FREEMAN final

April 18, 2016
NEWFIELD EXPLORATION COMPANY
NFX/NYSE
Initiating Coverage: Little Chips Light Great Fires
Investment Rating: Market Perform
PRICE: $ 36.54 S&P 500: 2094.34 DJIA: 18004.16 RUSSELL 2000: 1139.28
• Strong capital structure will protect balance sheet, and provide liquidity.
• Enhanced hedging position will mitigate volatility of commodity price.
• Concentrated investments will increase production and proved reserves.
• Controlling costs to support its operations.
• Our 12-month target price is $ 36.06.
Valuation 2015A 2016E 2017E
EPS -21.4 0.38 2.06
P/E NM NM NM
CFPS 7.57 3.74 3.77
P/CFPS 4.8x 9.7x 9.7x
Company Information:
Location: Woodlands, Texas
Industry: E&P Industry
Description: Newfield is an independent energy company that committed to the research, manufacture,
and development of natural gas, natural gas liquids, and crude oil.
Key Products & Services: crude oil, natural gas, and natural gas liquids (NGLs)
Web Site: http://newfield.com
Freeman Analysts
Tianhang Qi
Yansong Tong
Yifei Sun
Leopoldo Jesus Javier Ferrer Arellano
Market Capitalization Stock Data
Equity Market Cap (MM): 7098.20 52-Week Range: $20.84-$41.34
Enterprise Value (MM): 9444.40 12-Month Stock Performance: -2.51%
Shares Outstanding (MM): 163.50 Dividend Yield: N/A
Estimated Float (MM): 196.90 Book Value Per Share: 9.21
6-Mo. Avg. Daily Volume: 6,488,531 Beta: 1.61
FREEMAN
Reports
Please Note: Freeman Reports are produced solely as part of an
educational program of Tulane University’s A.B. Freeman School
of Business. The reports are not investment advice and you should
not and may not rely on them for making any investment decisions.
You should consult an investment professional and/or conduct your
own primary research regarding any potential investment.

NEWFIELD EXPLORATION COMPANY April 18, 2016
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STOCK PRICE
PERFORMANCE
Figure 1:
5-year Stock Price
Performance
Source:Yahoo! Finance
INVESTMENT
SUMMARY
We gave Newfield a Market Perform rating and predicted the company’s
stock price will increase 10 percent from $32.63 per share to $36.06 per
share by the end of the year 2016. In order to calculate and weight the 12-
month target price, we used three valuation methods, including Present
Value-10 method, EV/EBITDA method and EV/Proved Reserve method.
As an independent E&P company, the key drivers of the valuation of
Newfield include production parameters, potential increases in future well
production, exposure to commodity prices, and exposure to interest rate
risk.
The main challenge that the company faces is the prices of its major
products: crude oil, nature gas and NGL have all dropped significantly in
recent years. Especially the currently low oil prices could result in the
company’s failure to establish production on undeveloped acreage and the
potential loss on Newfield’s proved reserves. Regardless of economic
concerns, we believe Newfield is capable of enhancing future margins.
Because the costs to find, develop and produce oil, natural gas and NGLs
reduced in the previous year, the future long-term stockholder value has a
great chance to increase.
INVESTMENT
THESIS
To increase the value of shareholders, Newfield will continue to enhance
its hedging position to protect the company from current low commodity
prices. Newfield will focus on increasing its proved reserves, maintaining
a strong and flexible capital structure, and controlling its production
Enhanced
hedging position
will mitigate
volatility of
commodity price.
The oil price has been fluctuating since 2014, ranging from $107 per
barrel at June, 2014 to $26 per barrel at February, 2016. The low oil and
natural gas prices make the discretional cash flow shrink and cause ceiling
test and other impairments to Newfield’s proved reserves. Although the
commodity price may not rebound enough for the company to realize a

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high discretional cash flow in 2016, Newfield has successfully hedged
more than 40 percent of its production, and the revenue from its hedging
position will reach $270 million. For 2016, the fixed-price swap with sold
puts hedging of 10.06 MMBBLs will lock into a price range from $74.14
to $89.98 per barrel, the collars with sold puts hedging of 6.22 MMBBLs
will set floors at $90.00 per barrel and ceilings at $96.15 per barrel, and
the purchased calls hedging of 6.24 MMBBLs will lock into a strike price
of $72.18 at which Newfield can sell its oil.
Concentrated
investments will
increase production
and proved
reserves.
In 2016, Newfield will invest 80 percent of its planned capital into the
Anadarko Basin, which provided the highest return in the company’s
portfolio in 2015. The Anadarko Basin is the company’s largest producing
region, which is more than 315,000 net acres. The basin’s production in
the fourth quarter of 2015 was approximately 75 MBOEPD. Newfield has
more than two billion BOE net non-risked resource and more than 6,000
potential drilling locations in this operating location, and achieved a 50
percent year to year growth in proved reserves from 2012 to 2015. Figure
2 shows the proved reserve of Anadarko Basin from 2012 to 2015. With
the rebound of commodity prices and the concentrated investment, the
Anadarko Basin’s proved reserve and production will continue to increase
in the future.
Figure 2: Proved Reserves of Anadarko Basin
Source: Newfield Exploration Company 2015 annual report
The strong
capital structure
will protect balance
sheet and liquidity.
Newfield will divest its non-strategic assets and issue stock to repay all its
borrowings under its credit facility and money market lines of credit.
Companies that have less fixed cost have better chances to survive under
current market conditions and have great opportunities to recover when
market environment becomes favorable. Thus, decreasing financial
leverage and maintaining liquidity will remain central to Newfield’s
business strategy. The company issued 25.3 million shares of common
stock and received $815 million in the first quarter of 2015 for its credit
35
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100
150
200
250
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line repayment, and issue $700 million senior debt due 2026 to redeem the
700 million principle of its senior subordinated notes due 2020, which
grants the company additional rooms to arrange its credit capacity. On
February 25, 2016, Newfield issued 30 million shares and proceed
approximate $700 million. The company will use those proceeds to fund
its capital expenditure and working capital and to repay its credit line
outstanding borrowings. Regarding to divesting its non-strategic assets,
Newfield slowed its producing activities in Gulf Coast in 2015 and will
continue to sell its non-strategic assets in Gulf Coast in 2016.
Controlling costs
will support
operations.
Newfield Reduced domestic lease operating expenses per barrel of
equivalent by more than 25 percent and gross general and administrative
expenses per barrel of equivalent by 20% in 2015. Controlling production
related cost and service cost is crucial for Newfield because it will
generate long-term value for shareholders. For 2016, Newfield will
accelerate drilling times and create innovative optimizations of its
completions to continuously improve operations and returns.
VALUATION Our forecasted 12-month target price for Newfield is $36.06. This target
price shows a 10 percent increase from $32.63, giving the company a
Market Perform rating. We calculated this number using the following
valuation methods: PV-10, EV/EBITDA, and EV/Proved Reserve.
Figure 3: Valuation
PV-10 Valuation The PV-10 valuation method shows a result of $33.69 per share. The
amount of assets on the balance sheet of Newfield is the capitalized costs
and does not necessarily indicate the potential economic benefits Newfield
can derive from operations. The proved reserves of the company, however,
directly decides the future cash flows, stock price, and economic value of
Newfield. Hence, the PV-10 method is an appropriate approach to valuate
Newfield and other EP companies. Although PV-10 is a non-GAAP

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number, it indicates the net present value that a company’s reserves can
generate in the future. The valuation process involves getting PV-10 from
Newfield’s annual report and adjusting it for unproved reserves and other
balance sheet items. The current stock price is $32.66, and the $1.03 price
differential can be a premium of the good condition of Newfield’s balance
sheet, or a result of market inefficiency showing that the price of the stock
is below the current price.
EV/EBITDA The enterprise value for the EBITDA ratio measures the price that a
stockholder pays for the profit of Newfield’s cash flow. Under this
method, input includes forecasted industry average, forecasted peer group
value-weighted average, and forecasted consensus average of the
EV/EBITDA at the end of 2016. Using the company’s forecasted EBITDA
and multiplying it by the three types of average EV/EBITDA, the
company’s enterprise value was found. After subtracting long-term debt,
adding the value of cash, and finally dividing by the outstanding number
of shares, the three types of forecast prices were acquired. After
calculating the average number of the three different prices acquired, the
12-month target price came to $44.717.
EV/Proved
Reserved
The enterprise value to proved reserved ratio equals Newfield’s EV
divided by the proved reserved. It evaluates the price of Newfield’s stock
relative to how much cash flow the company is generating. Under this
method, input includes forecasted industry average, forecasted peer group
value-weighted average, and forecasted consensus average of EV/Proved
Reserved at the end of 2016. Using the company’s forecasted discretional
cash flow and multiplying it by the three types of average EV/Proved
Reserved, three types of the company’s enterprise value were found. After
subtracting long-term debt, adding the value of cash, and finally dividing
by the outstanding number of shares, we acquire the three types of forecast
prices. Calculating the average number of the three different prices
acquired, the 12-month target price came to $50.038
COMPANY
DESCRIPTION &
PROPERTY
OVERVIEW
Newfield Exploration (NFX/NYSE) functions as an independent energy
company. The company’s headquarters are in the Woodlands, Texas.
Newfield is committed to the research, manufacture, and development of
natural gas, natural gas liquids, and crude oil. The company experienced
phenomenal growth, shifting from an offshore natural gas producer to an
onshore domestic producer of liquids-rich resources. In 2015, the proved
reserves of Newfield are approximately $509 million barrels of oil
equivalent, 98 percent of which were located onshore in the U.S. The
domestic production increased six percent to 50.6 MMBOE. In 2015, The
company reported a net loss of $3.36 billion because the ceiling test and
other impairments expenses increased $4.91 billion. Proceeds of $815
million from a public equity offering in 2015 helped repay facility and
money market credit lines. To create a strong financial structure, the
company’s budget dropped by 26 percent compared to 2014.

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History Joe B. Foster founded the company in 1988 through the use of endowment
funds from the University of Texas. Newfield operates in mid-continent,
offshore Texas, and the Rocky Mountains. The company also focuses on
offshore development of China. The company was private for five years
and eleven months until Newfield completed its IPO in November of 1993
on the New York Stock Exchange (NYSE) under the ticker symbol
“NFX.” In early 2001, Newfield finished its largest acquisition in the
history, acquiring Lariat Petroleum and establishing a new focus area in
the Anadarko Basin. From 2007 to 2009, the company acquired assets in
the Rocky Mountains and the Marcellus Shale of Pennsylvania and entered
its third decade of operation. From 2010 to 2015, Newfield continued to
transform to an oil company with its investment entirely focus on oil.
Products and
Pricing
Newfield provides customers three major products: crude oil, natural gas,
and natural gas liquids (NGLs). The company mainly operates in the U.S.
In 2015, the company’s production of oil hits 26.7 million barrels, or 48.9
percent of total production. Newfield’s production of natural gas was 19.4
million barrels of oil equivalent, or 35.5 percent of total production.
Newfield’s production of NGLs was 8.5 million barrels of oil equivalent,
or 15.6 percent of total production. The 2016 estimated production is
between 53.3 MMBOE and 55.3 MMBOE. Figure 4 shows NFX’s 2015
production.
Figure 4: 2015 Production (MMBOE)
Because of the inadequate demand in emerging markets, such as China,
the WTI crude oil price dropped from $90 per barrel in September 2014 to
$42.95 per barrel in December 2015. Furthermore, as of February 19,
2016, the three-year forward curve average was $41 per barrel. The low oil
price will have a constant negative effect on Newfield’s revenue and
profits. To offset the low oil price, Newfield is improving the cost
structure. In 2015, the company’s lease operating expense per BOE
decreased 27 percent from 2014.
Oil, 26.75, 49%
Natural Gas,
19.38, 35%
NGLs, 8.53, 16%
Oil Natural Gas NGLs

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PROPERTY
OVERVIEW
Newfield is engaged in exploration, production and development of crude
oil and natural gas properties. The company is primary focused on
operations in the North American region including the Anadarko and
Arkoma basins of Oklahoma, the Williston Basin of North Dakota, the
Uinta Basin of Utah and the Maverick and Gulf Coast basins of Texas.
The company also has offshore oil developments in China. At the year
2015, the company’s oil, gas, and NGL revenues are $ 1557 million. And
Newfield’s proved reserves were 509 MMBOE.
Figure 5: 2015 Proved Reserves- 509 MMBOE
Mid-Continent
(Oil and NGLs)
The Mid-Continent region has operated in 2001. The area holds nearly 66
percent of the company’s 2015 proved reserves, which is 333 MMBOE.
The area costs 81 percent of the company’s 2016 estimated capital budget.
The 469,000 net acres of Newfield’s acreage include two key positions:
The Anadarko Basin, and the Arkoma Basin Woodford.
Anadarko Basin
The company has 323,000 net acres in the Anadarko Basin. The SCOOP
and STACK are the fastest growing plays in the past three years. At the
end of 2015, the company produced oil of 26,250 BOEPD and NGLs of
19,500 BOEPD from the Anadarko Basin, representing more than half of
Newfield’s production.
Arkoma Basin Woodford
The company has 146,000 net acres in Arkoma Basin Woodford. At the
end of 2015, the company produced dry gas of 18,000 BOEPD. Because
of low natural gas prices in the past several years, the company reduced
the investment in this area. Production held a substantial amount of the
company’s acreage in this region.

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Rocky Mountains
(Oil)
The Rocky Mountain region’s main focus is long-lived oil. The area holds
26 percent of the company’s proved reserves, which is 133 MMBOE. The
area costs 10 percent of the company’s 2016 estimated capital budget. The
301,000 net acres of Newfield operations are in the Uinta Basin of Utah
and the Williston Basin of North Dakota.
Uinta Basin
The company invests in the Uinta Basin consist of 215,000 net acres
divided into two areas: The Greater Monument Butte Unit (GMBU)
Waterflood, and the Central Basin. At year-end of 2015, the company
produced oil of 16,500 BOEPD, 3,070 BOEPD of gas, and NGLs of 500
BOEPD. Because of poor results in the Central Basin in 2015 and lower
crude oil prices, Newfield suspended its drilling operations in the Uinta
Basin in early 2015. To date, the company not actively drilling
development wells.
Williston Basin
The company’s investment in North Dakota and Montana consist of
85,000 net acres. Today, the company’s main activities focus on drilling
multi-well pads with super extended lateral lengths as long as 10,000 feet.
At the year-end of 2015, the company produced 13,290 BOEPD of oil,
3,600 BOEPD of gas, and 2,960BOEPD of NGLs.
Figure 6: Areas of Operation
Source: Newfield Exploration Company official website
Onshore Gulf
Coast (Natural
Gas)
The amount of proved reserves in Onshore Gulf Coast accounts for 48
MMBOE, which is seven percent of the company’s total proved reserve.
Among the current developing 25,000 net acres’ areas, most come from
Dimmit, and Atascosa counties in Texas. The production of the company’s
acreage in the Eagle Ford play is nearly 11,000 BOEPD (52 percent oil,
and 24 percent NGLs) in the fourth quarter of 2014.
China (Oil) China is where four percent of Newfield’s proved reserves come from.
The company’s main oil producing asset in this area, the Pearl facility,

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consists of three wells and reached its peak production in mid-2015. A $40
million net capital investment will raise the number of wells to seven. The
total production in China is 15522 BOEPD. At the end of 2014, Newfield
made a decision to retain the assets in China because of the significant
drop in commodity price.
INDUSTRY
ANALYSIS
Newfield Exploration is an independent upstream E&P company that
focuses on the onshore production in the United States, which is the
leading producer in the region and is responsible for almost two-thirds of
North America’s total production. The North American region generates
22.1 percent of the world's oil and gas (on an oil-equivalent basis). The
E&P industry’s revenue in 2015 was $3.7 trillion. Considering the recent
price weakness and the sluggish production levels, the industry’s revenues
projection will approach $4.6 trillion in 2020. The dominant countries of
E&P industry are Russia, Saudi Arabia, and Iran, which are rich in
hydrocarbons.
Production
Process and Key
Inputs
The production process of E&P companies contains five parts:
exploration, leasing and permitting, drilling, production, and
abandonment. Figure 7 shows the production process of E&P companies.
First, E&P companies have to do geological and geographical explorations
to identify the location, age, pressure, and source of deposits. Second,
E&P companies should sign leasing contracts with private owners or the
government to obtain the legal rights to drill and produce hydrocarbons.
Meanwhile, the E&P companies should obtain permits from the regulatory
bodies that oversee petroleum operations. Third, the E&P companies
should use drilling rigs to drill oil wells and recover oil from the bottom of
oil wells. The kind of drilling rigs that E&P companies use depend on the
locations and conditions of the reserves. Fourth, the production process
involves three stages of recoveries because only a portion of oil and
natural gas will recover initially. The E&P companies often exploit
production enhancement measures such as drilling additional wells,
installing surface pumps, and drilling water or gas injection wells to
maximize the total amount of oil and natural gas they can drill from
reserves. Finally, the E&P companies usually abandon the production sites
because of production limitations or economic limitations.
Figure 7: Production Process
The key inputs in the production process of oil and gas include the
property plant and equipment that Newfield uses to drill. All of these
inputs depend on the location of the onshore or offshore drilling. Another
key input is human capital, it depends on the location and represents the
burden on the production and operation costs.
Leasing & Permitting Production Exploration Drilling Abandonment

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Drivers of the
Industry
The drivers of the E&P industry contain two categories: external drivers
and internal drivers. External drivers of the E&P industry are crude oil
prices and natural gas prices. In February, 2016, the WTI crude oil price
reached a historical low point of $26.12 per barrel, affecting the profits of
the E&P companies. The natural gas price fluctuates seasonally due to the
demand of natural gas surges in summer and winter. However, the overall
price level of natural gas is relatively low because of the aggregate natural
gas glut. Internal drivers of the E&P industry are locations of wells,
quantities and qualities of products, and technologies. More wells will
realize more production. High qualities of oil can realize a high price in
the market. Advanced technologies can reduce expenses and increase
productivity and efficiency.
Macroeconomic
Factors
The industry reacts to different macroeconomic factors, which include
supply, demand, expectation, and interest rate. The supply, demand and
market expectation influence the volatility in the industry. When supply
exceeds demand, the price level will fall. When demand exceeds supply,
the price level will raise. Expectation will have an influence on E&P
companies’ hedging contracts, which are important for the companies to
hedge price risk. The industry reacts to changes in interest rates. When
interest rate falls, additional money supply can make the dollar index
decrease, and the dollar-denominated crude oil price may rise.
Regulatory
Environment
Newfield’s major operating states include Texas, Oklahoma, Nevada,
North Dakota, and Montana. The company is subject to state and federal
laws affecting United States’ environment quality, oil well drilling and
operating, and the desertion of oil and gas wells. The Environmental
Protection Agency (EPA) is the agency that has the primary federal
authority to enforce federal environmental laws. The state government also
plays important roles in regulations that affect the oil and gas industry
activities. The Railroad Commission of Texas (RCT) and the Oklahoma
Corporation Commission are state authorities that enforce state oil and gas
environmental laws which Newfield has to observe. In December 2011,
Texas adopted laws to disclose all chemicals use in the hydraulic-
fracturing process and Newfield volunteered to implement this law
through FracFocus. Pollution, waste management, and gas emissions are
the key factors in enacting environmental laws and regulations.
The Scores of
Porter’s Five
Forces
The scores of Porter’s Five Forces combine the quantitative analysis with
Porter’s Five Forces analysis. A score of five indicates certain power is
relatively high and a score of one indicates certain power is relatively low.
Figure 8 shows scores of Porter’s Five Forces for the E&P industry.

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Figure 8: Porter’s Five Forces
Threat of Entry
(Low)
The threat of entry is low. Although new entrants are able to exploit their
positions by adopting advanced technologies immediately rather than by
replacing outdated equipment gradually, the intensive capital requirement
of E&P companies is still the largest barrier for potential new entrants.
New entrants need to invest billions of dollars of capital in exploration and
production equipment and hire experienced engineers and managers for
operation. In addition, to hedge the risk of oil and gas prices, companies in
the E&P industry tend to enter a long-term contract and build a long-term
relationship with their suppliers and customers. Therefore, new entrants
will spend large quantities of time and money to find a long-term partner.
Bargain Power
of Buyers (Low)
The bargaining power of buyers is low. E&P companies’ buyers are
midstream companies and refineries. For instance, Newfield’s customers
are Tesoro Corp and Sunoco Logistics Partner. Tesoro Corp is a Fortune
Global 500 company focuses on petroleum refining and marketing.
Sunoco Logistics Partner is principally involved in logistic business which
includes the storage of crude oil, refined products, and NGL products. The
aggregate supply and demand of oil and natural gas in commodity markets
is the key to determine the prices of oil and natural gas. Therefore, both
upstream and midstream companies are price takers and midstream
companies have little bargaining power compared to the E&P companies.
However, the E&P companies often lock in prices via long-term supply
contracts and hedging contracts with midstream companies, especially
when the price of oil and natural gas fluctuate dramatically. In this
situation, both the E&P companies and their buyers have the bargaining
power to determine the contract’s price of oil and natural gas.
Bargain
Power of Suppliers
(Low)
The bargain power of suppliers is low. The suppliers of the industry are
oilfield service companies which provide information and
technology services to the E&P companies. For instance, Newfield has
seven major suppliers, Schlumberger Ltd, McDermott International,
Subsea 7 SA, Seadrill Ltd, Ensco PLC, Open Text Corp and National
Energy Services Inc. When the price of oil and natural gas and the
revenues of E&P companies increase, oilfield service companies will

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correspondingly charge a high price. However, the numerous oilfield
service companies and the undifferentiated services that they provide
dilute their bargain power.
Threat of Substitutes (Low)
The threat of substitutes is low. First, Figure 9 shows that oil and gas
remain to be the primary type of energy sources. In 2013, 36 percent of
energy consumption was petroleum and other liquids. According to the
annual energy outlook from 2015, the Energy Information Agency (EIA)
projects that petroleum and other liquids will contribute to a 33 percent of
energy consumption in 2040. Throughout 2013 to 2040, the EIA projects
that natural gas will contribute 27 to 29 percent of energy consumption,
making natural gas the secondary component of energy consumption.
Second, the substitutes of oil and natural gas are renewables and nuclear.
The total of those two sources of energy only contribute 26 percent to total
energy consumption in 2040. Because the development and use of
renewables and nuclear are still in the embryonic stage, the alternative
forms of energy have no price advantage and no superior product
performance. As a result, the alternative energy does not currently pose a
threat to oil and natural gas.
Figure 9: U.S. Primary Energy Consumption by Fuel, 1980-2040
Source: EIA annual energy outlook 2015
Competitive Rivalry (High)
The threat of competitive rivalry is high. First, companies are price takers
because the market determines the price. Thus, low cost and high quality
of production are the two factors to improve the company's competitive
ranking. Second, all of the companies in North America are mining the
same type of oil and natural gas, forcing the E&P companies to develop
relationships with buyers for contracts. Third, the industry has a low level
of market share concentration and is large and geographically diverse.
Therefore, controlling a tiny part of worldwide production is difficult even
for the giant of the U.S E&P industry.

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PEER ANALYSIS To determine Newfield Exploration’s peers, the analysis focuses on the
E&P companies with similar market capitalization and operation areas.
The four peer groups are: QEP Resource Co., SM Energy Co., WPX
Energy Inc., and Cimarex Energy Co. All of the companies are public and
sufficient financial data is available. Newfield differentiates from its peers
through keeping a diversified portfolio of core North American oil and
liquids, and through upholding a strong capital structure. Among the peer
group, Newfield is a mid-cap company that sits in the middle of peers
regarding to production and proved reserves.
Table 1 : Peer Group Metrics
Source: Bloomberg, 2016
QEP Resources
Inc. (NYSE: QEP)
QEP Resources, Inc. (QEP) is an independent oil and natural gas E&P
company that focuses on two geographic regions, the Northern Region and
the Southern Region of United States. The company’s headquarters is in
Denver, Colorado. At the end of 2015, QEP had proved reserves of 603.4
MMBOE, consisting of 363.5 MMBOE of gas, 193.1 MMBOE of oil, and
58.8 MMBOE of NGLs. For the year 2016, QEP will continue to reduce
drilling and completion activities, show production growth, reduce costs
and preserve its liquidity. The company will invest $475 million in its
business to achieve a relatively flat production.
SM Energy
Company
(NYSE:SM)
SM Energy Company (SM Energy) is an independent energy company,
engaged in the acquisition, exploration, development, and production of
oil, gas, and NGLs. The company is headquartered in Denver, Colorado.
The main operations of the company are in the South Texas, Rocky
Mountain, Permian, Mid-Continent, and Gulf Coast regions. At the end of
2015, SM had proved reserves of 471.3 MMBOE, consisting of 145.3
MMBOE of oil, 210.7 MMBOE of gas, and 115.4 MMBOE of NGLs.
The proved reserve of the company is the lowest among the peer group,
however, SM produced 64.23 MMBOE in 2015, which is the second
highest among the peer group. Thus SM Energy may have to acquire
additional proved reserves to support its operation in the future. At the
beginning of 2016, SM Energy approved a capital budget plan of
approximately $705 million.
WPX Energy,
Inc. (NYSE: WPX)
WPX Energy, Inc. (WPX) is an independent natural gas and oil E&P
company which focuses on the exploitation and development of long-life
unconventional properties. The headquarters of the company is in Tulsa,

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Oklahoma. WPX exploits natural gas and NGLs primarily in the Rocky
Mountain region. The company develops oil mainly in the Williston
Basin in North Dakota and the San Juan Basin in the southwestern United
States. As of December 31, 2015, the company had proved reserves of
583.04 MMBOE, consisting of 142.72 MMBOE of oil, 365.03MMBOE
of gas, and 75.29 MMBOE of NGLs. At the beginning of 2016, WPX
approved a capital expenditure plan between $350 million and $450
million. WPX has focused on long-term portfolio management since mid-
2014, divesting approximately $5.5 billion of non-core asset.
Cimarex Energy
Co.
(NYSE:XEC)
Cimarex Energy Co. (XEC) is an independent oil and natural gas E&P
company that operates in the Mid-Continent and Permian Basin areas of
the U.S. Cimarex’s headquarters is in Denver, Colorado. The company’s
oil and NGLs reserves are primarily located in the Permian Basin and
Mid-Continent regions. As of December 31, 2015, the company had
proved reserves of 484.90 MMBOE, consisting of 252.8 MMBOE of
natural gas, 107.8 MMBOE of oil, and 124.3 MMMBOE of NGLs. The
Debt to equity ratio of XEC, which is the lowest among the peer group,
indicates that Cimarex holds a conservative capital structure and enjoys
low default risk. In 2016, Cimarex plans to invest $600 million to $650
million in the Permian Basin and Mid-Continent regions.
MANAGEMENT
PERFORMANC
E &
BACKGROUND
Because of the diversity in Newfield’s management, the company views
problems from different perspectives, thus differentiates the company
from its peer group in the highly competitive energy industry.
Return on
Invested Capital
Newfield’s recent performance is a measure of the Return on Invested
Capital (ROIC). The ROIC shows how efficiently Newfield uses equity
and debt in operations. ROIC gives information about how much cash the
company generates by the amount of cash investment of the company.
Table 2 shows Newfield’s ROIC and the change that the company had
over the last five years.
Table 2: ROIC
Source: Bloomberg 2016
The average ROIC among the recent five years is negative 9.29 percent,
partially because of the significant drop of oil and natural gas prices in
2015. However, the high operational cost and the low oil and gas prices
are the main reasons that the company not adding value for the
shareholders. Oil and gas prices fell drastically in recent years, causing
the company’s cost of capital to increase as the price of goods decreased.
The constant drop of commodity prices creates an inefficient market as a
result of inaccurate market prices with critical outcomes such as rating
Year 2011 2012 2013 2014 2015 Average
ROIC 8.37% -10.94% 2.53% 4.14% -50.57% -9.29%

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downgrades and bankruptcy within the industry. These results are
available in Newfield’s credit ratings. In the last five years, Newfield had
an average ROIC of 3 percent and an average WACC of 10 percent.
ROIC is an important measurement for investors and if the company
continues to have a higher cost of capital than ROIC, investors will seek
out companies who can use capital efficiently. Newfield needs to find
strategic investment opportunities
Management
Incentives
Newfield’s management team consists of individuals with diverse
backgrounds in various fields and professional experience, especially in
the energy and investment industries.
Lee K. Boothby Chairman and Chief Executive Officer
Before Lee K. Boothby joined the company, Boothby finished his M.B.A
at Rice University and worked for different oil corporations,
accumulating adequate working experience. In 1999, as the managing
director, Boothby successfully managed Newfield Exploration Australia
Ltd.’s operations in Perth. From 2002-2007, as the Vice President-Mid-
Continent, he organized the company’s development in different resource
plays and contributed to Newfield’s growth. Because of his previous
contributions to the company and his professional working experience,
Boothby became CEO in May 2009. One year later, he became the
Chairman of the company.
Larry S.
Massaro
Chief Financial Officer
Larry S. Massaro joined the company in 2011 as Vice President of
Corporate Development. He used to work at various companies including
JP Morgan’s oil and gas investment banking group. Massaro’s experience
in holding a number of management positions helped him achieve great
success in Newfield’s business development, acquisitions and
divestitures, and commodity hedging.
Gary D. Packer Executive Vice President and Chief Operating Officer
After Gary D. Packer graduated from Penn State University, he worked in
the Rocky Mountain and Gulf of Mexico regions for Amerada Hess. In
1995, he joined Newfield as Manager of Acquisitions and Development
in the Gulf of Mexico and successfully managed the company’s Gulf
operations. Packer founded Newfield’s business in Denver, CO and
became Executive Vice President and Chief Operating Officer in May
2009.
Edward L. Haas Vice President - Production
At the beginning of Edward L. Haas’s career, he held different positions
in the technical and management department of Anadarko Petroleum.
After Haas joined Newfield in 2000, he achieved success in promoting
production growth of the company’s assets and implementing efficient
use of organization and safety operations.

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George T. Dunn Senior Vice President – Development
During George T. Dunn’s 20-year work experience with the company, his
responsibility mainly focused on managing the land, drilling, production,
and reservoir functions. Before he joined Newfield in 1992, Dunn worked
for Meridian Oil Company and Tenneco Oil Company. He served as
General Manager – Gulf Coast and Vice President - Mid-Continent before
he became the company’s Senior Vice President – Development.
W. Allen
Donaldson
Vice President-Exploration
W. Allen Donaldson originally was the resource manager for the Arkoma
Asset in Oklahoma. After working at several leadership positions in BP
America, Donaldson joined Newfield in 2009 as the exploration manager
for the Mid-Continent Business Unit.
RISK
ANALYSIS &
INVESTMENT
CAVEATS
Newfield faces variety of risks in its day-to-day business, including
operation risks, regulation risks, and financial risks. Those risks may
negatively relate to Newfield’s business, financial situation, operating
activities, or cash flows.
Operational
Risks
The operational risks of E&P companies are higher than the operational
risks in other companies. Commodity price risks, environmental risks,
reserve estimation risks, technology risks, and drilling risks are the main
operational risks that Newfield often encounters.
Commodity Price Risks
Oil and natural gas prices will continue to fluctuate as they have in the
past. Factors, such as the aggregate demand and supply of oil and natural
gas, global economic conditions, and political and military conditions in
the Middle East, have influences on the price of oil. Newfield’s ability to
make profits, to generate cash flow from operations, and to access
additional capital depends heavily on the current oil and natural gas price.
A low oil and natural gas price will prohibit Newfield from profitably
recovering oil, natural gas, and NGLs. Low price of oil will result in
proved reserves impairment and proved undeveloped reserves reduction.
Newfield will use derivatives to hedge a substantial portion of production
for the next 24 months to combat this commodity price risks. However, if
oil and natural gas prices increase in the future, Newfield will lose value
on its derivatives contracts. If Newfield’s production fails to reach the
amount that the contracts require, financial charges will apply.
Environmental Issues
The Environment and E&P companies influence each other. First,
Newfield’s onshore and offshore operations are subject to severe weather
conditions. Newfield’s offshore operations in China rely upon the
gathering and processing systems which the company does not own. The
offshore production can stop if adverse weather damages the gathering
and processing facilities. The onshore areas where Newfield operates

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have experienced drought conditions in the past, which may prohibit the
company from accessing the water used in the hydraulic fracturing. These
drought conditions may disturb and interrupt Newfield’s onshore
operations. Second, Newfield’s operations may cause pollution and other
damage to the environment. The company may face sustainable costs if
the operation violates the government’s environmental regulations.
Reserve Estimation Risks
E&P companies break down reserves into three categories: possible,
probable, and proved. Proved reserves are crucial to managers and
investors because E&P companies can recover proved reserves with a
high degree of certainty. Newfield estimates proved reserves according to
management reviews and computer evaluation models. The company
hires two third party agencies, DeGolyer and MacNaughton and Ryder
Scott Company, to perform an audit of the estimation. Uncertainty in the
procedure of estimation, however, may still exist because of the multiple
inputs in the computer evaluation model and inaccurate reviews of
management. On December 31, 2015, the price of natural gas decreased
by 40 percent compared to December 31, 2014. The price of oil decreased
by 47 percent compared to December 31, 2014. As a result, Newfield
encountered a 286 MMBOE proved reserve impairment at the end of
2015. Therefore, Newfield faces reserve estimation risks.
Technology Risks
The E&P industry relies on the use of computer and telecommunications
systems to process routine operations. Incorporated with third parties,
Newfield developed software, hardware, telecommunications, and other
IT services. The company relies on digital technology not only to estimate
oil and gas reserves, trace and record data, and evaluate seismic and
drilling information, but also to communicate with the business partners.
Therefore, any cyber security attacks or disconnections in the company’s
computing and communications infrastructure or information system will
lead to serious issues. These issues include data incompletion,
communication interference, unapproved release, gathering, monitoring,
and the misuse or destruction of information. As a result, the company
may need to acquire additional capital to modify or improve these
systems.
Drilling Risks
Drilling is a risky and costly activity. Drilling risks occur because of
inaccurate exploration date. Newfield relies on exploration data to
determine the presence and the economic properties of oil and natural gas.
The exploration data, however, does not always show the whole frame of
the deposit. The company can only collect reliable data about the deposit
during the spot’s drilling process. E&P companies’ drilling schedules fail
because of the complexity of using the drilling equipment, the uncertainty
of the geologic formation, and extreme weather conditions. Any failure,
such as recycling the water for drilling inefficiently, will cause drilling

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delays or failures.
Regulatory
Risks
Federal, state and local regulations in the U.S. play an important role in
the E&P industry’s operations. The industry also relies on permits and
concessions from governments to explore and produce oil and gas
resources worldwide. However, regulatory efforts are likely to increase
risks and costs for E&P companies.
The approval of new federal rules or regulations that relate to hydraulic
fracturing could lead to increased operating costs, postponements and
limitations in exploration, developments, and production activities, which
sequentially could reduce Newfield’s operations. Because fracturing can
cause pollution to underground water supplies is still debatable, bills such
as the Fracturing Responsibility and Awareness of Chemicals (FRAC)
Act require the annulment of the exemption for companies using the
fracturing techniques. In addition, important regulations, such as The
Interstate Commerce Act, allow the Federal Energy Regulatory
Commission to build new standards for transportation services on certain
fuel pipelines products. In 2014, the U.S. Department of Transportation
enacted additional restrictions on the shipment of crude oil by rail from
the Bakken Shale, which increased the costs of oil delivery for Newfield.
Financial Risks Financial risks are the contingencies of financial loss to firms. These risks
arise from the relationship between a company’s business model and
capital structure. Newfield has three funding sources for capital budget:
internal cash flow, cash flow from issuing debt, and issuing equity. If the
company cannot generate enough cash flow to payback debts, it faces a
default risk. Three metrics can help to analyze the financial health of the
company and the ability to repay debt: credit risks, liquidity risks, and
hedging risks.
Credit Risks
Credit risks measures Newfield’s ability to pay creditors. Table 3 shows
that Newfield has a negative 27.78 Interest Coverage ratio, which is
considerably lower than negative 15.89 average of its Peer Group. The
significant difference shows that Newfield had difficulty in paying
interest on its debt. The company has a Debt-to-Capital ratio of 64.14
percent while the average Debt-to-Capital of its peer group 47.97 percent.
This ratio indicates Newfield’s level of indebtedness and other financial
obligations. In addition, U.S major credit rating agencies posted a
downgrade in Newfield’s credit rating, negatively influencing the ability
to access capital and to increase the cost of future debt. As a result,
Newfield has a higher level of credit risk than the overall industry level.
The level of obligation and the restrictive covenants in the agreements
may reduce the company’s operating flexibility.

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Reports
Table 3: Credit Ratio
Source: Bloomberg
Liquidity risk
With a modification to the credit arrangement in March 2015, Newfield
increased the borrowing capacity from $1.4 billion to $1.8 billion. On
December 31, 2015, Newfield maintained the total credit line of $195
million and had a total available line of credit of $156 million. Newfield
had an entire indebtedness of $2.5 billion including $39 million in
borrowings under the money market lines of credit. In the past ten years,
the available line of credit was sufficient for the company, which reflects
that the company’s operating activity does not rely on credit. In addition,
as an E&P company with high capital intensity, Newfield has a large
amount of capital requirements to fulfill the capital budget. The
company’s capital investment amounts may exceed the operating cash
flows. As a result, limited liquidity may adversely impact the company’s
ability to execute the business plan.
Hedging Risks
As of December 31, 2015, Newfield applied five types of derivative
strategies: fixed-price swaps, collars, fixed-price swaps with sold puts,
collars with sold puts, and purchased calls. The net derivative assets cost
$367 million. The company uses those instruments to manage the
instability in cash flows which relates to the projected revenue of oil and
natural gas production. Although the use of these derivatives decreases
the downside risks of commodity price downward movements, it also
limits potential gains from commodity price upward movements. The risk
of counterparty default is high on the growing deteriorated commodity
environments. Any inability to retain the company’s existing derivative
positions in the future could cause financial losses or revenue reductions.
SHAREHOLDE
R ANALYSIS &
CORPORATE
GOVERNANCE
As of April 15, 2016, Newfield had 198.14 million shares outstanding,
which consist of 196.94 million float shares, or 99.39 percent of shares
outstanding, and 1.20 million shares restricted stock, or 0.61 percent of
shares outstanding. The institutional investors, insiders, and individual
investors hold 90.58, 0.61, and 8.81 percent of the shares outstanding,
respectively.
Institutional
Investors
Institutional investors hold the majority of shares outstanding at 90.58
percent, which indicates a increase in shorting activities and a decrease in
oil and natural prices. Table 4 shows Newfield’s top ten institutional
shareholders as of April 15, 2016.
Total debt/capital EBIT/Interest Expense
Newfield 64.14% -27.78
Peer Group 47.97% -15.89

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Table 4: Top Ten Institutional Investors
Vanguard Group remains the largest shareholder with 6.95 percent of
total shares outstanding, or 13.8 million shares. The sum of latest change
of top ten institutional shareholders is 2.7 million shares. The positive
change shows that the major institutional shareholders see value in
Newfield.
Insiders Newfield’s insiders, holding 0 .61 percent of shares outstanding on April,
2016, are uncertain about the company’s performance. Table 5 shows
Newfield’s major insiders. Newfield director Howard Newman holds the
largest amount of shares among insiders at 0.13 percent of shares
outstanding. The drop of oil prices has cut the value of Newman’s shares
by more than half. The drop of the oil price is challenging to shareholders,
because the market volatility and uncertainty within the industry have
made the value of Newfield’s stock drop constantly.
Table 5: Major Insider Holders
Transactions of Newfield’s major insiders indicate their concerns about
the industry’s performance and the company’s performance. Table 6
shows insiders’ major transactions. Gary Packer, Newfield’s Chief
Operating Officer, had the largest transaction. Both the company’s CEO
and COO sold their shares, which may be a result of dropping oil price.
Newfield’s CFO and CAO, however, increased their position, which may
indicate that they hold an optimistic attitude to the company’s financial
position.
Holder Name Position Percent Outstanding Latest Change
Vanguard Group 13,762,032 6.95% 357,589
Wellington Management 12,703,081 6.41% 677,651
RMR Llc. 11,865,493 5.99% -788,741
Blackrock 10,462,110 5.28% 1,751,410
Clearbridge Investment Llc. 10,081,309 5.09% 18,928
State Street Crop. 7,215,713 3.64% 528,689
Millennium Management Llc. 6,685,409 3.37% 2,616,873
Southernsun Asset Management Llc. 4,896,634 2.47% -551,597
Citadel Advisors Llc. 4,097,293 2.07% -1,896,816
Van Eck Associates Corporation 3,983,322 2.01% -1,364
Holder Name Title Position Percent Outstanding
Howard H. Newman Director 207,202 0.10%
Gary D. Packer Chief Operating Officer 188,079 0.09%
Lee K. Boothby Chief Executive Officer 176,534 0.09%
George T. Dunn Officer 98,598 0.05%
John H. Jasek Officer 56,457 0.03%
Lawrence S. Massaro Chief Financial Officer 55,358 0.03%

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Table 6: Insider Major Transactions
Corporate
Governance
Newfield currently has nine board members, including one executive on
the Board. Leading the company’s governance are Lee K. Boothby, the
Chairman of the Board and Chief Executive Officer, and Steven W.
Nance, the Lead Independent Director. Table 7 shows the members of the
board.
Table 7: The Board Memeber
Source: Newfield Official Website
Audit Committee
The Audit Committee has the authority to select, retain, and terminate the
company’s independent auditors. This committee is responsible for the
compensation, oversight, and evaluation of the independent auditors for
preparing or issuing audit reports. In addition, this committee monitors
the company’s compliance with legal and regulatory requirements. The
Board has also appointed George W. Fairchild Jr., a certified public
accountant, to work as the Chief Accounting Officer and Asset Secretary.
Compensation and Management Development Committee
The purpose of the Compensation and Management Development
Committee is to evaluate and approve the compensation of the CEO,
other executive officers, and employees, as well as to forecast the
valuation and development of the company. Each year, the committee
reviews and considers the company’s performance to determine the
equity-based plan and stockholder returns.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for
preparing and recommending appropriate corporate governance
Holder Title 1-Year Net Changes in SharesPercent Change
Gary D. Packer Chief Operating Officer -34,388 -15.46%
Lee K. Boothby Chief Executive Officer -23,488 -11.74%
Lawrence S. Massaro Chief Financial Officer 20,199 57.45%
George W. Fairchild Jr. Chief Accounting Officer 10,715 94.36%
Name Position Independence
Lee K. Boothby President, CEO and Board Chairman Employee
Steven W. Nance Lead Director and Board Director Independent
Thomas G. Ricks Board Director Independent
J. Terry Strange Board Director Independent
John W. Schanck Board Director Independent
Pamela J. Gardner Board Director Independent
Roger B. Plank Board Director Independent
Juanita M. Romans Board Director Independent
James Kent Wells Board Director Independent

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guidelines and modifications. The Nominating Committee also works on
the authorization of the entire Board of Directors, and nominates potential
candidates for the Board.
Operations and Reserves Committee
The Operations and Reserves Committee is responsible for managing and
evaluating Newfield’s daily operations as well as analyzing and reviewing
the company’s reserves. All four members of this committee have at least
30 years of working experience in the energy industry. Overall, Newfield
has effective governance with independent board members and controlled
board committee structures
Table 8: The Sub-committee
Source: Newfield Official Website
FINANCIAL
PERFORMANC
E &
PROJECTIONS
When evaluating Newfield’s financial performance, our team considered
economic trends, the industry outlook, future oil price, operating
activities, and financing activities into assumptions and projections, our
12-months target price is $ 36.06.
Economic
Outlook
The E&P industry has been considerably affected by lower crude oil and
natural gas prices. From 2010 through 2014, oil prices began falling in
late 2014 and averaged around $49 per barrel (NYMEX WTI) in 2015. In
respond to the commodity price uncertainty, Newfield implemented its
short-term business plan to preserve liquidity and financial strength. The
outlook for oil prices in 2016 has not improved. As of February 19, 2016,
NYMEX WTI was about $30 per barrel, and NYMEX Henry Hub was
approximately $1.80 per MMBtu. We expect that industry budgets will be
significantly lower in 2016 and will remain so until commodity prices
strengthen and profit margins improve.
Commodity
Price& Hedging
Contract
When forecasting oil and gas prices, we take WTI Crude Oil, which is the
oil price benchmark in North America, and TAPIS, which is the oil price
benchmark in Asia in to consideration because Newfield operates in the
United States and China. Considering that limitations exists when we
forecast WTI Crude Oil and TAPIS, we bring Bloomberg’s forecasts of
WTI Crude Oil and TAPIS into our model to get a relatively accurate
outcome. Newfield’s realized price before hedging depends on both the
benchmark and the price differentials of the company. Thus, we assume
Names Audit
Compensation &
Management Development
Nominating &
Corporate Governance
Operations &
Reserves
Chairman Thomas G. Ricks J. Terry Strange Steven W. Nance John W. Schanck
Member Pamela J. Gardner Pamela J. Gardner Pamela J. Gardner Steven W. Nance
Member John W. Schanck Steven W. Nance Thomas G. Ricks Roger B. Plank
Member J. Terry Strange Juanita M. Romans Juanita M. Romans James Kent Wells
Member Roger B. Plank Juanita M. Romans John W. Schanck
Member James Kent Wells J. Terry Strange
Board Sub-Committees

23
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that Newfield will continue to apply the historical average price
differentials from 2016 to 2019.
Hedging contracts are important for Newfield because the current oil
price is at a historical low point. Newfield can mitigate the negative
effects of fluctuating oil price by hedging contracts. However, no hedging
contracts are available for Newfield to hedge its China oil and domestic
NGLs. Regarding to domestic oil production, Newfield has 22.5 MMBbls
and 12.2 MMBbls positions outstanding respectively for 2016 and 2017.
And we assume that, from 2018 to 2019, the hedging positions for
domestic oil will be the same as 2017. Although 12.2 MMBbls is
relatively small in quantities, this assumption is reasonable because
Federal legislation regarding swaps could adversely affect Newfield’s
ability to enter into those transactions in the future. Furthermore, the
default possibility of the company’s counterparty is high and few
counterparties may participate in derivative transactions, especially when
the economic environment is poor and the financial markets is tight.
Financing
Activities
In response to the poor commodity price, we have reduced capital budget
in 2016 to approximately $625-$675. This range of number decreased of
more than 50% from 2015 investment levels. We expect to fund the 2016
investments through cash flows from operations, borrowings under our
credit facility, non-strategic asset sales or potentially accessing the public
debt and/or equity markets.
Investing
Activities
The company’s investing activities are closely correlated with the oil and
gas prices. We collected oil prices and capital expenditures data of 15
E&P companies from 2010 to 2016, create a dummy variable for
Newfield’s peer group, and set the capital expenditures and the WTI
Crude Oil as the dependent variable and the independent variable
respectively. We lag capital expenditure data for one period because the
management make investment decisions according to the forecasted price.
For instance, the 2012 capital expenditure of the company is correlated
with the WTI Crude Oil of 2013. For lagging capital expenditure data one
lag, we should assume that the management can forecast next year’s oil
price exactly as the price in the next year and that the management can
manage cash efficiently. Therefore, we get the 2017 investment in PP&E
of $1205.1 million, 2018 investment in PP&E of $1306.9 million, and
2019 investment in PP&E of $1306.9 million.
Operating
Activities
Production is the most important operating activities for E&P companies.
The historical production in the last year and new production coming
online in the current year jointly determine current year’s production. We
discount last year’s production by the natural decline rate to get the
historical portion of current year’s production. Then we calculated capital
expenditure per well in 2016, and combined it with the capital
expenditure after 2016 to get the number of wells each year after 2016.
According to the outlook of Newfield, the company will mainly invest in

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FREEMAN
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STACK and SCOOP. Thus, we use operation data of STACK and
SCOOP to get the production forecast. Regarding to ceiling test and other
impairment, the company encountered a significant amount of impairment
of $4904 million in 2015 because the drop in oil and natural gas prices.
We assume, however, Newfield will not incur any impairment from 2016
to 2019 because the market believe that oil and natural gas prices will
rebound in the future.

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