We lowered our target price $2 to $38 due to a weaker international oil outlook partly offset by slightly lower operated/production tax expense. We now project international oil production declines ~20% next year versus our prior expectation of a ~13% decline. We believe US onshore oil production should grow almost 20% in '13.
Newfield has four horizontal oil plays (Unita Basin Wasatch, Williston Basin Bakken, Anadarko Basin South Cana, Maverick Basin Eagle Ford) that are competitive in terms of capital productivity ($10-$15/Boe). Yet, CFPS growth is materially inferior to the group given the company's overall lower growth profile, differentially lower oil price realization and elevated expense structure. Consequently, despite yesterday's sell-off, we believe NFX shares remain ~10% overvalued relative to the sector.
•Strong initial horizontal Wasatch wells: The company's initial geo-pressured horizontal Wasatch tests (3,200' laterals) commenced at an average of ~1,200 Boepd, averaged ~625 Boepd the first 90 days on production, and should recover ~500 Mboe (85-90% oil) for a drill/complete cost of ~$6 million.
•Extended production history suggests South Cana solidly viable: The company's initial South Cana horizontal tests with 100 days of production history (~800 Boepd average) should recover 800+ Mboe (~35% oil) for a drill/complete cost of $9+ million.