Houston-based independent energy company, Newfield Exploration Company (NFX), is set to report its second-quarter 2013 results on Jul 25. Let’s see how things are shaping up prior to the announcement.
In the last quarter, the company’s earnings of 45 cents per share decreased 50.5% from 91 cents per share earned in the year-ago quarter. The results were adversely impacted by lower oil and gas volumes coupled with higher operating expenses. The results also missed the Zacks Consensus Estimate of 46 cents.
Growth Factors this Past Quarter
In the first quarter, Newfield’s earnings declined due to lower volumes. Total quarterly production was 11.7 million barrels of oil equivalent (MMBoe), comprising 55.6% crude oil, condensates and natural gas liquids (NGLs). Natural gas volumes were 31.2 billion cubic feet (Bcf), down 23.3% year over year. Oil, condensate and natural gas liquids (NGLs) volume expanded 10.2% year over year to 6.5 million barrels (MMBbls).
Newfield’s first quarter oil and natural gas price realizations (including the effect of hedges) averaged $59.79 per Boe. Natural gas prices improved 10.5% year over year to $4.09 per Mcf. However, liquid prices fell 0.2% to $96.06 per barrel.
Going forward, Newfield’s exposure to emerging resource plays, along with its shift in resources from natural gas to liquids, will help it to grow in the exploration and production space.
Going forward, the company intends to focus mostly on liquids-rich operations and expects to generate about 35% year-over-year growth in oil and liquids production in 2013. Newfield expects output of 44.2–47.2 million barrels of oil equivalent (:MMBOE) in 2013.
Newfield Exploration’s diversified portfolio of assets provides both flexibility and significant growth potential. We expect the company’s reserve potential in the Southern Alberta Bakken, Wasatch Oil, Uinta Basin and Williston play to be a liquid-rich catalyst for the stock.
Though we remain positive on Newfield Exploration’s emerging resource plays’ development program, we believe that its sensitivity to gas price volatility, as well as drilling results, costs, geo-political risks and project timing delays will weigh on the stock. Increasing cost pressure in the highly competitive shale plays is also a cause of concern.
Our proven model shows that Newfield is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: The expected surprise prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +8.11%. This is very meaningful and a leading indicator of a positive earnings surprise for Newfield shares.
Zacks Rank #3 (Hold): Note that stocks with a Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
The combination of Newfield’s Zacks Rank #3 (Hold) and an ESP of +8.11% makes us reasonably confident of a positive earnings beat on Jul 25.
Other Stocks to Consider
Newfield is not the only firm looking up this earnings season. We also see likely earnings beats coming from the following companies:
Memorial Production Partners LP (MEMP) with earnings ESP of +19.51% and a Zacks Rank #1 (Strong Buy).
Ferrellgas Partners LP (FGP) with earnings ESP of +6.90% and a Zacks Rank #1 (Strong Buy).
W&T Offshore Inc. (WTI) with earnings ESP of +9.09% and a Zacks Rank #1 (Strong Buy).
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