Noble Energy has reported today fourth quarter 2008 net income of $305 million, or $1.72 per share diluted. The results included a previously disclosed $513 million ($283 million after-tax) non-cash gain, which represents the unrealized mark-to-market change in the Company's financial hedges. Excluding this item and certain asset impairments of $256 million ($141 million after-tax), which are typically not included by analysts in published estimates, fourth quarter 2008 adjusted net income(1) was $163 million, or $0.91 per share diluted.
The fourth quarter 2008 asset impairments were primarily a result of lower year-end commodity prices. For the same period in 2007, net income was $300 million, or $1.73 per share diluted. Discretionary cash flow(1) for the fourth quarter 2008 was $439 million and net cash provided by operating activities was $418 million. Noble Energy sells forward a portion of its production utilizing financial commodity contracts. Beginning with 2008, the Company changed its accounting method for these contracts to mark-to-market accounting in order to provide greater flexibility and transparency.
Key highlights for the fourth quarter 2008 include:
For the full year 2008, Noble Energy reported net income of $1.35 billion, or $7.58 per share diluted. Excluding certain items typically not included by analysts in published estimates, 2008 adjusted net income(1) was $1.26 billion, or $7.05 per share diluted. Discretionary cash flow(1) for the year was $2.40 billion and net cash provided by operating activities was $2.29 billion. Capital expenditures for the year totaled $2.26 billion.
Other key highlights for the year 2008 include:
"Noble Energy's strong fourth quarter results finish off a milestone year for our Company. On the development side, we continued to move forward our major programs onshore and in the deepwater Gulf of Mexico, and we initiated a second phase of development at Dumbarton in the North Sea. The momentum in our exploration programs continued with some very significant resource discoveries across the globe, highlighted recently by the largest discovery in our history at Tamar offshore Israel. The results from our diversified programs, combined with a forward-looking vision and a strong balance sheet, have positioned us well as we face a very challenging current economic and commodity environment. With a focus on long-term value creation, we are very optimistic about Noble Energy's future," said Noble Energy's Chairman, President and CEO, Charles D. Davidson.
The Company's total sales volumes averaged 208 MBoe/d for the fourth quarter, up five percent from the same period in 2007 after adjusting for the Argentina assets sold earlier this year. For the full year, 2008 sales volumes increased over nine percent from 2007 to an average of 215 MBoe/d after making the similar adjustment for the properties sold.
United States volumes were up three percent over the fourth quarter last year. Record quarterly Northern Region volumes, supported by successful drilling programs primarily at Wattenberg and Piceance, were up six percent from the fourth quarter 2007. In the deepwater Gulf of Mexico, temporary infrastructure-related shut-ins due to hurricanes Gustav and Ike continue to impact operations, with volumes reduced on average 9,000 Boe/d during the fourth quarter 2008.
Effective in 2008, Noble Energy began reporting natural gas liquid volumes separately where the company has the right to the liquids recovered from its natural gas processed at third-party plants. As a consequence, reported natural gas volumes in the United States are lower compared to 2007. Where the rights to the liquids do not exist, the processing revenue will continue to be included in natural gas revenues and benefit realized prices.
Total international volumes were up eight percent versus the fourth quarter 2007 after adjusting for the Argentina asset sale. Volume growth in Israel resulted from continued strength in natural gas demand versus the prior year period. West Africa volumes for the fourth quarter 2008 were reduced approximately 30 million cubic feet per day (Mmcf/d) resulting from longer than expected pipeline maintenance at the Alba field. Even with this extended downtime, West Africa volumes were still above fourth quarter of 2007.
The Company's commodity price realizations were down significantly versus the fourth quarter 2007 with crude oil and condensate down nearly 40 percent to $43.80 per barrel. Natural gas prices were down 32 percent to an average of $3.62 per thousand cubic feet. A pre-tax, deferred commodity hedge loss of $86 million negatively impacted realized crude oil prices for the fourth quarter 2008, whereas natural gas realizations were positively impacted $3 million by previously deferred commodity hedge gains.
Total cash costs, including lease operating, production and ad valorem taxes, transportation, general and administrative, and interest (net) were $11.03 per barrel of oil equivalent (Boe) for the quarter, down five percent from the fourth quarter 2007. Depreciation, depletion, and amortization was $10.35 per Boe, up slightly from the fourth quarter 2007. Exploration expense for the fourth quarter 2008 was favorably impacted by success at the Tamar prospect in Israel.
Year-end 2008 estimated reserves were 864 million barrels of oil equivalent (MMBoe). Noble Energy added total proved reserves of 115 MMBoe, or 147 percent of 2008 production, from discoveries, extensions, performance revisions and acquisitions. These proved reserve additions were offset by negative price revisions in the amount of 47 MMBoe resulting from lower crude oil and natural gas prices at the end of 2008 versus 2007.
Of the total reserve additions, excluding price revisions, United States made up 72 percent and International the remaining 28 percent. Additions in the United States were primarily driven by the execution of low-risk development projects onshore in the Wattenberg and Piceance areas, as well as from the acquisition of certain western Oklahoma assets. Additions at the Alba field in Equatorial Guinea and at the CDX field in China accounted for most of the International additions.
Liquids, including crude oil, condensate, and natural gas liquids, made up approximately 36 percent of total proved reserves, with natural gas comprising the remaining 64 percent. United States reserves represent 59 percent of total proved reserves, while International reserves compose the other 41 percent. Approximately 86 percent of the Company's reserves were audited by independent petroleum consultants.
Total costs incurred in 2008 for oil and gas activities, including acquisition, exploration and development costs were $2.34 billion. Excluding negative price revisions, reserve replacement costs were $20.38 per Boe, or $3.40 per thousand cubic feet equivalent of natural gas.
Noble Energy continued its focus on long-term growth projects, with approximately $750 million invested in 2008 exploration activities. These costs represented 32 percent of total costs incurred. The Company's exploration program in 2008 resulted in significant discovered resources that have not yet been booked as proven reserves, including additional discoveries in West Africa, Gunflint in the deepwater Gulf of Mexico, and Tamar offshore Israel.
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