EXPLORERS USA 2005: Newfield Exploration fights one horse image

Independent becomes well rounded producer with Mid-continent, Rockies, Texas and international added to shallow Gulf reserves

Ray Tyson

Petroleum News Houston Correspondent

Industry analysts would be hard pressed to find an exploration and production independent that has grown and diversified its operations as fast and wide as Newfield Exploration, particularly in the last few years.

Nevertheless, the company just can’t seem to shake its unjustified image as a predominantly shallow water exploiter on the Gulf of Mexico’s continental shelf, despite the fact that today only a quarter of Newfield’s reserves are in the U.S. Gulf versus nearly 100 percent in 1999.

“We are a dramatically different company than we were in 1993 and five years ago and even last year,” David Trice, Newfield’s chief executive officer, reminded industry analysts in a February 2005 conference call.

Newfield initially launched operations from the continental shelf and quickly built a reputation as a premier natural gas producer. But despite Newfield’s early successes, the company was sometimes criticized for having all its eggs in one basket. Times have changed for the Houston-based independent.

“We can see thousands of low risk drilling locations ahead of us in the (U.S.) Mid-continent and the Rockies,” Trice said. “We have hundreds of prospects and leads onshore Texas, where we are expanding into emerging exploration trends.”

In addition to the U.S. Rockies and Mid-continent, Newfield has expanded into the international area, doing business in the North Sea, offshore Malaysia, China’s Bohai Bay and offshore Brazil.

Company founded in 1988

Newfield bought its first property in 1990, made its first discovery in 1991, acquired two additional blocks that led to a successful seven-well drilling program in 1992 and went public in 1993 with an initial stock price of $8.75 per share. Today, the company trades at more than $70 per share.

“Over the past few years, we have reacted to the changes in our business and the needs to grow and produce value for our investors,” Trice said. “We are committed to continuing our track record into 2005 and beyond.”

Through acquisitions and the drill bit, Newfield’s proved oil and natural gas reserves have grown to about 1.8 trillion cubic feet of gas equivalent, placing it comfortably in the ranks of mid-size independents. Company revenues for 2004, helped by strong oil and gas prices, increased 33 percent from the previous year to $1.35 billion. Net income from continuing operations before accounting change increased 48 percent to $312.1 million.

Newfield began expanding asset base in 1995

Newfield began to expand its asset base in 1995, and a logical expansion was into similar Gulf of Mexico geologic plays onshore South Louisiana, according to the company. In early 1998, Newfield drilled a significant discovery in the Broussard area near Lafayette. The field is now producing more than 30 million cubic feet of gas per day.

During 1999, Newfield continued to expand its focus areas. New joint ventures along the Texas and Louisiana coasts increased the company’s prospect inventory. At the same time, Gulf of Mexico production reached record levels. Two significant acquisitions were completed in the Gulf of Mexico during the year, adding more than 170,000 acres and new drilling prospects.

Serious onshore acquisitions begin in 2000

In early 2001, Newfield completed its largest ever acquisition at the time — Lariat Petroleum — and established a new focus area in the Anadarko basin of Oklahoma.

In the Gulf of Mexico, Newfield made its first deep-shelf discovery at West Cameron 293.

The acquisition of independent EEX in 2002 marked another turning point for Newfield. In addition to providing the company with a significant asset base in South Texas and overlapping acreage in South Louisiana, the acquisition came with 60 blocks in the deepwater U.S. Gulf, another first for Newfield.

In 2003, Newfield conducted an aggressive drilling program along the Gulf Coast, based on “ready-to-drill ideas” inherited in the EEX acquisition, Newfield said. The company drilled more than 69 wells in South Texas and Louisiana in 2003, compared to only eight wells in all of 2002. About 50 of the wells were drilled on former EEX properties.

Rockies acquisition made in 2004

A huge, relatively untapped resource situated in the middle of the prolific Uinta Basin, Monument Butte is surrounded by large producing fields and is said to hold estimated overall reserves exceeding 2 billion barrels of oil equivalent.

The field has never been touched by a major oil company or a large, well-financed independent. To date, only 30 million barrels, or 1.5 percent of in-place oil reserves, have been recovered since Monument Butte was discovered in 1964, according to Newfield.

In addition to providing Newfield with a more diversified geographic base of operations, Monument Butte also is putting more oil in Newfield’s gas-heavy portfolio. Newfield is now 70 percent weighted to gas.

Newfield also has diversified into deeper, more risky natural gas plays on the U.S. Gulf continental shelf. The company is currently party to the ExxonMobil-operated Blackbeard prospect, which at 32,000 feet would be the deepest exploration well ever drilled on the shelf. The well was spud in early February and could take up to a year to complete.