Document


 
 
 
 
 
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, 2018
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                      to                     .

Commission File Number: 1-12534

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

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

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

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

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

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

As of April 26, 2018, there were 199,726,282 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, 
 2018
 
December 31, 
 2017
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
196

 
$
326

Accounts receivable, net
 
327

 
292

Inventories
 
23

 
15

Derivative assets
 
12

 
15

Other current assets
 
88

 
98

Total current assets
 
646

 
746

Oil and gas properties, net — full cost method ($1,245 and $1,200 were excluded from amortization at March 31, 2018 and December 31, 2017, respectively)
 
4,187

 
3,931

Other property and equipment, net
 
167

 
168

Derivative assets
 

 
1

Long-term investments
 
24

 
24

Restricted cash
 
45

 
40

Other assets
 
53

 
51

Total assets
 
$
5,122

 
$
4,961

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 

 
 

Accounts payable
 
$
52

 
$
46

Accrued liabilities
 
591

 
591

Advances from joint owners
 
45

 
80

Asset retirement obligations
 
3

 
3

Derivative liabilities
 
153

 
98

Total current liabilities
 
844

 
818

Other liabilities
 
71

 
69

Derivative liabilities
 
46

 
26

Long-term debt
 
2,434

 
2,434

Asset retirement obligations
 
133

 
130

Deferred taxes
 
89

 
76

Total long-term liabilities
 
2,773

 
2,735

Commitments and contingencies (Note 11)
 
 
 
 
Stockholders' equity:
 
 

 
 

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

 

Common stock ($0.01 par value, 300,000,000 shares authorized at March 31, 2018 and December 31, 2017; 201,418,445 and 201,363,345 shares issued at March 31, 2018 and December 31, 2017, respectively)
 
2

 
2

Additional paid-in capital
 
3,316

 
3,303

Treasury stock (at cost, 1,692,409 and 1,658,476 shares at March 31, 2018 and December 31, 2017, respectively)
 
(60
)
 
(59
)
Accumulated other comprehensive income (loss)
 
(1
)
 

Retained earnings (deficit)
 
(1,752
)
 
(1,838
)
Total stockholders' equity
 
1,505

 
1,408

Total liabilities and stockholders' equity
 
$
5,122

 
$
4,961


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

1
 



NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(In millions, except per share data)
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Oil, gas and NGL revenues
 
$
580

 
$
417

 
 
 
 
 
Operating expenses:
 
 

 
 

Lease operating
 
58

 
56

Transportation and processing
 
78

 
72

Production and other taxes
 
24

 
14

Depreciation, depletion and amortization
 
133

 
106

General and administrative
 
54

 
47

Other
 
1

 
1

Total operating expenses
 
348

 
296

Income (loss) from operations
 
232

 
121

 
 
 
 
 
Other income (expense):
 
 

 
 

Interest expense
 
(38
)
 
(38
)
Capitalized interest
 
15

 
16

Commodity derivative income (expense)
 
(111
)
 
53

Other, net
 
1

 
2

Total other income (expense)
 
(133
)
 
33

 
 
 
 
 
Income (loss) before income taxes
 
99

 
154

 
 
 
 
 
Income tax provision (benefit):
 
 

 
 

Current
 

 
(2
)
Deferred
 
13

 
9

Total income tax provision (benefit)
 
13

 
7

Net income (loss)
 
$
86

 
$
147

 
 
 
 
 
Earnings (loss) per share:
 
 

 
 

Basic
 
$
0.43

 
$
0.74

Diluted
 
$
0.43

 
$
0.73

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

 
199

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

 
200

 
 
 
 
 
Comprehensive income (loss):
 
 
 
 
Net income (loss)
 
$
86

 
$
147

Other comprehensive income (loss), net of tax
 
(1
)
 

Comprehensive income (loss)
 
$
85

 
$
147


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

2
 



NEWFIELD EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Three Months Ended
 
 
March 31,
 
 
2018
 
2017
Cash flows from operating activities:
 
 
Net income (loss)
 
$
86

 
$
147

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

 
 

Depreciation, depletion and amortization
 
133

 
106

Deferred tax provision (benefit)
 
13

 
9

Stock-based compensation
 
9

 
12

Unrealized (gain) loss on derivative contracts
 
79

 
(33
)
Other, net
 
1

 
2

Changes in operating assets and liabilities:
 
 

 
 

(Increase) decrease in accounts receivable
 
(35
)
 
(11
)
Increase (decrease) in accounts payable and accrued liabilities
 
(5
)
 
(58
)
Other items, net
 
(21
)
 
(4
)
Net cash provided by (used in) operating activities
 
260

 
170

Cash flows from investing activities:
 
 

 
 

Additions to oil and gas properties
 
(353
)
 
(239
)
Acquisitions of oil and gas properties
 
(21
)
 
(4
)
Proceeds from sales of oil and gas properties
 
2

 
(5
)
Additions to other property and equipment
 
(4
)
 
(3
)
Redemptions of investments
 

 
25

Purchases of investments
 

 
(25
)
Net cash provided by (used in) investing activities
 
(376
)
 
(251
)
Cash flows from financing activities:
 
 

 
 

Debt issue costs
 
(7
)
 

Purchases of treasury stock, net
 
(1
)
 
(1
)
Other
 
(1
)
 
(1
)
Net cash provided by (used in) financing activities
 
(9
)
 
(2
)
Net increase (decrease) in cash, cash equivalents and restricted cash
 
(125
)
 
(83
)
Cash, cash equivalents and restricted cash, beginning of period
 
366

 
580

Cash, cash equivalents and restricted cash, end of period
 
$
241

 
$
497


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

3
 



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

 
$
2

 
(1.7
)
 
$
(59
)
 
$
3,303

 
$
(1,838
)
 
$

 
$
1,408

Issuances of common stock

 

 
 
 
 
 

 
 
 
 
 

Stock-based compensation
 
 
 
 
 
 
 
 
13

 
 
 
 
 
13

Treasury stock, net
 
 
 
 

 
(1
)
 

 
 
 
 
 
(1
)
Net income (loss)
 
 
 
 
 
 
 
 
 
 
86

 
 
 
86

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
(1
)
Balance, March 31, 2018
201.4

 
$
2

 
(1.7
)
 
$
(60
)
 
$
3,316

 
$
(1,752
)
 
$
(1
)
 
$
1,505


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

4
 




NEWFIELD EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

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

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

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

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

Use of Estimates

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

Revenue Recognition

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


5
 



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

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

Restricted Cash

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

Other Current Assets

Other current assets primarily consist of federal income tax refunds receivable, capital and lease operating expense prepayments and other prepaid items, including but not limited to, rent and insurance. For the periods ended March 31, 2018 and December 31, 2017 federal income tax refunds receivable were $45 million and $53 million, respectively. See Note 8, "Income Taxes," for further discussion.

New Accounting Requirements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance regarding the accounting for revenue from contracts with customers. The guidance is effective for interim and annual periods beginning after December 15, 2017 and may be applied retrospectively or using a modified retrospective approach to adjust retained earnings (deficit). We adopted the guidance in the first quarter of 2018. There were no adjustments made to beginning retained earnings as a result of adopting this standard.

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

The following table summarizes the impact of the adoption of the new accounting standard to the Company’s Consolidated Statements of Cash Flows for the period ended March 31, 2017.
 
 
As Originally Presented
 
Adoption Adjustments
 
As Adjusted
 
 
(In millions)
For the period ended March 31, 2017
 
 
 
 
 
 
Net cash provided by (used in) operating activities
 
$
167

 
$
3

 
$
170

 
 
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
 
(86
)
 
3

 
(83
)
Cash, cash equivalents and restricted cash, beginning of period
 
555

 
25

 
580

Cash, cash equivalents and restricted cash, end of period
 
$
469

 
$
28

 
$
497


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

In February 2016, the FASB issued guidance regarding the accounting for leases. The guidance requires recognition of certain leases on the balance sheet. The guidance requires lessees and lessors to recognize and measure leases at the beginning

6
 



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

of the earliest period presented using a modified retrospective approach. The guidance is effective for interim and annual periods beginning after December 15, 2018. We are currently evaluating the impact of this guidance on our financial statements.

In February 2018, the FASB issued guidance regarding the reclassification of certain tax effects from accumulated other comprehensive income. The guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The guidance is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We adopted this guidance in the first quarter of 2018, as permitted, with no material impact on our financial statements.

2.    Accounts Receivable

Accounts receivable consisted of the following:
 
 
March 31, 
 2018
 
December 31, 
 2017
 
 
(In millions)
Revenue
 
$
217

 
$
175

Joint interest
 
104

 
108

Other
 
22

 
25

Reserve for doubtful accounts
 
(16
)
 
(16
)
Total accounts receivable, net
 
$
327

 
$
292


3.      Inventories
     
Inventories primarily consist of tubular goods and well equipment held for use in our oil and natural gas operations, and oil produced but not sold in our China operations. Inventories are carried at the lower of cost or net realizable value. At March 31, 2018, the crude oil inventory from our China operations consisted of approximately 295,000 barrels of crude oil with an associated value of approximately $9 million. At December 31, 2017, we had no crude oil inventory in China due to the shut-in of production in our LF7-2 field in the third quarter of 2017.

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

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


7
 



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

At March 31, 2018, we had outstanding derivative positions as set forth in the tables below.

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

 
 

 
 

 
 

 
 

 
 

Fixed-price swaps (1)
 
11,453

 
$
54.67

 
$

 
$

 
$

 
$
(100
)
Fixed-price swaps with sold puts:
 
644

 
 
 
 
 
 
 
 
 
 
Fixed-price swaps
 
 
 
56.78

 

 

 

 
(4
)
Sold puts
 
 
 

 
44.00

 

 

 

Collars
 
1,274

 

 

 
50.59

 
56.70

 
(11
)
Collars with sold puts:
 
1,932

 
 
 
 
 
 
 
 
 
 
Collars
 
 
 

 

 
48.34

 
56.60

 
(14
)
Sold Puts
 


 

 
39.48

 

 

 
(1
)
2019:
 
 
 
 
 
 
 
 
 
 
 
 
Collars with sold puts:
 
10,566

 
 
 
 
 
 
 
 
 
 
Collars
 
 
 

 

 
50.59

 
57.13

 
(51
)
Sold puts
 
 
 

 
40.60

 

 

 
(18
)
Total
 
$
(199
)
_________________
(1)
During the first quarter of 2018, our counterparties exercised crude oil swaption contracts that protect 273,000 Bbls of second quarter 2018 production from future commodity price volatility.


8
 



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

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

 
 

 
 
 
 

 
 

 
 

Fixed-price swaps
 
39,400

 
$
2.99

 
$

 
$

 
$

 
$
7

Fixed-price swaps with sold puts:
 
13,440

 
 
 
 
 
 
 
 
 
 
Fixed-price swaps
 
 
 
3.00

 

 

 

 
2

Sold puts
 
 
 

 
2.63

 

 

 
(2
)
Collars
 
5,500

 

 

 
2.88

 
3.24

 
1

Collars with sold puts:
 
6,420

 
 
 
 
 
 
 
 
 
 
Collars
 
 
 

 

 
2.87

 
3.32

 
1

Sold puts
 
 
 

 
2.30

 

 

 

2019:
 
 

 
 

 
 
 
 

 
 

 
 

Fixed-price swaps
 
3,650

 
2.91

 

 

 

 

Collars
 
9,000

 

 

 
3.00

 
3.47

 
1

Total
 
$
10


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

 
 

 
 

Fixed-price swaps
 
1,099

 
$
0.81

 
$
2

Total
 
$
2



9
 



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

Additional Disclosures about Derivative Financial Instruments

We had derivative financial instruments recorded in our consolidated balance sheet as assets (liabilities) at their respective estimated fair value, as set forth below.
 
 
Derivative Assets
 
Derivative Liabilities
 
 
Gross Fair Value
 
Offset in Balance Sheet
 
Balance Sheet Location
 
Gross Fair Value
 
Offset in Balance Sheet
 
Balance Sheet Location
 
 
 
 
Current
 
Noncurrent
 
 
 
Current
 
Noncurrent
 
 
(In millions)
 
(In millions)
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oil positions
 
$
139

 
$
(139
)
 
$

 
$

 
$
(338
)
 
$
139

 
$
(153
)
 
$
(46
)
Natural gas positions
 
16

 
(6
)
 
10

 

 
(6
)
 
6

 

 

NGL positions
 
2

 

 
2

 

 

 

 

 

Total
 
$
157

 
$
(145
)
 
$
12

 
$

 
$
(344
)
 
$
145

 
$
(153
)
 
$
(46
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Oil positions
 
$
48

 
$
(48
)
 
$

 
$

 
$
(170
)
 
$
48

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

 
(6
)
 
15

 
1

 
(6
)
 
6

 

 

NGL positions
 

 

 

 

 
(2
)
 

 
(2
)
 

Total
 
$
70

 
$
(54
)
 
$
15

 
$
1

 
$
(178
)
 
$
54

 
$
(98
)
 
$
(26
)
 
The amount of gain (loss) recognized in "Commodity derivative income (expense)" in our consolidated statement of operations and comprehensive income related to our derivative financial instruments follows:
 
 
Three Months Ended 
 March 31,
 
 
2018
 
2017
 
 
(In millions)
Derivatives not designated as hedging instruments:
 
 
 
 
Realized gain (loss) on oil positions
 
$
(38
)
 
$
26

Realized gain (loss) on natural gas positions
 
6

 
(6
)
Realized gain (loss) on NGL positions
 

 

Total realized gain (loss)
 
(32
)
 
20

Unrealized gain (loss) on oil positions
 
(76
)
 
1

Unrealized gain (loss) on natural gas positions
 
(7
)
 
32

Unrealized gain (loss) on NGL positions
 
4

 

Total unrealized gain (loss)
 
(79
)
 
33

Total
 
$
(111
)
 
$
53


The use of derivative transactions involves the risk that the counterparties, which generally are financial institutions, will be unable to meet the financial terms of such transactions. Our derivative contracts are with multiple counterparties to minimize our exposure to any individual counterparty, and we have netting arrangements with all of our counterparties that provide for offsetting payables against receivables by counterparty. At March 31, 2018, 10 of our 15 counterparties accounted for approximately 80% of our contracted volumes, with the largest counterparty accounting for approximately 10%.

At March 31, 2018, approximately 77% 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. 


10
 



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

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

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

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy. We continue to evaluate our inputs to ensure the fair value level classification is appropriate. When transfers between levels occur, it is our policy to assume that the transfer occurred at the date of the event or change in circumstances that caused the transfer.

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


11
 



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, 2017:
 
 
 
 
 
 
 
 
Money market fund investments
 
$
162

 
$

 
$

 
$
162

Deferred compensation plan assets
 
7

 

 

 
7

Equity securities available-for-sale
 
12

 

 

 
12

Oil, gas and NGL derivative contracts
 

 
(108
)
 

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

 

 
(7
)
Total
 
$
174

 
$
(108
)
 
$

 
$
66

 
 
 

 
 

 
 

 
 

As of March 31, 2018:
 
 

 
 

 
 

 
 

Money market fund investments
 
$
89

 
$

 
$

 
$
89

Deferred compensation plan assets
 
8

 

 

 
8

Equity securities available-for-sale
 
12

 

 

 
12

Oil, gas and NGL derivative contracts
 

 
(187
)
 

 
(187
)
Stock-based compensation liability awards
 
(6
)
 

 

 
(6
)
Total
 
$
103

 
$
(187
)
 
$

 
$
(84
)

Level 3 Fair Value Measurements

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the indicated periods.
 
 
Derivatives
 
 
(In millions)
Balance at January 1, 2017
 
$
(75
)
Unrealized gains (losses) included in earnings
 
(6
)
Purchases, issuances, sales and settlements:
 
 

Settlements
 
18

Transfers into Level 3
 

Transfers out of Level 3
 

Balance at March 31, 2017
 
$
(63
)
Change in unrealized gains or losses included in earnings relating to Level 3 instruments still held at March 31, 2017
 
$
(4
)

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


12
 



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

Fair Value of Debt
 
The estimated fair value of our notes, based on quoted prices in active markets (Level 1) as of the indicated dates, was as follows:
 
 
March 31, 
 2018
 
December 31, 
 2017
 
 
(In millions)
5¾% Senior Notes due 2022
 
$
786

 
$
802

5⅝% Senior Notes due 2024
 
1,064

 
1,089

5⅜% Senior Notes due 2026
 
726

 
739


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. See Note 10, "Debt."

6.      Oil and Gas Properties

     Oil and gas properties consisted of the following:
 
 
March 31, 
 2018
 
December 31, 
 2017
 
 
(In millions)
Proved
 
$
23,614

 
$
23,272

Unproved
 
1,245

 
1,200

Gross oil and gas properties
 
24,859

 
24,472

Accumulated depreciation, depletion and amortization
 
(10,163
)
 
(10,032
)
Accumulated impairment
 
(10,509
)
 
(10,509
)
Net oil and gas properties
 
$
4,187

 
$
3,931


We capitalized approximately $28 million and $33 million of interest and direct internal costs during the three months ended March 31, 2018 and 2017, respectively.

Costs withheld from amortization as of March 31, 2018 consisted of the following:
 
 
Costs Incurred In
 
 
 
 
2018
 
2017
 
2016
 
2015 & Prior
 
Total
 
 
(In millions)
 
 
Acquisition costs
 
$
28

 
$
108

 
$
483

 
$
319

 
$
938

Exploration costs
 

 

 

 

 

Capitalized internal cost
 
4

 
38

 
49

 
47

 
138

Capitalized interest
 
15

 
61

 
51

 
42

 
169

Total costs withheld from amortization
 
$
47

 
$
207

 
$
583

 
$
408

 
$
1,245


We performed our test for ceiling test impairment in accordance with SEC guidelines and no ceiling test impairment was required at March 31, 2018. Future declines in SEC pricing or downward revisions to our estimated proved reserves could result in additional ceiling test impairments of our oil and gas properties in subsequent periods.


13
 



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

7.      Other Property and Equipment

     Other property and equipment consisted of the following:
 
 
March 31, 
 2018
 
December 31, 
 2017
 
 
(In millions)
Furniture, fixtures and equipment
 
$
161

 
$
165

Gathering systems and equipment
 
116

 
115

Accumulated depreciation and amortization
 
(110
)
 
(112
)
Net other property and equipment
 
$
167

 
$
168


8.      Income Taxes

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (Tax Reform), which made significant changes to the U.S. federal income tax law affecting the Company. Major changes in this legislation applicable to the Company relate to the reduction in tax rate for corporations to 21%, repeal of the corporate alternative minimum tax, interest deductibility and net operating loss carryforward limitations, changes to certain executive compensation and full expensing provisions related to business assets. The Company included tax reform impacts in the fourth quarter 2017 financial statements and continues to examine the impact of this legislation and future regulations. The first quarter 2018 tax accrual calculated under the estimated annual effective tax rate method reflects the law changes that are effective January 1, 2018, including the new corporate tax rate of 21%.  

The effective tax rates for the three months ended March 31, 2018 and 2017 were 13.0% and 4.5%, respectively. Our effective tax rate for the three months ended March 31, 2018 differs from the U.S. statutory rate primarily due to domestic and international deferred tax asset valuation allowances discussed below. The deferred income tax provision on the consolidated statement of operations for the three months ended March 31, 2018 was attributable to Oklahoma state income taxes. 

Due to the ceiling test impairments of our oil and gas properties in 2015, we moved from a deferred tax liability position to a deferred tax asset position in all taxing jurisdictions except Oklahoma. We consider it more likely than not that the related tax benefits will not be realized and therefore, we recorded a full valuation allowance on our domestic and China deferred tax assets.

As of March 31, 2018, we did not have a liability for uncertain tax positions, and as such, we did not accrue related interest or penalties. The tax years 2014 through 2017 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:
 
 
March 31, 
 2018
 
December 31, 
 2017
 
 
(In millions)
Revenue payable
 
$
280

 
$
239

Accrued capital costs
 
186

 
173

Accrued lease operating expenses
 
25

 
22

Employee incentive expense
 
13

 
44

Accrued interest on debt
 
32

 
67

Taxes payable
 
12

 
11

Other
 
43

 
35

Total accrued liabilities
 
$
591

 
$
591



14
 



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

10.      Debt
 
Our debt consisted of the following:
 
 
March 31, 
 2018
 
December 31, 
 2017
 
 
(In millions)
Senior unsecured debt:
 
 
 
 
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

 
2,450

Debt issuance costs
 
(16
)
 
(16
)
Total long-term debt
 
$
2,434

 
$
2,434

 
Credit Arrangements
     
As of March 31, 2018, we had no borrowings under our money market lines of credit or revolving credit facility and had no letters of credit outstanding. On March 23, 2018, we amended and restated our Credit Agreement. This amendment and restatement extended the maturity date of the revolving credit facility from June 25, 2020 to May 1, 2023 and increased the borrowing capacity from $1.8 billion to $2.0 billion. We incurred $8 million of deferred financing costs related to this amendment, which will be amortized over the term of the agreement. As of March 31, 2018, the largest individual loan commitment by any lender was approximately 9% of total commitments.

Subject to compliance with certain restrictive covenants in our credit facility, 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 $125 million at March 31, 2018.

Loans under the credit facility bear interest, at our option, equal to (a) the Alternate Base Rate (as defined in the Credit Agreement), plus a margin that is based on a grid of our debt rating (100 basis points per annum at March 31, 2018) or (b) the Adjusted Eurodollar Rate (as defined in the Credit Agreement), plus a margin that is based on a grid of our debt rating (200 basis points per annum at March 31, 2018).

Under our credit facility, we pay commitment fees on available but undrawn amounts based on a grid of our debt rating (37.5 basis points per annum at March 31, 2018). We incurred aggregate commitment fees under our credit facility of approximately $2 million for each of the three-month periods ended March 31, 2018 and 2017, which were recorded in “Interest expense” on our consolidated statement of operations and comprehensive income.

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 the maintenance of a ratio of earnings before gain or loss on the disposition of assets, interest expense, income taxes and certain non-cash items (such as depreciation, depletion and amortization expense, unrealized gains and losses on commodity derivatives and ceiling test impairments) to interest expense of at least 2.5 to 1.0. At March 31, 2018, we were in compliance with all of our debt covenants.

Letters of credit are subject to a fronting fee of 20 basis points per annum and annual fees based on a grid of our debt rating (200 basis points at March 31, 2018).     
 
The credit facility includes events of default relating to customary matters, subject to customary grace and cure periods 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

15
 



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

substantially all of our derivative arrangements contain provisions that provide for cross defaults and acceleration of those debt and derivative instruments in certain situations.

11.    Commitments and Contingencies

We have various commitments for firm transportation, operating lease agreements for office space and other agreements. For further information, see Note 12, "Commitments and Contingencies," in our Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes to the commitments disclosed at year-end 2017.

On October 19, 2017, we received notice of a request for arbitration from SapuraKencana Petroleum Berhad (SapuraKencana), the purchaser of our Malaysian business in February 2014. SapuraKencana is asserting that the Company owes approximately $89 million in damages for breach of contract and for a tax indemnity, plus interest and legal and other costs. We filed our response to the request for arbitration in December 2017. We continue to be committed to fully contesting the claims and intend to vigorously defend the Company's interest.

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.      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,
 
 
2018
 
2017
 
 
(In millions, except per share data)
Net income (loss)
 
$
86

 
$
147

 
 
 
 
 
Weighted-average shares (denominator):
 
 
 
 

Weighted-average shares — basic
 
200

 
199

Dilution effect of stock options and unvested restricted stock and restricted stock units outstanding at end of period
 

 
1

Weighted-average shares — diluted
 
200

 
200

Excluded due to anti-dilutive effect
 

 
1

 
 
 
 
 
Earnings (loss) per share:
 
 
 
 

Basic
 
$
0.43

 
$
0.74

Diluted
 
$
0.43

 
$
0.73



16
 



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

13.      Stock-Based Compensation
     
Our stock-based compensation expense consisted of the following:
 
 
Three Months Ended 
 March 31,
 
 
2018
 
2017
 
 
(In millions)
Equity awards
 
$
13

 
$
16

Liability awards — cash-settled restricted stock units
 
(1
)
 
2

Total stock-based compensation
 
12

 
18

Capitalized in oil and gas properties
 
(2
)
 
(5
)
Net stock-based compensation expense
 
$
10

 
$
13


As of March 31, 2018, we had approximately $63 million of total unrecognized stock-based compensation expense related to unvested stock-based compensation awards that vest within four years. On March 31, 2018, the last reported sales price of our common stock on the New York Stock Exchange was $24.42 per share.

During the first quarter of 2017, we changed our qualified retirement requirements for existing market-based restricted stock units and all subsequently issued equity and liability awards. An employee becomes eligible for qualified retirement based on a combination of years of service and age. Under the revised requirements, qualified retirement allows an employee to continue vesting between 50% and 100% of awards with no additional service requirement beyond a six-month notification period. This change resulted in the accelerated recognition of stock-based compensation expense for unvested market-based restricted stock units previously issued and all subsequently issued equity and liability awards.
Equity Awards

Equity awards consist of service-based and market-based restricted stock and restricted stock units, stock options and stock purchase options under the Employee Stock Purchase Plan (ESPP). In May 2017, Newfield adopted the 2017 Omnibus Incentive Plan, as amended (2017 Plan), which replaced the 2011 Omnibus Stock Plan as the vehicle for granting equity-based compensation awards. At March 31, 2018, we had approximately (1) 8.4 million shares available for issuance under our 2017 Plan if all future awards are stock options, or (2) 5.0 million shares available for issuance under our 2017 Plan if all future awards are restricted stock or restricted stock units.

Restricted Stock and Restricted Stock Units. The following table summarizes the activity for our restricted stock and restricted stock units.
 
 
Service-Based
Shares
 
Weighted- Average Grant Date Fair Value per Share
 
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, 2018
 
2,033

 
$
32.41

 
741

 
$
38.12

 
2,774

Granted
 
207

 
26.57

 
464

(1) 
30.89

 
671

Forfeited
 
(19
)
 
35.04

 

 

 
(19
)
Vested
 
(55
)
 
29.66

 

 

 
(55
)
Non-vested shares outstanding at March 31, 2018
 
2,166

 
$
31.90

 
1,205

 
$
35.33

 
3,371

________
(1)
In February 2018, we granted approximately 464,000 restricted stock units, which based on achievement of certain criteria, could vest within a range of 0% to 200% of shares granted upon completion of the period ending December 31, 2020.


17
 



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

Employee Stock Purchase Plan. During the first three months of 2018, options to purchase approximately 72,000 shares of our common stock were issued under our ESPP. The fair value of each option at the grant date was $8.27 per share and was determined using the Black-Scholes option valuation method assuming no dividends, a risk-free interest rate of 1.53%, an expected life of six months and weighted-average volatility of 38.6%.

Stock Options. As of March 31, 2018, we had no stock options outstanding and exercisable. All outstanding stock options expired in January 2018. No stock options have been granted since 2008, except for ESPP options as discussed above.

Liability Awards

Liability awards consist of service-based 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. As of March 31, 2018, we had a liability of $6 million related to these awards. 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, 2018
 
351

Granted
 
179

Forfeited
 
(2
)
Vested
 
(44
)
Non-vested units outstanding at March 31, 2018
 
484



18
 



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

14.
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, 2017.

The following tables provide the geographic operating segment information for three-month periods ended March 31, 2018 and 2017. Income tax allocations have been determined based on statutory rates in the applicable geographic segment. Our income tax allocation for 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, 2018:
 
 
 
 
 
 
Revenues
 


 


 


Oil
 
$
375

 
$
17

 
$
392

Gas
 
97

 

 
97

NGL
 
89

 

 
89

Oil, gas and NGL revenues
 
561

 
17

 
578

 
 
 
 
 
 
 
Lease operating
 
54

 
4

 
58

Transportation and processing
 
78

 

 
78

Production and other taxes
 
24

 

 
24

Depreciation, depletion and amortization
 
129

 
4

 
133

Results of operations for oil and gas producing activities before tax
 
276

 
9

 
285

 
 
 
 
 
 
 
Other revenues
 
2

 

 
2

General and administrative
 
52

 
2

 
54

Other
 
1

 

 
1

Allocated income tax (benefit)(1)
 
52

 
3

 
 
Net income (loss) from oil and gas properties
 
$
173

 
$
4

 
 
 
 
 
 
 
 
 
Total revenues
 
 
 
 
 
$
580

Total operating expenses
 
 
 
 
 
348

Income (loss) from operations
 
 
 
 
 
232

Interest expense, net of interest income, capitalized interest and other
 
 
 
 
 
(22
)
Commodity derivative income (expense)
 
 
 
 
 
(111
)
Income (loss) from operations before income taxes
 
 
 
 
 
$
99

Total assets
 
$
5,022

 
$
100

 
$
5,122

Additions to long-lived assets
 
$
378

 
$

 
$
378

_________________
(1)
Allocated income tax based on estimated combined federal and state statutory tax rates in effect during the period, comprised of 23% for domestic and 46% for China.


19
 



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

 
 
Domestic
 
China
 
Total
 
 
(In millions)
Three Months Ended March 31, 2017:
 
 
 
 
 
 
Revenues:
 


 


 


Oil
 
$
230

 
$
34

 
$
264

Gas
 
86

 

 
86

NGL
 
66

 

 
66

Oil, gas and NGL revenues
 
382

 
34

 
416

 
 
 
 
 
 
 
Lease operating
 
48

 
8

 
56

Transportation and processing
 
72

 

 
72

Production and other taxes
 
14

 

 
14

Depreciation, depletion and amortization
 
96

 
10

 
106

Results of operations for oil and gas producing activities before tax
 
152

 
16

 
168

 
 
 
 
 
 
 
Other revenues
 
1

 

 
1

General and administrative
 
46

 
1

 
47

Other
 
1

 

 
1

Allocated income tax (benefit)(1)
 
39

 
9

 

Net income (loss) from oil and gas properties
 
$
67

 
$
6

 
 
 
 
 
 
 
 
 
Total revenues
 
 
 
 
 
$
417

Total operating expenses
 
 
 
 
 
296

Income (loss) from operations
 
 
 
 
 
121

Interest expense, net of interest income, capitalized interest and other
 
 
 
 
 
(20
)
Commodity derivative income (expense)
 
 
 
 
 
53

Income (loss) from operations before income taxes
 
 
 
 
 
$
154

Total assets
 
$
4,248

 
$
140

 
$
4,388

Additions to long-lived assets
 
$
246

 
$

 
$
246

_________________
(1)
Allocated income tax based on estimated combined federal and state statutory tax rates in effect during the period, comprised of 37% for domestic and 60% for China.

15.    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,
 
 
2018
 
2017
 
 
(In millions)
Non-cash investing and financing activities excluded from the statement of cash flows:
 
 
 
 
(Increase) decrease in accrued capital expenditures
 
$
(13
)
 
$
(4
)
(Increase) decrease in asset retirement costs
 
(1
)
 
(4
)

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

Overview

20
 




     
We are an independent energy company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids. Our U.S. operations are onshore and focus primarily on large scale, liquids-rich resource plays in the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota and the Uinta Basin of Utah. In addition, we have a producing oil field offshore China.

Significant first quarter 2018 highlights include:

Domestic production was 15.6 MMBOE in the first quarter of 2018, up 27% over the same period of 2017;

Anadarko Basin production was 10.6 MMBOE in the first quarter of 2018, up 34% over the same period of 2017;

production in the Williston and Uinta basins in the first quarter of 2018 is up 10% and 35%, respectively, over the same period of 2017; and

amended and restated our unsecured Credit Agreement to extend the maturity date to May 1, 2023 and increase the borrowing capacity to $2.0 billion.

Results of Operations            
                                                            
Consolidated revenues for the period ending March 31, 2018 increased $162 million as compared to the same period in 2017, mainly driven by stronger domestic oil prices coupled with growth in domestic oil production. Our revenues continue to benefit from the recovery in oil prices as represented by a $12.12 per barrel period over period increase to the average price we received for our domestic oil production. During the same comparative period, our domestic oil production increased 29%. The combination of increased domestic oil production and higher realized oil prices contributed $145 million to the overall increase in consolidated revenues period over period. The remaining change is primarily attributable to higher natural gas and NGL production, partially offset by lower realized natural gas prices.




21
 




The following table reflects our production/liftings and average realized commodity prices (excluding the impact of commodity derivative gains and losses):
 
Three Months Ended March 31,
 
2017
 
Price Variance
 
Production Variance
 
2018
Domestic:
 
 
 
 
 
 
 
  Crude oil and condensate
 
 
 
 
 
 
 
  Price (per Bbl)
$
45.97

 
$
12.12

 
 
 
$
58.09

  Production (MBbls)
4,988

 
 
 
1,463

 
6,451

Crude oil and condensate revenues
$
230

 
$
78

 
$
67

 
$
375

  Natural gas
 
 
 
 
 
 
 
  Price (per Mcf)
$
2.93

 
$
(0.23
)
 
 
 
$
2.70

  Production (Bcf)
29.4

 
 
 
6.7

 
36.1

Natural gas revenues
$
86

 
$
(9
)
 
$
20

 
$
97

  Natural gas liquids