Reported net income, earnings per share and discretionary cash flow were the highest Noble Energy has reported since the first quarter of 2001. On a continuing basis, the company reported net income of $75.3 million, $1.30 per share. Discontinued operations reported net income of $10.2 million, or 18 cents per share.
The increase in net income and discretionary cash flow versus the first quarter last year primarily reflected a 17 percent increase in daily production from continuing operations. Lower exploration expense, which declined $18.9 million (53 percent), a six percent increase in realized crude oil prices and a four percent increase in natural gas prices also contributed to the increase in net income.
Charles D. Davidson, the company's Chairman, President and CEO, said, "Our strong operating and financial performance during the first quarter reflect the repositioning of Noble Energy that has taken place over the past three years. Two major international projects, the Phase 2A condensate expansion in Equatorial Guinea and natural gas sales in Israel, began to contribute production and earnings. Our domestic operations demonstrated strong production growth, primarily as a result of our deepwater success. And finally, overall unit costs declined compared to last year. With renewed focus on our domestic operations and the continuing ramp up of our international projects, I expect the company to continue to deliver improved performance throughout the year."
First quarter 2004 production volumes from continuing operations increased 12 percent to 106,615 barrels of oil equivalent per day (Boepd) from 95,070 Boepd for the fourth quarter last year. Domestic production increased seven percent, primarily attributable to increased domestic crude oil production from the deepwater Gulf of Mexico. International production increased 22 percent, primarily because of increased condensate volumes resulting from the start-up of Phase 2A in Equatorial Guinea, the start-up of natural gas sales and production in Israel and increased production in China over the fourth quarter last year.
Compared to the first quarter 2003, overall production volumes from continuing operations for the first quarter 2004 increased over 17 percent to 106,615 Boepd from 90,823 Boepd. Domestic operations had a production increase of 14 percent. International volumes increased 24 percent compared to the first quarter 2003.
Oil and gas unit operations expense for the three months ended March 31, 2004 were $4.19 per barrel of oil equivalent (BOE) compared to $4.53 per BOE for the same period last year. Depreciation, depletion and amortization decreased to $8.01 per BOE compared to $8.56 per BOE in the first quarter of 2003. Selling, general and administrative expense also declined to $1.55 per BOE compared to $1.67 per BOE last year. The quarter-over-quarter decrease in unit costs was due to higher production volumes, including production from lower cost fields.
Continuing domestic operations reported operating income for the first quarter of $81.1 million, compared to $45.6 million for the first quarter last year.
Domestic operations benefited from higher crude oil production and higher realized prices for crude oil and natural gas during the quarter. The average domestic realized crude oil price was $30.57 per barrel (Bbl) compared to $25.40 per Bbl during the first quarter of 2003. The average domestic realized natural gas price was $5.50 per thousand cubic feet (Mcf) compared to $5.18 per Mcf last year.
Oil and gas operations expense and depreciation, depletion and amortization increased $3.4 million and $7.3 million, respectively, compared to the first quarter of 2003, primarily because of increased production. On a unit basis, costs declined across the board compared to the first quarter of 2003. Oil and gas operations expense declined slightly to $4.57 per BOE from $4.59 per BOE. Depreciation, depletion and amortization declined to $10.62 per BOE from $10.77 per BOE, and selling, general and administrative expense declined to 62 cents per BOE from 81 cents per BOE. Exploration expense declined $7.2 million compared to the first quarter of last year due to lower dry hole expense.
Noble Energy's onshore operations were very active during the first quarter, drilling 21 wells with 17 successes. The company plans to drill 95 onshore wells in 2004, of which 34 are to be drilled in the Gulf Coast area and 61 are scheduled for the Rocky Mountain and Mid-continent areas.
In March, Noble Energy bid successfully on 24 lease blocks at the Central Gulf of Mexico Outer Continental Shelf Sale 190. Noble Energy was the high bidder on 22 shelf blocks that contain deep objectives below 15,000 feet. In the deepwater, the company was the high bidder on two blocks.
In April, Noble Energy announced successful results from the Green Canyon Block 768 #1 exploration well (Ticonderoga) and the acquisition of an additional interest in the Green Canyon Block 199 discovery well (Lorien). Both Ticonderoga and Lorien are located in the deepwater Gulf of Mexico. The Lorien acquisition increased the company's working interest from 20 percent to 60 percent, and Noble Energy took over as operator of the block. The initial Ticonderoga well and a sidetrack encountered over 250 feet of net high quality pay, primarily crude oil. Potential resources at Ticonderoga are estimated to be in the range of 30 to 50 million barrels of oil equivalent.
International operations reported record operating income for the first quarter of $66.8 million compared to operating income of $36.1 million in the first quarter last year. First quarter 2004 international production volumes increased 24 percent to 41,546 Boepd from 33,508 Boepd for the same quarter last year.
Reflecting increased low cost production volumes, first quarter 2004 depreciation, depletion and amortization declined to $3.67 per BOE from $4.62 per BOE for the same period last year. Unit selling, general and administrative expense declined to eight cents per BOE from 30 cents per BOE last year. Oil and gas operating and transportation expense decreased to $4.78 per BOE from $5.17 per BOE as a result of the start-up of production in Israel.
Total operating income in Equatorial Guinea, which includes results from field operations and methanol operations, for the first quarter of 2004 was $35.1 million compared to $24.0 million last year. Operating income from Equatorial Guinea was the company's highest since methanol operations began in May 2001.
Liquid petroleum gas (LPG), natural gas and condensate sales accounted for $22.4 million, or 64 percent, of operating income from Equatorial Guinea. First quarter 2004 production volumes averaged 17,735 Boepd, a 31 percent increase over last year. The average realized price for liquids during the first quarter was $31.34 per Bbl compared to $30.01 per Bbl for the same period last year. Natural gas was sold to the methanol operations at a price of 25 cents per Mcf.
Operating income from methanol operations was $12.7 million net to Noble Energy's interest. Methanol operations' results are reported as income from unconsolidated subsidiaries. First quarter realized methanol prices averaged 63 cents per gallon (Gal) compared to 66 cents per Gal last year. The company's share of methanol sales volumes was 38.2 million Gal, an increase of 11 percent compared to 34.5 million per Gal for the first quarter of 2003.
Natural gas sales commenced from the Mari-B field in Israel on February 18, 2004. First quarter operating income was $0.2 million. Costs associated with the start-up of production and fixed costs affected operating income as production in Israel began to ramp up during the first quarter 2004. Not included in earnings, but included in cash flow from operations, are take- or-pay receipts of $4.5 million for the first quarter of 2004.
Gross natural gas production rates reached 100 million cubic feet per day (MMcfpd) by mid-March, with daily production averaging above 100 MMcfpd since that date. Ultimate gross production under the IEC contract is planned to reach 170 MMcfpd (70 MMcfpd net). Noble Energy has a 47 percent working interest in this project.
In the North Sea, operating income for the first quarter of 2004 increased 23 percent to $18.7 million compared to $15.2 million last year. The quarter- over-quarter improvement reflects lower depreciation, depletion and amortization expense and higher other income.
Other international, which includes operating results from Argentina, China and Ecuador, reported operating income of $12.9 million for the first quarter 2004 compared to an operating loss of $2.8 million last year. The increase in operating income primarily reflects increased crude oil sales and lower exploration expense in China.
Noble Energy's Machala power plant contributed $6.1 million of operating income during the first quarter 2004 compared to $5.7 million for the same period last year. During the quarter, 253,061 megawatts (MW) were produced at an average sales price of 6.7 cents per kilowatt hour (Kwh). For the first quarter 2003, the company produced 223,206 MW at an average sales price of 8.7 cents per Kwh. For the first quarter 2004, Noble Energy produced 29.1 MMcfpd of natural gas from the Amistad field at an average price of $2.97 per Mcf.
In South Bohai Bay offshore China, production from the Cheng Dao Xi (CDX) field was 3,968 barrels of oil per day (Bopd) compared to 2,491 for the same period last year. China had operating income of $5.0 million during the first quarter compared to an operating loss of $9.7 million for the first quarter of 2003. Noble Energy has a 57 percent working interest in CDX.
Production -- the range of expected average barrels of oil equivalent production from continuing operations in 2004 has been increased to 13 percent to 18 percent over the average for the full year 2003 of 92,116 Boepd. Noble Energy's production profile will be impacted by several factors, including:
Major international projects scheduled to contribute incremental production this year include:
Costs and expenses -- compared to the full year 2003, costs and expenses may vary as follows:
The above estimates do not include the impact of Noble Energy's possible asset purchases or sales, if any.
Capital Expenditures -- Noble Energy expects 2004 capital expenditures to be $600 million, compared to the $460 million announced in February of this year. Of the expected increase in the capital budget, approximately 60 percent is to pursue new exploration and development opportunities in the United States, the North Sea and Equatorial Guinea. The remaining 40 percent increase is for the completion of the Phase 2A and Phase 2B expansion in Equatorial Guinea.
New exploration and development opportunities include:
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