The US oil and gas industry has been in transition over the last decade or so. It is not that long ago that offshore oil and international exploration were the way forward. Conventional wisdom had it that in order to survive a company had to go deeper and further. As the technology for releasing oil and gas from rock improved, however, vast reserves of oil were opened up and the future shifted back to US soil.
In any industry, that complete change of direction would cause major disruption. Oil and gas exploration is no exception, but the flexibility that the business demands has served the industry well. Many firms have switched focus, but maybe none so completely as Newfield Exploration (NFX).
Not too long ago, Newfield was all about offshore drilling in the Gulf of Mexico and international operations, particularly in China and Malaysia. In September of 2012 they sold their remaining Gulf interests to W&T Offshore (WTI) and then last year began to divest themselves of their international operations. The company now focuses on Texas, Oklahoma, Utah and North Dakota.
A look at a 5 year chart for NFX reveals that that transition has not been painless.
Figure 1: 5 Year Chart NFX
As they shed previous operations they reduced production and the stock’s performance has reflected that. NFX has lost more than half of its value since the middle of 2011. This would be bad anywhere, but in an industry that is generally considered to be booming…