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Newfield Exploration’s Fight to Counter Low Oil Prices

Can the Anadarko Basin Turn Newfield Exploration Around in 2016?

(Continued from Prior Part)

Cost efficiencies

In its 4Q15 earnings release, Newfield Exploration (NFX) noted that in the low oil price environment, it had reduced its 2015 lease operating expenses by 25% compared to 2014. G&A (general and administrative expenses) declined by 20% since 2015, which will result in savings of an estimated $45 million in 2016.

In its 4Q15 earnings conference call, NFX said its estimated 2016 lease operating expenses on a unit of production basis are expected to be ~15% below 2015 levels.

SCOOP and STACK basins, a key focus

As we saw in Part 2, more than 80% of NFX’s 2016 operations will be dedicated to its operations in the Anadarko Basin. About 50% will be allocated to the STACK basin, and 31% will be allocated to the SCOOP basin. The Anadarko Basin makes up a major chunk of NFX’s operations. Anadarko accounts for more than 50% of the company’s proved reserves.

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In its 4Q15 earnings conference call, Lee Boothby, NFX’s chairman and CEO (chief executive officer), said, “As we focus our investments in the Anadarko Basin the benefits are increasingly more apparent in our margins. Lease operating and transportation expenses here are just over $5 per BOE, the lowest in our liquids portfolio. As SCOOP and STACK production growth offsets declines in areas with higher operating expenses and lower realized prices we expect to see continued improvements in our margins.”

Newfield Exploration’s hedges

For 2016, NFX expects hedges to contribute cash flows of ~$270 million. The company has hedged a significant portion of its production into 2017.

Chesapeake Energy (CHK) and Cabot Oil & Gas (COG) are other upstream companies that are hedged in 2016 amid low crude oil prices (USO). However, companies such as Devon Energy (DVN) aren’t hedged in 2016. These companies make up ~0.2% of the iShares Core S&P 500 ETF (IVV).

Next, let’s look at Newfield Exploration’s debt position.

Continue to Next Part

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