Exploration & Production | Quarterly / Earnings Reports | Third Quarter (3Q) Update
Noble Energy's Completion Design Brings Record Quarter
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Noble Energy, Inc. reported its third quarter 2014 net income of $419 million, or $1.12 per diluted share. Excluding the impact of certain items, which would typically not be considered by analysts in published earnings estimates, third quarter 2014 adjusted income was $110 million, or $0.28 per diluted share. Discretionary cash flow was $811 million and net cash provided by operating activities was $945 million. Capital expenditures for the third quarter of 2014 totaled $1.3 billion.
Total sales volumes for the quarter averaged a record 302 thousand barrels of oil equivalent per day (MBoe/d). This represents an increase of three percent compared to the third quarter of 2013, or 10 percent after adjusting for divested assets. Liquids comprised 43 percent (33 percent crude oil and condensate and 10 percent natural gas liquids) of third quarter 2014 volumes, with natural gas volumes the remaining 57 percent. U.S. sales volumes for the quarter totaled 182 MBoe/d, while International sales volumes totaled 120 MBoe/d, lower than produced volumes by two thousand barrels per day (MBbl/d) due to the timing of liftings in Equatorial Guinea. Versus the third quarter of last year, total sales volumes were up due to the Company's continued development of the DJ Basin and Marcellus Shale resource plays, as well as an increase in Israel due to higher natural gas demand and deliverability.
David L. Stover, Noble Energy's President and Chief Executive Officer, commented, "Our continued growth, highlighted by record quarterly sales volumes in three of our core areas, is the result of strong execution and improving well performance. Enhancements in our U.S. onshore business are being delivered through continued focus on extended reach laterals, optimization of completion designs, and well downspacing in both the DJ Basin and Marcellus Shale. In addition, we brought forward significant value with the very successful IPO of our midstream Marcellus business. Offshore, we had multiple successful wells drilled, with a discovery at Katmai and additional resources found at Dantzler, adding to our already impressive lineup of major projects in the Gulf of Mexico. Expansion of capacity at the Tamar field in Israel is on schedule, and we are capturing substantial and strategic markets for our Leviathan gas as well. Overall, our high-quality and diversified portfolio is designed to build value in a variety of environments."
U.S. Operations Update
Noble Energy Inc. has reported a third quarter update on its domestic operations, which can be accessed below.
Noble Edits DJ Basin Completion Techniques; Sees Production Jump
Noble Ramps Up Marcellus Type Curves; Delineates New Areas
Noble Touts GoM Katmai Discovery, Reserve Increase in 3Q
International Operations
West Africa
Hydrocarbon sales in West Africa averaged 76 MBoe/d, which was comprised of 41 percent crude oil and condensate, eight percent NGLs, and 51 percent natural gas. Sales volumes for the quarter were less than production volumes by approximately two MBbl/d as a result of the timing of liquid liftings. Highlights for the quarter included:
- Active production management and strong reservoir performance at the Aseng oil field, which averaged 40 MBbl/d gross during the quarter, maintained production essentially flat with the second quarter of 2014.
- Successful sidetrack at the Alen 1P well commenced production in early October, and additional workover activities are planned in the fourth quarter of 2014.
- Recently completed a 1,700 square kilometer 3D seismic acquisition over Blocks O and I offshore Equatorial Guinea. Data processing, which is anticipated to be complete in late 2015, and interpretation is designed to assist in the Company's project development and exploration plans over the licenses.
Eastern Mediterranean
In the Eastern Mediterranean, Israel natural gas sales volumes averaged a record 265 MMcfe/d, up 21 percent from the second quarter of 2014 and three percent from the third quarter of last year. Highlights for the quarter included:
- Exceptional reservoir and facility performance continued at Tamar, with only two hours of downtime experienced during the quarter.
- Additional progress was made at the Ashdod Onshore Terminal compression project, which is approximately 80 percent complete. The expansion is targeted to increase deliverability at Tamar to 1.2 billion cubic feet per day (Bcf/d), gross, beginning in mid-2015.
- Debottlenecking of the Tamar facilities has increased current peak production deliverability at Tamar to more than 1.1 Bcf/d, gross. This peak production rate was reached at various intervals during the third quarter to meet local Israel demand for natural gas.
- Executed a Letter of Intent to supply a minimum of 300 MMcf/d of natural gas for 15 years from the Leviathan field to the National Electric Power Company of Jordan. Combined for Tamar and Leviathan, Noble Energy and partners have executed Letters of Intent to export gross daily volumes of up to 1.7 Bcf/d and total volumes of more than 8 trillion cubic feet of natural gas to regional export customers. Negotiations of final gas purchase and sales agreements are underway.
- Received Israel government approval for a Leviathan gas delivery point in the northern region of the country.
- Submitted the Plan of Development for the initial phase of development at the Leviathan field to the Ministry of Energy and Water Resources. The initial phase of development is planned to include a 1.6 Bcf/d Floating, Production, Storage, and Offloading (FPSO) vessel, with initial sales targeted to begin in early 2018 at 75 percent of total FPSO capacity.
Frontier Ventures
Key highlights for the quarter included:
- Secured an exploration license, Block F15, offshore Gabon, covering 670,000 gross acres in the pre-salt Gabon Coastal Basin. 3D seismic acquisition is planned to commence in the first half of 2015.
- Entered into a rig sharing agreement for offshore Falkland Islands, to provide rig resources for two Noble Energy-operated exploration prospects in 2015. The first of the prospects has been named Humpback, one of multiple stacked fan prospects located in the Fitzroy sub-basin of the Southern Area license. The group of stacked fan prospects combined has an estimated gross unrisked resource potential of approximately one billion barrels of oil equivalent. Drilling operations at Humpback are anticipated to commence in mid-2015.
- Relocated a drilling rig from the DJ Basin to the Company's NE Nevada Wilson play. Drilling operations commenced in September 2014, and the Company is planning to drill three additional wells testing the extent of the Elko reservoir in new areas. The Company's initial vertical well began oil sales in July 2014 and has proven the productive nature of the Elko reservoir.
Fourth Quarter Guidance
Noble Energy anticipates fourth quarter 2014 volumes to range from 307 to 327 MBoe/d, consistent with the Company's prior expectations after adjusting for the impact of the sale of its Piceance Basin assets. At the time of sale, the Company's Piceance Basin assets were producing approximately 20 MMcfe/d, net. The midpoint of the updated sales volume range represents an eight percent absolute increase over the fourth quarter of last year. Excluding the impact of divested assets impacting the periods, the comparable increase is approximately 15 percent versus the fourth quarter of 2013. Versus the third quarter of 2014, the midpoint of the range is up five percent and is driven by higher expected volumes in the onshore U.S. through the development programs in the DJ Basin and Marcellus Shale. Offshore, liquids volumes in West Africa are anticipated to be higher as a result of the timing of liftings, while volumes are anticipated to be down in Israel due to seasonal demand and in the Gulf of Mexico from natural field performance.
Financial Results
Third quarter 2014 total production costs, including lease operating expense, production and ad valorem taxes, and transportation and gathering averaged $7.81 per barrel of oil equivalent (Boe), and depreciation, depletion, and amortization totaled $16.56 per Boe. Exploration expense was $217 million, which included costs related to the Bright well in the Gulf of Mexico and the Scotia well offshore the Falkland Islands (drilled in 2012), as well as 3D seismic expenditures incurred offshore Equatorial Guinea. The effective tax rate on adjusted income for the quarter was 39 percent.
Included in the adjustments to net income for the third quarter of 2014 were non-cash commodity derivative gains and a gain on the sale of certain non-core U.S. Onshore assets, primarily the Company's Powder River and Texas Panhandle assets. In addition, the Company recorded an impairment associated with the sale of its Piceance Basin assets.