Newfield Exploration has earmarked $950 million for exploration and development in 2005, a 12 percent increase over the $850 million the company reported spending on similar capital projects in 2004.
Newfield also said it made several discoveries in the deepwater Gulf of Mexico, onshore Gulf Coast and the U.K. North Sea.
“These discoveries will add significant production volumes for the company beginning in 2006,” the company said.
Capital expenditures in 2005 will expose the Houston-based independent to a possible 500 billion cubic feet of additional equivalent gas reserves, said David Trice, Newfield’s chief executive officer. The company had roughly 1.8 trillion cubic feet of total proved reserves at year-end 2004.
Trice said in a Feb. 9 conference call to discuss the company’s 2004 fourth-quarter earnings that Newfield also raised its guidance on 2005 production to 262 billion cubic feet to 272 bcf of gas equivalent from 255 bcf to 270 bcf, an 8 to 12 percent increase.
Newfield’s production in the fourth quarter of 2004 alone was 69.5 bcf of gas equivalent, a 26 percent increase over production of 55.1 bcf in the fourth quarter of 2003.
Newfield’s profit for the 2004 fourth quarter, including $33 million in non-cash charges, still more than doubled to $90 million or $1.43 per share, compared to a profit of $40.2 million or 71 cents per share for the same period last year.
“We are committed to continuing our track record into 2005 and beyond,” Trice said.
Exploration: 30 percent of capex
About 30 percent or $280 million of Newfield’s $950 million capital budget for 2005 will be devoted to exploration, a 27 percent increase over the $220 million the company spent on exploration in 2004.
The increase in overall capital spending for 2005 can be attributed in large part to exploration and development activities on properties acquired in two deals made by Newfield in 2004: the $575 million acquisition of Inland Resources, a transaction that gave Newfield entrance into the Rocky Mountains, and the $185 million acquisition of Denbury Resources’ Gulf of Mexico assets.
Newfield said that one-third of the total 2005 capital budget or $330 million will be devoted to the Gulf of Mexico, where some 20 wells are planned in shallower waters of the continental shelf and up to three wells in deepwater Gulf.
Another $210 million is earmarked for onshore Gulf Coast, where Newfield plans to drill 15 to 20 exploration wells and 40 to 60 development wells in 2005.
“We will be active in most of Texas’ major plays,” said Dave Schaible, Newfield’s executive vice president of operations and acquisitions.
Newfield plans to spend about $220 million in the U.S. Mid-continent this year, which includes the drilling of 200 to 300 wells.
“We had a good year in 2004 and developed a low-risk inventory to supply us with prospects for the next three to five years,” Schaible said.
About $90 million will go to 110,000-acre Monument Butte oil field in Northeast Utah, where Newfield plans to drill 175 to 200 wells this year, including several wells to test the field’s gas potential. Monument Butte was included in last year’s Inland Resources transaction. In fact, Newfield operated 61 of the 147 wells drilled at Monument Butte during 2004, after the deal closed.
“The wells we have drilled have met or exceeded expectations in pay thickness and initial production rates,” Schailbe said, adding that the field should be producing more than 10,500 barrels of oil by year-end 2005 vs. current output of 9,100 barrels per day.
Newfield has budgeted another $100 million for international programs, with most of the cash going to various projects in Malaysia, the U.K. North Sea and China’s Bohai Bay, the company said.
First operated deepwater Gulf discovery at Wrigley
Meanwhile, Newfield said it had its first operated deepwater Gulf of Mexico discovery at the Wrigley prospect at Mississippi Canyon Block 506 in about 3,700 feet of water. The No. 1 well encountered 90 feet of high-quality, dry gas pay, the company said, adding that the well bore was sidetracked about 250 feet updip and found 44 feet of similar-quality gas pay.
The company said it plans to tie back the Wrigley well to existing infrastructure in the area and expects first production in mid-2006. Newfield owns a 50 percent interest in the Wrigley development and its estimated reserves of 55 bcf to 85 bcf of gas equivalent. Two additional prospects, supported by similar seismic amplitudes, exist on the block and could be tested later this year, the company said.
Newfield said it had another deepwater Gulf discovery at the Anduin prospect on Mississippi Canyon Block 755 in about 2,400 feet of water. The well found about 48 feet of oil pay, the company said, adding that the partners were preparing to drill an updip sidetrack location.
Information from the sidetrack will be used to determine Anduin’s reserve size and development options, Newfield said. Newfield owns a 50 percent non-operated interest in Anduin.
In late 2004, Newfield said it drilled a successful gas well at its La Femme Prospect at Mississippi Canyon Block 427 in about 5,800 feet of water. The No. 1 well penetrated about 90 feet of hydrocarbon pay, but Newfield said a second well is needed to determine field size and commerciality. A second well is planned for mid-2005, the company said. Newfield operates La Femme with a 50 percent working interest.
Potentially significant discoveries onshore Texas
Newfield said it made three potentially significant discoveries onshore Texas, but declined to disclose their locations because of competitive leasing activity in the area. However, the company did say two of the wells tested at 8 million cubic feet of gas per day and that the third well has been producing at 1.5 million cubic feet per day since late 2004.
Additional delineation drilling is planned and pipeline and facility designs are under way for the Texas discoveries, Newfield said. Newfield, which has a 100 percent working interest in all three wells, said that when fully developed the discoveries have the potential to add gross reserves of 60 bcf to 100 bcf of gas equivalent.
Newfield also announced its first discovery in the company-operated Grove prospect in the U.K. North Sea on license area 49/10a in the Southern Gas Basin. The Grove well was drilled to a total depth of 11,400 feet and found about 120 feet of net gas pay in the Leman and Barren Red Measures sands, Newfield said.
The Grove well was drilled to appraise an undeveloped discovery drilled in 1971. The well tested 25 million cubic feet of gas per day and 330 barrels of condensate per day.
Newfield said it plans to fabricate a production facility with first production expected at Grove in late 2006. The company has a 100 percent interest in the Grove development and estimated reserves at 75 bcf to 100 bcf of gas equivalent.
License area 49/10a is part of a six block area called Cleaver Bank North, which covers about 100,000 acres. In addition to Grove, three to five additional prospects exist in this area and are being evaluated for future drilling, Newfield said.
