Newfield Issues Q2 Results, Ups Capital Budget to Reflect Woodford Activity

For the second quarter of 2006, Newfield Exploration Co. reported net income of $94 million, or $0.73 per diluted share (all per share amounts are on a diluted basis). Earnings for the quarter reflect the following items:

--A $27 million ($17 million after-tax), or $0.13 per share, charge associated with the early redemption of the company’s 8 3/8% Senior Subordinated Notes due 2012 (principal amount of $250 million) --Commodity derivative income of $10 million ($6 million after-tax), or $0.05 per share, associated with unrealized changes in the fair market value of open derivative contracts that are not designated for hedge accounting.

Without the effects of the above items, net income for the quarter would have been $105 million, or $0.81 per share.

Revenues in the second quarter of 2006 were $390 million. Net cash provided by operating activities before changes in operating assets and liabilities was $297 million.

By comparison, net income in the second quarter of 2005 was $104 million, or $0.82 per share. Earnings for the quarter included the effects of a $45 million charge ($30 million after tax), or $0.23 per share, associated with unrealized changes in the fair market value of open derivative contracts that are not designated for hedge accounting. Without the effects of this item, net income for the quarter would have been $134 million, or $1.05 per share. Revenues for the quarter were $446 million. Net cash provided by operating activities before changes in operating assets and liabilities was $329 million. See Explanation and Reconciliation of Non-GAAP Financial Measures.

Newfield’s production in the second quarter of 2006 was 58.3 Bcfe, which reflects the negative impact of 2 Bcfe of deferred production related to the 2005 hurricanes in the Gulf of Mexico. Production in the second quarter of 2005 was 67.3 Bcfe.

Stated on a unit of production basis, Newfield’s lease operating expense in the second quarter of 2006 was $1.14 per Mcfe compared to $0.74 per Mcfe in the second quarter of 2005. Production and other taxes in the second quarter of 2006 were $0.27 per Mcfe compared to $0.18 per Mcfe in the same period of 2005. DD&A expense in the second quarter of 2006 was $2.46 per Mcfe compared to $2.09 per Mcfe in the same period of 2005. G&A expense in the second quarter of 2006 was $0.48 per Mcfe compared to $0.41 per Mcfe in the same period of 2005. G&A expense in the second quarter of 2006 is net of capitalized direct internal costs of $15 million. Capitalized direct internal costs were $12 million in the second quarter of 2005.

Updated Guidance

Newfield expects to produce about 250 Bcfe in 2006, an increase of about 3% over 2005 production. The company’s previous 2006 guidance range was 250- 265 Bcfe. Large development projects underway in the U.S. and overseas should provide production growth of 20-25% in 2007. Newfield expects to produce 300-320 Bcfe in 2007, in line with earlier guidance.

Newfield also announced that it has increased its capital budget for 2006 to $1.9 billion, excluding approximately $180 million in hurricane repairs (a significant portion of the repairs are covered by insurance proceeds). Approximately $150 million of the increase is related to higher activity levels in the company’s Woodford Shale Play, located in the Arkoma Basin of southeastern Oklahoma. Newfield expects that its horizontal rig count in the play will nearly double by year-end to 13 operated rigs.

The company’s natural gas production in the third quarter of 2006 is expected to be 50 - 51 Bcf (543 - 555 MMcf/d). Based on current prices, Newfield estimates that its realized price for natural gas production from the Gulf of Mexico and onshore Gulf Coast, after basis differentials, transportation and handling charges, will average $0.40 - $0.60 less per MMBtu than the Henry Hub Index. Realized gas prices for the company’s Mid-Continent properties, after basis differentials, transportation, and handling charges, typically average $0.70 - $0.80 less per MMBtu than the Henry Hub Index. Hedging gains or losses will affect price realizations.

Crude Oil Production and Pricing

The company’s oil production, including international liftings, in the third quarter of 2006 is expected to be 2.0 - 2.2 million barrels (21,700 - 24,000 BOPD). Newfield expects to produce approximately 3,700 BOPD from its Malaysian operations. The timing of liftings in Malaysia and the availability of refining capacity for our Monument Butte oil production may affect total reported production. The price the company receives for Gulf Coast production typically averages about $2 per barrel below the NYMEX West Texas Intermediate (WTI) price. The price the Company receives for its production in the Rocky Mountains is now averaging $9 per barrel below WTI. 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 Expense and Production Taxes

LOE is expected to be $68 - $75 million ($1.10 - $1.20 per Mcfe) in the third quarter of 2006. Production taxes in the third quarter of 2006 are expected to be $15 - $17 million ($0.20 - $0.30 per Mcfe). These expenses vary and are subject to impact from, among other things, production volumes and commodity prices, tax rates, service costs, the costs of goods and materials, and workover activities.

General and Administrative Expense

G&A expense for the third quarter of 2006 is expected to be $33 - $37 million ($0.50 - $0.60 per Mcfe), net of capitalized direct internal costs. Capitalized direct internal costs are expected to be $16 - $17 million. G&A expense includes stock and incentive compensation expense. Incentive compensation expense depends largely on adjusted net income (as defined in the company’s incentive compensation plan), which excludes unrealized gains and losses on commodity derivatives.

Interest Expense

The non-capitalized portion of the company’s interest expense for the third quarter of 2006 is expected to be $20 - $22 million ($0.26 - $0.31 per Mcfe). As of July 26, 2006, Newfield had no outstanding borrowings under its credit arrangements. Long-term debt consists of four separate issuances of notes that in the aggregate total $1.2 billion in principal amount. Capitalized interest for the third quarter of 2006 is expected to be about $11 - $12 million.

Income Taxes

Including both current and deferred taxes, the company expects its consolidated income tax rate in the third quarter of 2006 to be about 35 - 39%. About 60-65% of the tax provision is expected to be deferred.

Newfield Exploration Co. is an independent crude oil and natural gas exploration and production company. The company relies on a proven growth strategy growing reserves through the drilling of a balanced risk/reward portfolio and select acquisitions. Newfield’s domestic areas of operation include the U.S. onshore Gulf Coast, the Anadarko and Arkoma Basins of the Mid-Continent, the Uinta Basin of the Rocky Mountains and the Gulf of Mexico. The company has international exploration and development projects underway in Malaysia, the U.K. North Sea, and China.

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