NFX 2014 Q1 - 10Q


 
 
 
 
 
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 March 31, 2014
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ     
 
Accelerated filer ¨   
 
Non-accelerated filer ¨     
 
Smaller reporting company ¨
(Do not check if a smaller reporting company)
     
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 April 28, 2014, there were 136,340,454 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)
 
 
March 31, 
 2014
 
December 31, 
 2013
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
107

 
$
95

Restricted cash
 

 
90

Accounts receivable
 
384

 
474

Inventories
 
41

 
163

Deferred taxes
 
20

 
22

Other current assets
 
35

 
57

Total current assets
 
587

 
901

Oil and gas properties, at cost, based on the full cost method of accounting for oil and gas properties ($1,365 and $1,300 were excluded from amortization at March 31, 2014 and December 31, 2013, respectively)
 
15,295

 
16,407

Less — accumulated depreciation, depletion and amortization
 
(7,483
)
 
(8,306
)
Total oil and gas properties, net
 
7,812

 
8,101

Other property and equipment, net
 
176

 
174

Derivative assets
 
17

 
26

Long-term investments
 
25

 
63

Deferred taxes
 

 
19

Other assets
 
34

 
37

Total assets
 
$
8,651

 
$
9,321

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 

 
 

Accounts payable
 
$
59

 
$
76

Accrued liabilities
 
728

 
978

Deferred liabilities
 

 
90

Advances from joint owners
 
16

 
30

Asset retirement obligations
 
4

 
54

Derivative liabilities
 
108

 
62

Total current liabilities
 
915

 
1,290

Other liabilities
 
30

 
38

Derivative liabilities
 
2

 

Long-term debt
 
3,046

 
3,694

Asset retirement obligations
 
107

 
201

Deferred taxes
 
1,301

 
1,142

Total long-term liabilities
 
4,486

 
5,075

 
 
 
 
 
Commitments and contingencies (Note 12)
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 

 
 

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

 

Common stock ($0.01 par value, 200,000,000 shares authorized at March 31, 2014 and December 31, 2013; 136,692,531 and 136,682,631 shares issued at March 31, 2014 and December 31, 2013, respectively)
 
1

 
1

Additional paid-in capital
 
1,546

 
1,539

Treasury stock (at cost, 365,226 and 460,914 shares at March 31, 2014 and December 31, 2013, respectively)
 
(10
)
 
(13
)
Accumulated other comprehensive gain (loss)
 
2

 
2

Retained earnings
 
1,711

 
1,427

Total stockholders' equity
 
3,250

 
2,956

Total liabilities and stockholders' equity
 
$
8,651

 
$
9,321


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

1


NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Oil, gas and NGL revenues
 
$
553

 
$
370

 
 
 
 
 
Operating expenses:
 
 

 
 

Lease operating
 
111

 
88

Production and other taxes
 
25

 
12

Depreciation, depletion and amortization
 
188

 
147

General and administrative
 
56

 
45

Total operating expenses
 
380

 
292

Income from operations
 
173

 
78

 
 
 
 
 
Other income (expense):
 
 

 
 

Interest expense
 
(51
)
 
(51
)
Capitalized interest
 
13

 
14

Commodity derivative income (expense)
 
(96
)
 
(84
)
Other, net
 
2

 
2

Total other income (expense)
 
(132
)
 
(119
)
 
 
 
 
 
Income (loss) from continuing operations before income taxes
 
41

 
(41
)
 
 
 
 
 
Income tax provision (benefit):
 
 

 
 

Current
 

 

Deferred
 
17

 
(16
)
Total income tax provision (benefit)
 
17

 
(16
)
Income (loss) from continuing operations
 
24

 
(25
)
Income (loss) from discontinued operations, net of tax
 
260

 
17

Net income (loss)
 
$
284

 
$
(8
)
 
 
 
 
 
Earnings (loss) per share:
 
 

 
 

Basic:
 
 
 
 
Income (loss) from continuing operations
 
$
0.17

 
$
(0.19
)
Income (loss) from discontinued operations
 
1.91

 
0.13

Basic earnings (loss) per share
 
$
2.08

 
$
(0.06
)
Diluted:
 
 
 
 
Income (loss) from continuing operations
 
$
0.17

 
$
(0.19
)
Income (loss) from discontinued operations
 
1.90

 
0.13

Diluted earnings (loss) per share
 
$
2.07

 
$
(0.06
)
 
 
 
 
 
Weighted-average number of shares outstanding for basic earnings (loss) per share
 
136

 
135

 
 
 
 
 
Weighted-average number of shares outstanding for diluted earnings (loss) per share
 
137

 
135


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

2


NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
Net income (loss)
 
$
284

 
$
(8
)
Other comprehensive income (loss):
 
 

 
 

Unrealized gain (loss) on investments, net of tax
 

 
2

Other comprehensive income (loss), net of tax
 

 
2

Comprehensive income (loss)
 
$
284

 
$
(6
)

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


3


NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
Net income (loss)
 
$
284

 
$
(8
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 

 
 

Depreciation, depletion and amortization
 
224

 
222

Deferred tax provision (benefit)
 
161

 
(13
)
Stock-based compensation
 
11

 
9

Commodity derivative (income) expense
 
96

 
84

Cash receipts (payments) related to derivative contracts, net
 
(39
)
 
27

Gain on sale of Malaysia business
 
(388
)
 

Other, net
 
(4
)
 
2

Changes in operating assets and liabilities:
 
 

 
 

(Increase) decrease in accounts receivable
 
51

 
60

(Increase) decrease in inventories
 
(6
)
 
11

(Increase) decrease in other current assets
 
(7
)
 
10

(Increase) decrease in other assets
 

 
2

Increase (decrease) in accounts payable and accrued liabilities
 
(6
)
 
(55
)
Increase (decrease) in advances from joint owners
 
(13
)
 
10

Increase (decrease) in other liabilities
 
1

 
(2
)
Net cash provided by operating activities
 
365

 
359

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Additions to oil and gas properties
 
(553
)
 
(399
)
Proceeds from sales of oil and gas properties
 
10

 
4

Proceeds received from sale of Malaysia business, net
 
809

 

Additions to other property and equipment
 
(8
)
 
(4
)
Redemptions of investments
 
39

 

Net cash provided by (used in) investing activities
 
297

 
(399
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Proceeds from borrowings under credit arrangements
 
562

 
532

Repayments of borrowings under credit arrangements
 
(1,211
)
 
(532
)
Purchases of treasury stock, net
 
(1
)
 
(4
)
Net cash used in financing activities
 
(650
)
 
(4
)
 
 
 
 
 
Increase (decrease) in cash and cash equivalents
 
12

 
(44
)
Cash and cash equivalents, beginning of period
 
95

 
88

Cash and cash equivalents, end of period
 
$
107

 
$
44


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

4


NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
 Comprehensive
Gain (Loss)
 
 Total
Stockholders' Equity
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance, December 31, 2013
 
136.7

 
$
1

 
(0.5
)
 
$
(13
)
 
$
1,539

 
$
1,427

 
$
2

 
$
2,956

Issuances of common stock
 

 

 
 
 
 
 

 
 
 
 
 

Stock-based compensation
 
 
 
 
 
 
 
 
 
11

 
 
 
 
 
11

Treasury stock, net
 
 
 
 
 
0.1

 
3

 
(4
)
 
 
 
 
 
(1
)
Net income
 
 
 
 
 
 
 
 
 
 
 
284

 
 
 
284

Balance, March 31, 2014
 
136.7

 
$
1

 
(0.4
)
 
$
(10
)
 
$
1,546

 
$
1,711

 
$
2

 
$
3,250


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

5



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 principal areas of operation include the Mid-Continent, the Rocky Mountains and the onshore Gulf Coast regions of North America.

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 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. 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, 2013.
  
Discontinued Operations

Our businesses in Malaysia and China were classified as held-for-sale in the second quarter of 2013. Accordingly, the results of our international operations are reflected separately as discontinued operations in the consolidated statement of operations on a line immediately after “Income (loss) from continuing operations.” See Note 3, “Discontinued Operations,” for additional disclosures, as well as information regarding the sale of our Malaysia business, which closed on February 10, 2014. These financial statements and notes are inclusive of our international operations unless otherwise noted.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 and the fair value of our derivative positions. 

Reclassifications

Certain reclassifications have been made to prior years' reported amounts in order to conform to the current year presentation. These reclassifications, including those related to our discontinued operations disclosed in Note 3, "Discontinued Operations," did not impact our net income (loss), stockholders' equity or cash flows.

Restricted Cash and Deferred Liabilities
     
Restricted cash and the associated deferred liability on our consolidated balance sheet at December 31, 2013, represent a deposit received in the fourth quarter of 2013 related to the sale of our Malaysia business. Amounts were contractually restricted until the transaction closed on February 10, 2014. See Note 3, "Discontinued Operations," for further discussion about the close of the sale of our Malaysia business.


6

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


Oil and Gas Properties

We use the full cost method of accounting for our oil and gas producing activities. Under this method, all costs incurred in the acquisition, exploration and development of oil and gas properties, including salaries, benefits, interest and other internal costs directly attributable to these activities, are capitalized into cost centers that are established on a country-by-country basis. We capitalized approximately $54 million and $50 million of interest and direct internal costs during the three-month periods ended March 31, 2014 and 2013, respectively.

Proceeds from the sale of oil and gas properties are applied to reduce the costs in the applicable cost center unless the reduction would significantly alter the relationship between capitalized costs and proved reserves, in which case a gain or loss is recognized. During the quarter ended March 31, 2014, we recognized a gain of approximately $388 million ($249 million, after tax) on the sale of our Malaysia business, which constituted the entire full cost pool for Malaysia. See Note 3, "Discontinued Operations," for further discussion.

If net capitalized costs of oil and gas properties exceed the cost center ceiling, we are subject to a ceiling test writedown to the extent of such excess. If required, a ceiling test writedown reduces earnings and stockholders’ equity in the period of occurrence and, holding other factors constant, results in lower depreciation, depletion and amortization expense in future periods. We did not have a ceiling test writedown in any periods presented.
   
New Accounting Requirements

In April 2014, the FASB issued guidance regarding the reporting of discontinued operations. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The guidance is effective for interim and annual periods beginning on or after December 15, 2014. We do not expect adoption of this guidance to have a material impact on our financial position or results of operations.



7

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


2.      Earnings Per Share:
     
The following is the calculation of basic and diluted weighted-average shares outstanding and earnings per share (EPS) for the indicated periods:
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
 
(In millions, except per share data)
Income (numerator):
 
 
 
 
  Income (loss) from continuing operations
 
$
24

 
$
(25
)
  Income (loss) from discontinued operations, net of tax
 
260

 
17

Net income (loss)
 
$
284

 
$
(8
)
 
 
 
 
 
Weighted-average shares (denominator):
 
 

 
 

Weighted-average shares — basic
 
136

 
135

Dilution effect of stock options and unvested restricted stock and restricted stock units outstanding at end of period(1) (2)
 
1

 

Weighted-average shares — diluted
 
137

 
135

 
 
 
 
 
Earnings (loss) per share:
 
 

 
 

Basic:
 
 
 
 
Income (loss) from continuing operations
 
$
0.17

 
$
(0.19
)
Income (loss) from discontinued operations
 
1.91

 
0.13

Basic earnings (loss) per share
 
$
2.08

 
$
(0.06
)
Diluted:
 
 
 
 
Income (loss) from continuing operations
 
$
0.17

 
$
(0.19
)
Income (loss) from discontinued operations
 
1.90

 
0.13

Diluted earnings (loss) per share
 
$
2.07

 
$
(0.06
)
_______
(1)
    Excludes 1.5 million shares of unvested restricted stock or restricted stock units and stock options for the three months ended March 31, 2014 because including the effect would have been anti-dilutive.
(2)
The effect of unvested restricted stock or restricted stock units and stock options has not been included in the calculation of the shares outstanding for diluted EPS for the three months ended March 31, 2013, as their effect would have been anti-dilutive. Had we recognized income from continuing operations for this period, incremental shares attributable to the assumed vesting of unvested restricted stock and restricted stock units and the assumed exercise of outstanding stock options would have increased diluted weighted-average shares outstanding by 0.6 million shares for the three months ended March 31, 2013.



8

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


3.     Discontinued Operations:

Malaysia Update

On February 10, 2014, Newfield International Holding Inc., a wholly-owned subsidiary of the Company, closed the stock purchase agreement to sell our Malaysia business to SapuraKencana Petroleum Berhad, a Malaysian public company, for $898 million (subject to customary purchase price adjustments). We recorded a gain in the first quarter of 2014 of approximately $388 million ($249 million, after tax). As of March 31, 2014, we had accounts receivable of $15 million related to the sale, which we expect to receive in the final post-close settlement scheduled to occur in the second quarter of 2014.

China Update

In August 2013, during the installation of the LF-7 topside facilities by a third-party contractor, a hydraulic jacking system malfunctioned and the installation was suspended. We are now in the process of completing our underwater inspections of the jacket to assess the extent of the damage. Plans are underway to repair the damage to the jacket mid-year 2014, and we plan to install the LF-7 topside facilities in the third quarter of 2014. We expect to achieve first oil production in late 2014. We continue to pursue the sale of our China business. After reevaluating the criteria to be classified as discontinued operations, we believe that our China operations continue to meet the "held-for-sale" criteria and therefore remain in discontinued operations as of March 31, 2014. We will continue to monitor the facts and circumstances surrounding the completion of the production facilities and the continued classification of our China business as discontinued operations.

Income from discontinued operations from our China business was $9 million ($3 million, net of tax) for the three months ended March 31, 2014. Income from discontinued operations from our China business was $13 million ($4 million, net of tax) for the three months ended March 31, 2013.

Financial Results of Discontinued Operations
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
 
(In millions)
Oil and gas revenues(1)
 
$
108

 
$
281

Operating expenses
 
78

 
213

    Income from discontinued operations
 
30

 
68

Gain on sale of Malaysia business
 
388

 

Income from discontinued operations before income taxes
 
418

 
68

Income tax provision (benefit):
 


 


    Current
 
14

 
48

    Deferred
 
144

 
3

    Total income tax provision (benefit)
 
158

 
51

Income from discontinued operations, net of tax
 
$
260

 
$
17

________________
(1)
Certain payments to foreign governments made on our behalf that are part of the revenue process are recorded as a reduction of the related oil and gas revenues.

Income Taxes

Historically, our international effective tax rate has been approximately 37%. As a result of our December 2012 decision to repatriate earnings from our international operations, we have experienced higher international effective tax rates due to these earnings being taxed both in the U.S. and the local countries. We expect this to continue until we are fully divested of our international businesses. The effective tax rate for our discontinued operations for the three months ended March 31, 2014 was 37.9% as the majority of our income from discontinued operations resulted from the gain on the sale of our Malaysia business, which was only taxable in the U.S. The effective tax rate for our discontinued operations for the three months ended March 31, 2013 was 74.8% due to our international earnings being taxed both in the U.S and the local country.

9

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



Assets and Liabilities in the Consolidated Balance Sheet Attributable to Discontinued Operations

 
March 31,
 
December 31,

 
2014
 
2013

 
(In millions)
Current assets:
 

 

Cash and cash equivalents
 
$
34

 
$
84

Accounts receivable
 
61

 
200

Inventories
 
11

 
130

  Other current assets
 
9

 
33

Total current assets
 
115

 
447

Noncurrent assets:
 


 


 Oil and gas properties, net of accumulated depreciation, depletion and amortization of $115 and $1,121 as of March 31, 2014 and December 31, 2013, respectively
 
455

 
989

Deferred taxes
 

 
19

  Other assets
 
1

 
4

Total noncurrent assets
 
456

 
1,012

Total assets
 
$
571

 
$
1,459


 


 


Current liabilities:
 


 


Accounts payable
 
$
5

 
$
38

  Accrued liabilities
 
132

 
324

  Asset retirement obligations
 

 
49

  Other current liabilities
 

 
18

Total current liabilities
 
137

 
429
Noncurrent liabilities:
 


 


  Asset retirement obligations
 
2

 
86

Deferred taxes
 
104

 
129

  Other liabilities
 

 
11

Total noncurrent liabilities
 
106

 
226

Total liabilities
 
$
243

 
$
655


Inventories

Substantially all of the crude oil from our international offshore operations is produced into floating production, storage and off-loading vessels (FPSOs) and “lifted” and sold periodically as barge quantities are accumulated. At December 31, 2013, the crude oil inventory from our Malaysia and China operations consisted of approximately 1.1 million barrels of crude oil valued at cost of $90 million and is included in the "Inventories" line item in the preceding table and in our consolidated balance sheet. Cost for purposes of the carrying value of oil inventory is the sum of production costs and depletion expense. The sale of our Malaysia business on February 10, 2014, reduced crude oil inventory to a de minimis amount. Remaining inventories at March 31, 2014, primarily consisted of tubular goods and well equipment for use in our oil and natural gas operations.

Oil and Gas Properties

As of March 31, 2014, all of our oil and gas properties in our discontinued operations were subject to amortization. As of December 31, 2013, approximately $115 million of our oil and gas properties in our discontinued operations were not subject to amortization.



10

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


Asset Retirement Obligations

During the quarter ended March 31, 2014, asset retirement obligations were reduced by $133 million as a result of the sale of our Malaysia business in February 2014.


4.      Oil and Gas Assets:

  Property and Equipment

  Property and equipment consisted of the following:
 
 
March 31, 
 2014
 
December 31, 
 2013
 
 
(In millions)
Oil and gas properties:
 
 
 
 
Subject to amortization
 
$
13,930

 
$
15,107

Not subject to amortization
 
1,365

 
1,300

Gross oil and gas properties
 
15,295

 
16,407

Accumulated depreciation, depletion and amortization
 
(7,483
)
 
(8,306
)
Net oil and gas properties
 
$
7,812

 
$
8,101

Other property and equipment:
 
 

 
 

Furniture, fixtures and equipment
 
141

 
139

Gathering systems and equipment
 
108

 
104

Accumulated depreciation and amortization
 
(73
)
 
(69
)
Net other property and equipment
 
$
176

 
$
174


At March 31, 2014, approximately 91% of our oil and gas properties not subject to amortization were associated with unconventional resource plays. Because of the size of our unconventional resource plays, the entire evaluation can take significantly longer than four years. The following is a summary of our oil and gas properties not subject to amortization as of March 31, 2014.
 
 
Costs Incurred In
 
 
 
 
2014
 
2013
 
2012
 
2011 and Prior
 
Total
 
 
(In millions)
Acquisition costs
 
$
28

 
$
199

 
$
109

 
$
474

 
$
810

Exploration costs
 
159

 
114

 
2

 
10

 
285

Development costs
 
11

 
12

 
31

 
24

 
78

Fee mineral interests
 

 
1

 

 
23

 
24

Capitalized interest
 
13

 
53

 
67

 
35

 
168

Total oil and gas properties not subject to amortization
 
$
211

 
$
379

 
$
209

 
$
566

 
$
1,365



5.      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 and natural gas production. While the use of derivative instruments limits the downside risk of adverse commodity price movements, their use also may limit future income from favorable commodity price movements.
     

11

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


Our oil and gas derivative contracts are settled based upon reported prices on the NYMEX. The estimated fair value of these contracts is based upon various factors, including closing exchange prices on the NYMEX, over-the-counter quotations, estimated volatility, non-performance risk adjustments using credit default swaps and time to maturity. The calculation of the fair value of collars, sold puts and swaptions requires the use of an option-pricing model. See Note 8, “Fair Value Measurements.”

At March 31, 2014, we had outstanding derivative positions as set forth in the tables below.

Natural Gas
 
 
 
 
NYMEX Contract Price Per MMBtu
 
 
 
 
 
 
 
 
 
 
Collars
 
Estimated Fair Value Asset (Liability)
Period and Type of Instrument
 
Volume in MMMBtus
 
Swaps (Weighted Average)
 
Sold Puts (Weighted Average)
 
Floors (Weighted Average)
 
Ceilings (Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
2014:
 
 
 
 
 
 
 
 
 
 
 
 
  Fixed-price swaps
 
64,625

 
$
3.98

 

 

 

 
$
(30
)
  Collars
 
17,875

 

 

 
$
3.75

 
$
4.62

 
(3
)
2015:
 
 

 
 

 
 

 
 

 
 

 
 

  Fixed-price swaps
 
49,275

 
4.28

 

 

 

 
4

  Collars
 
38,325

 

 

 
3.93

 
4.74

 
1

Total
 
$
(28
)

Crude Oil
 
 
 
 
NYMEX Contract Price Per Bbl
 
 
 
 
 
 
 
 
 
 
Collars
 
Estimated Fair Value
Asset (Liability)
Period and Type of Instrument
 
Volume in MBbls
 
Swaps
(Weighted Average)
 
Sold Puts
(Weighted Average)
 
Floors
(Weighted Average)
 
Ceilings
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
2014:
 
 
 
 
 
 
 
 
 
 
 
 
  Fixed-price swaps
 
5,777

 
$
89.96

 

 

 

 
$
(44
)
  Fixed-price swaps with sold puts
 
4,400

 
95.16

 
$
75.00

 

 

 
(13
)
  Collars with sold puts
 
1,650

 

 
75.83

 
$
90.83

 
$
102.93

 
(1
)
2015:
 
 

 
 

 
 

 
 

 
 

 
 

  Fixed-price swaps
 
6,567

 
90.39

 

 

 

 
2

  Fixed-price swaps with sold puts
 
6,621

 
90.13

 
69.17

 

 

 
(6
)
    Swaptions(1) 
 

 
90.29

 

 

 

 
(4
)
2016:
 
 

 
 

 
 

 
 

 
 

 
 

  Fixed-price swaps with sold puts
 
637

 
90.02

 
70.00

 

 

 
1

Total
 
$
(65
)
________
(1)
During the first quarter of 2014, we sold crude oil swaption contracts (options to exercise swap contracts) to counterparties that would potentially put 1,548 MBbls of oil under contract for calendar year 2015 if exercised on their expiration date in the second quarter of 2014. These contracts give the counterparties the option to enter into swap contracts with us at a weighted-average fixed price of $90.29 per barrel for the first three quarters of calendar year 2015.


12

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


Additional Disclosures about Derivative 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
March 31, 2014
 
(In millions)
 
(In millions)
Natural gas positions
 
$
12

 
$

 
$

 
$
12

 
$
(40
)
 
$

 
$
(40
)
 
$

Oil positions
 
15

 
(10
)
 

 
5

 
(80
)
 
10

 
(68
)
 
(2
)
Total
 
$
27

 
$
(10
)
 
$

 
$
17

 
$
(120
)
 
$
10

 
$
(108
)
 
$
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Natural gas positions
 
$
11

 
$
(2
)
 
$

 
$
9

 
$
(22
)
 
$
2

 
$
(20
)
 
$

Oil positions
 
26

 
(9
)
 

 
17

 
(51
)
 
9

 
(42
)
 

Total
 
$
37

 
$
(11
)
 
$

 
$
26

 
$
(73
)
 
$
11

 
$
(62
)
 
$

 
The amount of gain (loss) recognized in “Commodity derivative income (expense)” in our consolidated statement of operations related to our derivative financial instruments follows:
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
 
(In millions)
Derivatives not designated as hedging instruments:
 
 
 
 
Realized gain (loss) on natural gas positions
 
$
(22
)
 
$
27

Realized gain (loss) on oil positions
 
(17
)
 

Total realized gain (loss)(1)
 
(39
)
 
27

Unrealized gain (loss) on natural gas positions
 
(17
)
 
(88
)
Unrealized gain (loss) on oil positions
 
(40
)
 
(23
)
Total unrealized gain (loss)
 
(57
)
 
(111
)
Total
 
$
(96
)
 
$
(84
)
________
(1)
The total realized gain (loss) on commodity derivatives may differ from the cash receipts on derivative settlements as a result of the receipt or payment of premiums or due to the recognition of premiums previously received associated with derivatives settled during the period.

The use of derivative transactions involves the risk that the counterparties 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 from separate derivative instruments with that counterparty. At March 31, 2014, ten of our 16 counterparties accounted for approximately 85% of our contracted volumes, with no single counterparty accounting for more than 15%.

A portion of our derivative instruments are with lenders under our credit facility. Our credit facility, senior notes, senior subordinated 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. 



13

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


6.    Accounts Receivable:

Accounts receivable consisted of the following:

 
 
March 31, 
 2014
 
December 31, 
 2013
 
 
(In millions)
Revenue
 
$
222

 
$
294

Joint interest
 
126

 
156

Other
 
37

 
25

Reserve for doubtful accounts
 
(1
)
 
(1
)
Total accounts receivable
 
$
384

 
$
474



7.    Accrued Liabilities:

Accrued liabilities consisted of the following:
 
 
March 31, 
 2014
 
December 31, 
 2013
 
 
(In millions)
Revenue payable
 
$
187

 
$
175

Accrued capital costs
 
365

 
458

Accrued lease operating expenses
 
27

 
71

Employee incentive expense
 
35

 
64

Accrued interest on debt
 
46

 
72

Taxes payable
 
29

 
93

Other
 
39

 
45

Total accrued liabilities
 
$
728

 
$
978



8.      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 certain investments.
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). Level 3 instruments primarily include derivative instruments, such as commodity options (price collars, sold puts and swaptions) and other financial investments.

14

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


Our valuation models for derivative contracts are primarily industry-standard models (i.e., Black-Scholes) that consider various inputs including: (a) quoted 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.

Our valuation model for the Stockholder Value Appreciation Program (SVAP) is a Monte Carlo simulation that is based on a probability model and considers various inputs including: (a) the measurement date stock price, (b) time value and (c) historical and implied volatility. See Note 11, "Stock-Based Compensation," for a description of the SVAP.

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.

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 December 31, 2013:
 
 
 
 
 
 
 
 
Money market fund investments
 
$
2

 
$

 
$

 
$
2

Deferred compensation plan assets
 
8

 

 

 
8

Investments available-for-sale:
 
 

 
 

 
 

 
 

Equity securities
 
8

 

 

 
8

Auction rate securities
 

 

 
39

 
39

Oil and gas derivative swap contracts
 

 
(28
)
 

 
(28
)
Oil and gas derivative option contracts
 

 

 
(8
)
 
(8
)
Stock-based compensation liability awards
 
(11
)
 

 
(5
)
 
(16
)
Total
 
$
7

 
$
(28
)
 
$
26

 
$
5

 
 
 

 
 

 
 

 
 

As of March 31, 2014:
 
 

 
 

 
 

 
 

Money market fund investments
 
$
74

 
$

 
$

 
$
74

Deferred compensation plan assets
 
9

 

 

 
9

Equity securities available-for-sale
 
8

 

 

 
8

Oil and gas derivative swap contracts
 

 
(74
)
 

 
(74
)
Oil and gas derivative option contracts
 

 

 
(19
)
 
(19
)
Stock-based compensation liability awards
 
(10
)
 

 
(19
)
 
(29
)
Total
 
$
81

 
$
(74
)
 
$
(38
)
 
$
(31
)

The determination of the fair values above 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 and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests), if any. We utilize credit default swap values to assess the impact of non-performance risk when evaluating both our liabilities to and receivables from counterparties.
 

15

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


As of December 31, 2013, we held $39 million of auction rate securities, which were classified as a Level 3 fair value measurement. During the quarter ended March 31, 2014, we sold all auction rate securities that we held at December 31, 2013, for $39 million.

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:    
 
 
Investments
 
Derivatives
 
Stock-based Compensation
 
Total
 
 
(In millions)
Balance at January 1, 2013
 
$
36

 
$
115

 
$

 
$
151

Realized or unrealized gains (losses):
 
 

 
 

 
 

 
 

Included in earnings
 

 
(27
)
 

 
(27
)
Included in other comprehensive income (loss)
 
3

 

 

 
3

Purchases, issuances and settlements:
 
 

 
 

 
 

 
 

Settlements
 

 
(18
)
 

 
(18
)
Transfers in and out of Level 3
 

 

 

 

Balance at March 31, 2013
 
$
39

 
$
70

 
$

 
$
109

 
 
 
 
 
 
 
 
 
Change in unrealized gains or losses included in earnings relating to Level 3 instruments still held at March 31, 2013
 
$

 
$
(5
)
 
$

 
$
(5
)
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
 
$
39

 
$
(8
)
 
$
(5
)
 
$
26

Realized or unrealized gains (losses) included in earnings
 

 
(13
)
 
(14
)
 
(27
)
Purchases, issuances and settlements:
 
 

 
 

 
 

 
 

Settlements
 
(39
)
 
2

 

 
(37
)
Transfers in and out of Level 3
 

 

 

 

Balance at March 31, 2014
 
$

 
$
(19
)
 
$
(19
)
 
$
(38
)
 
 
 
 
 
 
 
 
 
Change in unrealized gains or losses included in earnings relating to Level 3 instruments still held at March 31, 2014
 
$

 
$
(11
)
 
$
(14
)
 
$
(25
)

Qualitative Disclosures about Unobservable Inputs for Level 3 Fair Value Measurements

Derivatives.  Our valuation models for Level 3 derivative contracts are primarily industry-standard models that consider various factors, including certain significant unobservable inputs such as (a) quoted forward prices for commodities, (b) volatility factors and (c) counterparty credit risk. The calculation of the fair value of our option contracts requires the use of an option-pricing model. The estimated future prices are compared to the strike prices fixed by our derivative contracts, and the resulting estimated future cash inflows or outflows over the contractual life are discounted to calculate the fair value. These pricing and discounting variables are sensitive to market volatility as well as changes in future price forecasts, regional price differences and interest rates. Significant increases (decreases) in the quoted forward prices for commodities generally lead to corresponding decreases (increases) in the fair value measurement of our oil and gas derivative contracts. Significant changes in the volatility factors utilized in our option-pricing model can cause significant changes in the fair value measurement of our oil and gas derivative contracts.
 
The determination of the fair values of derivative instruments incorporates various factors that include not only the impact of our non-performance risk on our liabilities but also the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests). Historically, we have not experienced significant changes in the fair value of our derivative contracts resulting from changes in counterparty credit risk as the counterparties for all of our derivative transactions have an “investment grade” credit rating.

16

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



Stock-Based Compensation. The calculation of the fair value of the SVAP liability requires the use of a probability-based Monte Carlo simulation, which includes unobservable inputs. The simulation predicts multiple scenarios of future stock return over the performance period, which are discounted to calculate the fair value. The fair value is recognized over a service period derived from the simulation. Future stock returns and discounting variables are sensitive to market volatility. Significant increases (decreases) in the volatility factors utilized in our option-pricing model can cause significant increases (decreases) in the fair value measurement of the SVAP liability.

Quantitative Disclosures about Unobservable Inputs for Level 3 Fair Value Measurements 
 
 
Estimated Fair Value Asset (Liability)
 
  Quantitative Information about Level 3 Fair Value Measurements
Instrument Type
 
Valuation Technique
 
Unobservable Input
 
Range
 
 
(In millions)
 
 
 
 
 
 
 
 
 
Oil option contracts
 
$
(17
)
 
Black-Scholes
 
Oil price volatility curves
 
14.42
%
 
 
53.09
%
 
 
 
 
 
 
Credit risk
 
0.01
%
 
 
1.33
%
Natural gas option contracts
 
$
(2
)
 
Black-Scholes
 
Natural gas price volatility curves
 
19.33
%
 
 
49.56
%
 
 
 
 
 
 
Credit risk
 
0.01
%
 
 
1.15
%
SVAP
 
$
(19
)
 
Monte Carlo
 
Implied volatility
 

 

 
38.0
%

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:
 
 
March 31, 
 2014
 
December 31, 
 2013
 
 
(In millions)
5¾% Senior Notes due 2022
 
$
804

 
$
767

5⅝% Senior Notes due 2024
 
1,065

 
1,025

7⅛% Senior Subordinated Notes due 2018
 
618

 
624

6⅞% Senior Subordinated Notes due 2020
 
742

 
755


Any amounts outstanding under our credit arrangements as of the indicated dates are stated at cost, which approximates fair value. Please see Note 9, "Debt."



17

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


9.      Debt:
 
Our debt consisted of the following:
 
 
March 31, 
 2014
 
December 31, 
 2013
 
 
(In millions)
Senior unsecured debt:
 
 
 
 
Revolving credit facility - LIBOR based loans
 
$


$
585

Money market lines of credit(1)
 

 
64

Total credit arrangements
 


649

5¾% Senior Notes due 2022
 
750

 
750

5⅝% Senior Notes due 2024
 
1,000

 
1,000

Total senior unsecured debt
 
1,750

 
2,399

7⅛% Senior Subordinated Notes due 2018
 
600

 
600

6⅞% Senior Subordinated Notes due 2020
 
700

 
700

Discount on notes
 
(4
)
 
(5
)
Total long-term debt
 
$
3,046

 
$
3,694

________
(1) Because capacity under our credit facility was available to repay borrowings under our money market lines of credit as of the indicated dates, amounts outstanding under these obligations, if any, are classified as long-term.

Credit Arrangements
     
We have a revolving credit facility that matures in June 2018 and provides borrowing capacity of $1.4 billion. As of March 31, 2014, the largest individual loan commitment by any lender was 14% of total commitments.

Loans under the credit facility bear interest, at our option, equal to (a) a rate per annum equal to the higher of the prime rate announced from time to time by JPMorgan Chase Bank, N.A. or the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System during the last preceding business day plus 50 basis points, plus a margin that is based on a grid of our debt rating (75 basis points per annum at March 31, 2014) or (b) the London Interbank Offered Rate, plus a margin that is based on a grid of our debt rating (175 basis points per annum at March 31, 2014).

Under our credit facility, we pay commitment fees on available but undrawn amounts based on a grid of our debt rating (30 basis points per annum at March 31, 2014). We incurred aggregate commitment fees under our current credit facility of approximately $1 million for the each of the three-month periods ended March 31, 2014 and 2013, which are recorded in “Interest expense” on our consolidated statement of operations.

Our credit facility has restrictive financial covenants that include the maintenance of a ratio of total debt to book capitalization not to exceed 0.6 to 1.0 and maintenance of a ratio of earnings before gain or loss on the disposition of assets, interest expense, income taxes and noncash items (such as depreciation, depletion and amortization expense, unrealized gains and losses on commodity derivatives, ceiling test writedowns and goodwill impairments) to interest expense of at least 3.0 to 1.0. At March 31, 2014, we were in compliance with all of our debt covenants.

As of March 31, 2014, we had no letters of credit outstanding under our credit facility. Letters of credit are subject to a fronting fee of 20 basis points and annual fees based on a grid of our debt rating (175 basis points at March 31, 2014).
     
Subject to compliance with the restrictive covenants in our credit facility, at March 31, 2014, we also had a total of $195 million of available borrowing capacity under our money market lines of credit with various financial institutions, the availability of which is at the discretion of the financial institutions.
 
The credit facility includes events of default relating to customary matters, including, among other things, nonpayment of principal, interest or other amounts; violation of covenants; inaccuracy of representations and warranties in any material respect; a change of control; or certain other material adverse changes in our business. Our senior notes and senior subordinated

18

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


notes also contain standard events of default. If any of the foregoing defaults were to occur, our lenders under the credit facility could terminate future lending commitments, and our lenders under both the credit facility and our notes could declare the outstanding borrowings due and payable. In addition, our credit facility, senior notes, senior subordinated notes and substantially all of our hedging arrangements contain provisions that provide for cross defaults and acceleration of those debt and hedging instruments in certain situations.


10.      Income Taxes:

The provision for income taxes for continuing operations for the indicated periods was different than the amount computed using the federal statutory rate (35%) for the following reasons:

 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
 
(In millions)
Amount computed using the statutory rate
 
$
14

 
$
(14
)
Increase (decrease) in taxes resulting from:
 
 

 
 

State and local income taxes, net of federal effect
 
3

 
(2
)
Total provision (benefit) for income taxes
 
$
17

 
$
(16
)

The effective tax rates for continuing operations for the three months ended March 31, 2014 and 2013 were 42.4% and 38.5%, respectively. Unrealized derivative gains and losses are treated differently in the various state taxing jurisdictions to which we are subject. As a result, our effective tax rate fluctuates in periods with significant commodity price volatility.

As of March 31, 2014, we did not have a liability for uncertain tax positions, and as such, we had not accrued related interest or penalties. The tax years 2010 through 2013 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which we are subject.


11.      Stock-Based Compensation:
     
Our stock-based compensation consisted of the following:
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
 
(In millions)
Equity awards
 
$
11

 
$
12

Liability awards
 
20

 

Total stock-based compensation
 
31

 
12

Capitalized in oil and gas properties
 
(14
)
 
(3
)
Net stock-based compensation expense
 
$
17

 
$
9


As of March 31, 2014, we had approximately $115 million of total unrecognized stock-based compensation expense related to unvested stock-based compensation awards. The full amount is expected to be recognized within four years.

Equity Awards

Equity awards consist of service-based and performance- or market-based restricted stock units, stock options and stock purchase options under the Employee Stock Purchase Plan.

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



Stock-based compensation classified as equity awards to employees and non-employee directors are currently granted under the 2011 Omnibus Stock Plan (2011 Plan). The fair value of grants is determined utilizing the Black-Scholes option-pricing model for stock options and a Monte Carlo lattice-based model for our performance- and market-based restricted stock and restricted stock units. Compensation expense for equity awards is expected to be recognized on a straight-line basis over the applicable remaining vesting periods.

Restricted Stock. The following table provides information about restricted stock and restricted stock unit activity:
 
 
Service-Based
Shares
 
Performance/
Market-Based
Shares
 
Total
Shares
 
Weighted- Average Grant Date Fair Value per Share
 
 
(In thousands, except per share data)
Non-vested shares outstanding at December 31, 2013
 
2,999

 
706

 
3,705

 
$
33.31

Granted
 
177

 
339

 
516

 
20.57

Forfeited
 
(132
)
 
(22
)
 
(154
)
 
32.85

Vested
 
(142
)
 

 
(142
)
 
61.24

Non-vested shares outstanding at March 31, 2014
 
2,902

 
1,023

 
3,925

 
$
30.72


Stock Options. The following table provides information about stock option activity:
 
 
Number of Shares Underlying Options
 
Weighted-
Average
Exercise
Price
per Share
 
Weighted-
Average
Grant Date
Fair Value
per Share
 
Weighted-
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic
Value(1)
 
 
(In thousands)
 
 
 
 
 
(In years)
 
(In millions)
Outstanding at December 31, 2013
 
687

 
$
39.68

 
 
 
1.9
 
$

  Granted
 

 

 
$

 
 
 
 

  Exercised
 
(10
)
 
24.07

 
 

 
 
 

  Forfeited
 
(102
)
 
29.98

 
 

 
 
 
 

Outstanding at March 31, 2014
 
575

 
$
41.67

 
 

 
1.8
 
$

 
 
 
 
 
 
 
 
 
 
 
Exercisable at March 31, 2014
 
575

 
$
41.67

 
 

 
1.8
 
$

________
(1)
The intrinsic value of a stock option is the amount by which the market value of our common stock at the indicated date, or at the time of exercise, exceeds the exercise price of the option.

On March 31, 2014, the last reported sales price of our common stock on the New York Stock Exchange was $31.36 per share.

Employee Stock Purchase Plan. On January 1, 2014, options to purchase approximately 90,000 shares of our common stock were issued under our employee stock purchase plan. The weighted-average fair value of each option was $5.96 per share. The fair value of the options granted was determined using the Black-Scholes option valuation method assuming no dividends, a risk-free weighted-average interest rate of 0.09%, an expected life of six months and weighted-average volatility of 34%.

Liability Awards

Liability awards consist of cash-based performance awards under the Stockholder Value Appreciation Program (SVAP) and cash-settled restricted stock units.

Stockholder Value Appreciation Program. In September 2013, the Compensation and Management Development Committee of the Board approved the Stockholder Value Appreciation Program, to be administered under the 2011 Omnibus Stock Plan. The SVAP pays substantially all full-time domestic, nonexecutive employees a cash payment based on a percentage of salary upon each incremental $5 increase in our 30-calendar day average share price. The first price threshold that would

20

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


trigger a payment under the SVAP was $27.50, which was reached during the fourth quarter of 2013. Each price threshold can be reached only once during the term of the program. The SVAP's performance period lasts through December 31, 2015.

Based upon the expected duration of the SVAP performance period, which lasts through December 31, 2015, the expected remaining payout is $34 million, of which $19 million has been accrued as of March 31, 2014. The total expected cost was determined using a Monte Carlo simulation assuming no dividends, a risk-free weighted-average interest rate of 0.32%, an expected life of 1.75 years and an average of implied and historical stock price volatility of 37%. As of March 31, 2014, we had unrecognized stock-based compensation expense of approximately $15 million for the SVAP.

Cash-Settled Restricted Stock Units. We also grant cash-settled restricted stock units to employees that vest over three years. The value of the awards, and the associated stock-based compensation expense, is based on the Company’s stock price. During the three months ended March 31, 2014, approximately 283,000 cash-settled restricted stock units vested and settled for approximately $7 million. During the three months ended March 31, 2013, approximately 38,000 cash-settled restricted stock units vested and settled for approximately $1 million. As of March 31, 2014, we had approximately 1.0 million cash-settled restricted stock units outstanding and related unrecognized stock-based compensation expense of approximately $18 million.

 
12.    Commitments and Contingencies:

We have been named as a defendant in a number of lawsuits and are involved in various other disputes, all arising in the ordinary course of our business, such as (a) claims from royalty owners for disputed royalty payments, (b) commercial disputes, (c) personal injury claims and (d) property damage claims. Although the outcome of these lawsuits and disputes cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial positions, cash flows or results of operations.


13.    Supplemental Cash Flows Information:

The following table presents information about supplemental cash flows for the following periods:
 
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
 
(In millions)
Non-cash items excluded from the statement of cash flows:
 
 
 
 
(Increase) decrease in receivables for property sales
 
$

 
$
15

(Increase) decrease in receivables from sale of Malaysia business
 
(15
)
 

(Increase) decrease in accrued capital expenditures
 
90

 
(8
)
(Increase) decrease in asset retirement costs
 
13

 
(4
)
Increase (decrease) in deferred liabilities
 
(90
)
 



14.    Related-Party Transactions:

Kevin M. Robinson, our Vice President — Asia through February 10, 2014, and Susan G. Riggs, our Treasurer, are minority owners of Huffco International L.L.C. (Huffco). In May 1997, before Mr. Robinson and Ms. Riggs joined the Company, we acquired from Huffco an entity now known as Newfield China, LDC, the owner of a 12% interest in a three-field unit located in Bohai Bay, offshore China. Huffco retained preferred shares of Newfield China that provided for dividend payments. During the third quarter of 2013, we purchased the outstanding preferred shares of Newfield China from Huffco for approximately $20 million, which was recorded as a charge against retained earnings.



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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview
     
We are an independent energy company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids. Our principal domestic areas of operation include the Mid-Continent, the Rocky Mountains and the onshore Gulf Coast regions of North America.

To maintain and grow our production and cash flows, we must continue to develop existing proved reserves and locate or acquire new oil and natural gas reserves to replace those reserves being produced. Our revenues, profitability and future growth depend substantially on prevailing prices for oil, natural gas and NGLs and on our ability to find, develop and acquire oil and natural gas reserves that are economically recoverable. Prices for oil, natural gas and NGLs fluctuate widely and affect:

the amount of cash flows available for capital expenditures;

our ability to borrow and raise additional capital; and

the quantity of oil, natural gas and NGLs that we can economically produce. 

Discontinued Operations

During the second quarter of 2013, our international businesses met the criteria to be classified as held-for-sale and reported as discontinued operations. As such, the results of operations for our international businesses are reflected as “discontinued operations” and discussed further in Note 3, "Discontinued Operations," to our consolidated financial statements appearing earlier in this report.   

Malaysia. On February 10, 2014, Newfield International Holdings Inc., a wholly-owned subsidiary of the Company, closed the sale of our Malaysia business to SapuraKencana Petroleum Berhad, a Malaysian public company, for $898 million (subject to customary purchase price adjustments). See Note 3, “Discontinued Operations,” to our consolidated financial statements appearing earlier in this report for additional information regarding the sale of our Malaysia business.

China. In August 2013, during the installation of the LF-7 topside facilities by a third-party contractor, a hydraulic jacking system malfunctioned and the installation was suspended. We are now in the process of completing our underwater inspections of the jacket to assess the extent of the damage. Plans are underway to repair the damage to the jacket mid-year 2014, and we plan to install the LF-7 topside facilities in the third quarter of 2014. We expect to achieve first oil production in late 2014. We continue to pursue the sale of our China business.

Results of Continuing Operations            
Our continuing operations consist of exploration, development and production activities in the United States.

Revenues. Our revenues are primarily from the sale of oil, natural gas and NGLs and may vary significantly from period to period as a result of changes in commodity prices or volume of production sold.

Revenues from continuing operations of $553 million for the first quarter of 2014 were 50% higher than the comparable period of 2013. The increase was primarily due to higher liquids production and higher commodity prices. Our liquids production increased 46% in the first quarter of 2014 compared to the first quarter of 2013. Our natural gas production declined as we continue to focus capital investments on higher-margin liquids production. The following table reflects our production from continuing operations and average realized commodity prices for the following periods:



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Three Months Ended
March 31,
 
Percentage
Increase (Decrease)
 
 
2014
 
2013
 
Production:(1)