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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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From: Dennis Roth	9/18/2007 9:59:59 AM
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Newfield Exploration (NFX): North Sea sale at higher valuation than expected Goldman Sachs Global Investment Research - 09/17/2007 News Newfield announced it plans to sell its North Sea position, centered around the Grove development, to Centrica for US$486.4 million. Analysis While the sale is expected, the transaction value is about $200-$250 million (about $1.50-$2.00 per share) greater than our expected range, and we regard the news as positive. Aside from a sale of assets in China, this moves Newfield closer to its planned restructuring to narrow its focus to the US onshore, the deepwater Gulf of Mexico and offshore Malaysia. Implications All else equal, the transaction would reduce Newfield's 2008 EV/debt-adjusted cash flow multiple to 4.9x from 5.1x. This represents a discount to other mid-cap E&Ps and more in line with larger E&Ps with diversified production sources. We see 23% upside to a $57 12-month target price and believe Newfield shares can benefit as the company beats production guidance, especially if returns and results from the Woodford Shale are better than the current relatively skeptical Street. We rate Newfield Neutral relative to an Attractive coverage view. Our 12-month target prices are based on discounted cash flow based net asset value of proved reserves and select unbooked resource potential. We believe commodity price volatility, drilling results cost pressures and government pronouncements are the key risks to our target prices.

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