Noble Energy profit drops to $200M in 1Q 2014

Noble Energy, Inc. announced today first quarter 2014 net income of $200 million, or $0.55 per diluted share on total revenues of $1.4 billion.

Excluding the impact of certain items which would typically not be considered by analysts in published earnings estimates, the first quarter 2014 adjusted income was $298 million, or $0.82 per diluted share. Discretionary cash flow was $870 million and net cash provided by operating activities was $929 million. Capital expenditures for the first quarter 2014 totaled $951 million.

Key highlights for the first quarter of 2014 include:

*Total sales volumes of 286 thousand barrels of oil equivalent per day (MBoe/d), an increase of 20 percent from the first quarter of 2013, after adjusting for divested assets

*Delivered record horizontal production of 100 MBoe/d on average from the DJ Basin and Marcellus Shale plays, up over 60 percent versus the first quarter of last year

*Performed completion operations on initial vertical well in the Wilson play of NE Nevada, successfully recovering oil from multiple intervals

*Apparent high bidder on 12 deepwater lease blocks in the Central Gulf of Mexico Lease Sale 231

*Signed the first two regional export sales agreements for natural gas sales from Tamar and Leviathan to customers in Jordan and the Palestinian Authority

*Finalized agreement with the Israel Anti-Trust Authority

*Executed sales agreements to divest the Company’s E. Texas, N. Louisiana and Powder River Basin assets

Charles D. Davidson, Noble Energy’s Chairman and CEO, commented, “Following on our strong 2013, Noble Energy continues to deliver on its growth objectives, with the first quarter laying a good foundation from which to build on for the remainder of the year. In our U.S. unconventional areas, we are creating substantial value in the DJ Basin and Marcellus development programs, through material production growth, facility and well efficiencies, and an increased application of extended reach laterals. Although early, I am quite pleased with initial drilling and completion results in our Nevada exploration play. Offshore, we are moving forward our next round of developments, including projects in the deepwater Gulf of Mexico, West Africa and Israel. The progress we have made recently regarding the Leviathan project offshore Israel has been remarkable, and we are close to executing a number of domestic and regional export sales agreements to support the field’s development. We are also excited about our exploration prospects this year, with Katmai currently drilling in the deepwater Gulf of Mexico.”

Volumes and prices
First quarter 2014 sales volumes averaged 286 MBoe/d, an increase of 20 percent compared to the first quarter of 2013, after adjusting for divested assets. United States sales volumes comprised 57 percent of the total and the remaining 43 percent came from International operations. U.S. volumes increased 16 percent compared to the same quarter of last year, after adjusting for divested assets, driven by the continued development of the unconventional DJ Basin and Marcellus Shale plays. Internationally, volumes increased 23 percent compared to the first quarter of last year due to the Tamar natural gas field in Israel and the Alen condensate field in Equatorial Guinea, both of which commenced operations in 2013. Total sales volumes for the quarter were less than production volumes by 2 MBoe/d due to the timing of liftings in Equatorial Guinea.
Global crude oil and condensate prices averaged $100.23 per barrel for the first quarter of 2014. Natural gas realizations averaged $4.81 per thousand cubic feet (Mcf) in the U.S. and $5.60 per Mcf in Israel. Natural gas liquid pricing in the U.S. averaged 45 percent of the average West Texas Intermediate crude oil price for the quarter.

Expenses
First quarter 2014 total production costs, including lease operating expense (LOE), production and ad valorem taxes, and transportation and gathering averaged $9.01 per barrel of oil equivalent (Boe). Total company LOE was $5.64 per Boe, up slightly from the same period in 2013 as a result of the impact of major offshore project startups in 2013. Depreciation, depletion and amortization (DD&A) per Boe was $16.50, down slightly from the first quarter 2013 unit rate. Exploration expense for the quarter was $74 million, which had no substantial dry hole costs and included seismic expenditures associated with a 3D survey acquisition completed offshore the Falkland Islands.
Included in the adjustments to net income for the first quarter of 2014 was an impairment recorded to the Company’s North Sea assets to reflect the updated estimate of abandonment cost and timing. Also adjusted from earnings was a non-cash commodity derivative loss. The effective tax rate on adjusted earnings for the quarter was 29 percent and the deferred tax rate on adjusted earnings was 50 percent.

Operations update

In the DJ Basin, sales volumes averaged 95 MBoe/d for the first quarter of 2014, of which 64 percent were liquids. Production volumes for the quarter were impacted by severe winter weather and facility upgrades. Fifty-four standard length laterals and 13 extended reach laterals were drilled during the quarter. Due to continued strong performance in the extended reach lateral program, the Company is now targeting over 90 extended reach lateral wells in 2014, up 65 percent from its original plans. In addition, the Company continues to pursue downspacing activity in 2014, which represents over 40 percent of the wells planned for the year.

Five standard length wells on the Loeffler pad within the Core Integrated Development Plan (IDP) have been producing more than 100 days and are tracking a 600 thousand barrel oil equivalent type curve. Two of these wells, testing a 24-well per section equivalent density, are performing consistent with the remaining Loeffler wells. In the Mustang IDP, three standard length horizontal wells were drilled during the quarter on a 16-well per section equivalent amongst densely drilled verticals with performance above the type curve. Across the Basin, 10 rigs are currently developing Wells Ranch and East Pony as well as progressing the other IDPs. In the third quarter, one rig will move back to the Wilson play in NE Nevada to continue drilling in this new venture opportunity.
In the Marcellus Shale, volumes averaged a record 227 million cubic feet of natural gas equivalent per day (MMcfe/d) for the first quarter. In the quarter, 19 operated wells were drilled averaging over 7,500 lateral feet.

The WFN3 pad in the Majorsville IDP came online during the quarter at a peak rate of 35 MMcfe/d from four wells averaging 7,500 lateral feet. One of the wells was completed using reduced stage and cluster spacing and experienced rates over 25 percent higher than similar wells on the same pad. Also during the quarter, two 8,000 foot lateral sections were drilled in less than 48 hours each, which is a 50 percent reduction in drilling time versus last year. Joint Venture partner, CONSOL Energy, drilled 17 wells during the quarter. The Joint Venture is currently operating nine rigs split between the wet and dry gas portions of the acreage.
In the deepwater Gulf of Mexico, production for the first quarter averaged 18 MBoe/d, which was comprised of nearly 90 percent liquids. During the quarter, the Company completed its Big Bend discovery well in the Rio Grande area, with first production on target by the end of next year. The Dantzler and Gunflint developments continue to progress with first production expected in 2016.

Katmai, a middle and lower Miocene oil exploration prospect with a 50 percent working interest was spud towards the end of the quarter. Additional exploration in this core area is planned through the end of this year. Also during the quarter, the Company was the apparent high bidder on 12 blocks in the OCS Lease Sale 231, providing further opportunities to expand the already deep exploration portfolio.
In the Eastern Mediterranean, total Israel sales volumes for the first quarter of 2014 averaged 219 MMcfe/d. The onshore compression project at Ashdod is over 50 percent complete and on track to expand the deliverability of Tamar volumes in mid-2015. The first regional export sales agreements for
Tamar and Leviathan were signed during the quarter, with larger contracts expected to follow over the next several quarters. Significant progress has been made towards sanctioning the first phase of Leviathan with an agreement reached with the Israeli Anti-trust Authority and the receipt of a Development and Production Lease.

Updated guidance

To date in 2014, the Company has executed sales agreements for certain non-core U.S. onshore assets, including its positions in the E. Texas, N. Louisiana, Tri-State and the Powder River Basin. In addition, the Company is finalizing an agreement to divest its offshore China assets in the Bohai Bay. Combined, these assets were producing in excess of 10 MBoe/d at the beginning of 2014. The onshore U.S. asset sales either have closed or are planned to close by the end of April, and the China asset sale is anticipated to close in mid-2014. These assets are expected to impact volumes by approximately 6 MBoe/d on average for 2014.
As a result of these transactions, Noble Energy has adjusted its full year 2014 volume guidance to a range of 302 to 310 MBoe/d, with the midpoint of the range reflecting the 6 MBoe/d from these divestments. Second quarter 2014 volumes are anticipated to be between 290 and 296 MBoe/d, taking into account the U.S. onshore asset sales.