22
Jul

Newfield Reports Fandamntastic 2Q09 Beat – Pre Call Note

Print Friendly, PDF & Email

 

NFX Reports Big Beat In Q2; Operations Highligh ts Very Strong

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

  • They exhibited stellar cost control, better than last quarter and much better than guidance.
  • They continue to live within cash flow. Their capital budget didn't come down from last quarter so the cost savings mean more feet of hole is getting drilled. They plan to live within cash flow in 2010 as well.
  • They are suggesting full year production will come closer to the upper end of the previously stated 6 to 10% growth range.
  • Granite Wash horizontals yielding monster results (see details below) and note the lack of expected significant production decline outlined.

On to the quarter and operational update:

  • The 2Q09 Numbers

    • Production: 64.6 Bcfe (710 MMcfepd) which was just under the mid point (as usual) of the guidance range of 63 to 69 Bcfe (692 to 758 MMcfepd), and up 2% sequentially. 
      • Note that an additional 1 Bcfe was produced but  not lifted due to timing of liftings in Malaysia. 
      • Note also that production increased despite the deferral of completions in the Woodford.
    • Cash Costs Came Well Below Guidance: ($0.25 per Mcfe below on the recurring cash components):

      • Lifting costs were much better than expected at $0.80 per Mcfe vs:
        • 1Q09 at $0.95 / Mcfe and
        • Guidance for 2Q09 of $0.98
      • Production taxes were $0.23 / Mcfe, well below guidance
      • G&A (the non capitalized portion) were $0.52 per Mcfe, in line with guidance.
      • The are reducing cash cost guidance from prior levels for 3Q (see below).

    • EPS of $1.28 (ex items) vs $1.10 expected
    • CFPS of $3.21 vs $2.70 expected

 

  • Operating Highlights:

    • US Onshore:
      • Granite Wash / Stiles Ranch- tight gas sand stacked pay play
        • First seven horizontal completions have had average IPs of 22 MMcfepd. They had kept a lid on the details of these wells until now.
          • They have 50,000 acres (largely held by production) here and think they have at least 100 horizontal drilling locations (7 drilled so far).
          • The first well was completed in December 2008, maintained average production of a whopping 27.1 MMcfepd for the first 2 months (not the cliff dive you'd expect) and has produced 4 Bcfe to date (assuming the well came on mid December, the well has in 7 months produced at a rate of 18 MMcfepd). 
          • Laterals here have been from 2,900 to 3,900 feet
          • 2H09 laterals will be closer to 5,000 feet
          • These seven horizontals have averaged $10 mm per well with the most recent coming in at $7.4 mm drilled and completed. That last well had a 3,600 foot lateral and an IP of 24.4 MMcfepd (86% gas). 
          • EUR - No comment from the company but you've got to be thinking we're in sub $1 finding cost land, maybe sub $0.75 (so > 10 Bcfe per well).
        • Running a 3 rig program now and may add more rigs before year end. 
          • Plan to drill 14 wells in 2009 (so 7 more in the back half) but will defer completions due to low natural gas prices.
        • Production hit new peak at 147 MMcfed vs 145 MMcfepd last quarter but again, completions are being delayed for higher gas pricing.
      • Woodford Shale, Oklahoma (growth temporarily flattened due to completion deferrals):
        • 10 rigs now, falling to 6 by year end.
        • 25 drilled but not completed wells at present. 
        • Plan to drill 75 wells now, down from 85 prior estimate. 85% will be drilled from common pads. This reduction in well count and shift to lower per well costs translates into a capital shift to higher return plays.
        • Drilling two 10,000 foot lateral wells now vs the projected 2009 average lateral of 5,000 feet.  Simple concept: double the reserve exposure with a single vertical (they commented that historically they have experienced more difficulties with the vertical section that the horizontals.
        • Gross production of 240 MMcfepd, flat with the 1Q exit rate, down slightly from year end's level of 250 MMcfepd. This is being held essentially flat due to low gas prices.
      • Willston Basin: Bakken Oil Play:

        •  Not a lot detail here this time, still one rig program with plans to accelerate in 2010.
        •  The did complete the extended lateral (8,500 foot) Moberg 1-29H in the Three Forks Sanish since the last report for 1,203 BOEpd with a 30 day  average of 545 BOEpd. Not shabby, not mind blowing. Would like to here if the completion went off as planned or not. 
      • US - Deepwater Gulf of Mexico - I'm not going to run through their recently announced discoveries at Pyrenees and Winter but I'll point out that NFX has five deepwater developments expected to see first production between now and the end of 2010. That and 88 deepwater blocks is one of the reasons they should change their name to Target Exploration if the current low valuation levels hold.

 

  • Guidance:

    • Said they will be in the upper end of their 6 to 10% production growth guidance for 2009
    • 3Q09 Guidance: 62.9 to 70 Bcfe  - Huge range as usual.
    • Cost guidance coming down:  (these are mostly for my future notes)

      • LOE now at $0.88 to $0.89
      • Production taxes of $0.37 to $0.39
      • G&A of $0.49 to $0.50
  • Hedges: Not much change from yesterday's post except for the addition of 2011 gas hedges on 30% of expected production.
  • Nutshell: Excellent quarter from a "making your top line and thrashing your costs perspective". Granite Wash development is a game changer and may yet give NFX some of the appeal of some of the higher flying Big Kahuna shale names, even if it is a sand. The stock remains cheap at 3.3x 2009 CFPS consensus and that consensus is likely to move up this year on reduced costs and more next year due to a firming development production wedge in analysts' models. Recall that these guys are very well hedged (over 75% of expected production this year and 70% next year at high gas and even higher oil prices) and have not yet laid out how much additional free cash flow they will generate by deferring completions and streamlining procedures in the Woodford and Granite Wash. I continue to hold Calls and Common Stock in NFX.
  • Conference Call: Thursday, 9:30 EST
  • Other Names That May Be Affected By The Granite Wash Well Results: EOG, FST, SM, PVA, XEC. 
  • This pre call note will be archived on the ZEB Reports tab.

Conference Call Notes: These are my shorthand notes from the call for future reference.

NFX CC #1

Adding in some new projects due to lower costs while maintaining same budget.

Woodford - longer laterals, pad drilling, CONTINUE to benefit from falling service costs, remember almost entirely HBP so they control the pace.

Granite Wash - allowing them to grow production with less rigs.

Oil growth - offshore Malaysia, Monument Butte (Rockies), Williston (Bakken).

Malaysia guidance was up due to better performance - see it up 30% over last year.

S. China Sea (Pearl River Mouth), at TD on appraisal well, testing now (this well should have been in 2010 but lower costs allowed it to get pushed up into 2009).

Monument Butte - adding a 4th rig in 2nd (also was not in budget before).

Williston Basin - most recent wells came on 1,200 bopd (get more detail in the Q&A), add a second rig in early 2010. They have 70 well locations worked up to drill now.

NFX CC #2

2010:
70% gas hedged > $6.50
40% of oil hedged > $100

NFX CC #3

Recurring LOE was under budget AND it continues to fall … that is really not an easy accomplishment with flattish to slightly up sequential production.

Deepwater GOMEX

Pyrenees - delineation drilling to test deeper potential not seen in the discovery well (this also was not in the original budget). They should have results on this by Labor Day.

This could be a standalone, too early to say.

Woodford - 280 horizontal wells to date, > 90% HBP acreage

50% reduction on cost per linear foot from 1st well to 8th well drilled from a pad in a section.

Cost at $5.6 mm per well but have added 1,000 additional feet of lateral a 2 more frac stages since beginning of 2009

South part of acreage - seeing EURs 30 to 40% higher, higher costs, not yet in full development here.

Production of 240 MMcfepd gross ytd.

Putting gas into the Mid Continent Express (MEP) pipeline. This bumps the realized prices closer to Hub.

NFX CC #4 - Granite Wash

I remember when they bought this from EEX. They paid next to nothing for it.

20 miles wide x 100 miles long. They have 50,000 acres in part of the play (theirs is Stiles Ranch)

Stacked sands, more than 30 distinct productive zones from 12,000 to more than 15,000 feet deep, some are over 100 feet thick, total approaches 3,600 feet thick.

First 7 average 22 MMcfepd IP, and from the post you can see how shallow the decline has been from the referenced first well doing about 18 MMcfepd average for the first 7 months.

Granite wash moving towards the top of their play list.

3 rigs for remainder of 2009, then probably bump up.

Latest well $7.4 mm. Expect costs to decrease. Will experiment with longer laterals (over 4,000 feet) in 2H09.

Good well control as they have already drilled 150 verticals here.

35,000 prospective acres prospective for horizontal development out of their 50,000 acre total position, 80% HBP.

NFX C Q&A #1

Too early to comment on SEC rule change impact on NFX reserves.

Granite Wash - 1st well’s IP was over 30 MMcfed, 1st month average was 27. That is the new definition of “monster” for an onshore well. If you consider that that single well has produced 4 Bcfe (gross but they have a high interest in these wells) in the last seven months and the whole company produced 128 Bcfe in the first half you get an idea of the significance of each of these kind of wells to the company.

 

NFX CC Q&A #2

Granite wash EURs and decline rates?

Too early comment specifically but their EURs exceed 8 Bcfe average.

They have drilled horizontals on all sides of the field and only 3 of the 30+ zones and are seeing consistent strong results. They have that massive well control here to drill the wells with. They have been “amazed by the results to date”

 

NFX CC Q&A #3

Granite Wash - reserve potential was 0.5 Tcfe, all they will say now is that the net change is a “strong upward positive”

If you think that the 150 wells were 3 Bcfe - ish wells and they will not be drilling 8+ type wells instead. Hmmm. Big “upward positive” to use his words.

Oil turning up on that housing data.

NFX - Q&A

Granite Wash - of the 7 wells, 3 are on the same section. Good from an ultimate spacing standpoint. May be of concern to some along the lines of thinking they are drilling only in a sweet spot. The other four wells are distant from those 3 which helps defeat that last bit of thinking.

FST up 12% on this news.

Sold 2/3rds of the NFX $35 August Calls (NFXHG) for $4.10, up 141%.

Added (20) August $40 Calls (NFXHH) for $1.10 with the stock at $38.60.

NFX Q&A

First, analysts can’t get enough info on granite wash …. question after question after question.

LOE - part of the reduction in the LOE was the lack of disposal of flow back water from deferred completions. Part from falling labor, and from falling salt water disposal costs.

Well costs in the granite wash directionality? Very early to say.

Analysts coming back with follow ups now.

My sense is that we see some strong reiterations from the guys who are onboard with Buy ratings already, maybe a couple of upgrades. Probably going to see several price target increases based on reworked NAVs.

Call just ended

 

2 Responses to “Newfield Reports Fandamntastic 2Q09 Beat – Pre Call Note”

  1. 1
    West Says:

    Great Report, The Moberg well continues the trend that the 3frks along the Nesson anticline r better wells than the MB. NFX other TFS well the Lost Bridge 16-9H has cum 51,393 in 5 months and is avg 300bopd now. Most of the other wells around the Moberg r MB & have cum 25k in a yr & avg about 50 bopd. This would also be good news for CLR as they have very strong ac position in this area as well as the entire Nesson Anticline………..One thing that just keeps coming out with each co report is just the enormous amounts of gas that are being found and how many wells r not being completed waiting for a better price. I just keep thinking this will keep gas prices depressed and the Mkt will Not move stock prices higher for gas weighted E&P cos no matter how much they increase production. I continue to favor more oil weighted e&p cos such as CLR, ARD, WLL and KOG. I also favor EOG as gas e&p co as they move towards a 50/50 split…. Thanks for all the great information, it still amazes me how many really great contributors you have here on your site. Thanks Again

  2. 2
    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Thursday – Lots of Earnings Says:

    […] Newfield Reports Fandamntastic 2Q09 Beat – Pre Call Note […]

Leave a Reply

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

s2Member®