10-Q


 
 
 
 
 
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, 2016
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 29, 2016, there were 198,485,340 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, 
 2016
 
December 31, 
 2015
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
537

 
$
5

Accounts receivable, net
 
245

 
262

Inventories
 
31

 
34

Derivative assets
 
234

 
284

Other current assets
 
41

 
40

Total current assets
 
1,088

 
625

Oil and gas properties, net — full cost method ($900 and $780 were excluded from amortization at March 31, 2016 and December 31, 2015, respectively)
 
3,403

 
3,819

Other property and equipment, net
 
170

 
172

Derivative assets
 
65

 
105

Long-term investments
 
21

 
20

Other assets
 
30

 
27

Total assets
 
$
4,777

 
$
4,768

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 

 
 

Accounts payable
 
$
49

 
$
41

Accrued liabilities
 
398

 
533

Advances from joint owners
 
51

 
58

Asset retirement obligations
 
3

 
2

Derivative liabilities
 
24

 
13

Total current liabilities
 
525

 
647

Other liabilities
 
59

 
48

Derivative liabilities
 
7

 
9

Long-term debt
 
2,429

 
2,467

Asset retirement obligations
 
193

 
192

Deferred taxes
 
26

 
26

Total long-term liabilities
 
2,714

 
2,742

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 March 31, 2016 and December 31, 2015; 198,823,081 and 164,102,786 shares issued at March 31, 2016 and December 31, 2015, respectively)
 
2

 
2

Additional paid-in capital
 
3,221

 
2,436

Treasury stock (at cost, 685,517 and 612,469 shares at March 31, 2016 and December 31, 2015, respectively)
 
(24
)
 
(22
)
Accumulated other comprehensive gain (loss)
 
(2
)
 
(2
)
Retained earnings (deficit)
 
(1,659
)
 
(1,035
)
Total stockholders' equity
 
1,538

 
1,379

Total liabilities and stockholders' equity
 
$
4,777

 
$
4,768


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,
 
 
2016
 
2015
Oil, gas and NGL revenues
 
$
284

 
$
349

 
 
 
 
 
Operating expenses:
 
 

 
 

Lease operating
 
61

 
75

Transportation and processing
 
63

 
49

Production and other taxes
 
10

 
13

Depreciation, depletion and amortization
 
177

 
237

General and administrative
 
44

 
63

Ceiling test and other impairments
 
506

 
792

Other
 
1

 
4

Total operating expenses
 
862

 
1,233

Income (loss) from operations
 
(578
)
 
(884
)
 
 
 
 
 
Other income (expense):
 
 

 
 

Interest expense
 
(41
)
 
(44
)
Capitalized interest
 
9

 
7

Commodity derivative income (expense)
 
(17
)
 
153

Other, net
 
1

 
8

Total other income (expense)
 
(48
)
 
124

 
 
 
 
 
Income (loss) before income taxes
 
(626
)
 
(760
)
 
 
 
 
 
Income tax provision (benefit):
 
 

 
 

Current
 
(2
)
 
3

Deferred
 

 
(283
)
Total income tax provision (benefit)
 
(2
)
 
(280
)
Net income (loss)
 
$
(624
)
 
$
(480
)
 
 
 
 
 
Earnings (loss) per share:
 
 

 
 

Basic
 
$
(3.52
)
 
$
(3.30
)
Diluted
 
$
(3.52
)
 
$
(3.30
)
Weighted-average number of shares outstanding for basic earnings (loss) per share
 
177

 
145

Weighted-average number of shares outstanding for diluted earnings (loss) per share
 
177

 
145


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,
 
 
2016
 
2015
Net income (loss)
 
$
(624
)
 
$
(480
)
Other comprehensive income (loss):
 
 

 
 

Unrealized gain (loss) on investments, net of tax
 

 

Other comprehensive income (loss), net of tax
 

 

Comprehensive income (loss)
 
$
(624
)
 
$
(480
)

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,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
Net income (loss)
 
$
(624
)
 
$
(480
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 

 
 

Depreciation, depletion and amortization
 
177

 
237

Deferred tax provision (benefit)
 

 
(283
)
Stock-based compensation
 
8

 
15

Unrealized (gain) loss on derivative contracts
 
99

 
(32
)
Ceiling test and other impairments
 
506

 
792

Other, net
 
4

 
6

Changes in operating assets and liabilities:
 
 

 
 

(Increase) decrease in accounts receivable
 
15

 
38

(Increase) decrease in inventories
 
(4
)
 
2

(Increase) decrease in other current assets
 
(1
)
 
4

(Increase) decrease in other assets
 
(4
)
 
1

Increase (decrease) in accounts payable and accrued liabilities
 
(102
)
 
(105
)
Increase (decrease) in advances from joint owners
 
(6
)
 
14

Increase (decrease) in other liabilities
 
4

 
(4
)
Net cash provided by (used in) operating activities
 
72

 
205

Cash flows from investing activities:
 
 

 
 

Additions to oil and gas properties
 
(273
)
 
(511
)
Acquisitions of oil and gas properties
 
(1
)
 

Proceeds from sales of oil and gas properties
 
3

 
29

Additions to other property and equipment
 
(4
)
 
(4
)
Net cash provided by (used in) investing activities
 
(275
)
 
(486
)
Cash flows from financing activities:
 
 

 
 

Proceeds from borrowings under credit arrangements
 
536

 
701

Repayments of borrowings under credit arrangements
 
(575
)
 
(1,147
)
Proceeds from issuance of senior notes
 

 
691

Debt issue costs
 

 
(8
)
Proceeds from issuances of common stock, net
 
776

 
815

Purchases of treasury stock, net
 
(2
)
 
(1
)
Other
 

 
(1
)
Net cash provided by (used in) financing activities
 
735

 
1,050

Increase (decrease) in cash and cash equivalents
 
532

 
769

Cash and cash equivalents, beginning of period
 
5

 
14

Cash and cash equivalents, end of period
 
$
537

 
$
783


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
(Deficit)
 
Accumulated
Other
 Comprehensive
Gain (Loss)
 
 Total
Stockholders' Equity
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance, December 31, 2015
 
164.1

 
$
2

 
(0.6
)
 
$
(22
)
 
$
2,436

 
$
(1,035
)
 
$
(2
)
 
$
1,379

Issuances of common stock
 
34.7

 

 
 
 
 
 
776

 
 
 
 
 
776

Stock-based compensation
 
 
 
 
 
 
 
 
 
9

 
 
 
 
 
9

Treasury stock, net
 
 
 
 
 
(0.1
)
 
(2
)
 

 
 
 
 
 
(2
)
Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
(624
)
 
 
 
(624
)
Balance, March 31, 2016
 
198.8

 
$
2

 
(0.7
)
 
$
(24
)
 
$
3,221

 
$
(1,659
)
 
$
(2
)
 
$
1,538


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 operations are focused primarily on large scale, onshore liquids-rich resource plays in the United States. Our principal areas of operation are the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota, the Uinta Basin of Utah and the Maverick and Gulf Coast basins of Texas. In addition, we have oil developments 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 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, 2015.
  
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. Beginning in the fourth quarter of 2014, crude oil prices declined significantly primarily due to global supply and demand imbalances. Crude oil prices continued to decline in 2015 and have remained depressed in the first quarter of 2016. Other risks and uncertainties that could affect us in the current 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, access to credit markets, regulatory risks and ability to meet financial ratios and covenants in our financing agreements.

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, 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.

Reclassifications

Certain reclassifications have been made to prior years' reported amounts in order to conform to the current year presentation. These reclassifications did not impact our net income (loss), stockholders' equity or cash flows.


6

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

Restricted Cash

We have restricted cash of $17 million included in "Other assets" on our consolidated balance sheet at March 31, 2016 that represents 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 our China field. Consistent with our other plug and abandonment activities, changes in restricted cash are included in cash flows from operating activities in our consolidated statement of cash flows.

New Accounting Requirements

In March 2016, the Financial Accounting Standards Board (FASB) issued guidance regarding the simplification of share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact of this guidance on our financial statements.

In February 2016, the FASB issued guidance regarding the accounting for leases. The guidance requires recognition of most lease assets and liabilities by lessees for those leases classified as operating leases. 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 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. We are currently evaluating the impact of this guidance on our financial statements.

In August 2014, the FASB issued guidance regarding disclosures of uncertainties about an entity's ability to continue as a going concern. The guidance applies prospectively to all entities, requiring management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern and disclose certain information when substantial doubt is raised. We will adopt this guidance for the annual period ending December 31, 2016.

In May 2014, the FASB issued guidance regarding the accounting for revenue from contracts with customers. The guidance may be applied retrospectively or using a modified retrospective approach to adjust retained earnings (deficit). In July 2015, the FASB approved a deferral of the effective date by one year. As a result, the guidance is effective for interim and annual periods beginning on or after December 15, 2017. We are currently evaluating the impact of this guidance on our financial statements.

2.    Accounts Receivable

Accounts receivable consisted of the following:
 
 
March 31, 
 2016
 
December 31, 
 2015
 
 
(In millions)
Revenue
 
$
97

 
$
94

Joint interest
 
119

 
125

Other
 
45

 
59

Reserve for doubtful accounts
 
(16
)
 
(16
)
Total accounts receivable, net
 
$
245

 
$
262


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 in our China operations. At March 31, 2016 and December 31, 2015, the crude oil inventory from our China operations consisted of approximately 180,000 and 335,000 barrels of crude oil, respectively.



7

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

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 and natural gas 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.

In addition to the derivative strategies outlined in our Annual Report on Form 10-K for the year ended December 31, 
 2015
, we also utilize swaptions from time to time. A swaption is an option to exercise a swap where the buyer (counterparty) of the swaption purchases the right from the seller (Newfield), but not the obligation, to enter into a fixed-price swap with the seller on a predetermined date (expiration date). The swap price is a fixed price determined at the time of the swaption contract. If the swaption is exercised, the contract will become a swap treated consistent with our other fixed-price swaps.

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 options requires the use of an option-pricing model. See Note 5, “Fair Value Measurements.”

At March 31, 2016, 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)
 
Purchased Calls (Weighted Average)(2)
 
Sold Puts
(Weighted Average)
(1)
 
Floors
(Weighted Average)
 
Ceilings
(Weighted Average)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
2016:
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Fixed-price swaps
 
920

 
$
42.32

 
$

 
$

 
$

 
$

 
$

  Fixed-price swaps with sold puts:
 
7,057

 
 
 
 
 
 
 
 
 
 
 
 
Fixed-price swaps
 
 
 
89.98

 

 

 

 

 
339

Sold puts
 
 
 

 

 
74.42

 

 

 
(231
)
  Collars with sold puts:
 
4,673

 
 
 
 
 
 
 
 
 
 
 
 
Collars
 
 
 

 

 

 
90.00

 
96.10

 
225

Sold puts
 
 
 

 

 
75.00

 

 

 
(156
)
Swaptions(3)
 

 
42.67

 

 

 

 

 
(14
)
  Purchased calls
 
8,181

 

 
73.35

 

 

 

 
1

2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-price swaps
 
4,380

 
45.38

 

 

 

 

 
2

  Fixed-price swaps with sold puts:
 
4,468

 
 
 
 
 
 
 
 
 
 
 
 
Fixed-price swaps
 
 
 
88.37

 

 

 

 

 
190

Sold puts
 
 
 

 

 
73.28

 

 

 
(128
)
  Collars with sold puts:
 
2,080

 
 
 
 
 
 
 
 
 
 
 
 
Collars
 
 
 

 

 

 
90.00

 
95.59

 
93

Sold puts
 
 
 

 

 
75.00

 

 

 
(64
)
  Purchased calls
 
6,548

 

 
73.81

 

 

 

 
5

Total
 
$
262



8

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

_________________
(1)
For the volumes with sold puts, if the market prices remain below our sold puts at contract settlement, we will receive the market price plus the following:

the difference between our floors and our sold puts for collars with sold puts; or
the difference between our swaps and our sold puts for fixed-price swaps with sold puts.
We have effectively locked in the spreads noted above (less the deferred call premium) for a portion of the volumes with sold puts through the use of purchased calls.
(2)
We deferred the premiums related to the purchased calls until contract settlement. At March 31, 2016, the deferred premiums totaled $21 million.

(3) During the first quarter of 2016, we sold crude oil swaption contracts that, if exercised on their expiration date in June 2016, would protect 4,416 MBbls of July through December 2016 production with $42.67 per Bbl fixed price swaps.

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)
2016:
 
 

 
 

 
 

 
 

 
 

 
 

  Swaptions(1)
 

 
$
2.28

 
$

 
$

 
$

 
$
(8
)
  Collars
 
8,250

 

 

 
4.00

 
4.54

 
15

2017:
 
 

 
 

 
 

 
 

 
 

 
 

  Fixed-price swaps
 
27,375

 
2.73

 

 

 

 
(1
)
  Collars
 
29,200

 

 

 
2.64

 
2.93

 

Total
 
$
6

________
(1)
During the first quarter of 2016, we sold natural gas swaption contracts that, if exercised on their expiration date in June 2016, would protect 36,800 MMMBtus of July through December 2016 production with $2.28 per MMBtu fixed price swaps.

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.

9

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

 
 
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)
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oil positions
 
$
803

 
$
(519
)
 
$
219

 
$
65

 
$
(541
)
 
$
519

 
$
(15
)
 
$
(7
)
Natural gas positions
 
15

 

 
15

 

 
(9
)
 

 
(9
)
 

Total
 
$
818

 
$
(519
)
 
$
234

 
$
65

 
$
(550
)
 
$
519

 
$
(24
)
 
$
(7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Oil positions
 
$
1,005

 
$
(638
)
 
$
262

 
$
105

 
$
(660
)
 
$
638

 
$
(13
)
 
$
(9
)
Natural gas positions
 
22

 

 
22

 

 

 

 

 

Total
 
$
1,027

 
$
(638
)
 
$
284

 
$
105

 
$
(660
)
 
$
638

 
$
(13
)
 
$
(9
)
 
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,
 
 
2016
 
2015
 
 
(In millions)
Derivatives not designated as hedging instruments:
 
 
 
 
Realized gain (loss) on oil positions
 
$
71

 
$
96

Realized gain (loss) on natural gas positions
 
11

 
25

Total realized gain (loss)
 
82

 
121

Unrealized gain (loss) on oil positions
 
(83
)
 
37

Unrealized gain (loss) on natural gas positions
 
(16
)
 
(5
)
Total unrealized gain (loss)
 
(99
)
 
32

Total
 
$
(17
)
 
$
153


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 from separate derivative instruments with that counterparty. At March 31, 2016, 10 of our 15 counterparties accounted for approximately 85% of our contracted volumes, with the largest counterparty accounting for approximately 12%.

At March 31, 2016, approximately 86% 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

10

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

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 (i.e., price collars, sold puts, purchased calls or swaptions) and other financial investments.
Our valuation models for derivative contracts are primarily industry-standard models (i.e., Black-Scholes) that consider 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.

Our valuation model for the Stockholder Value Appreciation Program (SVAP) was a Monte Carlo simulation that was 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.

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 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.































11

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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 December 31, 2015:
 
 
 
 
 
 
 
 
Money market fund investments
 
$
2

 
$

 
$

 
$
2

Deferred compensation plan assets
 
5

 

 

 
5

Equity securities available-for-sale
 
8

 

 

 
8

Oil and gas derivative swap contracts
 

 
675

 

 
675

Oil and gas derivative option contracts
 

 

 
(308
)
 
(308
)
Stock-based compensation liability awards
 
(12
)
 

 

 
(12
)
Total
 
$
3

 
$
675

 
$
(308
)
 
$
370

 
 
 

 
 

 
 

 
 

As of March 31, 2016:
 
 

 
 

 
 

 
 

Money market fund investments
 
$
529

 
$

 
$

 
$
529

Deferred compensation plan assets
 
5

 

 

 
5

Equity securities available-for-sale
 
8

 

 

 
8

Oil and gas derivative swap contracts
 

 
530

 

 
530

Oil and gas derivative option and swaption contracts
 

 

 
(262
)
 
(262
)
Stock-based compensation liability awards
 
(14
)
 

 

 
(14
)
Total
 
$
528

 
$
530

 
$
(262
)
 
$
796



























12

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

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
 
Stock-Based Compensation
 
Total
 
 
 
Balance at January 1, 2015
 
$
(381
)
 
$
(3
)
 
$
(384
)
Realized or unrealized gains (losses) included in earnings
 
(21
)
 
(5
)
 
(26
)
Purchases, issuances, sales and settlements:
 
 

 
 

 
 

Settlements
 
70

 

 
70

Transfers into Level 3
 

 

 

Transfers out of Level 3
 

 

 

Balance at March 31, 2015
 
$
(332
)
 
$
(8
)
 
$
(340
)
Change in unrealized gains or losses included in earnings relating to Level 3 instruments still held at March 31, 2015
 
$
(4
)
 
$
(5
)
 
$
(9
)
 
 
 
 
 
 
 
Balance at January 1, 2016
 
$
(308
)
 
$

 
$
(308
)
Realized or unrealized gains (losses) included in earnings
 
(46
)
 

 
(46
)
Purchases, issuances, sales and settlements:
 
 

 
 

 
 

Settlements
 
92

 

 
92

Transfers into Level 3
 

 

 

Transfers out of Level 3
 

 

 

Balance at March 31, 2016
 
$
(262
)
 
$

 
$
(262
)
Change in unrealized gains or losses included in earnings relating to Level 3 instruments still held at March 31, 2016
 
$
(32
)
 
$

 
$
(32
)

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 volatility factors and 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. 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. See Note 4, "Derivative Financial Instruments," for additional discussion of our derivative instruments.
 
Stock-Based Compensation. The calculation of the fair value of the SVAP liability required the use of a probability-based Monte Carlo simulation, which included unobservable inputs. The simulation predicted multiple scenarios of future stock returns over the performance period, which were discounted to calculate the fair value. The fair value was recognized over a service period derived from the simulation. The SVAP performance period and program ended December 31, 2015.







13

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

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
 
$
(269
)
 
Black-Scholes
 
Oil price volatility
 
29.27
%
 
 
62.39%
 
 
 
 
 
 
Credit risk
 
0.02
%
 
 
2.06%
Natural gas option and swaption
contracts
 
$
7

 
Black-Scholes
 
Natural gas price volatility
 
25.51
%
 
 
70.20%
 
 
 
 
 
 
Credit risk
 
0.03
%
 
 
2.06%

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, 
 2016
 
December 31, 
 2015
 
 
(In millions)
5¾% Senior Notes due 2022
 
$
732

 
$
668

5⅝% Senior Notes due 2024
 
945

 
831

5⅜% Senior Notes due 2026
 
644

 
542


Any amounts outstanding under our revolving credit facility and money market lines of credit as of the indicated dates are stated at cost, which approximates fair value. Please see Note 10, “Debt.”

6.      Oil and Gas Properties

     Oil and gas properties consisted of the following:
 
 
March 31, 
 2016
 
December 31, 
 2015
 
 
(In millions)
Proved
 
$
21,704

 
$
21,568

Unproved
 
900

 
780

Gross oil and gas properties
 
22,604

 
22,348

Accumulated depreciation, depletion and amortization
 
(9,214
)
 
(9,048
)
Accumulated impairment
 
(9,987
)
 
(9,481
)
Net oil and gas properties
 
$
3,403

 
$
3,819


Costs withheld from amortization as of March 31, 2016 consisted of the following:
 
 
Costs Incurred In
 
 
 
 
2016
 
2015
 
2014
 
2013
 
Total
 
 
(In millions)
 
 
Acquisition costs
 
$
23

 
$
339

 
$
165

 
$
123

 
$
650

Exploration costs
 
125

 
34

 

 

 
159

Capitalized interest
 
9

 
33

 
49

 

 
91

Total costs withheld from amortization (unproved)
 
$
157

 
$
406

 
$
214

 
$
123

 
$
900


We capitalized approximately $26 million and $32 million of interest and direct internal costs during the three months ended March 31, 2016 and 2015, respectively.


14

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

At March 31, 2016, the ceiling value of our reserves was calculated based upon SEC pricing of $46.23 per barrel for oil and $2.40 per MMBtu for natural gas, adjusted for market differentials. Using these prices, our ceiling for the U.S. did not exceed the net capitalized costs of oil and gas properties resulting in a ceiling test writedown. Our domestic ceiling test writedown was approximately $461 million ($461 million after tax due to a full valuation allowance on related deferred tax assets) for the three months ended March 31, 2016.

Using SEC pricing, our ceiling for China at March 31, 2016 did not exceed the net capitalized costs of oil and gas properties, resulting in a ceiling test writedown for the three months of approximately $45 million ($45 million after tax due to a full valuation allowance on related deferred tax assets).
The continued decline of SEC pricing for oil and natural gas reserves subsequent to March 31, 2016 will likely result in additional ceiling test writedowns in the second quarter of 2016 and possibly thereafter.
7.      Other Property and Equipment

     Other property and equipment consisted of the following:
 
 
March 31, 
 2016
 
December 31, 
 2015
 
 
(In millions)
Furniture, fixtures and equipment
 
$
155

 
$
152

Gathering systems and equipment
 
115

 
115

Accumulated depreciation and amortization
 
(100
)
 
(95
)
Net other property and equipment
 
$
170

 
$
172


8.      Income Taxes

The following table presents a reconciliation of the United States statutory income tax rate to our effective income tax rate.

 
 
Three Months Ended 
 March 31,
 
 
2016
 
2015
U.S. statutory income tax rate
 
35.0
 %
 
35.0
 %
State and local income taxes, net of federal effect
 
0.8

 
2.2

Valuation allowance, domestic
 
(34.4
)
 

Valuation allowance, international
 
(3.0
)
 

Foreign tax on foreign earnings
 
2.3

 
(0.3
)
Other
 
(0.4
)
 
(0.1
)
Effective income tax rate
 
0.3
 %
 
36.8
 %

Due to the ceiling test writedowns of our oil and gas properties in 2015, we moved from a deferred tax liability position to a deferred tax asset position in various taxing jurisdictions. With the continuation of low commodity price levels, we consider it more likely than not that the related tax benefits will not be realized and therefore, we have a valuation allowance on our domestic and China deferred tax assets. These valuation allowances significantly reduced our effective income tax rate in the first quarter of 2016.

As of March 31, 2016, we did not have a liability for uncertain tax positions, and as such, we did not accrue related interest or penalties. The tax years 2011 through 2015 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which we are subject.

9.    Accrued Liabilities

Accrued liabilities consisted of the following:

15

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

 
 
March 31, 
 2016
 
December 31, 
 2015
 
 
(In millions)
Revenue payable
 
$
141

 
$
164

Accrued capital costs
 
108

 
128

Accrued lease operating expenses
 
37

 
48

Employee incentive expense
 
17

 
53

Accrued interest on debt
 
31

 
66

Taxes payable
 
20

 
25

Other
 
44

 
49

Total accrued liabilities
 
$
398

 
$
533


10.      Debt
 
Our debt consisted of the following:
 
 
March 31, 
 2016
 
December 31, 
 2015
 
 
(In millions)
Senior unsecured debt:
 
 
 
 
Revolving credit facility — LIBOR based loans (matures in 2020)
 
$

 
$

Money market lines of credit(1)
 

 
39

Total credit arrangements
 

 
39

5¾% Senior Notes due 2022
 
750

 
750

5⅝% Senior Notes due 2024
 
1,000

 
1,000

5⅜% Senior Notes due 2026
 
700

 
700

Total senior unsecured debt
 
2,450

 
2,489

Debt issuance costs
 
(21
)
 
(22
)
Total long-term debt
 
$
2,429

 
$
2,467

________
(1)
Because we have the ability and intent to use our available credit facility capacity 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 debt.
 
Credit Arrangements
     
In March 2016, we entered into the fifth amendment to our Credit Agreement. This amendment changed certain definitions related to our financial covenants and decreased our interest rate coverage ratio from 3.0:1.0 to 2.5:1.0. Our borrowing capacity remains at $1.8 billion and the facility maturity date remains June 2020. We incurred approximately $3 million of financing costs related to this amendment, which were included in "Interest expense" on our consolidated statement of operations. As of March 31, 2016, the largest individual loan commitment by any lender was 12% of total commitments.

During the first quarter of 2016, our debt rating was downgraded by rating agencies, and as a result, our borrowing costs increased by 50 basis points. In addition, our available borrowing capacity (before any amounts drawn) under our money market lines of credit with various institutions, the availability of which is at the discretion of those financial institutions, was reduced from $195 million at December 31, 2015 to $160 million at March 31, 2016. This borrowing capacity is subject to compliance with restrictive covenants in our credit facility.

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

16

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

margin that is based on a grid of our debt rating (125 basis points per annum at March 31, 2016) or (b) the London Interbank Offered Rate, plus a margin that is based on a grid of our debt rating (225 basis points per annum at March 31, 2016).

Under our credit facility, we pay commitment fees on available but undrawn amounts based on a grid of our debt rating (42.5 basis points per annum at March 31, 2016). We incurred aggregate commitment fees under our credit facility of approximately $2 million and $1 million for each of the three-month periods ended March 31, 2016 and 2015, respectively, which were 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 and ceiling test writedowns) to interest expense of at least 2.5 to 1.0. At March 31, 2016, we were in compliance with all of our debt covenants.

As of March 31, 2016, 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 (225 basis points at March 31, 2016).     
 
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 when made; a change of control; or certain other material adverse changes in our business. Our senior 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 and substantially all of our derivative arrangements contain provisions that provide for cross defaults and acceleration of those debt and derivative instruments in certain situations.

Senior Notes and Senior Subordinated Notes

In March 2015, we issued $700 million of 5⅜% Senior Notes due 2026 and received net proceeds of $691 million (net of offering costs of approximately $9 million). These notes were issued at par to yield 5⅜%. In April 2015, we used the net proceeds and cash on hand to redeem our $700 million aggregate principal amount of 6⅞% Senior Subordinated Notes due 2020. In connection with the redemption, we paid a premium of $24 million. The premium was recorded under the caption "Other income (expense) — Other, net" on our consolidated statement of operations. In addition, associated unamortized offering costs and discounts of approximately $8 million were charged to interest expense during the second quarter of 2015 as a result of the redemption.

11.    Commitments and Contingencies

In May 2015, a lawsuit was filed against the Company alleging certain plugging and abandonment predecessor-in-interest liabilities related to offshore assets sold by the Company in 2010. The lawsuit alleges damages of approximately $23 million. The Company has responded to the petition, denied the allegations and is vigorously defending the case. The court has held that the Company must bear a "portion" of the plugging and abandonment costs, but the "exact percentage" of such costs should be determined in arbitration. The court case is stayed pending arbitration. An estimate of reasonably possible losses, if any, cannot be made at this time.

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 position, cash flows or results of operations.

12.      Stockholders' Equity Activity
     
During the first quarter of 2016, we issued 34.5 million additional shares of common stock through a public equity offering. We received net proceeds of approximately $776 million, a portion of which was used to repay borrowings under our credit facility and money market lines of credit.


17

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

During the first quarter of 2015, we issued 25.3 million additional shares of common stock through a public equity offering. We received net proceeds of approximately $815 million, which were used primarily to repay all borrowings under our credit facility and money market lines of credit that were outstanding at that time.

13.      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,
 
 
2016
 
2015
 
 
(In millions, except per share data)
Net income (loss)
 
$
(624
)
 
$
(480
)
 
 
 
 
 
Weighted-average shares (denominator):
 
 

 
 

Weighted-average shares — basic
 
177

 
145

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

 

Weighted-average shares — diluted
 
177

 
145

 
 
 
 
 
Earnings (loss) per share:
 
 

 
 

Basic
 
$
(3.52
)
 
$
(3.30
)
Diluted
 
$
(3.52
)
 
$
(3.30
)
_______
(1)
The effect of unvested restricted stock awards or restricted stock units and stock options has not been included in the calculation of shares outstanding for diluted EPS for the three months ended March 31, 2016 and 2015, as their effect would have been anti-dilutive. Had we recognized net income for the quarter, incremental shares attributable to the assumed vesting of unvested restricted stock awards and restricted stock units and the assumed exercise of outstanding stock options would have increased diluted weighted-average shares outstanding by 1.2 million and 1.3 million shares for the three months ended March 31, 2016 and 2015, respectively.

14.      Stock-Based Compensation
     
Our stock-based compensation consisted of the following:
 
 
Three Months Ended 
 March 31,
 
 
2016
 
2015
 
 
(In millions)
Equity awards
 
$
9

 
$
10

Liability awards:
 
 
 
 
Cash-settled restricted stock units
 
3

 
7

Stockholder Value Appreciation Program
 

 
5

Total liability awards
 
3

 
12

Total stock-based compensation
 
12

 
22

Capitalized in oil and gas properties
 
(4
)
 
(7
)
Net stock-based compensation expense
 
$
8

 
$
15


As of March 31, 2016, we had approximately $66 million of total unrecognized stock-based compensation expense related to unvested stock-based compensation awards that vest within four years.


18

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

Equity Awards

Equity awards consist of service-based and performance- or market-based restricted stock awards and restricted stock units, stock options and stock purchase options under the Employee Stock Purchase Plan (ESPP). At March 31, 2016, we had approximately (1) 5.9 million shares available for issuance under our 2011 Omnibus Stock Plan, as amended (2011 Plan), if all future awards are stock options, or (2) 3.1 million shares available for issuance under our 2011 Plan if all future awards are restricted stock awards or restricted stock units.

Restricted Stock. The following table provides information about restricted stock awards and restricted stock unit activity.
 
 
Service-Based
Shares
 
Weighted- Average Grant Date Fair Value per Share
 
Performance/
Market-Based
Shares
 
Weighted- Average Grant Date Fair Value per Share
 
Total
Shares
 
 
(In thousands, except per share data)
Non-vested shares outstanding at January 1, 2016
 
1,700

 
$
30.30

 
1,074

 
$
23.76

 
2,774

Granted(1)
 
308

 
23.97

 
436

 
28.94

 
744

Forfeited
 
(8
)
 
27.17

 

 

 
(8
)
Vested
 
(215
)
 
30.08

 
(5
)
 
56.49

 
(220
)
Non-vested shares outstanding at March 31, 2016
 
1,785

 
$
29.24

 
1,505

 
$
25.14

 
3,290

________
(1)
In February 2016, we granted approximately 436,000 shares of restricted stock units, which based on achievement of certain performance criteria, could vest within a range of 0% to200% of shares granted.

Employee Stock Purchase Plan. During the first three months of 2016, options to purchase approximately 65,000 shares of our common stock were granted under our ESPP. The fair value of each option was $9.20 per share. The fair value of the options granted was determined using the Black-Scholes option valuation method assuming no dividends, a risk-free interest rate of 0.47%, an expected life of six months and weighted-average volatility of 47.9%.

Stock Options. As of March 31, 2016, we had approximately 190,000 stock options outstanding and exercisable. No stock options have been granted since 2008, except for ESPP options as discussed above.

Liability Awards

Liability awards consist of performance awards that are settled in cash instead of shares, as discussed below.

Cash-Settled Restricted Stock Units. The value of the cash-settled restricted stock units, and the associated stock-based compensation expense, is based on the Company's stock price at the end of each period. On March 31, 2016, the last reported sales price of our common stock on the New York Stock Exchange was $33.25 per share. As of March 31, 2016, we had a liability of $14 million for future cash settlement upon vesting of awards and unrecognized cash-settled stock-based compensation expense of approximately $14 million. The following table provides information about cash-settled restricted stock unit activity.
 
 
Cash-Settled Restricted Stock Units
 
 
(In thousands)
Non-vested units outstanding at January 1, 2016
 
708

Granted
 
295

Forfeited
 
(14
)
Vested
 
(4
)
Non-vested units outstanding at March 31, 2016
 
985



    


19

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

15.
Segment Information

While we only have operations in the oil and gas exploration and production industry, we are organizationally structured along geographic operating segments. Our current operating segments are the United States and China. The accounting policies of our operating segments are the same as those described in Note 1, “Organization and Summary of Significant Accounting Policies,” in our Annual Report on Form 10-K for the year ended December 31, 2015.

The following tables provide the geographic operating segment information for the three-month periods ended March 31, 2016 and 2015. Income tax allocations have been determined based on statutory rates in the applicable geographic segment. Our income tax allocation of our China operations is based on the combined statutory rates for China and the United States.

 
 
Domestic
 
China
 
Total
 
 
(In millions)
Three Months Ended March 31, 2016:
 
 
 
 
 
 
Oil, gas and NGL revenues
 
$
235

 
$
49

 
$
284

Operating expenses:
 
 
 
 
 
 
Lease operating
 
47

 
14

 
61

Transportation and processing
 
63

 

 
63

Production and other taxes
 
10

 

 
10

Depreciation, depletion and amortization
 
133

 
44

 
177

General and administrative
 
43

 
1

 
44

Ceiling test and other impairments
 
461

 
45

 
506

Other
 
1

 

 
1

Allocated income tax (benefit)
 
(194
)
 
(33
)
 
 
Net income (loss) from oil and gas properties
 
$
(329
)
 
$
(22
)
 
 
Total operating expenses
 
 
 
 
 
862

Income (loss) from operations
 
 
 
 
 
(578
)
Interest expense, net of interest income, capitalized interest and other
 
 
 
 
 
(31
)
Commodity derivative income (expense)
 
 
 
 
 
(17
)
Income (loss) from operations before income taxes
 
 
 
 
 
$
(626
)
Total assets
 
$
4,540

 
$
237

 
$
4,777

Additions to long-lived assets
 
$
261

 
$

 
$
261



20

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

 
 
Domestic
 
China
 
Total
 
 
(In millions)
Three Months Ended March 31, 2015:
 
 
 
 
 
 
Oil, gas and NGL revenues
 
$
303

 
$
46

 
$
349

Operating expenses:
 
 
 
 
 
 
Lease operating
 
65

 
10

 
75

Transportation and processing
 
49

 

 
49

Production and other taxes
 
13

 

 
13

Depreciation, depletion and amortization
 
212

 
25

 
237

General and administrative
 
61

 
2

 
63

Ceiling test and other impairments
 
792

 

 
792

Other
 
3

 
1

 
4

Allocated income tax (benefit)
 
(330
)
 
5

 


Net income (loss) from oil and gas properties
 
$
(562
)
 
$
3

 
 
Total operating expenses
 
 
 
 
 
1,233

Income (loss) from operations
 
 
 
 
 
(884
)
Interest expense, net of interest income, capitalized interest and other
 
 
 
 
 
(29
)
Commodity derivative income (expense)
 
 
 
 
 
153

Income (loss) from operations before income taxes
 
 
 
 
 
$
(760
)
Total assets
 
$
8,978

 
$
673

 
$
9,651

Additions to long-lived assets
 
$
396

 
$
12

 
$
408


16.    Supplemental Cash Flow Information

The following table presents information about investing and financing activities that affect recognized assets and liabilities but do not result in cash receipts or payments for the indicated periods.
 
 
Three Months Ended
March 31,
 
 
2016
 
2015
 
 
(In millions)
Non-cash investing and financing activities excluded from the statement of cash flows:
 
 
 
 
(Increase) decrease in receivables for property sales
 
$
2

 
$
7

(Increase) decrease in accrued capital expenditures
 
20

 
109

(Increase) decrease in asset retirement costs
 

 
3



21


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 operations are focused primarily on large scale, onshore liquids-rich resource plays in the United States. Our principal areas of operation are the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota, the Uinta Basin of Utah and the Maverick and Gulf Coast basins of Texas. In addition, we have oil developments offshore China.

Significant first quarter 2016 highlights include:

34.5 million additional shares of common stock issued through a public equity offering for net proceeds of approximately $776 million, a portion of which was used to repay all outstanding borrowings under our credit facility and money market lines of credit. The remainder is being used for general corporate purposes including funding our 2016 capital budget, as needed;

total domestic production increased 1% from the fourth quarter of 2015 to 13.3 MMBOE. Compared to the first quarter of 2015, first quarter of 2016 domestic production increased 17%;

production in the first quarter of 2016 in the Anadarko Basin of Oklahoma was 7.1 MMBOE, up 50% over the same period of 2015 and 4% over the fourth quarter of 2015. Anadarko Basin crude oil production increased more than 70% over the first quarter of 2015;

China production was up approximately 15% to 1.6 MMBbls over the fourth quarter of 2015 and approximately 81% over the first quarter of 2015; and

trend of lower consolidated lease operating expense, both recurring and major expense, continued with a 9% decrease (11% on a per BOE basis) in the first quarter of 2016 compared to the fourth quarter of 2015. Compared to the first quarter of 2015, first quarter of 2016 consolidated lease operating expense decreased 33% on a per BOE basis.

All consolidated and domestic BOE calculations above exclude natural gas produced and consumed in operations of 1.5 Bcf for the first quarter of 2016, 1.7 Bcf for the fourth quarter of 2015 and 2.2 Bcf for the first quarter of 2015.

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

Domestic Revenues and Production. Revenues during the first quarter of 2016 were $68 million lower than the same period of 2015. The lower revenues were attributable to a 34% decrease in the average revenue per BOE compared to the first quarter of 2015. We increased our domestic liquids production by 15% and gas production by 20% compared to the first quarter of 2015, reducing the impact of lower prices by $27 million and $15 million, respectively. Our Anadarko Basin oil, gas and NGL production increased by 71%, 47% and 35%, respectively. Williston Basin production increased by 20% primarily due to the sale of natural gas fuel and flare volumes that were previously produced and consumed in operations. Production in our other domestic basins declined as compared to the first quarter of 2015 due to the reduction of our development activities in those areas.

China Revenues and Production/Liftings. Revenues from China of $49 million for the first quarter of 2016 were 7% higher than the comparable period of 2015, which is primarily due to achieving full production levels for the six development wells in the Pearl development in May 2015, partially offset by a 41% decrease in price per barrel for crude oil and condensate. Our first quarter 2016 liftings increased 737 MBbls, or approximately 81%, over the first quarter of 2015. During the first quarter of 2016, we managed Pearl well production performance and maintained a plateau of 14,600 barrels of oil per day (net).









22



The following table reflects our production/liftings and average realized commodity prices:


Three Months Ended 
 March 31,

Percentage
Increase (Decrease)
 

2016