For Investors Only: Newfield Update

[For newbies: a reminder that there were reasons why the Bakken was developed so quickly; why it is a "boom." One should not expect similar "boom" activity in Alberta Bakken or Texas' Eagle Ford, though I could be wrong.]

ORIGINAL POSTING

I've mentioned several times on this blog, as an investor, I missed opportunities in Newfield. I assume it's because I had not heard of Newfield while growing up in the Williston Basin. Of course, I had not heard of CLR or BEXP either but there has been a lot written in the North Dakota press about those two companies in the past couple of year; not so for NFX.

In addition, I don't recall seeing Newfield when I did my first extensive review of what was happening in the Bakken when I read a year or two-years worth of back issues of the Rocky Mountain Oil Journal (RMOJ) when I was in Williston back in 2008.

Maybe there's a reason I didn't see them in the RMOJ in 2008. If you look at the history of Newfield, you will see they entered the Rocky Mountain area in 2007, but that might not have caught my eye in the RMOJ in the summer of 2008. If I was looking at cumulative producing by company ranking, Newfield would have been very, very low on the list. (I seem to recall that BR was at the top of the rankings for production at that time; I could be wrong.)

In addition, in that history, Newfield says it exited 2008 with total proved reserves of 2.95 Tcfe. Nearly 90% of these reserves were located onshore U.S. These reserves were 72% natural gas and approximately 62% proved developed. Although volumes were improving in oil, they still stressed that volumes were improving in Woodford Shale, in Oklahoma, which I believe is a natural gas field. Thus, even if I  had seen it, I would have seen Newfield as a natural gas company. I was not interested in natural gas companies.  I was interested in the Bakken, which is oil. Sweet oil.

Three things excite me about Newfield:

• First, they have 271,000 net acres in the Bakken, and it's all "good" acreage;
• Second, they are headquartered in Houston, Texas, and, as such, probably know a thing about the next big oil field, the Eagle Rock, south of San Antonio, which they are now in; and,
• Third, like EOG and other natural gas companies, they have put the brakes on natural gas exploration and production and are focused on oil (see slide 12 of current presentation)

These are my unknowns:

• To what extent natural gas will impact their bottom line as they transition to oil
• To what extent do their holdings in the Bakken impact their bottom line

Most exciting:

• It's possible that Eagle Ford is where the Bakken was in 2006. Opportunities like this don't often strike twice.

Take a look at Newfield's most recent corporate presentation. Here are some takeaways (this is from the BMO Capital Markets, January 11, 2011, slide presentation; I am posting this on January 16, 2011, so currency could not be better).

Corporate Presentation, January 11, 2011

Slide 2: Maverick Basin in Eagle Ford -- it practically screams out at you what their focus is

Slide 3: 335,000 net acres for $209 million ($600/acre) -- someone check my math

• This is what acreage was selling for in the ND Bakken in 2007; now it's $5,000 or more/acre
• Acquired in February, 2010
• Confirmed hydrocarbon presence throughout the field
• API is 30 - 50 (I believe this will be defined as sweet oil, comparable to Bakken oil)

Slide 5: Geology of the Maverick Basin in the Eagle Ford

• Total depth: 3,000 to 7,000 feet
• EUR/well: 200 - 400 thousand bbls of oil equivalent (significantly less than core Bakken wells)
• Cost per well completion: $5.5 million (slide 6)

Slide 6: IPs and plans for 2 - 3 rigs in 2011 (not a very big program; just starting); 20 - 25 Eagle wells

• They do  have a hydraulic fracture service contract in place for 2011-12 (lessons learned from the Bakken)

Slide 10: Williston Basin -- 271,000 net acres; prospects -- includes Montana's Elm Coulee

• Big Valley: Divide County, north of Williston, 48K net acres (19%) [February, 2012: ~ 35,000 acres sold to CLR?]
• Catwalk: Williams County, northeast of Williston, 29K net acres (11%)
• Westberg Prospect: Nesson Anticline, 10K net acres (4%)
• Aquarium/Watford: Watford area, just west of Nesson anticline; 22K net acres (8%)
• Lost Bear: Fort Berthold Indian Reservation; 7K net acres (3%)
• Elm Coulee: Montana, where it all started; 55K net acres (20%)
• Other, exploratory: all inside Bakken; 100K net acres (37%)
• IPs: range between 2,500 and 3,500 with occasional outliers of 1,200

Slide 13: Alberta Bakken (this is a new venture)

• 260,000 net acres; acquired price not provided but I bet it was less than $600/acre
• This includes 156,000 net acres, Blackfeet agreement, December, 2009
• Just getting started

Slide 14: Hedging

• Collars all the way to $170; fixed price of $87.74 for rest of 2010
• 3-way collars starting in 2011, through 2013

I do not hold any shares in Newfield at the present time, but am seriously considering it. The purpose of the posting today is I feel I have done NFX a disservice, and certainly my readers a disservice, for missing Newfield. I have talked about it in the past, and  and have some blog postings, but not as many as it probably deserved.

Similarly, perhaps I could say the same about QEP. But now, I'm going to take a break, watch some football, and maybe come back to QEP sometime this 3-day weekend.