Newfield Exploration Co.: Financial Forecast Sunny Despite Profit Plunge

Weather causes turbulence for oil and gas production company.

When it comes to weather, Houston-based Newfield Exploration Co. can't seem to catch a break.

The independent crude oil and natural gas exploration and production company, one of IndustryWeek's 50 Best Manufacturing Companies for 2006, first had to contend with Hurricane Katrina and the structural and financial woes that carried through to 2006; then a mild winter impacted gas prices.

Ultimately, the balance sheet took the brunt of the damage. According to a Feb. 7 statement, net income for fourth quarter 2006 plunged 55% to $82 million.

"In some respects 2006 was a very challenging year," said David Trice, chairman, president and CEO of Newfield in a Feb. 8 earnings conference call. "The hurricane of 2005 had lingering effects . . . and plagued offshore operations for much of the year. We were not immune and our ability to forecast the timing of our developments was negatively impacted."

Despite a severe drop in net income for the fourth quarter, full-year 2006 net income rose from $348 million on revenues of $1.8 billion in 2005 to $591 million on revenues of $1.7 billion in 2006.

"We ended the year a much larger company," said Trice. "Making this the 18th consecutive year that we replaced annual production with new reserves."

In terms of the future, Newfield's Trice has high hopes. According to the company's @NFX newsletter, there are three major development projects underway that will add significant production volumes. They are:

Newfield Exploration Co.
At A Glance


Newfield Exploration Co.
Houston, Texas
Primary Industry: Petroleum and coal products
Number of Employees: 762
2005 In Review
Revenue: $1.8 billion
Profit Margin: 19.75%
Sales Turnover: 0.35
Inventory Turnover: 18.05
Revenue Growth: 30.26%
Return On Assets: 8.04%
Return On Equity: 17.25%
  • Wrigley, Deepwater Gulf of Mexico: this deepwater field is being prepared for first production. Newfield is awaiting final hurricane repairs. Once repairs are complete, the production modules will be welded in place and will allow for gas production. Newfield operates with a 50% working interest.
  • Grove, UK North Sea: Production has been delayed due to severe weather. The pay zones were thinner and tighter than expected and reduced the estimate of net recoverable reserves for the field. Newfield operates with an 85% working interest.
  • Abu, Offshore Malaysia: The platform for this field was installed in late 2006 and the floating, storage and offloading vessel will soon be commissioned.

"2007 will be an excellent year for Newfield," said Trice. "Large developments are fueling near-term production and reserve growth and the lion's share of this year's budget is dedicated to development projects that will add significant growth in 2007 and beyond. We drilled 665 wells in 2006 -- our most active year. We expect to drill an equal amount of wells in 2007."


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