Quarterly / Earnings Reports | Third Quarter (3Q) Update

Noble Energy Reports Q3 2019 Results

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   |    Thursday,November 07,2019

Noble Energy, Inc. announced third quarter 2019 financial and operating results.

Highlights include:

• Capital expenditures funded by Noble Energy were more than 12% below the midpoint of guidance at $556 million.
  • DJ Basin and Delaware Basin well costs have been reduced a further $500 thousand per well; now more than $2 million per well below year-end 2018 costs.
  • Leviathan project spend was more than $30 million under guidance in the third quarter.
• Total Company sales volumes of 385 MBoe/d were at the high end of Company expectations.
  • U.S. onshore volumes increased 30 MBoe/d (10 MBbl/d oil) from the second quarter 2019.
  • DJ and Delaware Basin total volumes and oil volumes represented quarterly records.
  • Gross natural gas sales from Israel totaled over 1 Bcfe/d.
• Unit production costs were below guidance at $8.39 per BOE, driven by workover reductions, compression optimization and lower fuel costs.
• The Leviathan project is 96% complete, and the production decks were installed on the jacket in the third quarter. First production from Leviathan is now expected in December 2019, and total gross capital for the project has been reduced $150 million to $3.6 billion.
• An infield development well was drilled and completed under budget at the Aseng field in Equatorial Guinea. First oil production occurred in October 2019.

David L. Stover, Noble Energy's Chairman and CEO, commented, "Noble Energy continued its strong execution momentum in the third quarter, with further capital efficiency gains onshore and the accomplishment of major project milestones offshore. In 2019, we've significantly lowered the capital and cost intensity of our business through continuous improvement initiatives. This is reflected in a $200 million reduction in our 2019 capital expenditures from original plan, which we are prioritizing for the balance sheet rather than additional growth. We have also delivered more than a five percent reduction in our operating and G&A costs versus plan this year. As we head into 2020, we are differentially positioned with a lower corporate decline profile, reduced maintenance capital needs, and materially higher cash flows. We are on track to deliver sustainable long-term free cash flow and increasing returns to investors."

Q3 2019 Production and Operational Results

Total sales volumes for the quarter averaged 385 thousand barrels of oil equivalent per day (MBoe/d), an increase of 12% from the third quarter 2018. The Company's U.S. onshore assets averaged a record 293 MBoe/d in the third quarter 2019, with total liquids volumes of 203 thousand barrels per day (MBbl/d). U.S. onshore oil was a record 127 MBbl/d. The Company's international portfolio contributed 92 MBoe/d in the quarter with 21 MBbl/d of liquids volume.

Benchmark Index prices for crude oil, natural gas and NGLs weakened in the U.S. as compared to the second quarter 2019. The Company's realized U.S. onshore oil price reflected an average differential consistent with prior periods, while natural gas differentials in the DJ and Delaware Basins improved compared to the benchmark. Noble Energy's U.S. onshore NGL realizations reflect consistent transportation and fractionation costs as compared to prior periods.

Across the U.S. onshore portfolio, the Company operated 5 rigs (2 DJ and 3 Delaware) and drilled 49 wells (30 DJ and 19 Delaware) in the quarter. Noble Energy completed 48 wells (28 DJ and 20 Delaware) and commenced production on 55 new wells (38 DJ and 17 Delaware). Internationally, the Company drilled and completed an oil development well in the Aseng field in Equatorial Guinea.

Denver-Julesburg Basin

The DJ Basin averaged 158 MBoe/d, up 25% from the third quarter 2018, while continuing to generate operating cash flow in excess of capital expenditures. Total oil volumes of 73 MBbl/d were a quarterly record for the Company. Production from the Wells Ranch and Mustang areas each grew to over 60 MBoe/d, net, with 23 and 15 wells, respectively, turned-in-line. Well costs decreased an additional $500 thousand per well from the first half 2019, led by continued capital efficiencies and cycle time reductions in drilling and completion.

Included in the Company's wells drilled in the third quarter was a world record 10,308 foot lateral drilled in under 24 hours. The Company utilized its first electric-powered drilling rig in the Mustang area during the quarter. The use of an electric drilling rig is anticipated to reduce emissions by 130 tons per year, while also significantly reducing noise and fuel costs.

Following on the success of the Mustang Comprehensive Drilling Plan (CDP), the Company submitted for approval of the North Wells Ranch CDP. The North Wells Ranch CDP covers approximately 38,000 net acres and will provide up to 250 additional permits.

Delaware Basin

Sales volumes from the Company's Delaware Basin assets totaled 70 MBoe/d, up 21% from the third quarter 2018. During the quarter, the Company brought online its second full section row development project, a 9-well development in the central portion of the Company's acreage. Initial results highlight strong well performance and continued capital efficiency gains from row development. Drilling days for the quarter were reduced to an average of 17 days and pressure pump hours per day continued to trend upward, averaging 13 hours per day in the quarter. Well costs have continued to trend favorably with an incremental $500 thousand per well savings from the first half 2019.

During the third quarter, the Company began transporting crude oil volumes to the Gulf Coast on the EPIC Y-Grade Pipeline temporary oil service.

Eagle Ford

Sales volumes from the Eagle Ford totaled 65 MBoe/d for the third quarter 2019, benefitting from late second quarter 2019 wells commencing production. Base production for the third and fourth quarter 2019 has been impacted by unplanned facility repairs, which began in September and were completed in late October. The impact to production for each quarter is approximately 5 MBoe/d.

Eastern Mediterranean

Third quarter 2019 sales volumes from the Company's Israel assets totaled 234 million cubic feet of natural gas equivalent per day. During the quarter, the Tamar field reached a milestone of 2 trillion cubic feet (Tcf) of natural gas produced with runtime of over 99% since startup.

Delivery of the Leviathan project is ahead of schedule and below budget. During the quarter, the production decks were successfully installed on the jacket, setting the offshore world record for the largest crane vessel lift in history (15,300 metric tons). Full hookup of the platform and living quarters, as well as platform commissioning, continues to progress towards first production in December. Acquisition of interest in the EMG pipeline closed in early November 2019.

During the quarter, Noble Energy and its partners amended sales agreements for the delivery of natural gas from the Leviathan and Tamar fields to Dolphinus Holdings Limited in Egypt. The amended agreements now provide for total combined firm contract quantities of 3 Tcf of natural gas, an increase of 1.85 Tcf from the prior agreements.

West Africa

Sales volumes for West Africa averaged 53 MBoe/d, including 16 MBbl/d of crude oil. During the quarter, the Aseng field surpassed 100 million barrels of oil produced. The Company concluded drilling and completion operations at the Aseng 6P development well, under budget. First production commenced in October. The Alen gas monetization project continues to progress, with anticipated start-up in the first half of 2021.

Guidance

The Company has lowered full-year capital expenditures an incremental $100 million for a total reduction of $200 million versus original guidance, bringing the 2019 capital estimate to $2.3 billion. For the fourth quarter, Noble Energy expects organic capital expenditures between $425 million and $475 million. As compared to the third quarter, U.S. onshore spend reflects planned lower activity and offshore spend reflects completion activities on the Leviathan project. In addition to the capital expenditure reductions, the Company has lowered operating cash costs and G&A for the full year 2019 by more than $100 million versus original guidance.

Full-year sales volumes continue to trend above original guidance. Fourth quarter sales volumes are expected to total 364 to 376 MBoe/d, with U.S. onshore volumes anticipated to range between 276 and 288 MBoe/d. Volumes from the DJ Basin are anticipated to increase slightly from the third quarter, while the Delaware Basin is expected to remain relatively level to the third quarter. Eagle Ford production is anticipated to be lower primarily as a result of base production decline. Fourth quarter average production in the Eagle Ford is also negatively impacted approximately 5 MBoe/d by unplanned facility maintenance that was recently completed.

Internationally, West Africa gas volumes are anticipated to be lower than third quarter primarily as a result of continued decline at the Alba field. Israel natural gas volumes are expected to be lower sequentially due to seasonal demand. Noble Energy has not included sales volumes from the Leviathan project in its fourth quarter guidance, however, the project is anticipated to have first gas production in December.

Third Quarter 2019 Financial Results

The Company reported third quarter net income attributable to Noble Energy of $17 million, or $0.04 per diluted share. Net income including noncontrolling interest was $36 million. Excluding items impacting comparability, the Company generated an adjusted net loss and adjusted net loss per share⁽¹⁾ attributable to Noble Energy for the quarter of $47 million and $0.10 per diluted share. Adjusted EBITDAX⁽¹⁾ was $641 million, and cash provided by operating activities was $437 million. Prior to working capital changes, operating cash flow was $550 million for the third quarter.

Third quarter 2019 organic capital investments attributable to Noble Energy included $355 million related to U.S. onshore upstream activities and $17 million for midstream activities funded by the Company. Noble Energy also invested $129 million in the Eastern Mediterranean, primarily for continued development of the Leviathan project, and $47 million in West Africa, primarily for the drilling and completion of the Aseng 6P well. Included in Additions to Equity Method Investments is the Company's $185 million investment to purchase interest in the EMG Pipeline.

Unit production expenses for the third quarter 2019 were $8.39 per barrel of oil equivalent (BOE), including lease operating expenses, production taxes, gathering, transportation, and processing expenses, and other royalty costs. These costs were below guidance primarily as a result of workover reductions, compression optimization, and lower fuel costs.

Marketing and other expenses, including sales and costs of purchased oil and gas, netted to $16 million in the third quarter, primarily reflecting mitigation of firm transportation costs. Depreciation, depletion and amortization was $16.46 per BOE, benefitting from strong production performance. General and administrative expenses totaled $91 million for the quarter, 15% below the third quarter of last year as a result of multiple cost and continuous improvement initiatives.

Income from equity method investments for the third quarter of $10 million was impacted by lower than anticipated methanol and LPG pricing, as well as operating losses on Noble Midstream Partners LP's pipeline investments (EPIC and Delaware Crossing) incurred prior to full service commencement. Midstream Services Revenue of $19 million for the quarter was primarily composed of Noble Midstream Partner LP's gathering revenue from unaffiliated third parties.

The Company's effective tax rate on adjusted earnings was approximately 17%. On this basis, current tax expense was $25 million, resulting from the income generated in West Africa and Israel. Deferred taxes were a benefit of $31 million on this same basis.

During the quarter, the Company initiated an offering of $500 million of 3.25% notes due 2029 and $500 million of 4.20% notes due 2049. Closing of the offering occurred in October 2019 and proceeds were used to fund the redemption of $1.0 billion of 4.15% notes due 2021. The debt transaction removed all near-term maturities of term debt and lowered the Company's annual interest cost by more than $4 million.

The Company ended the third quarter 2019 with $4.0 billion in financial liquidity, including cash and available credit facility.