Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Newfield Exploration (NYSE:NFX) surged more than 12% today when the company released its earnings and business update for the year. While earnings and revenue both missed on a continuing operations basis, the company's announcements -- that its derivative contracts contributed to big gains and proved reserves increased significantly, in addition to the well economics for its largest exploration site, the Anadarko Basin -- were enough to make investors happy.
So What: It's not often that a company posts lower-than-expected earnings and revenue and Wall Street gets giddy like this; but the numbers that Newfield displayed on its most recent investor report were enough to get shareholders excited. Earnings from the sale of oil and gas would have only been $0.38 per share, but when you add the gains from its hedging contracts, the quarter ended at $2.65 per share.
On top of that nice little boost, the announcements on its proved reserves and well economics in the Anadarko look rather promising, as well. Proved reserves today stand at 645 million barrels, a 14% increase from the year prior and enough in proved reserves for more than 12 years of production at current rates. Much of that is from the expansion of its operations in the SCOOP and STACK formations in the Anadarko. According to Newfield, the company is still able to produce an interal return rate between 30%-45% at current prices depending upon the mix of oil and gas that they produce. That number of hydrocarbons, which are reasonably economic at today's prices, will do that to a stock.
Now What: Newfield is in the envious position of being able to grow its production while still seeking an OK profit, even with the price of oil as weak as it is. With a massive drilling inventory in tow, it's not too surprising to see investors pick up shares. It's impossible to know with any certainty whether this is the bottom of the oil market, but any company that can be profitable when things are this low should be on the radar of energy investors.