Newfield's Earnings Down for Q4, Up for Full Year

Newfield Exploration Company on Wednesday announced its financial and operating results for the fourth quarter and full-year 2006. In addition, the company's board established March 5, 2007 as the record date for the company's 2007 annual meeting of stockholders. The annual meeting will be held at 11 a.m., Central Daylight Time, on Thursday, May 3, 2007, in the Joe B. Foster Employee Communications Room, fourth floor, 363 N. Sam Houston Parkway E., Houston, Texas.

Fourth Quarter 2006

For the fourth quarter of 2006, Newfield reported net income of $82 million, or $0.64 per diluted share (all per share amounts are on a diluted basis). Earnings for the quarter reflect the impact of the following items:

--Commodity derivative income of $28 million ($18 million after-tax), or $0.14 per share, associated with unrealized changes in the fair market value of open derivative contracts that are not designated for hedge accounting.
--$50 million ($32 million after-tax), or $0.25 per share, of hurricane related repair expenses included in lease operating expense (LOE). The proceeds from the settlement of all remaining insurance claims related to Hurricanes Katrina and Rita were received and credited to LOE in the third quarter of 2006.
--A $15 million charge, or $0.12 per share, related to a valuation allowance on U.K. net operating loss carryforwards because of a substantial decrease in estimated future taxable income as a result of the disappointing results of the recent #7 development well in the Grove Field. The well resulted in a 17 Bcfe downward revision to proved reserves.

Without the effects of the above items, net income for the quarter would have been $112 million, or $0.86 per share.

Revenues in the fourth quarter of 2006 were $427 million. Net cash provided by operating activities before changes in operating assets and liabilities was $308 million. See "Explanation and Reconciliation of Non-GAAP Financial Measures" found after the financial statements in this release.

By comparison, Newfield's net income for the fourth quarter of 2005 was $184 million, or $1.43 per share. Net income in this period was affected by the following items:

--Commodity derivative income of $147 million ($95 million after-tax), or $0.74 per share, associated with unrealized changes in the fair market value of open derivative contracts that are not designated for hedge accounting and with hedge ineffectiveness.
--Recognition of a $22 million ($14 million after-tax), or $0.11 per share, benefit associated with business interruption insurance proceeds related to the 2005 hurricanes.
--A ceiling test writedown of $10 million, or $0.07 per share, associated with decreased emphasis on Brazil and other non-core international exploration efforts.

Without the effects of these items, net income for the fourth quarter of 2005 would have been $85 million, or $0.66 per share. Revenues for the fourth quarter of 2005 were $443 million. Net cash provided by operating activities before changes in operating assets and liabilities was $282 million in the fourth quarter of 2005. See "Explanation and Reconciliation of Non-GAAP Financial Measures."

Newfield's production in the fourth quarter of 2006 was 67.9 Bcfe. The following tables detail production and average realized prices for the fourth quarters of 2006 and 2005. Domestic production in the fourth quarter of 2005 was negatively impacted by an estimated 16 Bcfe of deferred production related to the 2005 hurricanes.

    Quarterly Production (A)           4Q06            4Q05*       % Change
    United States
      Natural gas (Bcf)                55.2            39.5            40%
      Oil and condensate (MMBbls)       1.6             1.3            23%
    International
      Natural gas (Bcf)                 ---             ---           ---
      Oil and condensate (MMBbls)       0.5             0.5           ---
    Total
      Natural gas (Bcf)                55.2            39.5            40%
      Oil and condensate (MMBbls)       2.1             1.8            17%
      Total (Bcfe)                     67.9            50.3            35%



    Average Realized Prices (B)       4Q06            4Q05          % Change
    United States
      Natural gas (per Mcf)           $7.08           $7.16            (1%)
      Oil and condensate (per Bbl)   $45.01          $41.35             9%
    International
      Natural gas (per Mcf)             ---             ---           ---
      Oil and condensate (per Bbl)   $46.90          $59.37           (21%)
    Total
      Natural gas (per Mcf)           $7.08           $7.16            (1%)
      Oil and condensate (per Bbl)   $45.46          $46.27            (2%)
    Total (per Mcfe)                  $7.18           $7.28            (1%)

     (A)  Represents volumes sold regardless of when produced.
     (B)  Average realized prices include the effects of hedging contracts,
          including hedging contracts that are not designated for hedge
          accounting.  If the effects of hedging contracts that are not
          designated for hedge accounting had not been included, the average
          realized price for total gas would have been $5.92 and $8.94 per Mcf
          for the fourth quarter of 2006 and 2005, respectively, and the
          average realized price for total oil and condensate would have been
          $46.37 and $49.15 per Bbl for the fourth quarter of 2006 and 2005,
          respectively.  Without the effects of any hedging contracts, the
          average realized price for the fourth quarter of 2006 would have
          been $5.87 per Mcf for gas and $50.35 per Bbl for oil and
          condensate.

Stated on a unit of production basis, Newfield's LOE in the fourth quarter of 2006 was $1.80 per Mcfe, compared to $1.09 per Mcfe in the fourth quarter of 2005. LOE was impacted by $0.73 per Mcfe due to the timing of expenditures related to hurricane repairs. A $34 million credit was recorded to LOE in the third quarter of 2006 related to the difference between the insurance proceeds received from the settlement of insurance claims related to the 2005 hurricanes and actual repair costs to date. Production and other taxes in the fourth quarter of 2006 were $0.27 per Mcfe compared to $0.45 per Mcfe in the same period of 2005. DD&A expense in the fourth quarter of 2006 was $2.80 per Mcfe compared to $2.34 per Mcfe in the same period of 2005. G&A expense in the fourth quarter of 2006 was $0.45 per Mcfe compared to $0.56 per Mcfe in the same period of 2005. G&A expense in the fourth quarter of 2006 is net of capitalized direct internal costs of $16 million. Capitalized direct internal costs were $11 million in the fourth quarter of 2005.

Capital expenditures in the fourth quarter of 2006 were $557 million.

Full-Year 2006

For 2006, Newfield posted net income of $591 million, or $4.58 per share, on revenues of $1.7 billion. Earnings for the year reflect the impact of the following items:

--Commodity derivate income of $254 million ($165 million after-tax), or $1.28 per share, associated with unrealized changes in the fair market value of open derivative contracts that are not designated for hedge accounting;
--A $17 million charge to LOE ($11 million after-tax), or $0.09 per share, related to the difference between insurance proceeds received from the settlement of all remaining claims related to the 2005 hurricanes and actual repair expenditures;
--A $37 million benefit ($24 million after-tax), or $0.19 per share, associated with business interruption insurance proceeds related to the 2005 hurricanes;
--A $27 million ($17 million after-tax), or $0.14 per share, charge associated with the early redemption of our 8 3/8% Senior Subordinated Notes due 2012 (principal amount of $250 million);
--A $6 million ceiling test writedown, or $0.05 per share, associated with ceasing our exploration efforts in Brazil; and
--A $15 million charge, or $0.12 per share, related to a valuation allowance on U.K. net operating loss carryforwards because of a substantial decrease in estimated future taxable income.

Without the effect of the above items, net income for 2006 would have been $452 million, or $3.50 per share. Net cash provided by operating activities before changes in operating assets and liabilities was $1.3 billion.

As a comparison, Newfield posted net income for 2005 of $348 million, or $2.73 per share, on revenues of $1.8 billion. Earnings for 2005 reflect the impact of the following items:

--A $210 million charge ($137 million after-tax), or $1.07 per share, associated with unrealized changes in the fair market value of open derivative contracts that are not designated for hedge accounting and with hedge ineffectiveness.
--A $22 million benefit ($14 million after-tax), or $0.11 per share, associated with business interruption insurance proceeds related to hurricanes Katrina and Rita.
--A $7 million gain ($5 million after-tax), or $0.04 per share, on the sale of the Enserch Garden Banks floating production facility (EGB).
--A $10 million ceiling test writedown, or $0.07 per share, associated with decreased emphasis on Brazil and other non-core international exploration efforts.
--An $8 million benefit, or $0.06 per share, related to a reversal of the valuation allowance on U.K. net operating loss carryforwards because of a substantial increase in estimated future taxable income as a result of the Grove discovery in the U.K. North Sea.

Without the effect of these items, net income for 2005 would have been $468 million, or $3.66 per share.

In 2006, Newfield produced 242.6 Bcfe. Production in 2005 totaled 241.6 Bcfe. Domestic production in 2006 and 2005 reflects the deferral of approximately 16 Bcfe and 22 Bcfe, respectively, related to the 2005 hurricanes and associated on-going repairs. The following tables detail production and average realized prices for 2006 and 2005:



    Production (A)                     2006            2005        % Change
    United States
      Natural gas (Bcf)               198.7           190.9             4%
      Oil and condensate (MMBbls)       6.2             7.1           (13%)
    International
      Natural gas (Bcf)                 ---             0.1           ---
      Oil and condensate (MMBbls)       1.1             1.3           (15%)
    Total
      Natural gas (Bcf)               198.7           191.0             4%
      Oil and condensate (MMBbls)       7.3             8.4           (13%)
    Total (Bcfe)                      242.6           241.6           ---



    Average Realized Prices (B)        2006            2005      % Change
    United States
      Natural gas (per Mcf)           $7.22           $6.65             9%
      Oil and condensate (per Bbl)   $49.13          $42.31            16%

    International
      Natural gas (per Mcf)             ---           $4.71           ---
      Oil and condensate (per Bbl)   $56.58          $55.68             2%
    Total
      Natural gas (per Mcf)           $7.22           $6.65             9%
      Oil and condensate (per Bbl)   $50.25          $44.36            13%
    Total (per Mcfe)                  $7.43           $6.81             9%

     (A)  Represents volumes sold regardless of when produced.
     (B)  Average realized prices include the effects of hedging contracts,
          including hedging contracts that are not designated for hedge
          accounting.  If the effects of hedging contracts that are not
          designated for hedge accounting had not been included, the average
          realized price for total gas would have been $6.47 and $7.17 per Mcf
          for 2006 and 2005, respectively, and the average realized price for
          total oil and condensate would have been $52.18 and $45.84 per Bbl
          for 2006 and 2005, respectively.  Without the effects of any hedging
          contracts, the average realized price for 2006 would have been $6.42
          per Mcf for gas and $59.13 per Bbl for oil and condensate.

LOE in 2006 averaged $1.14 per Mcfe compared to $0.85 per Mcfe in 2005. LOE was negatively impacted in 2006 by continuing hurricane repairs. Newfield's actual hurricane related repair expenses for 2006 exceeded the proceeds from the settlement of insurance claims related to the 2005 hurricanes by $17 million, or $0.07 per Mcfe. Production taxes in 2006 were $0.25 per Mcfe compared to $0.26 per Mcfe in 2005. DD&A expense in 2006 was $2.57 per Mcfe compared to $2.15 per Mcfe in 2005. G&A expense in 2006 was $0.51 per Mcfe compared to $0.43 per Mcfe in the prior year. G&A expense in 2006 is net of capitalized direct internal costs of $58 million compared to $46 million in 2005.

2007 Capital Budget

Newfield's Board of Directors approved a 2007 capital budget of approximately $1.8 billion. The company's investment plan reflects the large development projects underway. Approximately $290 million of the budget is dedicated to exploration. The balance of the program is for exploitation drilling, development projects and maintenance of the property base. The budget includes about $50 million in continuing hurricane repairs in the Gulf of Mexico and excludes approximately $99 million of capitalized interest and overhead.

Proved Reserves and Capital Activity

Newfield's total reserves at year-end 2006 were 2.3 Tcfe, an increase of 14% over year-end 2005 reserves. Reserve additions from all sources were 603 Bcfe with only 1 Bcfe of the total coming from purchases of properties. Reserves associated with properties sold in 2006 totaled 13 Bcfe.



    Oil and Gas Reserves*
                                      MMBbls           Bcf           Bcfe

    December 31, 2005                   102           1,391         2,001
    Extensions, discoveries and
     other additions                     20             481           602
    Purchases of properties             ---               1             1
    Reserve additions                    20             482           603
    Sales of properties                 ---             (12)          (13)
    Revisions of previous estimates       2             (86)          (76)
    Production                           (9)           (189)         (243)
    December 31, 2006                   115           1,586         2,272

    * These estimates were prepared by Newfield. As a requirement of
      Newfield's credit facility, independent reserve engineers prepare
      separate reserve reports with respect to properties holding at least 70%
      of the present value of Newfield's proved reserves. For December 31,
      2006, the independent reserve engineers' reports covered properties
      representing 83% of Newfield's proved reserves, and for such properties
      the reserves were within 4% of the reserves Newfield reported for such
      properties.



    Capital Expenditures
    (In millions)                         2006
    Property acquisitions:
         Unproved                         $73
         Proved                            15
    Exploration                           366
    Development & Exploitation (1)      1,392
    Asset retirement cost                  16
    Capitalized interest                   44
         Total costs incurred (2)      $1,906

    (1)  Includes $1,150 million of exploitation costs. For SEC reporting
         purposes, these costs are classified as exploration capital
         expenditures.
    (2)  Total costs incurred have not been reduced by $71 million in proceeds
         from property sales during the year and insurance proceeds associated
         with property damage resulting from the 2005 hurricanes.

First Quarter 2007 Estimates

Natural Gas Production and Pricing

The Company's natural gas production in the first quarter of 2007 is expected to be 48 - 53 Bcf (533 - 588 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 handing 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 first quarter of 2007 is expected to be 1.9 - 2.2 million barrels (21,000 - 24,000 BOPD). Newfield expects to produce approximately 2,200 BOPD from its Malaysian operations. The timing of liftings in Malaysia 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 averages about $13 - 15 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 $58 - $64 million ($0.90 - $0.99 per Mcfe) in the first quarter of 2007. Production taxes in the first quarter of 2007 are expected to be $19 - $21 million ($0.29 - $0.33 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 first quarter of 2007 is expected to be $34 - $38 million ($0.53 - $0.59 per Mcfe), net of capitalized direct internal costs. Capitalized direct internal costs are expected to be $13.6 - $15 million. G&A expense includes 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 first quarter of 2007 is expected to be $14.5 - $16.5 million ($0.23 - $0.26 per Mcfe). As of February 1, 2007, Newfield had no outstanding borrowings under its credit arrangements. The remainder of debt consists of four separate issuances of notes that in the aggregate total $1,175 million in principal amount. Capitalized interest for the first quarter of 2007 is expected to be about $10 - $11 million.

Income Taxes

Including both current and deferred taxes, the Company expects its consolidated income tax rate in the first quarter of 2007 to be about 35 - 38%. About 76-84% of the tax provision is expected to be deferred.

The Company provides information regarding its outstanding hedging positions in its annual and quarterly reports filed with the SEC and in its electronic publication -- @NFX. This publication can be found on Newfield's web page at http://www.newfield.com . Through the web page, you may elect to receive @NFX through e-mail distribution.

Newfield Exploration Company is an independent crude oil and natural gas exploration and production company. The Company relies on a proven growth strategy of 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 operations in Malaysia, the U.K. North Sea and China.

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