Quarterly / Earnings Reports | First Quarter (1Q) Update | Financial Results | Capital Markets | Capital Expenditure | Capital Expenditure - 2020

Noble Energy Inc. First Quarter 2020 Results

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   |    Friday,May 08,2020

Noble Energy, Inc. reported its first quarter financial and operating results.

First quarter highlights include:

• Financial liquidity of $4.4 Bn including $1.4 Bn of cash and $3.0 Bn of available capacity on the Company's unsecured revolver.

• Consolidated cash flow from operations totaled $482 MM, benefiting from strong sales volumes, hedging gains and reduced cash costs.
  • Prior to working capital changes, consolidated cash flow from operations was $636 MM.

• Organic capital expenditures for Noble Energy totaled $399 MM, more than 20% below the midpoint of guidance, due to U.S. onshore capital efficiencies and lower international spend.

• Sales volumes of 390 MBoe/d were in the upper half of guidance.
  • Oil volumes of 139 MBbl/d were at the top of guidance, led by well productivity and completion acceleration onshore, along with strong liftings in Equatorial Guinea.

• Leviathan, offshore Israel, commenced domestic sales on December 31, 2019 and export sales to Jordan and Egypt at the beginning of 2020.

• Unit production expense of $7.77 per BOE was significantly below the low end of guidance.

Chairman & CEO David L. Stover said: "Our first quarter results highlight the Company's ability to execute, evidenced by strong operational and financial outcomes. However, the momentum we have built in our business has been overshadowed by the external events of early 2020. As we navigate through this uncertain time, our first priority is the health and safety of our employees, support staff, and the communities we touch. The current macroeconomic and commodity environment require rapid and significant adjustments to industry activity levels. In response to the global COVID-19 pandemic and the oversupplied crude oil market, Noble Energy is prioritizing strong financial liquidity and resilience over development at less than acceptable returns. Looking forward, our unique asset portfolio and financial strength position the Company well for substantial value creation as we come through this current down-cycle to the other side."

Noble Energy's Response in Current Environment

• Lowered full-year expected 2020 capital expenditures more than 50% from original plan to a range of $750 to $850 million.
• Identified $225 million in cash cost savings (from lease operating, production taxes, gathering and transportation, general and administrative, and asset retirement) versus original expectations.
  • Lowered executive leadership salaries and decreased cash retainer to directors through year-end 2020.
• Voluntarily curtailing net oil production of 5-10 MBbl/d in May and 30-40 MBbl/d in June from the Company's U.S. onshore assets.
• Cash-settled certain 2020 crude oil hedges that had reached maximum value, generating an additional $160 million in realized gains in the first quarter, and added new downside oil hedge protection through the remainder of 2020.
• Reduced the Company's annualized dividend to $0.08 per share, prioritizing financial liquidity and the balance sheet.

First Quarter 2020 Results

The Company reported first quarter net loss attributable to Noble Energy of $4.0 billion, or $8.27 per diluted share. Excluding items impacting comparability, the Company generated adjusted net income and adjusted net income per share⁽¹⁾ attributable to Noble Energy for the quarter of $85 million and $0.18 per diluted share. Adjusted EBITDAX⁽¹⁾ was $715 million, and cash provided by operating activities was $482 million. Prior to working capital changes, operating cash flow was $636 million for the quarter.

First quarter capital expenditures funded by Noble Energy were $399 million, more than $75 million below the low end of guidance due to lower U.S. Onshore well costs and the deferral of offshore spend. Organic capital expenditures attributable to Noble Energy included $332 million related to U.S. onshore activities, $34 million of which was line-fill for the EPIC Crude Oil Pipeline which recently commenced full service. Noble Energy also invested $31 million in the Eastern Mediterranean, primarily for Leviathan infrastructure, and $19 million in West Africa for the Alen Gas Monetization project.

Noble Midstream Partners LP's capital expenditures totaled $196 million for the quarter, including $43 million for build out of gathering systems in the DJ and Delaware Basins, $66 million related to EPIC and Delaware Crossing pipeline investments, and $87 million related to the acquisition of interest in the Saddlehorn pipeline.

Oil, gas and natural gas liquid (NGL) revenues for the quarter benefited from strong production performance. Sales volumes for the quarter averaged 390 thousand barrels of oil equivalent per day (MBoe/d), with the U.S. onshore assets averaging 269 MBoe/d, West Africa sales of 55 MBoe/d and Israel averaging 393 million cubic feet equivalent per day (MMcfe/d). Oil sales volumes were at the high end of guidance, totaling 139 thousand barrels of oil per day (MBbl/d), with U.S. onshore oil volumes of 117 MBbl/d.

Unit production expenses for the first quarter 2020 were $7.77 per barrel of oil equivalent (BOE), including lease operating expenses (LOE), production taxes, gathering, transportation and processing expenses, and other royalty costs. These costs were below the low end of guidance as the Company continued to optimize workover, rental compression, and labor costs. In addition, production taxes were below original plan as a result of the lower commodity realizations in March.

Marketing and other, including sales and costs of purchased oil and gas, netted to $23 million of expense for the quarter, primarily reflecting mitigation of firm transportation costs. Depreciation, depletion and amortization was $13.87 per BOE and general and administrative expenses totaled $85 million for the quarter, reflecting continued focus on reducing the Company's corporate cost structure.

Losses from equity method investments totaled $24 million for the first quarter, primarily impacted by the acceleration of turnaround maintenance expenditures into the first quarter at the AMPCO Methanol Plant in Equatorial Guinea, along with weakness in global commodity pricing.

The Company's effective tax rate on adjusted earnings was approximately 20%. On this basis, current tax expense was $35 million, resulting from the income generated in West Africa and Israel. Deferred taxes were a benefit of $25 million on this same basis.

Included in the Company's results for the quarter were $4.2 billion of impairments associated with the Company's Texas proved and unproved properties, resulting from a decline in commodity prices. The Company's consolidated financials also included a $110 million goodwill impairment ($38 million to Noble Energy's interest) related to Noble Midstream Partners Saddle Butte Pipeline system in the DJ Basin.

Ops Update

U.S. Onshore

Sales volumes from the Company's U.S. onshore assets totaled 269 MBoe/d in the first quarter, with the DJ Basin contributing 156 MBoe/d, the Delaware averaging 67 MBoe/d, and Eagle Ford of 46 MBoe/d. During the quarter, the Company operated 4.5 rigs (2.5 DJ and 2 Delaware) and drilled 56 wells (42 DJ and 14 Delaware) onshore. Noble Energy completed 59 wells (36 DJ and 23 Delaware) and commenced production on 51 new wells (29 DJ and 22 Delaware). The number of wells commencing production was higher than anticipated as the Company continued to reduce drilling and completion cycle times through operational efficiencies.

In the DJ Basin, total sales volumes and oil were higher than planned, benefitting from strong well performance in Mustang, Wells Ranch and East Pony. First quarter 2020 activity was focused in Wells Ranch and Mustang where 20 wells from Row 2 were turned to production. Recent Mustang wells utilize a revised tankless facility, contributing to a smaller surface footprint, decreased emissions and improved well costs. LOE for the quarter reflected continuous improvement initiatives, including compression optimization and reduced labor costs, resulting in LOE of $3.36 per BOE. During the quarter, the Company received approval for the Wells Ranch Comprehensive Drilling Plan (CDP). This CDP encompasses 41,000 acres, with the potential for an additional 250 drilling permits to be approved.

Delaware Basin sales volumes were higher than plan due to strong base well performance and accelerated turn-in-lines. Of the 22 wells commencing production in the quarter, 20 were Wolfcamp A wells focused in the northern and central portion of the Company's acreage, with the remaining two wells being 3rd Bone Spring. Record low LOE of $6.67 per BOE benefitted from artificial lift optimization, lower workover expense, and reliability improvements provided by the Company's electrical substations. Full service on the EPIC crude oil pipeline began April 1, 2020.

The Company's Eagle Ford operations continue to focus on cash flow optimization.

Eastern Mediterranean

First quarter 2020 sales volumes from the Company's Israel assets totaled 393 MMcfe/d, an increase of 80% from the fourth quarter of 2019, due to the startup of Leviathan. Gross daily sales averaged 785 and 636 MMcfe/d for the Tamar and Leviathan fields, respectively, in the quarter, for a total of 1.42 billion cubic feet of natural gas equivalent per day. Gross sales to Israel averaged 1,052 MMcfe/d, while exports averaged 370 MMcfe/d. Beginning in March 2020, demand in the region began to be negatively impacted by the regional and global economic slowdown resulting from the COVID-19 pandemic.

The Leviathan project experienced approximately 95% runtime during its first quarter after startup, with export systems to Jordan and Egypt being successfully brought online. Commissioning activities for Leviathan continued during the quarter, and all four wells are now capable of producing over 350 MMcfe/d each.

West Africa

Sales volumes for Equatorial Guinea averaged 55 MBoe/d, including 21 MBbl/d of crude oil. Liquid sales volumes for the quarter were higher than production volumes by approximately 3 MBbl/d. Strong performance from the Aseng 6P oil development well contributed to higher than planned liftings.

The Alen Gas Monetization project continues to progress towards an early 2021 start-up. All equipment and material deliveries remain on track to achieve this outcome in the face of COVID-19 induced global supply chain challenges. During the quarter, the Company finalized its Alen LNG offtake arrangement with sales to a large multi-national LNG trader.

Capital and Cost Guidance

As a result of the current macroeconomic and commodity environment, the Company has further lowered its planned full year capital expenditures by $50 million to a range of $750 to $850 million, which represents a reduction of 53% from the midpoint of its original guidance. Approximately 50% of the updated capital expenditure amount was spent in the first quarter.

U.S. onshore capital expenditures are now estimated to be $575 million for full-year 2020. The Company is currently operating one drilling rig (in the DJ Basin) and has temporarily halted all completion activity. The remaining capital is expected to be allocated towards major project developments and necessary pipeline infrastructure in Equatorial Guinea and Israel. The Company's exploration activity offshore Colombia has been deferred beyond 2020.

Reflecting continued cost reduction initiatives and changes in the Company's anticipated production, an additional $50 million in cash cost savings (from lease operating, general and administrative, and asset retirement) has been identified for a total reduction of $225 million for 2020. Combined with reduced capital and dividend payments, the Company has reduced its cash outlays for 2020 on these items by approximately $1.3 billion.

Given the uncertainty of COVID-19 impact and the pace of oil demand recovery, the Company is not providing detailed volume or cost guidance for 2020 at this time.