SandRidge Energy Inc. (SD), Plains Exploration & Production Company (PXP): Newfield Exploration Co. (NFX) : How Much Can it Get for its International Assets?

According to recent news, Newfield Exploration Co (NYSE:NFX) is weighing a sale of its international offshore assets in Malaysia and China. The company is now seeking certainty and growth from its onshore projects in North America, in such formations as the Uinta, Cana Woodford, Williston, and Eagle Ford. In September 2012, Newfield also divested its assets in the Gulf of Mexico (GOM) for $228 million.

SandRidge (SD)


However, Newfield Exploration Co (NYSE:NFX) does not re-invent the wheel. Several major players have already done the same, by focusing on their onshore North American assets and selling the international ones. For instance, Devon Energysold its Brazilian assets one year ago to focus on its North American properties.
The horizontal drilling, coupled with hydraulic fracturing, have boosted the shale oil and gas production in North America. This increased oil and gas production has also revived several sectors of the American economy, pushing the unemployment rate down significantly during the last two years. This has lead Newfield to believe that it can raise its production from its U.S. onshore properties, avoiding the high exploratory costs of risky offshore drilling.
Rising debt
However, there is one more reason that makes Newfield Exploration Co (NYSE:NFX) seek a buyer for its international assets. The company’s cash resources are depleting, falling from $656 million in Q2 2012 to $88 million in Q4 2012.
The debt-equity ratio has also deteriorated, going from 0.72 in Q1 2012 to 1.09 in Q4 2012. The stock’s performance is indicative of this fundamental deterioration, and the stock is a laggard despite Dow’s recent new highs.
After all, I expect Newfield to pay down some of its long-term debt once the deal is done. It will be a strategic mistake if the company uses all the proceeds to fund its growth going forward.
The company’s operating cash flow remains consistently positive, which helps Newfield from triggering a fire-sale price for its international properties. What is a fair price for these assets then?
Recent offshore deals
Before estimating Newfield Exploration Co (NYSE:NFX)’s international assets, let’s check out some other offshore deals first:
1) In September 2012, EPL Oil & Gas Inc (NYSE:EPL) acquired offshore assets in the GOM from Hilcorp for $550 million, paying $55,000/boepd (50% oil) and $15.16/boe of proved reserves.