Newfield Announces Record First Quarter Results

Newfield Exploration Company (NYSE: NFX) announced its financial and operating results for the first quarter of 2004.

For the first quarter of 2004, Newfield reported net income of $77.9 million, or $1.38 per share (all per share amounts are on a diluted basis). Stated without the effect of a $10.8 million ($7.0 million after-tax), or $0.12 per share, charge related to unrealized commodity derivative transactions, net income for the first quarter of 2004 was $84.9 million, or $1.50 per share. Revenues in the first quarter of 2004 were $305.4 million. Net cash provided by operating activities before changes in operating assets and liabilities was $208.1 million in the first quarter of 2004. See Explanation and Reconciliation of Non-GAAP Financial Measures.

Newfield's results for the first quarter of 2004 compare favorably to the same period of the prior year. Net income from continuing operations in the first quarter of 2003 was $64.9 million, or $1.18 per share. Earnings in the first quarter of 2003 were impacted by the following two items: a $10.0 million one-time charge ($6.5 million after tax), or $0.12 per share, associated with the unwind of the gas forward sales obligation inherited through the acquisition of EEX Corporation in late 2002; and an $8.6 million gain ($5.6 million after tax), or $0.10 per share, resulting from the cumulative effect of adoption of SFAS No. 143. SFAS No. 143 changed the method of accounting for expected future costs associated with our abandonment obligations. Revenues in the first quarter of 2003 were $267.9 million. Net cash provided by continuing operating activities before changes in operating assets and liabilities was $174.4 million in the first quarter of 2003.

Newfield's production in the first quarter of 2004 was 57.4 Bcfe, an 8% increase over first quarter 2003 production of 53.1 Bcfe. The following tables detail production and average realized prices for the first quarters of 2004 and 2003.


                                  Production

                                         1Q04       1Q03    % Change
    Natural gas (Bcf)                    48.1       44.0        9%
    Oil and condensate (MMBbls)           1.5        1.5      ---
    Total (Bcfe)                         57.4       53.1        8%


                             Average Realized Prices+

                                         1Q04       1Q03    % Change
    Natural gas (per Mcf)               $5.30      $5.05        5%
    Oil and condensate (per Bbl)        31.66      29.04        9%
    Natural gas equivalent (per Mcfe)    5.30       5.02        6%
+ Prices shown are net of all applicable transportation expenses, which reduced the realized price of natural gas by $0.02 per Mcf and the realized price of oil and condensate by $0.33 per Bbl in both quarters. Average realized prices include the effects of hedging other than our three-way collar contracts, which do not qualify for hedge accounting under SFAS No. 133. Had we included the realized loss on our three-way oil contracts our average realized price for oil and condensate would have been $30.70 per Bbl for the first quarter of 2004. The settlement of our three-way gas contracts had no impact on our realized price for natural gas for the first quarter of 2004. We did not enter into any three-way collar contracts prior to August 2003.

Stated on a unit of production basis, Newfield's lease operating expense (LOE) in the first quarter of 2004 was $0.52 per Mcfe and equal to LOE from continuing operations in the same period of 2003. Production taxes in the first quarter of 2004 decreased to $0.15 per Mcfe compared to production taxes from continuing operations of $0.19 per Mcfe in the same period of 2003. DD&A expense in the first quarter of 2004 was $1.85 per Mcfe compared to DD&A expense from continuing operations of $1.76 per Mcfe in the first quarter of 2003. G&A expense (including stock compensation) in the first quarter of 2004 was $0.32 per Mcfe and equal to G&A expense from continuing operations in the same period of 2003. G&A expense in the first quarter of 2004 is net of capitalized direct internal costs of $6.9 million compared to $6.8 million in the first quarter of 2003.

Capital expenditures in the first quarter of 2004 were $152.3 million.

Explanation and Reconciliation of Non-GAAP Financial Measures Earnings stated without the effect of unrealized commodity derivative transactions, a non-GAAP financial measure, exclude certain items that effect the comparability of operating results. Earnings without the effect of these items are presented because the timing and amount of these items cannot be reasonably estimated and because earnings without the effect of these items are more comparable to earnings estimates provided by securities analysts. Commodity derivative expense as stated in our consolidated statement of income includes $10.8 million of unrealized commodity derivative transactions and $1.5 million of realized commodity derivative transactions in the first quarter of 2004. A reconciliation of earnings stated without the effect of the unrealized commodity derivative transactions to net income is shown below:



                                                                   1Q04
    Net income                                                    $77.9
      Plus: Unrealized commodity derivative expense                10.8
      Less: Income tax provision adjustment for above item          3.8
    Earnings stated without the effect of unrealized
     commodity derivative transactions                            $84.9


Net cash provided by operating activities before changes in operating assets and liabilities is presented because of its acceptance as an indicator of an oil and gas exploration and production company's ability to internally fund exploration and development activities and to service or incur additional debt. This measure should not be considered as an alternative to net cash provided by operating activities as defined by generally accepted accounting principles. A reconciliation of net cash provided by operating activities from continuing operations before changes in operating assets and liabilities to net cash provided by operating activities from continuing operations is shown below:


                                                           1Q04       1Q03
    Net cash provided by operating activities
     from continuing operations                           $218.7     $61.1
    Less: (Increase) decrease in operating assets
     and liabilities                                        10.6    (113.3)
    Net cash provided by operating activities
     from continuing operations before changes in
     operating assets and liabilities                     $208.1    $174.4


Second Quarter 2004 Estimates
Natural gas production and pricing The Company's natural gas production in the second quarter of 2004 is expected to be 44 - 48 Bcf (480 - 530 MMcf/d). The price the Company receives for natural gas production from the Gulf of Mexico and onshore Gulf Coast has typically tracked the Henry Hub Index. Gas from Mid-Continent properties has typically sold at a discount of $0.12 - $0.15 per Mcf to Henry Hub. Hedging gains or losses will affect price realizations.

Crude oil production and pricing Oil production in the second quarter of 2004 is expected to be 1.5 - 1.6 million barrels (16,000 - 17,700 BOPD). The price the Company receives for Gulf Coast production has typically averaged about $2 below the NYMEX West Texas Intermediate (WTI) price. Oil production from the Mid-Continent has typically sold at a $1.00 - $1.50 per barrel discount to WTI. Hedging gains or losses will affect price realizations.

Lease Operating and Other Expenses LOE is expected to be $35 - $39 million ($0.67 - $0.75 per Mcfe) in the second quarter of 2004. Production taxes in the second quarter of 2004 are expected to be $12 - $13 million ($0.22 - $0.25 per Mcfe). These expenses vary and are subject to impact from, among other things, production volumes and commodity pricing, tax rates, service costs, the costs of goods and materials and workover activities.

General and Administrative Expense G&A expense for the second quarter of 2004 is expected to be $18 - $20 million ($0.27 - $0.29 per Mcfe), net of capitalized direct internal costs. Capitalized G&A expense is expected to be $6 - $8 million. G&A expense includes stock and incentive compensation expense. Incentive compensation expense depends largely on net income.

Interest Expense The non-capitalized portion of the Company's interest expense for the second quarter of 2004 is expected to be $8 - $9 million ($0.15 - $0.17 per Mcfe). Current borrowings under the Company's credit arrangements are $12 million. The remainder of long-term debt consists of three separate issuances of notes that in the aggregate total $550 million in principal amount. Capitalized interest for the second quarter of 2004 is expected to be about $3 - $4 million.

Income Taxes Including both current and deferred taxes, Newfield expects its consolidated income tax rate in the second quarter of 2004 to be about 35 - 38%. About 40% of the tax provision is expected to be deferred.
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