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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2018
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     .

Commission File Number: 1-12534

NEWFIELD EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware
72-1133047
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)

4 Waterway Square Place
Suite 100
The Woodlands, Texas 77380
(Address and Zip Code of principal executive offices)

(281) 210-5100
(Registrant’s telephone number, including area code)
     
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ     
Accelerated filer ¨   
Non-accelerated filer ¨     
Smaller reporting company ¨
Emerging growth company ¨
(Do not check if a smaller reporting company)
     
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ¨ No þ

As of July 26, 2018, there were 199,857,444 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
 
 
 
 
 



TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




ii


NEWFIELD EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEET
(In millions, except share data)
(Unaudited)
 
 
June 30, 
 2018
 
December 31, 
 2017
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
293

 
$
326

Accounts receivable, net
 
348

 
292

Inventories
 
24

 
15

Derivative assets
 
2

 
15

Other current assets
 
89

 
98

Total current assets
 
756

 
746

Oil and gas properties, net — full cost method ($1,244 and $1,200 were excluded from amortization at June 30, 2018 and December 31, 2017, respectively)
 
4,416

 
3,931

Other property and equipment, net
 
169

 
168

Derivative assets
 

 
1

Long-term investments
 
24

 
24

Restricted cash
 
46

 
40

Other assets
 
50

 
51

Total assets
 
$
5,461

 
$
4,961

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 

 
 

Accounts payable
 
$
57

 
$
46

Accrued liabilities
 
692

 
591

Advances from joint owners
 
71

 
80

Asset retirement obligations
 
2

 
3

Derivative liabilities
 
228

 
98

Total current liabilities
 
1,050

 
818

Other liabilities
 
66

 
69

Derivative liabilities
 
39

 
26

Long-term debt
 
2,435

 
2,434

Asset retirement obligations
 
134

 
130

Deferred taxes
 
97

 
76

Total long-term liabilities
 
2,771

 
2,735

Commitments and contingencies (Note 11)
 
 
 
 
Stockholders' equity:
 
 

 
 

Preferred stock ($0.01 par value, 5,000,000 shares authorized; no shares issued)
 

 

Common stock ($0.01 par value, 300,000,000 shares authorized at June 30, 2018 and December 31, 2017; 201,554,837 and 201,363,345 shares issued at June 30, 2018 and December 31, 2017, respectively)
 
2

 
2

Additional paid-in capital
 
3,332

 
3,303

Treasury stock (at cost, 1,702,469 and 1,658,476 shares at June 30, 2018 and December 31, 2017, respectively)
 
(60
)
 
(59
)
Accumulated other comprehensive income (loss)
 
(1
)
 

Retained earnings (deficit)
 
(1,633
)
 
(1,838
)
Total stockholders' equity
 
1,640

 
1,408

Total liabilities and stockholders' equity
 
$
5,461

 
$
4,961


The accompanying notes to consolidated financial statements are an integral part of this statement.




NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(In millions, except per share data)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2018
 
2017
 
2018
 
2017
Oil, gas and NGL revenues
 
$
679

 
$
402

 
$
1,259

 
$
819

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 

 
 

 
 

 
 

Lease operating
 
73

 
58

 
131

 
114

Transportation and processing
 
83

 
71

 
161

 
143

Production and other taxes
 
27

 
13

 
51

 
27

Depreciation, depletion and amortization
 
151

 
110

 
284

 
216

General and administrative
 
51

 
51

 
105

 
98

Other expenses (income)
 
(6
)
 

 
(5
)
 
1

Total operating expenses
 
379

 
303

 
727

 
599

Income (loss) from operations
 
300

 
99

 
532

 
220

 
 
 
 
 
 
 
 
 
Other income (expense):
 
 

 
 

 
 

 
 

Interest expense
 
(37
)
 
(37
)
 
(75
)
 
(75
)
Capitalized interest
 
15

 
15

 
30

 
31

Commodity derivative income (expense)
 
(145
)
 
28

 
(256
)
 
81

Other, net
 

 
2

 
1

 
4

Total other income (expense)
 
(167
)
 
8

 
(300
)
 
41

 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
133

 
107

 
232

 
261

 
 
 
 
 
 
 
 
 
Income tax provision (benefit):
 
 

 
 

 
 

 
 

Current
 
6

 
2

 
6

 

Deferred
 
8

 
7

 
21

 
16

Total income tax provision (benefit)
 
14

 
9

 
27

 
16

Net income (loss)
 
$
119

 
$
98

 
$
205

 
$
245

 
 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 

 
 

 
 

 
 

Basic
 
$
0.60

 
$
0.49

 
$
1.03

 
$
1.23

Diluted
 
$
0.59

 
$
0.49

 
$
1.02

 
$
1.22

Weighted-average number of shares outstanding for basic earnings (loss) per share
 
200

 
199

 
200

 
199

Weighted-average number of shares outstanding for diluted earnings (loss) per share
 
201

 
200

 
200

 
200

 
 
 
 
 
 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
 
 
 
Net income (loss)
 
$
119

 
$
98

 
$
205

 
$
245

Other comprehensive income (loss), net of tax
 

 
1

 
(1
)
 
1

Comprehensive income (loss)
 
$
119

 
$
99

 
$
204

 
$
246


The accompanying notes to consolidated financial statements are an integral part of this statement.




NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Six Months Ended
 
 
June 30,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
Net income (loss)
 
$
205

 
$
245

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 

 
 

Depreciation, depletion and amortization
 
284

 
216

Deferred tax provision (benefit)
 
21

 
16

Stock-based compensation
 
25

 
20

Unrealized (gain) loss on derivative contracts
 
157

 
(46
)
Other, net
 
5

 
7

Changes in operating assets and liabilities:
 
 

 
 

(Increase) decrease in accounts receivable
 
(56
)
 
8

Increase (decrease) in accounts payable and accrued liabilities
 
110

 
5

Other items, net
 
(3
)
 
3

Net cash provided by (used in) operating activities
 
748

 
474

Cash flows from investing activities:
 
 

 
 

Additions to oil and gas properties
 
(752
)
 
(507
)
Acquisitions of oil and gas properties
 
(26
)
 
(6
)
Proceeds from sales of oil and gas properties
 
23

 
28

Additions to other property and equipment
 
(11
)
 
(8
)
Redemptions of investments
 

 
25

Purchases of investments
 

 
(25
)
Net cash provided by (used in) investing activities
 
(766
)
 
(493
)
Cash flows from financing activities:
 
 

 
 

Proceeds from issuances of common stock, net
 
1

 
2

Debt issue costs
 
(8
)
 

Purchases of treasury stock, net
 
(1
)
 
(8
)
Other
 
(1
)
 
(1
)
Net cash provided by (used in) financing activities
 
(9
)
 
(7
)
Net increase (decrease) in cash, cash equivalents and restricted cash
 
(27
)
 
(26
)
Cash, cash equivalents and restricted cash, beginning of period
 
366

 
580

Cash, cash equivalents and restricted cash, end of period
 
$
339

 
$
554


The accompanying notes to consolidated financial statements are an integral part of this statement.




NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
Additional
Paid-in
Capital
 
Retained Earnings
(Deficit)
 
Accumulated
Other
 Comprehensive
Income (Loss)
 
 Total
Stockholders' Equity
 
Common Stock
 
Treasury Stock
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance, December 31, 2017
201.4

 
$
2

 
(1.7
)
 
$
(59
)
 
$
3,303

 
$
(1,838
)
 
$

 
$
1,408

Issuances of common stock
0.2

 

 
 
 
 
 
2

 
 
 
 
 
2

Stock-based compensation
 
 
 
 
 
 
 
 
27

 
 
 
 
 
27

Treasury stock, net
 
 
 
 

 
(1
)
 

 
 
 
 
 
(1
)
Net income (loss)
 
 
 
 
 
 
 
 
 
 
205

 
 
 
205

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
Balance, June 30, 2018
201.6

 
$
2

 
(1.7
)
 
$
(60
)
 
$
3,332

 
$
(1,633
)
 
$
(1
)
 
$
1,640


The accompanying notes to consolidated financial statements are an integral part of this statement.





NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.      Organization and Summary of Significant Accounting Policies
   
Organization and Principles of Consolidation
     
We are an independent energy company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids (NGLs). Our U.S. operations are onshore and focus primarily on large scale, liquids-rich resource plays in the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota and the Uinta Basin of Utah. In addition, we have oil assets offshore China.

Our consolidated financial statements include the accounts of Newfield Exploration Company, a Delaware corporation, and its subsidiaries. We proportionately consolidate our interests in oil and natural gas exploration and production joint ventures and partnerships in accordance with industry practice. All significant intercompany balances and transactions have been eliminated. Unless otherwise specified or the context otherwise requires, all references in these notes to "Newfield," "we," "us," "our" or the "Company" are to Newfield Exploration Company and its subsidiaries.

These unaudited consolidated financial statements reflect, in the opinion of our management, all adjustments, consisting only of normal and recurring adjustments, necessary to fairly state our financial position as of, and results of operations, for the periods presented. These financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Interim period results are not necessarily indicative of results of operations or cash flows for a full year.

These consolidated financial statements and notes should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.
  
Risks and Uncertainties

As an independent oil and natural gas producer, our revenue, profitability and future rate of growth are substantially dependent on prevailing prices for oil, natural gas and NGLs. Historically, the energy markets have been very volatile, and there can be no assurance that commodity prices will not be subject to wide fluctuations in the future. A substantial or extended decline in commodity prices could have a material adverse effect on our financial position, results of operations, cash flows, access to capital and on the quantities of oil, natural gas and NGL reserves that we can economically produce. Other risks and uncertainties that could affect us in a volatile commodity price environment include, but are not limited to, counterparty credit risk for our receivables, responsibility for decommissioning liabilities for offshore interests we no longer own, inability to access credit markets, regulatory risks and our ability to meet financial ratios and covenants in our financing agreements.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities; disclosure of contingent assets and liabilities at the date of the financial statements; the reported amounts of revenues and expenses during the reporting period; and the quantities and values of proved oil, natural gas and NGL reserves used in calculating depletion and assessing impairment of our oil and gas properties. Actual results could differ significantly from these estimates. Our most significant estimates are associated with the quantities of proved oil, natural gas and NGL reserves, the timing and amount of transfers of our unevaluated properties into our amortizable full cost pool, the recoverability of our deferred tax assets and the fair value of our derivative contracts.

Revenue Recognition

We adopted the accounting guidance issued by the FASB regarding revenues from contracts with customers on January 1, 2018. The adoption of the new guidance did not materially impact our existing policies governing the timing and amount of revenue recognition or the classification of revenues and associated expenses on our Consolidated Statement of Operations and Comprehensive Income.





NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

All of our oil, natural gas and NGLs are sold at market-based prices adjusted for location and quality differentials to a variety of purchasers. Our production is sold either at the lease or transported to markets further downstream. We record revenue when control of our production transfers to the customer and collectability is reasonably assured. Substantially all of our customers pay us within 30 days in accordance with industry standards for the sale of oil, natural gas and NGLs. For sales at the lease, control transfers immediately and we record revenue for the amount we expect to receive from the purchaser. For contracts in which control transfers to the customer downstream from the lease, expected revenues are presented on a gross basis with related expenses incurred prior to the transfer of control to the customer presented as transportation and processing expenses.

Restricted Cash

Restricted cash consists of amounts held in escrow accounts to satisfy future plug and abandonment obligations for our China operations. These amounts are restricted as to their current use and will be released as we plug and abandon wells and facilities in China.

Other Current Assets

Other current assets primarily consist of federal income tax refunds receivable, capital and lease operating expense prepayments and other prepaid items, including but not limited to, rent and insurance. For the periods ended June 30, 2018 and December 31, 2017 federal income tax refunds receivable were $43 million and $53 million, respectively.

New Accounting Requirements

In November 2016, the FASB issued guidance regarding the classification and presentation of changes in restricted cash in the statement of cash flows. The guidance requires amounts described as restricted cash be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. We adopted this guidance in the first quarter of 2018 and retrospectively adjusted the prior period presented.

The following table summarizes the impact of the adoption of the new accounting standard to the Company’s Consolidated Statements of Cash Flows for the six months ended June 30, 2017.
 
 
As Originally Presented
 
Adoption Adjustments
 
As Adjusted
 
 
(In millions)
For the period ended June 30, 2017
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
$
467

 
$
7

 
$
474

 
 
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
 
(33
)
 
7

 
(26
)
Cash, cash equivalents and restricted cash, beginning of period
 
555

 
25

 
580

Cash, cash equivalents and restricted cash, end of period
 
$
522

 
$
32

 
$
554


In January 2016, the FASB issued guidance regarding several broad topics related to the recognition and measurement of financial assets and liabilities. The guidance is effective for interim and annual periods beginning after December 15, 2017 and did not have an impact on our financial statements.

In February 2016, the FASB issued guidance regarding the accounting for leases. The guidance requires recognition of certain leases on the balance sheet. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance is effective for interim and annual periods beginning after December 15, 2018. We are currently evaluating the impact of this guidance on our financial statements.

In February 2018, the FASB issued guidance regarding the reclassification of certain tax effects from accumulated other comprehensive income. The guidance allows a reclassification from accumulated other comprehensive income to re




NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

tained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The guidance is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We adopted this guidance in the first quarter of 2018, as permitted, with no material impact on our financial statements.


2.    Accounts Receivable

Accounts receivable consisted of the following:
 
 
June 30, 
 2018
 
December 31, 
 2017
 
 
(In millions)
Revenue
 
$
258

 
$
175

Joint interest
 
82

 
108

Other
 
24

 
25

Reserve for doubtful accounts
 
(16
)
 
(16
)
Total accounts receivable, net
 
$
348

 
$
292



3.      Inventories
     
Inventories primarily consist of tubular goods and well equipment held for use in our oil and natural gas operations, and oil produced but not sold. Inventories are carried at the lower of cost or net realizable value. At June 30, 2018 oil inventory totaled approximately $5 million. We had no crude oil inventory at December 31, 2017.

4.      Derivative Financial Instruments
     
Commodity Derivative Instruments
     
We utilize derivative strategies that consist of either a single derivative instrument or a combination of instruments to manage the variability in cash flows associated with the forecasted sale of our future domestic oil, natural gas and NGL production. While the use of derivative instruments may limit or partially reduce the downside risk of adverse commodity price movements, their use also may limit future income from favorable commodity price movements. Our derivative strategies are outlined in our Annual Report on Form 10-K for the year ended December 31, 2017.

Our oil and gas derivative contracts are settled based upon reported prices on the NYMEX, and our NGL derivative contracts are settled on posted prices at Mont Belvieu. The estimated fair value of these contracts is based upon various factors, including closing exchange prices on the NYMEX, Mont Belvieu over-the-counter quotations, estimated volatility, non-performance risk adjustments using rates of default and time to maturity. The calculation of the fair value of options requires the use of an option-pricing model. See Note 5, "Fair Value Measurements."





NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

At June 30, 2018, we had outstanding derivative positions as set forth in the tables below.

Crude Oil
 
 
 
 
NYMEX Contract Price Per Bbl
 
 
 
 
 
 
 
 
 
 
Collars
 
Estimated Fair Value
Asset (Liability)
Period and Type of Instrument
 
Volume in MBbls
 
Swaps
(Weighted Average)
 
Puts
(Weighted Average)
 
Floors
(Weighted Average)
 
Ceilings
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
2018:
 
 

 
 

 
 

 
 

 
 

 
 

Fixed-price swaps
 
8,096

 
$
56.33

 
$

 
$

 
$

 
$
(120
)
Fixed-price swaps with sold puts:
 
644

 
 
 
 
 
 
 
 
 
 
Fixed-price swaps
 
 
 
56.78

 

 

 

 
(9
)
Sold puts
 
 
 

 
44.00

 

 

 

Collars with sold puts:
 
1,932

 
 
 
 
 
 
 
 
 
 
Collars
 
 
 

 

 
48.34

 
56.60

 
(25
)
Sold Puts
 


 

 
39.47

 

 

 

2019:
 
 
 
 
 
 
 
 
 
 
 
 
Collars with sold puts:
 
10,566

 
 
 
 
 
 
 
 
 
 
Collars
 
 
 

 

 
50.59

 
57.13

 
(105
)
Sold puts
 
 
 

 
40.60

 

 

 
(4
)
Total
 
$
(263
)

Natural Gas
 
 
 
 
NYMEX Contract Price Per MMBtu
 
 
 
 
 
 
 
 
 
 
Collars
 
Estimated Fair Value Asset (Liability)
Period and Type of Instrument
 
Volume in MMMBtus
 
Swaps (Weighted Average)
 
Puts (Weighted Average)
 
Floors (Weighted Average)
 
Ceilings (Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
2018:
 
 

 
 

 
 
 
 

 
 

 
 

Fixed-price swaps
 
30,360

 
$
2.97

 
$

 
$

 
$

 
$
1

Fixed-price swaps with sold puts:
 
9,800

 
 
 
 
 
 
 
 
 
 
Fixed-price swaps
 
 
 
3.01

 

 

 

 

Sold puts
 
 
 

 
2.64

 

 

 

Collars
 
4,590

 

 

 
2.88

 
3.26

 

Collars with sold puts:
 
3,690

 
 
 
 
 
 
 
 
 
 
Collars
 
 
 

 

 
2.87

 
3.32

 

Sold puts
 
 
 

 
2.30

 

 

 

2019:
 
 

 
 

 
 
 
 

 
 

 
 

Fixed-price swaps
 
3,650

 
2.91

 

 

 

 

Collars
 
9,000

 

 

 
3.00

 
3.47

 
1

Total
 
$
2






NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Natural Gas Liquids (Propane)
 
 
 
 
Mont Belvieu Contract Price Per Gallon
 
 
Period and Type of Instrument
 
Volume in MBbls
 
Swaps
(Weighted Average)
 
Estimated Fair Value Asset (Liability)
 
 
 
 
 
 
(In millions)
2018:
 
 

 
 

 
 

Fixed-price swaps
 
736

 
$
0.82

 
$
(4
)
Total
 
$
(4
)

Additional Disclosures about Derivative Financial Instruments

We had derivative financial instruments recorded in our consolidated balance sheet as assets (liabilities) at their respective estimated fair value, as set forth below.
 
 
Derivative Assets
 
Derivative Liabilities
 
 
Gross Fair Value
 
Offset in Balance Sheet
 
Balance Sheet Location
 
Gross Fair Value
 
Offset in Balance Sheet
 
Balance Sheet Location
 
 
 
 
Current
 
Noncurrent
 
 
 
Current
 
Noncurrent
 
 
(In millions)
 
(In millions)
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oil positions
 
$
98

 
$
(98
)
 
$

 
$

 
$
(361
)
 
$
98

 
$
(224
)
 
$
(39
)
Natural gas positions
 
5

 
(3
)
 
2

 

 
(3
)
 
3

 

 

NGL positions
 

 

 

 

 
(4
)
 

 
(4
)
 

Total
 
$
103

 
$
(101
)
 
$
2

 
$

 
$
(368
)
 
$
101

 
$
(228
)
 
$
(39
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Oil positions
 
$
48

 
$
(48
)
 
$

 
$

 
$
(170
)
 
$
48

 
$
(96
)
 
$
(26
)
Natural gas positions
 
22

 
(6
)
 
15

 
1

 
(6
)
 
6

 

 

NGL positions
 

 

 

 

 
(2
)
 

 
(2
)
 

Total
 
$
70

 
$
(54
)
 
$
15

 
$
1

 
$
(178
)
 
$
54

 
$
(98
)
 
$
(26
)

 
The amount of gain (loss) recognized in "Commodity derivative income (expense)" in our consolidated statement of operations and comprehensive income related to our derivative financial instruments follows:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(In millions)
 
(In millions)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Realized gain (loss) on oil positions
 
$
(70
)
 
$
19

 
$
(108
)
 
$
45

Realized gain (loss) on natural gas positions
 
4

 
(4
)
 
10

 
(10
)
Realized gain (loss) on NGL positions
 
(1
)
 

 
(1
)
 

Total realized gain (loss)
 
(67
)
 
15

 
(99
)
 
35

Unrealized gain (loss) on oil positions
 
(65
)
 
(4
)
 
(141
)
 
(3
)
Unrealized gain (loss) on natural gas positions
 
(7
)
 
17

 
(14
)
 
49

Unrealized gain (loss) on NGL positions
 
(6
)
 

 
(2
)
 

Total unrealized gain (loss)
 
(78
)
 
13

 
(157
)
 
46

Total
 
$
(145
)
 
$
28

 
$
(256
)
 
$
81






NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

The use of derivative transactions involves the risk that the counterparties, which generally are financial institutions, will be unable to meet the financial terms of such transactions. Our derivative contracts are with multiple counterparties to minimize our exposure to any individual counterparty, and we have netting arrangements with all of our counterparties that provide for offsetting payables against receivables by counterparty. At June 30, 2018, 10 of our 16 counterparties accounted for approximately 80% of our contracted volumes, with the largest counterparty accounting for approximately 10%.

At June 30, 2018, approximately 78% of our volumes subject to derivative instruments are with lenders under our credit facility. Our credit facility, senior notes and substantially all of our derivative instruments contain provisions that provide for cross defaults and acceleration of those debt and derivative instruments in certain situations. 

5.      Fair Value Measurements
     
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The authoritative guidance requires disclosure of the framework for measuring fair value and requires that fair value measurements be classified and disclosed in one of the following categories:

Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that we value using observable market data. Substantially all of these inputs are observable in the marketplace throughout the full term of the derivative instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange traded derivatives such as over-the-counter commodity fixed-price swaps and, as of September 30, 2017, commodity options (i.e., price collars, sold puts, purchased calls or swaptions).
We use a modified Black-Scholes option pricing valuation model for option and swaption derivative contracts that considers various inputs including: (a) forward prices for commodities, (b) time value, (c) volatility factors, (d) counterparty credit risk and (e) current market and contractual prices for the underlying instruments.
Level 3:
Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity).

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy.

The determination of the fair values of our derivative contracts incorporates various factors, which include not only the impact of our non-performance risk on our liabilities but also the credit standing of the counterparties involved. We utilize counterparty rate of default values to assess the impact of non-performance risk when evaluating both our liabilities to, and receivables from, counterparties.





NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Recurring Fair Value Measurements

The following table summarizes the valuation of our assets and liabilities that are measured at fair value on a recurring basis.
 
 
Fair Value Measurement Classification
 
 
 
 
Quoted Prices in Active Markets for Identical Assets or (Liabilities) (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total
 
 
(In millions)
As of June 30, 2018:
 
 

 
 

 
 

 
 

Money market fund investments
 
$
215

 
$

 
$

 
$
215

Deferred compensation plan assets
 
8

 

 

 
8

Equity securities available-for-sale
 
12

 

 

 
12

Oil, gas and NGL derivative contracts
 

 
(265
)
 

 
(265
)
Stock-based compensation liability awards
 
(10
)
 

 

 
(10
)
Total
 
$
225

 
$
(265
)
 
$

 
$
(40
)
 
 
 
 
 
 
 
 
 
As of December 31, 2017:
 
 
 
 
 
 
 
 
Money market fund investments
 
$
162

 
$

 
$

 
$
162

Deferred compensation plan assets
 
7

 

 

 
7

Equity securities available-for-sale
 
12

 

 

 
12

Oil, gas and NGL derivative contracts
 

 
(108
)
 

 
(108
)
Stock-based compensation liability awards
 
(7
)
 

 

 
(7
)
Total
 
$
174

 
$
(108
)
 
$

 
$
66



Level 3 Fair Value Measurements

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the indicated periods.
 
 
Derivatives
 
 
(In millions)
Balance at January 1, 2017
 
$
(75
)
Unrealized gains (losses) included in earnings
 
(17
)
Purchases, issuances, sales and settlements:
 
 

Settlements
 
30

Transfers into Level 3
 

Transfers out of Level 3
 

Balance at June 30, 2017
 
$
(62
)
Change in unrealized gains or losses included in earnings relating to Level 3 instruments still held at June 30, 2017
 
$
(10
)


During the third quarter of 2017, we transferred $62 million of derivative option contracts out of the Level 3 into Level 2 hierarchy as a result of our ability to derive volatility inputs from directly observable sources. Therefore, we have no financial assets and liabilities classified as Level 3 as of the balance sheet dates presented.





NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Fair Value of Debt
 
The estimated fair value of our notes, based on quoted prices in active markets (Level 1) as of the indicated dates, was as follows:
 
 
June 30, 
 2018
 
December 31, 
 2017
 
 
(In millions)
5¾% Senior Notes due 2022
 
$
783

 
$
802

5⅝% Senior Notes due 2024
 
1,054

 
1,089

5⅜% Senior Notes due 2026
 
716

 
739




6.      Oil and Gas Properties

     Oil and gas properties consisted of the following:
 
 
June 30, 
 2018
 
December 31, 
 2017
 
 
(In millions)
Proved
 
$
23,985

 
$
23,272

Unproved
 
1,244

 
1,200

Gross oil and gas properties
 
25,229

 
24,472

Accumulated depreciation, depletion and amortization
 
(10,304
)
 
(10,032
)
Accumulated impairment
 
(10,509
)
 
(10,509
)
Net oil and gas properties
 
$
4,416

 
$
3,931



We capitalized approximately $28 million and $31 million of interest and direct internal costs during the three months ended June 30, 2018 and 2017, respectively, and $56 million and $64 million during the six months ended June 30, 2018 and 2017, respectively.

Costs withheld from amortization as of June 30, 2018 consisted of the following:
 
 
Costs Incurred In
 
 
 
 
2018
 
2017
 
2016
 
2015 & Prior
 
Total
 
 
(In millions)
 
 
Acquisition costs
 
$
24

 
$
107

 
$
483

 
$
304

 
$
918

Exploration costs
 

 

 

 

 

Capitalized internal cost
 
8

 
38

 
49

 
47

 
142

Capitalized interest
 
30

 
61

 
51

 
42

 
184

Total costs withheld from amortization
 
$
62

 
$
206

 
$
583

 
$
393

 
$
1,244



We performed our test for ceiling test impairment in accordance with SEC guidelines and no ceiling test impairment was required at June 30, 2018. Future declines in SEC pricing or downward revisions to our estimated proved reserves could result in additional ceiling test impairments of our oil and gas properties in subsequent periods.





NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

7.      Other Property and Equipment

     Other property and equipment consisted of the following:
 
 
June 30, 
 2018
 
December 31, 
 2017
 
 
(In millions)
Furniture, fixtures and equipment