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Global Credit Research - 21 Oct 2010
Approximately $2,175 million of rated debt affected
New York, October 21, 2010 -- Moody's Investors Service upgraded Newfield Exploration Company's (Newfield)
Corporate Family Rating and the Probability of Default Rating to Ba1 from
Ba2. Moody's also upgraded Newfield's senior subordinated
notes to Ba2 from Ba3. The rating outlook is stable.
"The upgrade of Newfield's Corporate Family Rating to Ba1
reflects the positive trend in leverage and capital efficiency,
as well as the prospects for continuing proved developed reserve growth
from the company's diverse set of properties," according
to Stuart Miller, Moody's Senior Analyst. Newfield's
assets have a good mix of producing properties, low-risk
development locations, and exploration potential. We expect
finding and development costs to continue to fall based on the quality
of the drilling locations in Newfield's asset portfolio.
Once known purely as an offshore Gulf of Mexico E&P company,
Newfield has invested heavily to transform itself into an onshore company
with a proved developed reserve life index of approximately 7 years.
The company is positioned for sustained organic growth supported by a
diverse portfolio of investment opportunities. For example,
with the current strength of oil prices versus natural gas prices,
Newfield reallocated its 2010 capital budget to focus more on the development
of its oil resources. By the end of 2011, Moody's expects
that over 35% of Newfield's production will be oil,
up from the current level of 30%. Newfield also has resources
in South Texas and Montana that are in the early stage of assessment.
The company plans to use the cash flow from its core properties in the
Mid-continent and Rockies to assess the potential of these plays.
Development of these areas could drive Newfield's future reserve
and production growth.
Over the past few years, Newfield's significant capital expenditures
exceeded cash flow as the company debt financed its repositioning from
offshore to onshore. However, in 2010 the company relied
on internally generated cash flow to increase production and reserves,
thereby decreasing leverage. As of June 30, 2010, debt
to proved developed reserves declined to $7.18 per BOE and
debt to average daily production dropped to $17,340 per BOE.
We believe Newfield could continue this positive credit trend if its focus
remains on reserve development and not on the acquisition of undeveloped
reserves. However, the Ba1 CFR can accommodate a modest increase
in leverage that would result from strategic or bolt on acquisitions.
Newfield has full availability under its $1.25 billion unsecured
revolving credit facility as of June 30, 2010. Therefore
the company has plenty of liquidity to finance any near term capital requirements,
especially if Newfield funds its 2010 and 2011 capital expenditures out
of internally generated cash flow.
Given the scale of Newfield, a positive rating action would require
leverage below $6 per BOE of proved developed reserves and debt
to average daily production under $17,000 per BOE.
In addition, three year F&D Costs (all sources) should be no
greater than $13 per BOE, a level that is possible based
on the quality of the company's current inventory of drilling prospects.
A negative rating action is possible if Newfield's leverage rises
materially from current levels due to a large, debt-financed
acquisition of non-producing reserves. Should debt to average
daily production exceed $20,000 per BOE or debt to proved
developed reserves go over $8 per BOE, a negative action
may be taken unless there is a viable plan to rapidly reduce leverage
below these levels.
Newfield Exploration Company is based in Houston, Texas.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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in assigning a credit rating is of sufficient quality and from sources
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Newfield Exploration's ratings to Ba1, senior subordinated notes to Ba2
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