Discretionary cash flow was the company's highest since Noble Energy began reporting the number in 1999. Net income and earnings per share were the company's highest since the first quarter of 2001.
The increase in net income and discretionary cash flow versus the first quarter last year primarily reflected a 19 percent increase in realized commodity prices. Lower depreciation, depletion and amortization expense (DD&A), which declined $7.2 million, and higher operating income from electricity sales in Ecuador and methanol sales from Equatorial Guinea also contributed to the increase in net income.
Charles D. Davidson, the company's Chairman, President and CEO, said, "Our first quarter results reflect an ongoing trend of improving operating and financial performance that began in early 2004, continued through the first quarter of this year and is expected to continue for some time. Our recent successes in the deepwater Gulf of Mexico have led to three significant projects that will add new production through 2006, with our Swordfish development scheduled to begin producing by mid-year at 10,000 barrels of oil equivalent per day, net. The Phase 2A condensate expansion project in Equatorial Guinea is complete and is exceeding expectations. The Phase 2B liquids expansion project is nearly complete, with production expected to commence late in the second quarter this year. Total unit costs declined compared to last year, continuing a trend that began in 2003. With our deepwater developments and expansion in Equatorial Guinea scheduled to add new production in the second half, I expect the company to continue to deliver improved performance."
First quarter 2005 production was 105,051 barrels of oil equivalent per day (Boepd), compared to 106,615 Boepd for the first quarter last year. International production increased 24 percent over the first quarter last year due to increases in the following:
* Condensate volumes resulting from the start-up of Phase 2A in
* Natural gas sales in Israel, where sales commenced in February 2004,
* Crude oil production in China.
The increase in international production was offset by expected lower domestic volumes. Domestic production decreased primarily because of natural decline on the Gulf of Mexico shelf, including an anticipated decline at Roaring Fork (South Timbalier 315/316), and the shut-in production at Main Pass 293/305/306 in the Gulf of Mexico that resulted from damage caused by Hurricane Ivan during the third quarter 2004.
The average realized price during the first quarter 2005 was $33.38 per barrel of oil equivalent (BOE). Total costs (lease operating expense, transportation, production taxes, DD&A and selling, general and administrative expense) for the three months ended March 31, 2005 declined to $14.13 per BOE, compared to $14.19 per BOE for the same period last year. DD&A decreased over seven percent to $7.45 per BOE, compared to $8.01 per BOE in the first quarter of 2004, reflecting increased international production.
Domestic operations reported operating income for the first quarter of $80.7 million, compared to $81.1 million of income from continuing operations for the first quarter last year.
Domestic operations benefited from higher realized prices for crude oil and natural gas during the quarter. The average domestic realized crude oil price was $37.82 per barrel (Bbl) compared to $30.57 per Bbl during the first quarter of 2004. The average domestic realized natural gas price was $6.50 per thousand cubic feet (Mcf) compared to $5.50 per Mcf last year.
Noble Energy's onshore operations were very active during the first quarter, drilling 89 wells with 82 successes. The company plans to drill nearly 350 onshore wells in 2005, of which 38 are to be drilled in the Gulf Coast area, and the remaining wells are planned for the Rocky Mountain and Mid-continent areas. During 2004, Noble Energy participated in 111 domestic onshore development and exploration wells. The increase in onshore drilling activity this year is the result of successful infill pilot projects drilled in 2004 on the Niobrara formation in northeast Colorado. Regulatory approval for 40-acre drilling density has been granted for development, and the company plans to drill up to 235 wells in the Niobrara Trend in 2005.
In March 2005, Noble Energy bid successfully on eight lease blocks at the Central Gulf of Mexico Outer Continental Shelf Sale 194. Noble Energy was the high bidder on eight deepwater blocks, including six blocks in the Mississippi Canyon area, one block in Green Canyon and one block in Viosca Knoll.
International operations reported a 69 percent increase in first quarter operating income to $112.6 million, compared to $66.8 million in the first quarter last year. First quarter 2005 international production volumes increased 24 percent to 51,374 Boepd from 41,546 Boepd for the same quarter last year.
Reflecting increased low cost production volumes in Equatorial Guinea and Israel, lease operating expense, production taxes and transportation expense decreased to $4.36 per BOE from $4.78 per BOE. First quarter 2005 unit DD&A remained flat with the same period last year at $3.72 per BOE, compared to $3.67 per BOE.
Total operating income in Equatorial Guinea, which includes results from field operations and methanol operations, for the first quarter of 2005 increased 71 percent to $60.1 million, compared to $35.1 million last year. Operating income from Equatorial Guinea was the company's highest since methanol operations began in May 2001. Equatorial Guinea has reported six consecutive quarters of increasing operating income.
For the third consecutive quarter, liquid petroleum gas (LPG), natural gas and condensate sales generated increased operating income. LPG, natural gas and condensate sales reported record operating income of $43.5 million, 72 percent of the total from Equatorial Guinea. First quarter 2005 production volumes averaged 21,435 Boepd, a 21 percent increase over last year. The average realized price for liquids during the first quarter was $44.03 per Bbl compared to $31.34 per Bbl for the same period last year.
Operating income from methanol operations was $16.6 million net to Noble Energy's interest. Methanol operations' results are reported as income from unconsolidated subsidiaries. First quarter realized methanol prices averaged 79 cents per gallon (Gal) compared to 63 cents per Gal last year. The company's share of methanol sales volumes was 43.1 million Gal, an increase of 13 percent compared to 38.2 million Gal for the first quarter of 2004.
In the North Sea, first quarter 2005 operating income increased to $19.7 million, compared to $18.7 million last year. The quarter-over-quarter improvement primarily reflects higher commodity prices, which offset lower production volumes resulting from natural field decline. The average realized price for liquids during the first quarter was $46.87 per Bbl, compared to $33.65 per Bbl for the same period last year. The average realized price for natural gas was $5.82 per Mcf, compared to $4.97 per Mcf last year.
First quarter 2005 operating income was $10.5 million, compared to $0.2 million for the same period last year. Natural gas sales in Israel commenced during February 2004. Lease operating expense and DD&A averaged 36 cents per Mcf and 48 cents per Mcf, respectively.
Natural gas production, net to Noble Energy, averaged 58.7 million cubic feet per day (MMcfpd) for the first quarter. Ultimate gross production under the contract with the Israel Electric Corporation is planned to average 170 MMcfpd (70 MMcfpd, net). Noble Energy has a 47 percent working interest in this project.
Argentina, China and Ecuador
First quarter 2005 operating income from Argentina, China and Ecuador increased nearly 73 percent to $22.3 million, compared to $12.9 million for first quarter last year.
Noble Energy's Machala power plant contributed $10.2 million of operating income during the first quarter 2005, compared to $6.1 million for the same period last year. The quarter-to-quarter increase reflects lower DD&A and higher power prices. For the quarter, 208,771 megawatt-hours (Mwh) were produced at an average sales price of 10.3 cents per kilowatt-hour. For the first quarter 2005, Noble Energy produced 24.5 MMcfpd of natural gas from the Amistad field.
In China, first quarter operating income was a record high $11.8 million, up 136 percent compared to $5.0 million for the first quarter of 2004. Net production in China increased 34 percent versus the first quarter last year, averaging a record 5,322 barrels of oil per day. Net production in Argentina averaged 3,426 Boepd for the first quarter.
The estimates provided below do not include the impact of Noble Energy's previously announced proposed merger with Patina Oil & Gas Corporation, nor do they include possible asset purchases or sales. Following the close of the proposed merger, Noble Energy will provide updated guidance for 2005, taking into consideration purchase price accounting, the actual closing date, and any other relevant factors. The 2005 outlook provided in the remainder of this section reflects management's expectations of Noble Energy's performance on a stand-alone basis.
The company has budgeted capital expenditures of $735 million for 2005. Approximately 30 percent of the 2005 capital budget has been allocated for exploration opportunities, and 70 percent has been dedicated to production, development and other projects. Domestic spending is budgeted at $485 million, international expenditures are budgeted at $228 million, and corporate expenditures are budgeted at $22 million.
Average BOE production from continuing operations in 2005 is expected to increase ten percent compared to the full year 2004. Noble Energy's production profile may be impacted by several factors, including:
* The timing of the production increases from Phase 2B in Equatorial Guinea and deepwater developments in the Gulf of Mexico during 2005;
* Seasonal variations in electricity demand and the timing of infrastructure development in Israel;
* Seasonal variations in rainfall in Ecuador that affect the company's natural gas-to-power project; and
* Potential weather-related shut-ins in the U.S. Gulf of Mexico and Gulf Coast areas.
Compared to the full year 2004, costs and expenses may vary as follows:
* Exploration expense is expected to range from $140 million to $160 million.
* SG&A expense is expected to range from $1.45 per BOE to $1.65 per BOE.
* Oil and gas lease operating expense is expected to range from $3.70 per BOE to $3.90 per BOE.
* DD&A expense is expected to range from $7.00 per BOE to $7.50 per BOE.
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