Form 8-K MMR-NR 08-06-07

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
______________
 
FORM 8-K
______________
 
 
CURRENT REPORT
 
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):   August 6, 2007
 
______________

NEWFIELD EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
______________
 

Delaware
1-12534
72-1133047
(State or other jurisdiction
(Commission File Number)
(I.R.S. Employer
of incorporation)
  
Identification No.)


363 N. Sam Houston Parkway E., Suite 2020
Houston, Texas 77060
(Address of principal executive offices)

Registrant’s telephone number, including area code: (281) 847-6000
 
Not Applicable
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 


Item 2.01  Completion of Acquisition or Disposition of Assets

On August 6, 2007, Newfield Exploration Company issued a press release announcing the closing on its previously announced sale of its Gulf of Mexico shelf assets to McMoRan Exploration Co. (NYSE: MMR) for total cash consideration of $1.1 billion and the assumption by the buyer of liabilities associated with future abandonment of wells and platforms. A copy of the press release is furnished herewith as Exhibit 99.1.

Item 9.01  Financial Statements and Exhibits

(b)
Pro forma financial information
     
 
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007 and the unaudited pro forma condensed consolidated income statements for the six months ended June 30, 2007 and the year ended December 31, 2006 that give effect to the disposition described therein begin on page F-1 of this report.
     
(d)
Exhibits
  
     
 
99.1
Press release issued by Newfield Exploration Company on August 6, 2007.

 

 
 
2

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

 
NEWFIELD EXPLORATION COMPANY
     
     
     
Date:   August 10, 2007
By:
/s/ TERRY W. RATHERT
   
Terry W. Rathert
   
Senior Vice President and Chief Financial Officer
 
 
 
 
 
 
3

 
Exhibit Index


Exhibit No.
  
Description
     
99.1
  


 
 
 
 
 

NEWFIELD EXPLORATION COMPANY

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
The following unaudited pro forma condensed consolidated financial statements are presented to give effect to the disposition on August 6, 2007 of substantially all of our properties in the Gulf of Mexico for $1.1 billion in cash and the assumption by the buyer of liabilities associated with future abandonment of wells and platforms (the “Disposition”). We retained most of our deepwater properties and partial interests in some primary term acreage on the shelf.

The unaudited pro forma condensed consolidated income statement for the year ended December 31, 2006 has been derived from our consolidated income statement for the year ended December 31, 2006. The unaudited pro forma condensed consolidated income statement should be read together with our consolidated income statement and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006.

The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007 and the unaudited pro forma condensed consolidated income statement for the six months ended June 30, 2007 have been derived from our interim consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 and should be read in conjunction with those financial statements, including the notes thereto.

The unaudited pro forma condensed consolidated financial statements are based on the following assumptions and adjustments:

 
•
the unaudited pro forma balance sheet is presented as if the Disposition occurred on June 30, 2007;

 
•
the unaudited pro forma income statements present our operations as if the Disposition had occurred on January 1, 2006; and

 
•
the unaudited pro forma estimates of proved reserves and unaudited pro forma standardized measure of discounted future net cash flows related to proved oil and gas reserves give effect to the Disposition as if it had occurred at December 31, 2006.

Pursuant to Securities and Exchange Commission rules for pro forma financial statements, no pro forma adjustments were made with respect to the following:

 
•
reductions in general and administrative expense to reflect cost savings associated with the reduction in our technical and administrative staff resulting from the Disposition;

 
•
increases in assumed interest income associated with the investment of the proceeds received from the Disposition; and

 
•
adjustments to historical business interruption insurance premium expense or benefits associated with our risk management policies related to our operations in the Gulf of Mexico.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only. The financial results may have been different if the Disposition had occurred as of the dates indicated above. This financial information does not purport to indicate the future results that we will experience.

 
F-1

NEWFIELD EXPLORATION COMPANY

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)

 
 
June 30, 2007
 
 
 
 
Historical
Consolidated
 
Gulf of Mexico
Disposition
Pro Forma
Adjustments
Pro Forma
 
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents 
 
$
37
 
$
1,092
 
(a)
 
$
97
  
           
(932
)
(b) 
 
 
      
           
(100
)
 (c)
 
 
      
Accounts receivable 
    
419
                
419
  
Inventories 
    
68
                
68
  
Derivative assets 
    
127
                
127
  
Other current assets 
    
90
                
90
  
Total current assets 
    
741
    
60
          
801
  
                           
Oil and gas properties 
    
10,419
    
(1,092
)
 (a) 
 
 
  
9,112
  
           
(215
)
 (d) 
 
 
      
Less - accumulated depreciation, depletion and amortization 
    
(3,607
)
              
(3,607
)
     
6,812
    
(1,307
)
        
5,505
  
                           
Restricted cash 
    
—
    
100
   (c) 
 
 
  
100
  
Furniture, fixtures and equipment, net 
    
34
                
34
  
Derivative assets 
    
10
                
10
  
Other assets 
    
24
                
24
  
Goodwill 
    
62
                
62
  
Total assets 
  
$
7,683
  
$
(1,147
)
      
$
6,536
  
                           
LIABILITIES AND STOCKHOLDERS’ EQUITY
                          
Current liabilities:
                          
Accounts payable 
  
$
104
  
$
—
        
$
104
  
Current debt 
    
124
                
124
  
Accrued liabilities 
    
618
    
42
   (e) 
 
 
  
660
  
Advances from joint owners 
    
40
                
40
  
Asset retirement obligation 
    
35
    
(31
)
 (d) 
 
 
  
4
  
Derivative liabilities 
    
101
                
101
  
Deferred taxes 
    
10
                
10
  
Total current liabilities
    
1,032
    
11
          
1,043
  
                           
Other liabilities 
    
31
                
31
  
Derivative liabilities 
    
181
                
181
  
Long-term debt 
    
1,979
    
(932
)
 (b) 
 
 
  
1,047
  
Asset retirement obligation 
    
246
    
(184
)
 (d) 
 
 
  
62
  
Deferred taxes 
    
1,060
    
(42
) 
 (e) 
 
 
  
1,018
  
Total long-term liabilities 
    
3,497
    
(1,158
)
        
2,339
  
                           
Commitments and contingencies 
    
—
    
—
          
—
  
                           
Stockholders’ equity:
                          
Common stock 
    
1
                
1
  
Additional paid-in capital 
    
1,231
                
1,231
  
Treasury stock 
    
(32
)
              
(32
)
Accumulated other comprehensive income (loss):
                          
Foreign currency translation adjustment 
    
17
                
17
  
Commodity derivatives 
    
(1
)
  
1
   (f) 
 
 
  
—
  
Minimum pension liability 
    
(3
)
              
(3
)
Retained earnings 
    
1,941
    
(1
)
 (f) 
 
 
  
1,940
  
Total stockholders’ equity 
    
3,154
    
—
          
3,154
  
Total liabilities and stockholders’ equity 
  
$
7,683
  
$
(1,147
)
      
$
6,536
  
 
 
See accompanying notes to unaudited pro forma condensed consolidated financial statements.

F-2

NEWFIELD EXPLORATION COMPANY

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
(In millions, except per share data)
 
   
Six Months Ended June 30, 2007
  
   
 
Historical
Consolidated
  
Less:
Gulf of Mexico
Disposition (g)
  
Pro Forma
Adjustments
      
 
Pro Forma
  
                                 
Oil and gas revenues 
  
$
968
  
$
342
  
$
—
    
(h)
 
$
626
  
                                 
Operating expenses:
                                
Lease operating 
    
208
    
121
                
87
  
Production and other taxes 
    
38
    
1
                
37
  
Depreciation, depletion and amortization 
    
378
          
(140
)
  
(i)
 
  
238
  
Ceiling test writedown 
    
47
                      
47
  
General and administrative 
    
72
                      
72
  
Total operating expenses 
    
743
    
122
    
(140
)
        
481
  
                                 
Income from operations 
    
225
    
220
    
140
          
145
  
                                 
Other income (expense):
                                
Interest expense 
    
(51
)
        
7
    
(b)
 
  
(44
)
Capitalized interest 
    
22
          
(2
)
  
(b)
 
  
20
  
Commodity derivative expense 
    
(81
)
          —     (h)    
(81
)
Other 
    
2
                      
2
  
     
(108
)
  
—
    
5
          
(103
)
                                 
Income before income taxes 
    
117
    
220
    
145
          
42
  
                                 
Income tax provision 
    
63
          
(26
)
  
(j)
 
  
37
  
                                 
Net income 
  
$
54
  
$
220
  
$
171
        
$
5
  
                                 
Earnings per share:
                                
Basic 
  
$
0.42
                    
$
0.04
  
Diluted 
  
$
0.41
                    
$
0.04
  
                                 
Weighted average number of shares outstanding for
basic earnings per share 
    
127
                      
127
  
                                 
Weighted average number of shares outstanding for
diluted earnings per share 
    
130
                      
130
  


See accompanying notes to unaudited pro forma condensed consolidated financial statements.

F-3

NEWFIELD EXPLORATION COMPANY

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
(In millions, except per share data)


   
Year Ended December 31, 2006
  
   
 
Historical
Consolidated
  
Less:
Gulf of Mexico
Disposition (g)
  
Pro Forma
Adjustments
      
 
Pro Forma
  
                                 
Oil and gas revenues 
  
$
1,673
  
$
619
  
$
7
    
(h)
  
$
1,061
  
                                 
Operating expenses:
                                
Lease operating 
    
277
    
150
                
127
  
Production and other taxes 
    
61
    
2
                
59
  
Depreciation, depletion and amortization 
    
624
          
(258
)
  
(i)
 
  
366
  
Ceiling test writedown 
    
6
                      
6
  
General and administrative 
    
124
                      
124
  
Other 
    
(11
)
                    
(11
)
Total operating expenses 
    
1,081
    
152
    
(258
)
        
671
  
                                 
Income from operations 
    
592
    
467
    
265
          
390
  
                                 
Other income (expense):
                                
Interest expense 
    
(87
)
        
—
    
(b)
 
  
(87
)
Capitalized interest 
    
44
          
(3
)
  
(b)
 
  
41
  
Commodity derivative income (expense) 
    
389
            (7 )   
(h)
    
382
  
Other 
    
11
                      
11
  
     
357
    
—
    
(10
)
        
347
  
                                 
Income before income taxes 
    
949
    
467
    
255
          
737
  
                                 
Income tax provision 
    
358
          
(74
)
  
(j)
 
  
284
  
                                 
Net income 
  
$
591
  
$
467
  
$
329
        
$
453
  
                                 
Earnings per share:
                                
Basic 
  
$
4.67
                    
$
3.58
  
Diluted 
  
$
4.58
                    
$
3.51
  
                                 
Weighted average number of shares outstanding for
basic earnings per share 
    
127
                      
127
  
                                 
Weighted average number of shares outstanding for
diluted earnings per share 
    
129
                      
129
  


See accompanying notes to unaudited pro forma condensed consolidated financial statements.

F-4

NEWFIELD EXPLORATION COMPANY

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
Pro Forma Assumptions:

(a)
Represents cash proceeds of $1.1 billion less transaction costs of $8 million related to the Disposition.

(b)
Represents adjustments resulting from the reduction in our debt outstanding under our credit arrangements using the proceeds from the Disposition. Adjustments to interest expense are associated with historical borrowings outstanding under our credit arrangements. Adjustments to capitalized interest are associated with historical amounts capitalized to the properties included in the Disposition.

(c)
We structured the Disposition and our recent Rocky Mountain asset acquisition as a like-kind exchange under Section 1031 of the Internal Revenue Code. We elected to retain $100 million of the proceeds from the Disposition in the like-kind exchange structure for application to the purchase price of future acquisitions. Additional future acquisitions may be included in the like-kind exchange structure if they are consummated within the time period required under Section 1031. While the proceeds are retained in this structure, they are not available for other uses, including to repay outstanding borrowings under our credit arrangements. As a result, they are shown as restricted cash on our unaudited pro forma condensed consolidated balance sheet included herein.

(d)
Represents adjustments to remove the asset retirement obligation associated with the properties included in the Disposition.

(e)
Represents the estimated current income taxes payable associated with the sale and the reversal of historical deferred taxes on the properties included in the Disposition which were calculated utilizing available net operating loss carryforwards, the benefit of the like-kind exchange under Section 1031 and the 35% statutory U.S. federal income tax rate.

(f)
Represents $1.3 million of deferred losses (net of tax of $0.6 million) in accumulated other comprehensive income that will be reclassified to earnings due to the loss of hedge accounting on certain commodity derivative contracts designated as hedges against a portion of our Gulf of Mexico production. This one time charge is based on the fair value of our derivative contracts as of June 30, 2007. The actual charge will be based on the fair value of these derivative contracts on August 6, 2007, when the transaction was completed. The derivative contracts previously associated with properties included in the Disposition will continue to be carried on our balance sheet at fair value with the changes in fair value reflected on a mark-to-market basis in our income statement. For purposes of the pro forma income statement presentation, we have not reflected any mark-to-market adjustments associated with the changes in fair value of the derivative contracts that will lose hedge accounting in conjunction with the Disposition.

(g)
Represents adjustments to remove historical revenues and operating expenses associated with the properties included in the Disposition.

(h)
Represents adjustment to reclassify historical cash flow hedge settlement amounts associated with certain derivative contracts historically designated as hedges against a portion of our Gulf of Mexico production from “Oil and gas revenues” to “Commodity derivative income (expense).”

(i)
Represents adjustment to reflect the pro forma impact of the Disposition on depreciation, depletion and amortization expense. This adjustment includes: (1) the reduction in DD&A reflecting the production volumes attributable to the properties included in the Disposition; (2) the revision to our DD&A rate resulting from the application of the proceeds from the Disposition to our full cost pool in accordance with the full cost method of accounting for oil and gas activities; and (3) the reduction in accretion expense related to the asset retirement obligation attributable to the properties included in the Disposition.

(j)
Represents adjustment to income tax expense on the historical revenues and operating expenses associated with the properties included in the Disposition and pro forma adjustments calculated using the 35% statutory U.S. federal income tax rate.

 
F-5

NEWFIELD EXPLORATION COMPANY

UNAUDITED PRO FORMA SUPPLEMENTARY OIL AND GAS DISCLOSURES


Estimated Net Quantities of Proved Oil and Gas Reserves

The following pro forma estimated reserve quantities show the effect of the Disposition as if it had occurred on December 31, 2006.

   
 
Historical
Consolidated
  
Less:
Gulf of Mexico
Disposition
  
 
Pro Forma
  
Proved developed and undeveloped:
                    
Oil and condensate (MMBbls) 
    
114
    
14
    
100
  
Natural gas (Bcf) 
    
1,586
    
223
    
1,363
  
Total proved reserves (Bcfe) 
    
2,272
    
305
    
1,967
  
                     
Proved developed:
                    
Oil and condensate (MMBbls) 
    
65
    
12
    
53
  
Natural gas (Bcf) 
    
1,094
    
200
    
894
  
Total proved developed reserves (Bcfe) 
    
1,484
    
272
    
1,212
  


Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves

The following pro forma standardized measure of discounted future net cash flows shows the effect of the Disposition as if it had occurred on December 31, 2006.

   
 
Historical
Consolidated
  
Less:
Gulf of Mexico
Disposition
  
 
Pro Forma
  
       
(In millions)
      
                     
Future cash inflows 
  
$
14,375
  
$
2,083
  
$
12,292
  
Less related future:
                    
Production costs 
    
(3,652
)
  
(582
)
  
(3,070
)
Development and abandonment costs 
    
(1,862
)
  
(369
)
  
(1,493
)
Future net cash flows before income taxes 
    
8,861
    
1,132
    
7,729
  
Future income tax expense 
    
(2,578
)
  
(396
)
  
(2,182
)
Future net cash flows before 10% discount 
    
6,283
    
736
    
5,547
  
10% annual discount for estimating timing of cash flows 
    
(2,836
)
  
(117
)
  
(2,719
)
Standardized measure of discounted future net cash flows 
  
$
3,447
  
$
619
  
$
2,828
  


F-6