When David Trice took the helm of Newfield Exploration Co. as chief executive and president in February 2000, the company was entering a major transformation. Since inception in 1989, Newfield had stuck to its knitting in the shallow Gulf of Mexico, but these resources were maturing and Newfield's source of significant future growth appeared to need to lie elsewhere.

Its operations now include the Gulf Coast, the Anadarko and Arkoma basins, the Rockies' Uinta Basin, offshore Malaysia, the North Sea and China.But 2005 marked the beginning of a rough ride. Damage from hurricanes Dennis, Arlene, Katrina and Rita caused Gulf production deferrals of almost 20 billion cubic feet equivalent (Bcfe) and production guidance was lowered three times in 2006 due to continued deferrals in the Gulf, marketing issues in the Rockies and downtime offshore Malaysia.

In August, Newfield's highly anticipated ultradeep Blackbeard West #1 exploration test at South Timbalier offshore Louisiana, drilled by ExxonMobil, failed to reach its primary targets because of higher-than-expected pressure. Although the well did encounter gas below the salt weld, it was abandoned.

During the year, the company's stock price sank from more than $50 to some $36, some of this a result of generally declining natural gas prices.

Yet, it reported a 14% increase in year-end 2006 proved reserves to 2.3 trillion cubic feet equivalent, adding 603 Bcfe of proved reserves-virtually all through the drillbit. 2006 was its most active drilling year in its history: 665 wells.

Today, its Woodford shale play in the Arkoma Basin of southeastern Oklahoma is causing a serious buzz with investors and analysts. Newfield spudded 57 horizontal wells in the play since late 2005 and expanded its position to approximately 130,000 net acres. This year, it expects to drill about 150 more horizontal wells there.

Oil and Gas Investor visited with Trice to discuss the impact of falling from Wall Street grace, expanding beyond the Gulf shelf and what's next for the company in the Woodford shale.

Investor How has the company's image changed on Wall Street?

Trice If there's one thing Wall Street doesn't like, it's missing production targets. It doesn't matter what the reason is, and I don't like to make excuses. But we put out some pretty challenging production targets in July 2005 for 2006 and 2007, based on some significant drilling success we had domestically and internationally, and used our best judgment as to when those projects would be coming on and at what rate.

We made the projections just before what was the worst hurricane season we've ever had. People don't appreciate how storms have affected the offshore business during the last two years.

While we didn't have hurricanes in 2006, because of the weather and high seas, half of the time we were unable to work in the Gulf. It's also been worse in the North Sea and Malaysia, and those are the three areas where we've been trying to put on some high-rate projects. The delays are pushing that production into the future, some for well over a year. We're very focused on getting those projects online so we can reestablish our credibility with Wall Street.

Investor What other hurdles have you faced?

Trice During 2000, we were beginning to diversify the company. The acquisitions we did between 2000 and 2002 changed the profile of Newfield. The first was a $140-million deal that put us in three fields in South Texas. In the Midcontinent, we did a $330-million acquisition in January 2001. The acquisitions game was very competitive then, and more often than not we were bridesmaid or lowered out of the pecking order. We decided we wanted to create our own plays, which led to developing our Woodford shale asset.

We also got involved in the Texas Panhandle and western Oklahoma in the Mountain Front Wash play. Our biggest field there is Stiles Ranch. We got into it when we bought EEX Corp. in 2002. We bought out the other partners and during the last few years have gotten production up to 70 million cubic feet per day-350 billion cubic feet of reserve potential with a lot of upside.

When we got into the Midcontinent, we had about 60 million cubic feet per day of production and 240 billion cubic feet of reserves. Six years later, we have 180 million cubic feet per day of production and 800 billion cubic feet of reserves.

Our last big acquisition was of the Monument Butte Field in northeastern Utah in August 2004. It put us on the map in the Rockies. (See "Monument Butte," Oil and Gas Investor, November 2006.)

Our international growth happened organically, by going to these countries and knocking on doors. We're in Malaysia, the North Sea and China.

Investor What is Newfield doing well and what still needs to be accomplished?

Trice What we focus on-which is largely underappreciated by Wall Street and analysts-is that we're not trying to be the shining star of next week. We're trying to build for the long haul. Wall Street wants good news every week and near-term production growth. I like good news too, but I think the best way to run a company is to think about building value in the long term.

During our last earnings call, we talked about the money we invested during the last couple of years, where those investments don't show up today in terms of production or reserves-but they set the stage for significant reserve and production growth in the future.

We can't worry about what Wall Street's flavor of the day is. It's tempting because you can see the immediate benefits in your stock price, but we resist that temptation.

Investor You didn't make any acquisitions in 2005 or 2006.

Trice We didn't sit out of looking, but we did sit out of buying. In our view, we could find value through the drillbit much cheaper. We've grown by adding more than 1.2 trillion cubic feet of reserves through the drillbit.

Investor What's on the horizon for your ultradeep shelf program?

Trice We will do some studies this year, but I don't expect a well to be drilled there this year. Maybe not even in 2008. It's a play that still has the industry's interest, but it's an expensive play, and one that requires organization of significant-sized consortia.

Investor What's the status of your Monument Butte Field asset?

Trice Last year was choppy in moving crude out of the field due to marketing issues, but there are a number of refining expansion projects under way that should be completed by 2009 that will allow us a more aggressive development program.

Investor What's next?

Trice The deepwater Gulf is growing in importance for the company. We're a relative newcomer there, and we're expanding our position significantly. We have interests in three producing deepwater Gulf fields, and expect to have two more this year and two additional ones in 2008.

We'll drill three operated exploration wells this year. We have an inventory of higher-risk, higher-potential subsalt plays that we've put together, and two of those are drill-ready and will be operated by Anadarko in 2008. We also expect to be very active in the deepwater lease sale this year.

Investor What are your plans for the Woodford shale?

Trice We have 130,000 net acres out there and a lot of that hasn't been drilled yet. To make sure we hold that acreage, we have to drill a well on each 640-acre section and establish production. We have a program under way that will allow us to drill those wells before the leases expire. That's a big part of our program in 2007. Holding our leases and capital efficiency will be our focus in the Woodford this year.

We'll spend more than $500 million in the Woodford play in 2007. We could spend more than that, but there are budget constraints. Also, we don't want to move so fast that we can't prove to ourselves that we're being as capital-efficient as we can. We'll move at a pretty fast pace, but we won't be sprinting until we've got the mechanical part down, and the cost of the wells as low as we can go. We think we've got between 1,500 and 3,000 wells to drill out there, so we'll be doing a lot of drilling during the next 10 years.

Comments