Over the last two years, Newfield Exploration (NFX) has shifted its energy exploration and production model from being a natural gas company to almost exclusively drilling for oil. The high value of oil and low current prices for natural gas make this a sensible business shift, but Newfield is lagging some of its competitors in the shift to liquids production and the market seems to still be valuing the stock based on low natural gas prices. Investors should understand where this company is in the business shift and decide if there is some undiscovered value in this stock.

Newfield conducts energy exploration and production activities in the Rocky Mountains, North Dakota Bakken play, the Oklahoma Mid-Continent play and offshore Malaysia and China. The company also owns Gulf of Mexico deep water gas production assets. Current oil production comes primarily from the Rocky Mountains and Malaysia and these areas are the focus of the company’s production growth. The company’s gas production is focused on the Mid-Continent play.

In 2009, the management of Newfield Exploration made a decision to move away from natural gas exploration and production and focus on crude oil and natural gas liquids – NGLs. At the end of 2009, the company took a non-cash $1.3 billion write down of its energy assets due to the declining price of natural gas. Going into 2010 the company directed 30% of capital expenditures to finding and producing oil.Now in 2012, the company will spend all of its exploration capex on the search for crude oil and NGLs.To continue reading, click here.