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Newfield Exploration Reports Second Quarter 2006 Results; Company Increases Capital Budget to Reflect Activity in Woodford Shale Play

HOUSTON, July 26 /PRNewswire-FirstCall/ -- Newfield Exploration Company (NYSE: NFX) today announced financial and operating results for the second quarter of 2006. A conference call to discuss the results is planned for 8:30 a.m. (CDT), Thursday, July 27. To participate in the call, dial 719-457-2657. A listen-only broadcast also will be provided over the Internet. Simply go to the Investor Relations section at http://www.newfield.com .

For the second quarter of 2006, Newfield reported net income of $94 million, or $0.73 per diluted share (all per share amounts are on a diluted basis). Earnings for the quarter reflect the following items:

     *  a $27 million ($17 million after-tax), or $0.13 per share, charge
        associated with the early redemption of our 8 3/8% Senior Subordinated
        Notes due 2012 (principal amount of $250 million); and
     *  commodity derivative income of $10 million ($6 million after-tax), or
        $0.05 per share, associated with unrealized changes in the fair market
        value of open derivative contracts that are not designated for hedge
        accounting.

Without the effects of the above items, net income for the quarter would have been $105 million, or $0.81 per share.

Revenues in the second quarter of 2006 were $390 million. Net cash provided by operating activities before changes in operating assets and liabilities was $297 million. See "Explanation and Reconciliation of Non-GAAP Financial Measures."

By comparison, net income in the second quarter of 2005 was $104 million, or $0.82 per share. Earnings for the quarter included the effects of a $45 million charge ($30 million after tax), or $0.23 per share, associated with unrealized changes in the fair market value of open derivative contracts that are not designated for hedge accounting. Without the effects of this item, net income for the quarter would have been $134 million, or $1.05 per share. Revenues for the quarter were $446 million. Net cash provided by operating activities before changes in operating assets and liabilities was $329 million. See Explanation and Reconciliation of Non-GAAP Financial Measures.

Newfield's production in the second quarter of 2006 was 58.3 Bcfe, which reflects the negative impact of 2 Bcfe of deferred production related to the 2005 hurricanes in the Gulf of Mexico. Production in the second quarter of 2005 was 67.3 Bcfe. The following tables detail production and average realized prices for the second quarters of 2006 and 2005.



    Quarterly Production (A)             2Q06           2Q05        % Change
    United States
     Natural gas (Bcf)                   48.0           53.3          (10%)
     Oil and condensate (MMBbls)          1.5            2.0          (28%)
    International
     Natural gas (Bcf)                    ---            0.1         (100%)
     Oil and condensate (MMBbls)          0.2            0.3           (9%)
    Total
     Natural gas (Bcf)                   48.0           53.4          (10%)
     Oil and condensate (MMBbls)          1.7            2.3          (26%)
     Total (Bcfe)                        58.3           67.3          (13%)



    Average Realized Prices (B)          2Q06           2Q05        % Change
    United States
     Natural gas (per Mcf)              $6.14          $6.41           (4%)
     Oil and condensate (per Bbl)      $54.15         $43.24           25%
    International
     Natural gas (per Mcf)                ---          $5.35          N/M
     Oil and condensate (per Bbl)      $62.50         $51.95           20%
    Total
     Natural gas (per Mcf)              $6.14          $6.41           (4%)
     Oil and condensate (per Bbl)      $55.38         $44.28           25%
     Total (per Mcfe)                   $6.68          $6.61            1%

     (A) Represents volumes sold regardless of when produced.
     (B) Average realized prices include the effects of hedging other than
         contracts that are not designated for hedge accounting.  Had we
         included the effects of these contracts, our average realized price
         for total gas would have been $6.97 per Mcf for the second quarter of
         2006.  There were no gas contracts that were not designated for hedge
         accounting that settled in the second quarter of 2005.  Our total oil
         and condensate average realized price would have been $52.88 per Bbl
         and $43.86 per Bbl for the second quarter of 2006 and 2005,
         respectively.

Stated on a unit of production basis, Newfield's lease operating expense in the second quarter of 2006 was $1.14 per Mcfe compared to $0.74 per Mcfe in the second quarter of 2005. Production and other taxes in the second quarter of 2006 were $0.27 per Mcfe compared to $0.18 per Mcfe in the same period of 2005. DD&A expense in the second quarter of 2006 was $2.46 per Mcfe compared to $2.09 per Mcfe in the same period of 2005. G&A expense in the second quarter of 2006 was $0.48 per Mcfe compared to $0.41 per Mcfe in the same period of 2005. G&A expense in the second quarter of 2006 is net of capitalized direct internal costs of $15 million. Capitalized direct internal costs were $12 million in the second quarter of 2005.

    Capital expenditures in the second quarter of 2006 were $460 million.

Updated Guidance

Newfield expects to produce about 250 Bcfe in 2006, an increase of about 3% over 2005 production. The Company's previous 2006 guidance range was 250- 265 Bcfe. Large development projects underway in the U.S. and overseas should provide production growth of 20-25% in 2007. Newfield expects to produce 300-320 Bcfe in 2007, in line with earlier guidance.

Newfield also announced today that it has increased its capital budget for 2006 to $1.9 billion, excluding approximately $180 million in hurricane repairs (a significant portion of the repairs are covered by insurance proceeds). Approximately $150 million of the increase is related to higher activity levels in the Company's Woodford Shale Play, located in the Arkoma Basin of southeastern Oklahoma. Newfield expects that its horizontal rig count in the play will nearly double by year-end to 13 operated rigs.

Explanation and Reconciliation of Non-GAAP Financial Measures

Earnings stated without the effects of certain items is a non-GAAP financial measure. Earnings without the effects of these items are presented because they affect the comparability of operating results from period to period. In addition, earnings without the effects of these items are more comparable to earnings estimates provided by securities analysts.

Newfield's consolidated statement of income for the second quarters of 2006 and 2005 includes the effects of these items:

      -  Early redemption premium charge of $27 million associated with the
         early redemption of our 8 3/8% Senior Subordinated Notes due 2012.
      -  Commodity derivative income (expense), which for the second quarter
         of 2006 is comprised of $10 million of income associated with
         unrealized changes in the fair market value of open derivative
         contracts that are not designated for hedge accounting and
         $36 million of realized gains relating to the settlement of contracts
         that are not designated for hedge accounting.  Commodity derivative
         expense for the second quarter of 2005 includes $45 million of
         unrealized changes in the fair market value of open derivative
         contracts that are not designated for hedge accounting and $1 million
         of realized losses relating to the settlement of contracts that are
         not designated for hedge accounting.

A reconciliation of earnings stated without the effects of certain items to net income is shown below:



                                                            2Q06        2Q05
                                                              (in millions)
    Net income                                              $94         $104
      Early redemption premium                               27          ---
      Unrealized commodity derivative (income) expense      (10)          45
      Income tax provision adjustment for above items        (6)         (15)
    Earnings stated without the effect of the above items  $105         $134

Net cash provided by operating activities before changes in operating assets and liabilities is presented because of its acceptance as an indicator of an oil and gas exploration and production company's ability to internally fund exploration and development activities and to service or incur additional debt. This measure should not be considered as an alternative to net cash provided by operating activities as defined by generally accepted accounting principles. A reconciliation of net cash provided by operating activities before changes in operating assets and liabilities to net cash provided by operating activities is shown below:



                                                           2Q06         2Q05
                                                             (in millions)
    Net cash provided by operating activities              $351         $356
      Net change in operating assets and liabilities        (54)         (27)
    Net cash provided by operating activities
      before changes in operating assets and liabilities   $297         $329

    Third Quarter 2006 Estimates

    Natural Gas Production and Pricing

The Company's natural gas production in the third quarter of 2006 is expected to be 50 - 51 Bcf (543 - 555 MMcf/d). Based on current prices, Newfield estimates that its realized price for natural gas production from the Gulf of Mexico and onshore Gulf Coast, after basis differentials, transportation and handling charges, will average $0.40 - $0.60 less per MMBtu than the Henry Hub Index. Realized gas prices for the Company's Mid-Continent properties, after basis differentials, transportation and handling charges, typically average $0.70 - $0.80 less per MMBtu than the Henry Hub Index. Hedging gains or losses will affect price realizations.

Crude Oil Production and Pricing

The Company's oil production, including international liftings, in the third quarter of 2006 is expected to be 2.0 - 2.2 million barrels (21,700 - 24,000 BOPD). Newfield expects to produce approximately 3,700 BOPD from its Malaysian operations. The timing of liftings in Malaysia and the availability of refining capacity for our Monument Butte oil production may affect total reported production. The price the Company receives for Gulf Coast production typically averages about $2 per barrel below the NYMEX West Texas Intermediate (WTI) price. The price the Company receives for its production in the Rocky Mountains is now averaging $9 per barrel below WTI. Oil production from the Mid-Continent typically sells at a $1.00 - $1.50 per barrel discount to WTI. Oil production from Malaysia typically sells at Tapis, or about even with WTI. Hedging gains or losses will affect price realizations.

Lease Operating Expense and Production Taxes

LOE is expected to be $68 - $75 million ($1.10 - $1.20 per Mcfe) in the third quarter of 2006. Production taxes in the third quarter of 2006 are expected to be $15 - $17 million ($0.20 - $0.30 per Mcfe). These expenses vary and are subject to impact from, among other things, production volumes and commodity prices, tax rates, service costs, the costs of goods and materials and workover activities.

General and Administrative Expense

G&A expense for the third quarter of 2006 is expected to be $33 - $37 million ($0.50 - $0.60 per Mcfe), net of capitalized direct internal costs. Capitalized direct internal costs are expected to be $16 - $17 million. G&A expense includes stock and incentive compensation expense. Incentive compensation expense depends largely on adjusted net income (as defined in the Company's incentive compensation plan), which excludes unrealized gains and losses on commodity derivatives.

Interest Expense

The non-capitalized portion of the Company's interest expense for the third quarter of 2006 is expected to be $20 - $22 million ($0.26 - $0.31 per Mcfe). As of July 26, 2006, Newfield had no outstanding borrowings under its credit arrangements. Long-term debt consists of four separate issuances of notes that in the aggregate total $1.2 billion in principal amount. Capitalized interest for the third quarter of 2006 is expected to be about $11 - $12 million.

Income Taxes

Including both current and deferred taxes, the Company expects its consolidated income tax rate in the third quarter of 2006 to be about 35 - 39%. About 60-65% of the tax provision is expected to be deferred.

The Company provides information regarding its outstanding hedging positions in its annual and quarterly reports filed with the SEC and in its electronic publication -- @NFX. This publication can be found on Newfield's web page at http://www.newfield.com . Through the web page, you may elect to receive @NFX through e-mail distribution.

Newfield Exploration Company is an independent crude oil and natural gas exploration and production company. The Company relies on a proven growth strategy growing reserves through the drilling of a balanced risk/reward portfolio and select acquisitions. Newfield's domestic areas of operation include the U.S. onshore Gulf Coast, the Anadarko and Arkoma Basins of the Mid-Continent, the Uinta Basin of the Rocky Mountains and the Gulf of Mexico. The Company has international exploration and development projects underway in Malaysia, the U.K. North Sea and China.

** The statements set forth in this release regarding estimated or anticipated capital activity, second quarter results and production volumes are forward looking and are based upon assumptions and anticipated results that are subject to numerous uncertainties. Actual results may vary significantly from those anticipated due to many factors. Newfield's ability to produce oil and gas from the Gulf of Mexico is dependent on infrastructure (such as host platforms, pipelines and onshore processing facilities) owned by third parties. Much of this infrastructure was damaged by Hurricanes Katrina and Rita. As a result, it is difficult to predict when production will return to pre-storm levels. Other factors include drilling results, oil and gas prices, industry conditions, the prices of goods and services, the availability of drilling rigs and other support services, the availability of capital resources, the availability of refining capacity for the crude oil Newfield produces from its Monument Butte Field in Utah and labor conditions. In addition, the drilling of oil and gas wells and the production of hydrocarbons are subject to governmental regulations and operating risks.

     For information, contact:
     Investor Relations: Steve Campbell (281) 847-6081
     Media Relations: Keith Schmidt (281) 674-2650
     Email: info@newfield.com



     CONSOLIDATED STATEMENT OF INCOME
     (Unaudited, in millions, except per share data)

                                   For the                   For the
                              Three Months Ended        Six Months Ended
                                   June 30,                  June 30,
                              2006         2005         2006         2005

    Oil and gas revenues      $390         $446         $821         $859

    Operating expenses:
      Lease operating           67           50          119           95
      Production and other
       taxes                    15           12           31           23
      Depreciation, depletion
       and amortization        144          140          275          276
      General and
       administrative           28           28           58           51
      Other                     25          ---           (5)         ---
        Total operating
         expenses              279          230          478          445

    Income from operations     111          216          343          414

    Other income (expenses):
      Interest expense         (24)         (19)         (42)         (37)
      Capitalized interest      10           11           22           23
      Commodity derivative
       income (expense)         46          (46)          52         (155)
      Other                      4            1            5            1
                                36          (53)          37         (168)

    Income before income
     taxes                     147          163          380          246

    Income tax provision        53           59          137           82

    Net income                 $94         $104         $243         $164

    Earnings per share:
      Basic                  $0.74        $0.83        $1.92        $1.32

      Diluted                $0.73        $0.82        $1.89        $1.29

    Weighted average number
     of shares outstanding
     for basic earnings
     per share                 127          125          126          125
    Weighted average number
     of shares outstanding
     for diluted earnings
     per share                 129          128          129          127



     CONDENSED CONSOLIDATED BALANCE SHEET
     (Unaudited, in millions)                         June 30,       Dec. 31,
                                                        2006           2005

    ASSETS
    Current assets:
      Cash and cash equivalents                          $73            $39
      Other current assets                               739            501
        Total current assets                             812            540

    Oil and gas properties, net (full cost method)     5,001          4,410
    Other assets                                          66             69
    Goodwill                                              62             62
        Total assets                                  $5,941         $5,081

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities                                 $819           $670

    Other liabilities                                    269            230
    Long-term debt                                     1,169            870
    Asset retirement obligation                          223            213
    Deferred taxes                                       813            720
        Total long-term liabilities                    2,474          2,033

    Commitments and contingencies                        ---            ---

    STOCKHOLDERS' EQUITY
    Common stock                                           1              1
    Additional paid-in capital                         1,174          1,186
    Treasury stock                                       (31)           (27)
    Unearned compensation                                ---            (34)
    Accumulated other comprehensive loss                 (35)           (44)
    Retained earnings                                  1,539          1,296
        Total stockholders' equity                     2,648          2,378
        Total liabilities and stockholders' equity    $5,941         $5,081



     CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
     (Unaudited, in millions)
                                                               For the
                                                          Six Months Ended
                                                               June 30,
                                                        2006           2005
    Cash flows from operating activities:
      Net income                                        $243           $164
    Adjustments to reconcile net income to
     net cash provided by operating activities:
      Depreciation, depletion and amortization           275            276
      Deferred taxes                                     125             43
      Stock-based compensation                            16              4
      Early redemption premium                             8            ---
      Commodity derivative (income) expense              (17)           152
                                                         650            639
      Changes in operating assets and liabilities         42            (22)
        Net cash provided by operating activities        692            617

    Cash flows from investing activities:
      Net additions to oil and gas properties
       and other                                        (838)          (514)
      Purchases of short-term investments               (484)           ---
      Redemption of short-term investments               352            ---
        Net cash used in investing activities           (970)          (514)

    Cash flows from financing activities:
      Net proceeds (repayments) under credit
       arrangements                                      ---           (120)
      Proceeds from issuance of Senior
       Subordinated Notes                                550            ---
      Repayment of Senior Subordinated Notes            (250)           ---
      Proceeds from issuances of common stock, net         8             20
      Purchases of treasury stock                         (4)           ---
      Stock-based compensation excess tax benefit          3            ---
        Net cash provided by (used in) financing
         activities                                      307           (100)

    Effect of exchange rate changes on cash and
     cash equivalents                                      5             (3)

    Increase in cash and cash equivalents                 34            ---
    Cash and cash equivalents, beginning of period        39             58

    Cash and cash equivalents, end of period             $73            $58
SOURCE  Newfield Exploration Company
    -0-                             07/26/2006
    /CONTACT:  investor relations, Steve Campbell, +1-281-847-6081, or
media relations, Keith Schmidt, +1-281-674-2650, both of Newfield Exploration
Company, info@newfield.com /
    /Web site:  http://www.newfield.com /
    (NFX)

CO:  Newfield Exploration Company
ST:  Texas
IN:  OIL
SU:  ERN CCA

AH-CT
-- DAW035 --
1421 07/26/2006 16:19 EDT http://www.prnewswire.com
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