Filed by Newfield Exploration Company
Pursuant to Rule 425 under the
Securities Act of 1933 and deemed
filed pursuant to Rule 14a-12 under the
Securities Exchange Act of 1934
Subject Company: Newfield Exploration Company
Commission File Number: 1-12534
Following is a press release issued by Moody's on June 3, 2002:
[MOODY'S INVESTORS SERVICE LOGO] GLOBAL CREDIT RESEARCH
RATING ACTION
3 JUN 2002
RATING ACTION: NEWFIELD EXPLORATION COMPANY
MOODY'S CONFIRMS NEWFIELD EXPLORATION'S Ba2 SR. UNS. NOTES
APPROXIMATELY $444 MILLION OF DEBT & PREFERRED SECURITIES AFFECTED
New York, June 03, 2002 -- Moody's Investors Service confirmed Newfield
Exploration's (NFX) ratings, reflecting its pending purchase of EEX Corp. for
roughly $640 million, including 7.1 million of NFX common issued to EEX common
and preferred shareholders, plus assumption of roughly $360 million of EEX net
debt and effective debt obligations. The price will adjust to NFX's stock price,
with EEX shareholders absorbing subsequent downturns or benefiting from upturns
in NFX's stock price before the acquisition closes.
With a stable outlook, Moody's confirmed:
i) NFX's Ba2 senior implied rating.
ii) NFX's Ba2 rating on $175 million of 7.625% senior unsecured notes due 2011.
iii) NFX' Ba2 rating on $125 million of 7.45% senior unsecured notes due 2007.
iv) Newfield Financial Trust I's Ba3 rating on $144 million of 6.5% convertible
trust preferred.
Pro-forma for March 31, 2002, NFX states its existing $525 million borrowing
base would have $114.4 million of undrawn availability (plus $40 million of
uncommitted bank lines) if it has not yet refinanced the EEX debt with
subordinated offerings, instead using a bridge facility, secured by EEX's
reserves and non-recourse to NFX, to refinance EEX. Bridge proceeds could retire
EEX bank debt, unwind its $52 million gas sales obligation, and cover
acquisition transaction
costs. Alternatively, NFX states that pro-forma for various scenarios of public
subordinated offerings, NFX could have undrawn bank availability of roughly $135
million.
The $640 million purchase price equates to a high $11.37/boe for EEX's adjusted
proven reserves and $30,236/boe for its current daily production. Combined with
the funding package, this substantially boosts NFX's debt burden on reserves and
interest and preferred dividend burden on production. NFX estimates EEX's proven
reserves to be roughly 80% of the 69.5 million barrels of oil-equivalent (mmboe)
U.S reserves EEX reported for 2001.
NFX hopes to justify the high price with subsequent volume upside in EEX's
deepwater Gulf of Mexico (GOM) plays, deep horizon shallow water GOM Treasure
Island play, and onshore Texas properties. NFX was also attracted to EEX's
deepwater GOM seismic database, higher position on the deepwater GOM learning
curve, and onshore Texas team.
The ratings are supported by a history of sound funding and business strategies;
acceptable leverage for the ratings, as long as NFX materially reduces effective
debt in twelve months; larger reserve scale and diversification; increased
longer-lived onshore production and property base; intensification of existing
core areas onshore Texas with EEX's sound Gulf Coast and South Texas properties;
NFX's long established core position in the shallow water GOM; improved prospect
and data base in the deep water GOM; attractive margins before funding and high
reserve replacement costs; and NFX's ability so far to internally fund its high
reserve replacement costs with effective up-cycle hedging to bolster downcycle
cash flow.
The ratings are restrained by: NFX's high total unit costs due to high
three-year average reserve replacement costs (RRC) of $10.45/boe and resulting
reduced cash-on-cash returns; much higher effective debt burden on proven
developed (PD) reserves ($5.25/boe); higher pro-forma unit interest and
preferred dividend burden likely to exceed $2.25/boe; potentially significantly
reduced pro-forma liquidity; financial and reinvestment risk attendant to a
short PD reserve life (5 years); the potentially higher front-end costs, risks
and lead times associated with NFX's move into deepwater GOM exploration and
development activity; and ratings flexibility needed for additional strategic
moves.
The ratings reflect the challenges and rising costs of building a North American
exploration and production firm. The ratings anticipate NFX's reduction of
effective debt on PD reserves and accommodate, for now, the cumulative capital
requirements associated with the combination of a short PD reserve life, high
RRC costs, $25 million of repurchased stock, and basin diversification efforts
in its deepwater GOM, promising shallow water deep horizon GOM; Bohai Bay,
China, and offshore Australia properties.
Pro-forma total proven reserves approximate 212.4 mmboe, PD reserves approximate
183 mmboe, and the pro-forma PD reserve life is 5 years. Total effective debt
(debt, forward gas sales, and trust preferred stock) of $960 million is a high
$5.25/boe on PD reserves and needs to be reduced materially by debt reduction
and/or significant PD reserve growth.
NFX's pro-forma cost structure is high, in the $19/boe range, including
production costs of roughly $4.14/boe, G&A of roughly $1.90/boe, pro-forma
interest and preferred dividend costs
likely to exceed $2.25/boe, and three-year average RRC's of $10.45/boe
(including EEX and excluding a non-cash $105 million step-up in the Lariat 2001
acquisition price). NFX's RRC's reflect the expensive EEX purchase and NFX's
high cost GOM reserve replacement effort. In addition to the $11.37/boe paid for
EEX, NFX's all-sources RRC's were $12.09/boe in 2001 (excluding the Lariat
step-up), $9.69/boe in 2000, $6.18/boe in 1999, and $11.20.boe in 1998.
Before potential refundings but after NFX unwinds EEX's gas sales obligation,
the pro-forma March 31, 2002 capital structure principally includes $409 million
of bank debt, $300 million of senior notes, $101 million of notes secured by the
ENSERCH Garden Banks production platform and facilities, $144 million in trust
preferred stock, and $954 million of book equity.
Acquisitions are NFX's principal means of growth and diversification. Since
1998, reserve additions by extensions and discoveries did not alone replace
production. Pro-forma for the 2001 Lariat acquisition as if had closed as of
year-end 2000, NFX's reserves did not grow during 2001. Lariat did boost NFX's
2000 reserves from 115 mmboe to 157.5 mmboe, while NFX's year-end 2001 reserves
were 156.1 mmboe. During 2000, NFX's acquisition of the Headington properties
prevented NFX's 2000 reserves from declining.
Newfield Exploration is headquartered in Houston, Texas. NFX has been one of the
most successful GOM independent exploration and production companies. Overtime,
Moody's believes NFX will establish additional core areas of operation through
the drillbit and with acquisitions such as the $333 million Lariat and $640
million EEX purchases.
New York
Robert N. McCreary
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Andrew Oram
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
(C) Copyright 2002 by Moody's Investors Service, 99 Church Street, New York, NY
10007. All rights reserved.