Noble Energy Reports Net Loss for Q2
Noble Energy, Inc. on Thursday reported a second quarter net loss of $30.7 million, or 17 cents per basic share. Excluding the previously announced after tax loss of approximately $250 million related to certain cash flow hedges that were associated with Gulf of Mexico shelf assets being sold, Noble Energy's adjusted second quarter net income (a non-GAAP measure) would have been $219.3 million, or $1.24 per basic share (see Note 1 below).
Discretionary cash flow (non-GAAP measure, see Schedule 2 -- Determination of Discretionary Cash Flow and Reconciliation) for the second quarter was $605.5 million, an 87 percent increase over $324.5 million for the second quarter of 2005. Net cash provided by operating activities was $406.7 million. Capital expenditures for the quarter totaled $341.8 million.
Recent noteworthy operating items include:
--Daily equivalent sales volumes increase of 37 percent versus second quarter 2005 --First production from the Lorien deepwater Gulf of Mexico development --Successful exploration well (Raton) in the deepwater Gulf of Mexico --First natural gas sales to the Reading power plant in Tel Aviv, Israel
"The sale of our Gulf of Mexico shelf assets and our $500 million stock repurchase program, both of which were announced during the second quarter, represent significant progress in focusing the company's investments on areas that will produce the greatest value for our shareholders," said Charles D. Davidson, Noble's chairman, president, and CEO. "Our strong second quarter results reflect the impact of our high-return organic growth programs. In North America, our three deepwater Gulf of Mexico developments are now on stream, providing significant production, earnings and cash flow. In addition, our recent Redrock and Raton discoveries are expected to be contributors to deepwater production in the future. Our Rockies and Mid- continent drilling programs remain extremely active, and we have now fully integrated the acquired properties from United States Exploration into our Wattenberg operations. Internationally, with the ongoing expansion of natural gas infrastructure, our sales in Israel are continuing to increase. The methanol plant turnaround in Equatorial Guinea is complete, which will lead to increased sales in the near term."
Second quarter 2006 sales volumes increased 37 percent to 192,009 barrels of oil equivalent per day (Boepd), compared to 139,765 Boepd for the second quarter last year. Liquids sales volumes were 85,853 barrels per day (Bpd) compared to 59,296 Bpd for the second quarter of 2005. Natural gas sales volumes were 636.9 million cubic feet per day (MMcfpd) compared to 482.8 MMcfpd last year. Included in the second quarter 2006 sales volumes was 18,928 Boepd from the Gulf of Mexico shelf properties held for sale (see Note 1 below). Pretax hedge losses of $67.9 million, $42.4 million after tax, lowered realized crude oil and natural gas prices $7.32 per barrel and 19 cents per thousand cubic feet (Mcf), respectively.
North America sales volumes increased 69 percent over the second quarter last year. Sales from Noble Energy's Swordfish, Ticonderoga, and Lorien deepwater developments, which commenced in October 2005, February 2006 and April 2006, respectively, contributed approximately 27,443 Boepd during the second quarter of 2006.
International sales volumes declined five percent compared to the second quarter of 2005. The decrease in international sales volumes was primarily attributable to the turnaround and expansion project of the Atlantic Methanol Production Company (AMPCO) methanol plant in Equatorial Guinea, which lasted 57 days and resulted in reduced natural gas sales of approximately 22 MMcfpd for the quarter. Condensate sales in Equatorial Guinea were approximately 2,300 Bpd lower than the second quarter of 2005 due to the impacts of the AMPCO turnaround and fewer liftings. Partially offsetting the production impact of lower liftings and the methanol plant turnaround was increased liquids production in Equatorial Guinea following the completion of the Phase 2B liquids expansion project. Increased natural gas sales in Israel and Ecuador also partially offset lower natural gas production in Equatorial Guinea.
North America reported a pre-tax operating loss for the second quarter of $152.2 million, which includes a previously announced pretax charge of approximately $400 million related to certain cash flow hedges that were associated with Gulf of Mexico shelf assets being sold in the third quarter (see Note 1 below). Excluding the pre-tax charge, North America had pre-tax operating income of $246.4 million, an increase of $107 million, or 77 percent, compared to operating income of $139.4 million for the second quarter last year.
Operations benefited from higher sales volumes and higher realized prices during the quarter. Second quarter sales volumes increased to 134,194 Boepd from 79,218 Boepd for the same period last year. Liquids sales volumes were 51,983 Bpd compared to 25,310 Bpd for the second quarter of 2005. Natural gas sales volumes were 493.3 MMcfpd compared to 323.4 MMcfpd last year. The average liquids price was $53.01 per Bbl compared to $41.70 per Bbl during the second quarter of 2005. The average realized natural gas price was $6.29 per Mcf compared to $6.78 per Mcf last year.
During the second quarter, the company had 23 drilling rigs running onshore (10 in the Rocky Mountains, 10 in the Mid-continent and three in the Gulf Coast) and 49 workover rigs (26 in the Rocky Mountains, 18 in the Mid- continent and five in the Gulf Coast). Noble Energy plans to drill 814 onshore wells in 2006, of which 55 are to be drilled in the Gulf Coast, 493 are planned for the Rocky Mountains and 266 for the Mid-continent. The company also plans approximately 935 refrac, trifrac, and recompletion projects for 2006, most of which will be in the Wattenberg field.
In April 2006, Noble Energy's Lorien deepwater development commenced production. Lorien is the last of three deepwater Gulf of Mexico developments that have come onstream since October 2005 and contributed to strong growth in the deepwater. During the second quarter, total deepwater sales from the Gulf of Mexico were 29,377 Boepd. Also during the second quarter, the company announced two deepwater discoveries, Redrock and Raton. Located within five miles of each other in Mississippi Canyon, additional appraisal work on these discoveries is scheduled for the fourth quarter of this year.
International operations reported operating income for the second quarter of $172 million, an increase of $44.9 million, or 35 percent, compared to $127.1 million in the second quarter last year. Second quarter 2006 sales volumes totaled 57,815 Boepd compared to 60,547 Boepd last year. Liquids sales volumes were 33,870 Bpd compared to 33,986 Bpd for the second quarter of 2005. Natural gas sales volumes were 143.7 MMcfpd compared to 159.4 MMcfpd last year.
Total operating income in Equatorial Guinea increased 56 percent to $118.4 million compared to $75.8 million last year. Total sales volumes in Equatorial Guinea were 29,062 Boepd, net to Noble Energy's interest, compared to 32,318 Boepd during the second quarter of 2005. Lower sales volumes resulted from fewer condensate liftings and the turnaround and expansion projects at the AMPCO methanol plant.
Condensate and natural gas sales, exclusive of the Alba Plant, LLC and methanol operations, accounted for $83.0 million, or 70 percent, of operating income from Equatorial Guinea. Second quarter 2006 net condensate and natural gas sales volumes averaged 21,622 Boepd compared to 29,882 Boepd last year. The average realized price for condensate during the second quarter was $68.76 per Bbl compared to $43.64 per Bbl for the same period last year.
Alba Plant, LLC reported $23.9 million of income from liquefied petroleum gas and condensate sales, net to Noble Energy's interest, compared to $7.1 million during the second quarter 2005. Net Alba Plant, LLC condensate and LPG sales totaled 7,439 Bpd compared to 2,436 Bpd for the same period last year. The increase in operating income and sales volumes for Alba Plant, LLC reflects the completion and ramp up to full production of the Phase 2B expansion. The average Alba Plant, LLC realized price during the second quarter was $46.68 per Bbl compared to $41.29 per barrel for the same period last year.
Income from methanol operations increased slightly to $11.6 million, net to Noble Energy's interest, compared to $11.4 million during the second quarter 2005, despite the 57-day shut down of methanol production for the plant turnaround and expansion. Sales to customers during the shut down period were derived primarily from draws on inventories. The company's share of methanol sales volumes was 32.4 million Gal compared to last year's 33.1 million Gal. Second quarter realized methanol prices were 84 cents per gallon (Gal). The methanol plant restarted at 65 percent of nameplate capacity on July 1. It is expected to reach 100 percent capacity in early August and 110 percent of prior capacity by the fourth quarter.
In the North Sea, operating income for the second quarter of 2006 was $17.9 million compared to $21.5 million last year, resulting primarily from lower crude oil sales due to natural field decline and the timing of liftings. In the U.K. sector of the North Sea, the Dumbarton development was sanctioned during the fourth quarter 2005. Noble Energy expects production from Dumbarton to commence by the first quarter of 2007, with net production averaging 9,000 Boepd during 2007.
Second quarter operating income was $13.3 million compared to $11 million for the same period in 2005. Natural gas sales, net to Noble Energy, averaged 75.3 MMcfpd for the second quarter 2006, compared to 60.7 MMcfpd last year. The increased natural gas sales reflect the commencement of commercial operation of the Eshkol power plant's natural gas turbine as a combined-cycle base load unit. The average realized natural gas price during the second quarter 2006 was $2.66 per thousand cubic feet (Mcf) compared to $2.78 per Mcf for the same period last year. Lease operating expense averaged 31 cents per Mcf and DD&A averaged 45 cents per Mcf.
In June 2006, the natural gas pipeline to Israel Electric Company's Reading power plant in Tel Aviv was commissioned. Natural gas sales to the Reading plant began June 27, 2006.
Argentina, China, Ecuador, and Suriname
Argentina, China, Ecuador and Suriname combined recorded second quarter 2006 operating income of $22.4 million compared to $18.8 million for second quarter last year.
In China, second quarter operating income was $14.5 million. Net production in China averaged 3,919 barrels of oil per day for the second quarter. In Argentina, second quarter operating income was $8.5 million, and net production averaged 3,918 Boepd.
Note 1 -- On July 14, 2006, the company closed its Gulf of Mexico shelf asset sale to Coldren Resources LP. During the second quarter, the company recognized a non-cash charge of approximately $400 million pretax, or $250 million after tax, related to certain cash flow hedges that were associated with future production from the Gulf of Mexico shelf assets that were sold in the third quarter. Adjusting for this non-cash charge, Noble Energy's second quarter net income would have been $219.3 million, or $1.24 per basic share. This adjusted net income amount should not be considered a substitute for net income as reported in accordance with GAAP. Noble Energy is providing adjusted net income for comparison purposes to prior periods and to earnings forecasts prepared by analysts and other third parties. Management believes and certain investors may find that adjusted net income is beneficial in evaluating Noble Energy's financial performance.
Average production in 2006 is still expected to range between 180,000 barrels of oil equivalent (Boepd) and 195,000 Boepd, an increase of 24 percent to 34 percent compared to the full year 2005. This estimate includes the impact of the sale of Noble Energy's Gulf of Mexico shelf assets and the associated loss of production of approximately 20,000 Boepd during the second half of 2006.
For the full year 2006, costs and expenses are expected to range as follows:
- Exploration expense is now expected to range from $160 million to $190 million, reflecting reduced estimates for dry hole expense.
- General and administrative expenses are still expected to range from $1.90 per barrel of oil equivalent (BOE) to $2.20 per BOE.
- Oil and gas operations expense is now expected to range from $4.35 per BOE to $4.70 per BOE, reflecting the decision to add new deepwater business interruption and physical damage insurance at a cost of approximately $15 million, as well as approximately $25 million of Katrina-related hurricane expenses.
- Depreciation, depletion, and amortization is still expected to range from $9.25 per BOE to $9.85 per BOE.
- An effective tax rate of 30 percent to 40 percent is expected. Of the total book taxes planned for 2006, 40 percent to 50 percent are expected to be deferred.
Noble Energy is one of the nation's leading independent energy companies and operates throughout major basins in the United States including Colorado's Wattenberg Field, the Mid-continent region of western Oklahoma and the Texas Panhandle, the San Juan Basin in New Mexico, the Gulf Coast, and the Gulf of Mexico. In addition, Noble Energy operates internationally in Argentina, China, Ecuador, the Mediterranean Sea, the North Sea, West Africa, and Suriname. Noble Energy markets natural gas and crude oil through its subsidiary, Noble Energy Marketing, Inc.
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