Newfield in Neutral Lane - Analyst Blog
11 Aprile 2013 - 5:20PM
Zacks
We maintained our recommendation on
Newfield Exploration Company (NFX) at Neutral on
Apr 4, 2013.
Why Maintained?
Newfield, an independent energy company, is expected to benefit
from its exposure to emerging resource plays, along with its shift
of resources from natural gas to liquids, which will help it to
grow in the E&P space.
During the fourth quarter, Newfield completed drilling three wells
in the Cana Woodford play, the performance of which exceeded
expectations. Further, favorable results from the Uinta Basin,
South Cana, Bakken and Eagle Ford validate the upside exploration
potential of these plays. Horizontal drilling in the Wasatch and
the high pressure Uteland Butte are also expected to help the
company enhance shareholders’ value.
For 2013, the company intends to spend the majority of its capital
for liquid-rich operations and expects to generate about 35%
year-over-year growth in oil and liquids production.
Newfield’s operations abroad, especially in Malaysia, hold immense
potential. This is evident from the natural gas find it made off
Sarawak, Malaysia, which is considered the largest conventional
exploratory success in its history. The discovery is
estimated to hold 1.5 trillion to 3 trillion cubic feet of gas
initially in place.
Though we remain positive on Newfield Exploration’s emerging
resource plays’ development program, we believe that a low natural
gas price environment could remain an overhang since most of the
company’s reserves are tied up in natural gas. Specifically, oil
and gas prices have been increasingly volatile in recent years.
This volatility tends to impact sector stock performance.
Moreover, Newfield’s Rockies and Gulf Coast-centered asset
portfolio, along with its lack of meaningful exposure to the
emerging shale plays, is a competitive disadvantage. Newfield’s
lack of economies of scale in Bakken and Eagle Ford Shale has also
restricted its ability to compete more aggressively with other
leading players due to higher costs and delays. The outlook for
2013 is quiet uncertain with the pending international asset
sale.
Other Stocks to Consider
While we prefer to remain on the sidelines for Newfield, there are
other stocks in the sector that appear rewarding. Among these,
Stone Energy Corporation (SGY), Range
Resources Corporation (RRC) and EPL Oil & Gas,
Inc (EPL), which are expected to outperform the broader
market over the next few months, carry a Zacks Rank #1 (Strong
Buy).
EPL OIL&GAS INC (EPL): Free Stock Analysis Report
NEWFIELD EXPL (NFX): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
STONE ENERGY CP (SGY): Free Stock Analysis Report
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