 10-year term, with 38,000 barrels of oil per day in refining capacity for our Uinta Basin oil growth. We assembled more than 125,000 net acres in the Cana Woodford play and Anadarko Basin of Oklahoma and then yesterday's release disclosed this as our stealth play. We invested approximately $100 million in leasing in 2011 to extend the Cana Woodford south and east of the known fairway and expanded our composite footprint in Oklahoma's Woodford Shale play to about 300,000 net acres. Our technical people did a great job of identifying an opportunity to extend this play to the Southeast and our land professionals moved quickly to capture it for us. Our acreage is not in the dry gas portion of the play. We've identified a liquids-rich and oil prone extension to the Cana and we are expecting strongly competitive returns from our investments. We have a long and proven history in exploiting the Woodford formation in Oklahoma and have a very aggressive assessment program planned for 2012, which I'll discuss in a few minutes.

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