Newfield Announces Third Quarter Results

For the third quarter of 2004, Newfield reported net income of $81.6 million, or $1.35 per share (all per share amounts are on a diluted basis). Stated without the effect of $9.7 million ($6.3 million after-tax), or $0.10 per share, of net gain related to unrealized commodity derivative transactions, net income for the third quarter was $75.3 million, or $1.25 per share. Revenues in the third quarter of 2004 were $327.7 million. Net cash provided by operating activities before changes in operating assets and liabilities was $267.7 million in the third quarter of 2004. See Explanation and Reconciliation of Non-GAAP Financial Measures.

Newfield's results for the third quarter of 2004 compare favorably to the same period of the prior year. Net income from continuing operations in the third quarter of 2003 was $58.4 million, or $1.04 per share. Stated without the effect of $3.6 million ($2.3 million after-tax), or $0.04 per share, of net gain related to unrealized commodity derivative transactions, net income from continuing operations for the third quarter was $56.1 million, or $1.00 per share. The loss from discontinued operations was $9.0 million, or $0.16 per share. Revenues in the third quarter of 2003 were $248.7 million. Net cash provided by continuing operating activities before changes in operating assets and liabilities was $185.6 million in the third quarter of 2003.

Newfield's production in the third quarter of 2004 was 60.7 billion cubic feet equivalent (Bcfe), an 8% increase over production of 56.1 Bcfe in the third quarter of 2003. The following tables detail production and average realized prices for the third quarter of 2004 and 2003.



     Quarterly Sales / Production
     For the Three Months Ended September 30
                                           3Q04            3Q03       % Change
    United States
      Natural gas sales (Bcf)              48.6            47.4            3%
      Average natural gas production
       (MMcf/d)                           528.8           514.8            3%
      Oil and condensate sales (MMBbls)    1.59            1.47            8%
      Average oil and condensate
       production (BOPD)                 17,272          15,935            8%
    International
      Natural gas sales (Bcf)             0.113
      Average natural gas production
       (MMcf/d)                             1.2
      Oil and condensate sales (MMBbls)   0.405
      Average oil and condensate
       production (BOPD)                  3,478
    Total
      Natural gas sales (Bcf)              48.8            47.4            3%
      Average natural gas production
       (MMcf/d)                           530.0           514.8            3%
      Oil and condensate sales (MMBbls)    2.00            1.47           36%
      Average oil and condensate
       production (BOPD)                 20,750          15,935           30%
      Total sales (Bcfe)                   60.7            56.1            8%


     Average Realized Prices+
     For the Three Months Ended September 30
                                           3Q04            3Q03       % Change
    United States
      Natural gas (per Mcf)             $  5.10         $  4.40           16%
      Oil and condensate (per Bbl)      $ 36.97         $ 26.50           40%
    International
      Natural gas (per Mcf)             $  3.94
      Oil and condensate liftings
       (per Bbl)                        $ 46.34
    Total
      Natural gas (per Mcf)             $  5.10         $  4.40           16%
      Oil and condensate (per Bbl)      $ 38.85         $ 26.50           47%
      Total (per Mcfe)                  $  5.37         $  4.40           22%


+Prices shown are net of all applicable transportation expenses, which reduced the realized price of natural gas by $0.02 per Mcf for both periods and the realized price of oil and condensate by $0.28 and $0.32 per Bbl for the three months ended September 30, 2004 and 2003, respectively. Average realized prices also 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 collar contracts, our average realized price for natural gas would have been $5.03 per Mcf and our average realized price for oil and condensate would have been $36.20 per Bbl for the third quarter of 2004. No three-way contracts were settled in the third quarter of 2003. Stated on a unit of production basis, Newfield's lease operating expense (LOE) in the third quarter of 2004 was $0.66 per Mcfe compared to LOE from continuing operations of $0.55 per Mcfe in the same period of 2003. Production taxes in the third quarter of 2004 increased to $0.21 per Mcfe compared to production taxes from continuing operations of $0.13 per Mcfe in the same period of 2003. DD&A expense in the third quarter of 2004 was $1.95 per Mcfe compared to DD&A expense from continuing operations of $1.80 per Mcfe in the same period of 2003. The increase in DD&A expense is due primarily to the third quarter acquisition of Denbury's Gulf of Mexico properties. G&A expense (including stock compensation) in the third quarter of 2004 was $0.36 per Mcfe compared to G&A expense from continuing operations of $0.25 in the same period of 2003. G&A expense in the third quarter of 2004 is net of capitalized direct internal costs of $9.1 million. Capitalized direct internal costs were $6.2 million in the third quarter of 2003. Capital expenditures in the third quarter of 2004 were $1.2 billion, including $719 million allocated for financial accounting purposes to the oil and gas properties acquired in the $575 million purchase of Inland Resources, Inc. Capital expenditures for the quarter also include the recognition of asset retirement costs of $44 million associated with our recent acquisitions. Year-to-Date 2004 For the first nine months of 2004, Newfield posted net income of $226.9 million, or $3.91 per share. Revenues for the first nine months of 2004 were $915.8 million. This compares to net income from continuing operations of $170.8 million, or $3.06 per share, on revenues of $772.1 million for the first nine months of 2003. Net cash provided by continuing operating activities before changes in operating assets and liabilities was $660.9 million in the first nine months of 2004 compared to $538.9 million in the same period of 2003. See Explanation and Reconciliation of Non-GAAP Financial Measures. Production volumes for the first nine months of 2004 increased 5% over the same period last year. The Company produced 174.1 Bcfe in the first nine months of 2004 compared to production from continuing operations of 165.5 Bcfe in the first nine months of the prior year. The following tables detail production and average realized prices for the first nine months of 2004 and 2003:

     Year-to-Date Sales / Production
     For the Nine Months Ended September 30
                                       YTD 09/04       YTD 09/03      % Change

    United States
      Natural gas sales (Bcf)             143.8           138.1            4%
      Average natural gas production
       (MMcf/d)                           524.9           505.9            4%
      Oil and condensate sales (MMBbls)    4.56            4.56           ---
      Average oil and condensate
       production (BOPD)                 16,624          16,703           ---
    International
      Natural gas sales (Bcf)             0.483
      Average natural gas production
       (MMcf/d)                             1.8
      Oil and condensate sales (MMBbls)   0.409
      Average oil and condensate
       production (BOPD)                  3,089
    Total
      Natural gas sales (Bcf)             144.3           138.1            4%
      Average natural gas production
       (MMcf/d)                           526.6           505.9            4%
      Oil and condensate sales (MMBbls)    4.96            4.56            9%
      Average oil and condensate
       production (BOPD)                 18,708          16,703           12%
      Total sales (Bcfe)                  174.1           165.5            5%


     Average Realized Prices+
     For the Nine Months Ended September 30
                                       YTD 09/04        YTD 09/03     % Change
    United States
      Natural gas (per Mcf)             $  5.10         $  4.64           10%
      Oil and condensate (per Bbl)      $ 34.30         $ 27.71           24%
    International
      Natural gas (per Mcf)             $  3.96
      Oil and condensate liftings
       (per Bbl)                        $ 46.06
    Total
      Natural gas (per Mcf)             $  5.10         $  4.64           10%
      Oil and condensate (per Bbl)      $ 35.27         $ 27.71           27%
      Total (per Mcfe)                  $  5.23         $  4.64           13%


+Prices shown are net of all applicable transportation expenses, which reduced the realized price of natural gas by $0.02 per Mcf for both periods and the realized price of oil and condensate by $0.35 and $0.37 per Bbl for the first nine months of 2004 and 2003, respectively. 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 contracts our average realized price for natural gas would have been $5.05 per Mcf and our average realized price for oil and condensate would have been $33.27 per Bbl for the nine months ended September 30, 2004. No three-way contracts were settled in the first nine months of 2003.

In the first nine months of 2004, LOE, stated on a unit of production basis, averaged $0.57 per Mcfe, compared to LOE from continuing operations of $0.52 per Mcfe in the same period of 2003. Production taxes in the first nine months of 2004 were $0.17 per Mcfe compared to production taxes from continuing operations of $0.15 per Mcfe in the same period of 2003. DD&A expense in the first nine months of 2004 was $1.89 per Mcfe compared to DD&A expense from continuing operations of $1.77 per Mcfe in the same period of 2003. G&A expense (including stock compensation) in the first nine months of 2004 was $0.34 per Mcfe compared to G&A expense from continuing operations of $0.28 per Mcfe in the prior year. G&A expense in the first nine months of 2004 is net of capitalized direct internal costs of $25.1 million. Capitalized direct internal costs were $20.4 million in the first nine months of 2003.

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 affect the comparability of operating results. Earnings without the effect of these items are presented because the 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 income as stated in our consolidated statement of income for the third quarter of 2004 includes an unrealized increase in the fair value of our three-way collar contracts of $9.2 million, a realized loss of $8.3 million for our three-way collar contracts and a decrease in hedge ineffectiveness of $0.5 million associated with our cash flow hedges. Commodity derivative income as stated in our consolidated statement of income for the third quarter of 2003 includes only changes in hedge ineffectiveness associated with our cash flow hedges. A reconciliation of earnings stated without the effect of the unrealized commodity derivative transactions to net income is shown below:


                                                        3Q04           3Q03

    Net income from continuing operations             $ 81.6         $ 58.4
      Unrealized commodity derivative income            (9.7)          (3.6)
      Income tax provision adjustment for above item     3.4            1.3
    Earnings stated without the effect of unrealized
     commodity derivative transactions                $ 75.3         $ 56.1


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:


                                                       3Q04           3Q03

    Net cash provided by operating activities
     from continuing operations                     $  230.3       $  191.1
      Less: (Increase) decrease in operating
       assets and liabilities                          (37.4)           5.5
    Net cash provided by operating activities
     from continuing operations before changes
     in operating assets and liabilities            $  267.7       $  185.6

                                                       YTD04          YTD03

    Net cash provided by operating activities
     from continuing operations                     $  644.6       $  458.5
      Less: (Increase) decrease in operating
       assets and liabilities                          (16.3)         (80.4)
    Net cash provided by operating activities
     from continuing operations before changes
     in operating assets and liabilities            $  660.9       $  538.9



2005 Production Estimate
The Company expects to produce 255 - 270 Bcfe in 2005, an increase of 6 - 12% over 2004 estimated production of about 240 Bcfe. Preliminary capital spending for 2005 is estimated at about $850 - 900 million. A final budget is being prepared and will be submitted to the Company's board of directors for approval in February 2005.

Fourth Quarter 2004 Estimates

Natural Gas Production and Pricing The Company's natural gas production in the fourth quarter of 2004 is expected to be 49 - 54 Bcf (533 - 590 MMcf/d). The price the Company realizes for natural gas production from the Gulf of Mexico and onshore Gulf Coast on an Mcf basis after basis differentials, transportation and handling charges, typically averages $0.15 - $0.20 less per MMBtu than the Henry Hub Index. Realized gas prices for our Mid-Continent properties after basis differentials, transportation and handing charges typically average $0.70 - $0.80 per MMBtu less than Henry Hub Index. Hedging gains or losses will affect price realizations.

Crude Oil Production and Pricing Oil production in the fourth quarter of 2004 is expected to be 2.4 - 2.6 million barrels (25,700 - 28,400 BOPD). These estimates include approximately 4,300 BOPD from the Company's Malaysian operations. The price the Company receives for Gulf Coast production typically averages about $2 below the NYMEX West Texas Intermediate (WTI) price. The price the Company receives for its production in the Rocky Mountains averages about $3 below WTI price. Oil production from the Mid- Continent typically sells at a $1.00 - $1.50 per barrel discount to WTI. Oil production from Malaysia typically sells at Tapis, or about even with WTI. Hedging gains or losses will affect price realizations.

Lease Operating and Other Expenses LOE is expected to be $45 - $50 million ($0.67 - $0.75 per Mcfe) in the fourth quarter of 2004. Production taxes in the fourth quarter of 2004 are expected to be $14 - $15 million ($0.21 - $0.24 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 fourth quarter of 2004 is expected to be $20 - $22 million ($0.31 - $0.34 per Mcfe), net of capitalized direct internal costs. Capitalized G&A expense is expected to be $8 - $9 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 fourth quarter of 2004 is expected to be $13 - $14 million ($0.10 - $0.11 per Mcfe). As of October 27, 2004, borrowings under the Company's credit arrangements were $182 million. The remainder of long-term debt consists of three separate issuances of notes that in the aggregate total $875 million in principal amount. Capitalized interest for the fourth quarter of 2004 is expected to be about $3 - $5 million.

Income Taxes Including both current and deferred taxes, the Company expects its consolidated income tax rate in the fourth quarter of 2004 to be about 35 - 39%. About 60% of the tax provision is expected to be deferred.

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Brent Crude Oil : $55.49/BBL 2.45%
Light Crude Oil : $52.42/BBL 2.04%
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