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Newfield Exploration Reports Second Quarter Results

HOUSTON, July 26 /PRNewswire-FirstCall/ -- Newfield Exploration Company (NYSE: NFX) today announced financial and operating results for the second quarter of 2005. A conference call to discuss the results is planned for 8:30 a.m. (CDT), Wednesday, July 27. To participate in the call, dial 719-457-2633. A listen-only broadcast also will be provided over the Internet. Simply go to the Investor Relations section at http://www.newfld.com .

Second Quarter 2005

For the second quarter of 2005, Newfield reported net income of $104 million, or $0.82 per share (all per share amounts are on a diluted basis and reflect the two-for-one stock split in May 2005). Earnings for the quarter include the effect of a $45 million charge ($30 million after tax), or $0.23 per share, associated with changes in the fair market value of open three-way collar contracts, which do not qualify for hedge accounting, and hedge ineffectiveness. Without the effects of this item, net income for the quarter would have been $134 million, or $1.05 per share. Revenues in the second quarter of 2005 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.

By comparison, Newfield's net income for the second quarter of 2004 was $67 million, or $0.59 per share. Revenues in the same period were $283 million. Net cash provided by operating activities before changes in operating assets and liabilities was $185 million in the second quarter of 2004. See Explanation and Reconciliation of Non-GAAP Financial Measures.

Newfield's production in the second quarter of 2005 was 67.3 Bcfe, a 20% increase over second quarter 2004 production of 56.0 Bcfe. The following tables detail production and average realized prices for the second quarters of 2005 and 2004.



    Quarterly Production (A)                 2Q05      2Q04      % Change
    United States
      Natural gas (Bcf)                      53.3      47.3         13%
      Oil and condensate (MMBbls)             2.0       1.4         43%
    International
      Natural gas (Bcf)                       0.1       0.2        (50%)
      Oil and condensate (MMBbls)             0.3       ---         N/M
    Total
      Natural gas (Bcf)                      53.4      47.5         12%
      Oil and condensate (MMBbls)             2.3       1.4         64%
      Total (Bcfe)                           67.3      56.0         20%

    Average Realized Prices (B)              2Q05      2Q04      % Change
    United States
      Natural gas (per Mcf)                 $6.41     $4.92         30%
      Oil and condensate (per Bbl)         $43.24    $34.64         25%
    International
      Natural gas (per Mcf)                 $5.35     $3.87         38%
      Oil and condensate (per Bbl)         $51.95       ---         N/M
    Total
      Natural gas (per Mcf)                 $6.41     $4.92         30%
      Oil and condensate (per Bbl)         $44.28    $34.65         28%
      Total (per Mcfe)                      $6.61     $5.05         31%


     (A)  Represents volumes sold regardless of when produced.

     (B)  Average realized prices include the effects of hedging other than
          our three-way collar contracts, which do not qualify for hedge
          accounting under SFAS No. 133. Had we included the effect of these
          contracts, our average realized price for total gas would have been
          unchanged for the second quarter of 2005 and $4.84 per Mcf for the
          second quarter of 2004. Our total oil and condensate average
          realized price would have been $43.86 per Bbl and $32.42 per Bbl for
          the second quarter of 2005 and 2004, respectively.

Stated on a unit of production basis, Newfield's lease operating expense (LOE) in the second quarter of 2005 was $0.71 per Mcfe, compared to LOE of $0.52 per Mcfe in the second quarter of 2004. LOE in the second quarter of 2005 was impacted by $0.11 per Mcfe of well workover expense. Production and other taxes in the second quarter of 2005 increased to $0.18 per Mcfe compared to production and other taxes of $0.16 per Mcfe in the same period of 2004. DD&A expense in the second quarter of 2005 was $2.09 per Mcfe compared to DD&A expense of $1.88 per Mcfe in the same period of 2004. G&A expense in the second quarter of 2005 was $0.41 per Mcfe compared to G&A expense of $0.34 per Mcfe in the same period of 2004. G&A expense in the second quarter of 2005 is net of capitalized direct internal costs of $12 million. Capitalized direct internal costs were $9 million in the second quarter of 2004.

Capital expenditures in the second quarter of 2005 were $263 million.

Year-to-Date 2005

For the first six months of 2005, Newfield posted net income of $164 million, or $1.29 per share, on revenues of $859 million. Earnings for the first half of 2005 were impacted by two items:

     *  A $152 million charge ($99 million after tax), or $0.78 per share,
        associated with changes in the fair market value of open three-way
        collar contracts, which do not qualify for hedge accounting, and hedge
        ineffectiveness; and
     *  An $8 million benefit, or $0.06 per share, related to a reduction of
        the valuation allowance on Newfield's U.K. net operating loss
        carryforwards because of a substantial increase in estimated future
        taxable income as a result of Newfield's Grove discovery in the U.K.
        North Sea.

Without the effects of these items, net income for the first six months of 2005 would have been $255 million, or $2.01 per share.

By comparison, in the first half of 2004, net income was $145 million, or $1.28 per share, on revenues of $588 million. Without the effect of unrealized commodity expense of $10 million ($7 million after tax), net income for the first half of 2004 would have been $152 million, or $1.33 per share. Net cash provided by operating activities before changes in operating assets and liabilities was $639 million in the first half of 2005 compared to $393 million in the same period of 2004. See Explanation and Reconciliation of Non-GAAP Financial Measures.

Production volumes for the first half of 2005 increased 17% above the same period of 2004. The Company produced 132.2 Bcfe in the first six months of 2005 compared to 113.3 Bcfe in the first six months of 2004. The following tables detail production and average realized prices for the first half of 2005 and 2004:



    Production (A)                             1H05      1H04      % Change
    United States
      Natural gas (Bcf)                       104.5      95.2         10%
      Oil and condensate (MMBbls)               4.1       3.0         37%
    International
      Natural gas (Bcf)                         0.1       0.3        (67%)
      Oil and condensate (MMBbls)               0.5       ---         N/M
    Total
      Natural gas (Bcf)                       104.6      95.5         10%
      Oil and condensate (MMBbls)               4.6       3.0         53%
      Total (Bcfe)                            132.2     113.3         17%

    Average Realized Prices (B)                1H05      1H04      % Change
    United States
      Natural gas (per Mcf)                   $6.32     $5.13         23%
      Oil and condensate (per Bbl)           $42.07    $33.26         26%
    International
      Natural gas (per Mcf)                   $5.15     $3.95         30%
      Oil and condensate (per Bbl)           $48.27    $36.50         32%
    Total
      Natural gas (per Mcf)                   $6.32     $5.12         23%
      Oil and condensate (per Bbl)           $42.76    $33.26         29%
      Total (per Mcfe)                        $6.49     $5.19         25%


     (A)  Represents volumes sold regardless of when produced.
     (B)  Average realized prices include the effects of hedging other than
          our three-way collar contracts, which do not qualify for hedge
          accounting under SFAS No. 133. Had we included the effect of these
          contracts, our average realized price for total gas would have been
          unchanged for the six months ended June 30, 2005 and $5.08 per Mcf
          for the six months ended June 30, 2004. Our total oil and condensate
          average realized price would have been $42.05 per Bbl and $31.69 per
          Bbl for the six months ended June 30, 2005 and 2004, respectively.

In the first half of 2005, LOE, stated on a unit of production basis, averaged $0.69 per Mcfe, compared to LOE of $0.52 per Mcfe in the same period of 2004. Production taxes in the first half of 2005 were $0.18 per Mcfe compared to production taxes of $0.15 per Mcfe in the same period of 2004. DD&A expense in the first half of 2005 was $2.09 per Mcfe compared to DD&A expense of $1.86 per Mcfe in the same period of 2004. G&A expense in the first half of 2005 was $0.38 per Mcfe compared to G&A expense of $0.33 per Mcfe in the prior year. G&A expense in the first half of 2005 is net of capitalized direct internal costs of $22 million compared to $15 million in the first half of 2004.

Capital expenditures in the first half of 2005 totaled $517 million. For the full-year 2005, Newfield has increased its capital budget to be about $1.2 billion, up from its original $950 million budget. The increase in spending primarily relates to the development of recent discoveries and higher oilfield service costs.

Explanation and Reconciliation of Non-GAAP Financial Measures

Earnings stated without the effects of certain items, a non-GAAP financial measure, affect the comparability of operating results. Earnings without the effects of these items are presented because the timing and amount of these items cannot be reasonably estimated and because earnings without the effects of these items are more comparable to earnings estimates provided by securities analysts.

Our consolidated statement of income includes the effects of these items as follows:

  • Commodity derivative expense includes $45 million of unrealized commodity derivative expense for the second quarter of 2005, resulting from changes in the fair market value of open three-way collar contracts, which do not qualify for hedge accounting, and hedge ineffectiveness, and $1 million of realized expenses related to the monthly settlement of certain of those contracts in the second quarter of 2005.

A reconciliation of earnings without the effect of unrealized commodity derivative expense to net income is shown below:



                                                                    2Q05
                                                               (in millions)
    Net income                                                     $104
      Plus: Unrealized commodity derivative expense                  45
      Less: Income tax benefit adjustment for above item            (15)
    Earnings stated without the effects of the above items         $134

In the first half of 2005 our consolidated statement of income includes the effects of these items as follows:

     --  Commodity derivative expense for the first half of 2005 and 2004
         includes $152 million and $10 million, respectively, of unrealized
         commodity derivative expense resulting from changes in the fair
         market value of open three-way collar contracts, which do not qualify
         for hedge accounting, and hedge ineffectiveness, and $3 million and
         $8 million of realized expenses related to the monthly settlement of
         certain of those contracts in the first half of 2005 and 2004,
         respectively.

     --  Income tax provision for 2005 includes an $8 million benefit related
         to a reduction of the valuation allowance on Newfield's U.K. net
         operating loss carryforwards because of a substantial increase in
         estimated future taxable income as a result of Newfield's Grove
         discovery in the U.K. North Sea.

A reconciliation of earnings without the effects of unrealized commodity derivative expense and the tax benefit related to reducing the U.K. tax asset valuation allowance to net income is shown below:



                                                               1H05     1H04
                                                               (in millions)
    Net income                                                 $164     $145
      Plus: Unrealized commodity derivative expense             152       10
      Less: Income tax benefit adjustment for above item        (53)      (3)
      Less: Tax benefit related to U.K. net operating loss
       valuation allowance                                       (8)     ---
    Earnings stated without the effects of the above items     $255     $152

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:



                                                               2Q05     2Q04
                                                               (in millions)
    Net cash provided by operating activities                  $356     $196
    Net change in operating assets and liabilities              (27)     (11)
    Net cash provided by operating activities
     before changes in operating assets and liabilities        $329     $185



                                                               1H05     1H04
                                                               (in millions)
    Net cash provided by operating activities                  $617     $414
    Net change in operating assets and liabilities               22      (21)
    Net cash provided by operating activities
     before changes in operating assets and liabilities        $639     $393

Third Quarter 2005 Estimates

Natural Gas Production and Pricing The Company's natural gas production in the third quarter of 2005 is expected to be 49 - 54 Bcf (533 - 587 MMcf/d). The price the Company realizes for natural gas production from the Gulf of Mexico and onshore Gulf Coast, after basis differentials, transportation and handling charges, typically averages $0.15 - $0.20 less per MMBtu than the Henry Hub Index. Realized gas prices for the Company's Mid-Continent properties, after basis differentials, transportation and handing 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 2005 is expected to be 2.2 - 2.4 million barrels (24,000 - 26,000 BOPD). Newfield expects to produce approximately 4,200 BOPD from its Malaysian operations. The timing of liftings in Malaysia 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 averages about $3 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 $46 - $51 million ($0.71 - $0.80 per Mcfe) in the third quarter of 2005. LOE guidance for the third quarter of 2005 includes $0.16 per Mcfe of well workover expense. Production taxes in the third quarter of 2005 are expected to be $17 - $19 million ($0.27 - $0.29 per Mcfe). These expenses vary and are subject to impact from, among other things, production volumes and commodity pricing, 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 2005 is expected to be $24 - $26 million ($0.36 - $0.40 per Mcfe), net of capitalized direct internal costs. Capitalized direct internal costs are expected to be $11 - $13 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 2005 is expected to be $6 - $7 million ($0.08 - $0.10 per Mcfe). As of July 25, 2005, Newfield had no outstanding borrowings under its credit arrangements. The remainder of long-term debt consists of four separate issuances of notes that in the aggregate total $875 million in principal amount. Capitalized interest for the third quarter of 2005 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 2005 to be about 35 - 39%. About 75% 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.newfld.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 that includes balancing acquisitions with drill bit opportunities. Newfield's areas of operation include the Gulf of Mexico, the U.S. onshore Gulf Coast, the Anadarko and Arkoma Basins of the Mid-Continent and the Uinta Basin of the Rocky Mountains. The Company has development projects underway offshore Malaysia, in the U.K. North Sea and in Bohai Bay, China.

**The statements set forth in this release regarding estimated or anticipated third 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, including 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, labor conditions and other factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2004. In addition, the drilling of oil and gas wells and the production of hydrocarbons are subject to governmental regulations and operating risks.

     Newfield Exploration Company                  For information, contact:
     363 N. Sam Houston Parkway East, Ste. 2020    Steve Campbell
     Houston, TX 77060                             (281) 847-6081
     http://www.newfld.com                         info@newfld.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,
                                2005         2004         2005         2004

    Oil and gas revenues       $445.8       $282.7       $858.9       $588.1

    Operating expenses:
      Lease operating            47.7         28.9         90.9         58.8
      Production and
       other taxes               12.2          9.1         23.3         17.5
      Transportation              1.9          2.0          4.2          3.4
      Depreciation, depletion
       and amortization         140.5        105.2        276.3        211.1
      General and
       administrative            27.7         19.0         50.5         37.6
        Total operating
         expenses               230.0        164.2        445.2        328.4

    Income from operations      215.8        118.5        413.7        259.7

    Other income (expenses):
      Interest expense          (18.6)       (12.0)       (36.6)       (24.5)
      Capitalized interest       11.4          4.4         22.7          8.3
      Commodity derivative
       expense                  (46.3)        (5.6)      (155.2)       (17.8)
      Other                       1.1          0.4          1.3          1.0
                                (52.4)       (12.8)      (167.8)       (33.0)

    Income before income
     taxes                      163.4        105.7        245.9        226.7

    Income tax provision         59.2         38.3         81.7         81.4

    Net income                 $104.2        $67.4       $164.2       $145.3

    Earnings per share:
      Basic                     $0.83        $0.60        $1.32        $1.30

      Diluted                   $0.82        $0.59        $1.29        $1.28

    Weighted average number
     of shares outstanding
     for basic earnings
     per share                  125.2        112.2        124.8        112.0
    Weighted average number
     of shares outstanding
     for diluted earnings
     per share                  127.6        114.1        127.1        113.8



     CONDENSED CONSOLIDATED
     BALANCE SHEET                                    June 30,    December 31,
     (Unaudited, in millions)                           2005           2004

    ASSETS
    Current assets:
      Cash and cash equivalents                        $58.6          $58.3
      Accounts receivable                              238.1          247.7
      Inventories                                       18.6            7.8
      Derivative assets                                  9.9           54.5
      Deferred taxes                                    40.0            1.0
      Other current assets                              39.2           22.3
        Total current assets                           404.4          391.6

    Oil and gas properties, net (full cost method)   4,011.5        3,775.3
    Furniture, fixtures and equipment, net              18.1           18.3
    Derivative assets                                   18.7           55.6
    Other assets                                        20.4           21.4
    Deferred taxes                                       8.8            ---
    Goodwill                                            65.3           65.3
        Total assets                                $4,547.2       $4,327.5

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities                               $401.4         $427.0
    Derivative liabilities                              99.2           47.0
        Total current liabilities                      500.6          474.0

    Other liabilities                                   26.6           15.8
    Derivative liabilities                             193.0           83.1
    Long-term debt                                     872.1          992.4
    Asset retirement obligation                        203.2          194.2
    Deferred taxes                                     607.5          551.1
        Total long-term liabilities                  1,902.4        1,836.6

    Commitments and contingencies                        ---            ---

    STOCKHOLDERS' EQUITY
    Common stock                                         1.3            1.3
    Additional paid-in capital                       1,151.3        1,101.8
    Treasury stock                                     (27.8)         (27.3)
    Unearned compensation                              (25.6)          (9.5)
    Accumulated other comprehensive income (loss):
      Foreign currency translation adjustment           (1.4)           2.6
      Commodity derivatives                            (65.7)           0.1
    Retained earnings                                1,112.1          947.9
      Total stockholders' equity                     2,144.2        2,016.9
      Total liabilities and stockholders' equity    $4,547.2       $4,327.5



     CONDENSED CONSOLIDATED                                 For the
     STATEMENT OF CASH FLOWS                           Six Months Ended
     (Unaudited, in millions)                               June 30,
                                                      2005           2004

    Cash flows from operating activities:
      Net income                                      $164.2         $145.3

    Adjustments to reconcile net income to net
     cash provided by operating activities:
      Depreciation, depletion and amortization         276.3          211.1
      Deferred taxes                                    43.3           25.3
      Stock compensation                                 3.7            2.0
      Commodity derivative expense                     151.9            9.5
                                                       639.4          393.2
      Changes in operating assets and liabilities      (22.5)          21.1
        Net cash provided by operating activities      616.9          414.3

    Cash flows from investing activities:
      Additions to oil and gas properties             (522.2)        (347.4)
      Proceeds from sale of oil and gas properties      10.7            ---
      Additions to furniture, fixtures and equipment    (2.2)          (1.7)
        Net cash used in investing activities         (513.7)        (349.1)

    Cash flows from financing activities:
      Proceeds from borrowings under credit
       arrangements                                    473.0          385.5
      Repayments of borrowings under credit
       arrangements                                   (593.0)        (446.5)
      Repurchases of secured notes                       ---           (2.9)
      Proceeds from issuances of common stock           20.2           11.3
      Purchases of treasury stock                       (0.5)          (0.4)
        Net cash used in financing activities         (100.3)         (53.0)

    Effect of exchange rate changes on cash and
     cash equivalents                                   (2.6)           0.3

    Increase in cash and cash equivalents                0.3           12.5
    Cash and cash equivalents, beginning of period      58.3           15.3

    Cash and cash equivalents, end of period           $58.6          $27.8

SOURCE Newfield Exploration Company
07/26/2005
CONTACT: Steve Campbell of Newfield Exploration Company,
+1-281-847-6081, or info@newfld.com
Web site: http://www.newfld.com
(NFX)

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