NFX 1Q09 Pre Call Note – Exceeds Expectations; Maintains Guidance


NFX continues to motor along like a well oiled gassed machine.

Couple of key takeaways from the quarterly release and @NFX update before we delve into the quarter:

  • These guys are not growth for growth sake types, never have been, never will be. They are deliberately delaying completions in the Woodford due to low prices and will benefit from the continued reduction in completion costs when they do complete and will be selling gas from those wells likely at higher prices later in the year. At least that's the plan and its a recurring theme you will see more and more as the quarter goes by.
  • Improve differentials in the Bakken and Mid-Continent.
  • Their capital budget and guidance remain unchanged. You've got to like the all caps comment on the capital budget that it DOES NOT reflect the cost savings they are seeing...their dollars are going further than they thought. Just how much further their budget will go should be a topic of discussion on the call on Thursday.

On to the quarter and update:

  • The 1Q09 Numbers

    • Production: 696 MMcfepd which is just above the mid point of guidance, up 0.5% sequentially.
    • Costs:

      • Lifting costs were much better than expected at $0.95 per Mcfe

      • "major" LOE  which is basically workovers and repairs came in 2 cents high at $0.18 per Mcfe, not a big deal at all and not surprising as many operators are conducting more workovers to maintian production.

    • EPS of $0.85 (clean of a non cash impairment and a hedging market to market gain) vs $0.72 expected
    • CFPS of $2.67 vs $2.31 expected
  • Operating Highlights:

    • US Onshore:

      • Woodford Shale, Oklahoma (growth temporarily flattened):

        • Recurring theme watch: due to low prices they are deliberately curtailing production. They are fortunate to have 90% of their acreage held by production so they can say, "Where's the fire? Oh yeah, there isn't one."
        • 11 rigs, down from 12 at year end as previously annnounced; still their busiest region and fewer rigs WILL NOT mean few wells drilled as they have become more efficient in the play,
        • Net production is 240 MMcfepd, down slightly from the 250+ MMcfepd at year end due to the completion deferals and natural declines,
        • Despite the well completion delays, they are still reaffirming 20% growth guidance for 2009 here.
        • They have 300 MMcfepd of firm transportation on a new pipeline set to begin in operation in June that will link their Woodford system with Louisiana,
        • On the conference call look for a double digit percentage figure in terms of the decline in prices paid to drill and complete a Woodford well so look for some pretty impressive (ultra low) F&D cost numbers during the Q&A.
        • Also on the call, look for results from their first "super extended" lateral
      • Willston Basin: Bakken Oil Play:

        • 10 wells drilled to date with their most recent two middle Bakken completions of 1,328 and 1,256 BOEpd, being their best wells to date. They are currently drilling another Three Forks Test (the first two saw IPs just over 1,000 BOEpd.)
        • Differentials here have contracted sharply from close to $20 at year end to less than $6 per barrel now (thanks EOG)
        • continuing to slowly add acreage here, now at ~ 500,000 acres
        • On the call, look for questions regarding just how much of their acreage they think has TFS under it.
      • Granite Wash Play (Tx and Ok panhandle) - not a lot of deets here, but new record for production set of 145 MMcfepd (gross 80% WI) set vs 130 MMcfepd as of the last update. 
      • Monument Butte (Rockies
    • US - Gulf of Mexico - No update on their five development projects in the deepwater Gomex but they will see a significant ramp from this region in early 2010.
    • International:

      • Malaysia -
        • off slightly from 4q levels
        • they are sticking with the 10% 2009 production growth guidance here.
      • China -
        • up about as much on a gross basis as Malaysia was off for the quarter
        • looking for a rig to appraise last year's Pearl River Mouth Basin discovery.
  • Guidance:

    • Reaffirming prior 6 to 10% production growth guidance for 2009
    • 2Q09 Guidance: typically wide range of 692 to 758 MMcfped.
  • Impairment: 1Q reserve writedon, all quarter end price related, non cash and in my book a non event.
  • Nuthshell: Good quarter, despite recent run, stock remains cheap at 2.8x 2009 CFPS consensus that is likely to remain unchanged or adjusted slightly upward following the quarter.
  • Conference Call: Thursday, 9:30 EST


  • This pre call note will be archived on the ZEB Reports tab.



6 Responses to “NFX 1Q09 Pre Call Note – Exceeds Expectations; Maintains Guidance”

  1. 1
    zman Says:

    VTZ – re the ECA comment:

    RE ECA – people liked the results, I noted it was up during the day but am not a big follower there.

    Just went over the transcript re their plans in the Haynesville.

    Spending doubling to $580 mm, sounds like they borrowed some cash from another play, looks like they are adding acreage on the cheap, good call on their part. Aubrey mentioned yesterday how the play went from $1000 an acre to $30,000 over the course of a few months and had fallen substantially since, don’t know what leases are going for lately, hard heard some were very cheap in outlying areas recently

    JR can you give color on lease prices here now?

    Anyway, spending on 50 wells probably costs you $400 to $450 million leaving quite a bit left over for additional land and gathering. In the big scheme of things, if you are thinking wow, extra gas, this is 25 more wells so while it’s extra gas in 2009, its not that much gas, maybe you get an extra 0.1 Bcfgpd in aggregate out of those adds.

  2. 2
    bill Says:

    nfx had a huge asset write down

    i was worried about this. This means others will have this too and debt equity ratios will suffer

    a $1.3 billion ($854 million after-tax), or $6.59 per share, reduction in the carrying value of oil and gas properties due to significantly lower gas prices at the end of the first quarter of 2009.

  3. 3
    zman Says:

    Bill – its non cash, its accounting only, it doesn’t mean the reserves are gone, it does increase debt/equity ratio but most bank groups will look through that unless gas prices simply don’t come back. It also lowers the DD&A rate which means higher earnings going forward.

  4. 4
    Jay Reynolds Says:

    >JR can you give color on lease prices here now?

    Low, low, low…. best I’m hearing, and that’s for a 9,000+ acre block on Caddo Lake, is about $1,500/ac offered for a farm-in. However, I’m pretty far north and the Goodrich wells to the south of us didn’t help too much.

  5. 5
    bill Says:

    Z- I appreciate its non cash this qtr but they spent the cash or worse incurred debt in previous qtrs.

    The other thing to note is increasing production by eog and nfx despite the rig cuts means the glut continues

    One more thing to worry about is most ep companies have poor hedges after 2009

    I need some coffee

  6. 6
    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Wrap – Week Ended 4/24/09 Says:

    […] NFX 1Q09 Pre Call Note – Exceeds Expectations; Maintains Guidance […]

Leave a Reply

Zman's Energy Brain ~ oil, gas, stocks, etc… is is proudly powered by Wordpress
Navigation Theme by GPS Gazette