Noble Energy Sees 44% Increase in 2Q Profits
Noble Energy reported second quarter 2011 net income of $294 million, or $1.61 per share diluted, on revenues of $954 million. The Company's second quarter 2010 net income was $204 million, or $1.10 per share diluted, on revenues of $751 million. Net income for the second quarter 2011 includes unrealized commodity derivative gains, a gain on asset divestiture, as well as certain asset impairments. Excluding these items, second quarter 2011 adjusted net income was $263 million, or $1.44 per share diluted. Adjusted net income for the second quarter of 2010 was $198 million, or $1.07 per share diluted.
Discretionary cash flow for the second quarter 2011 was $659 million, compared to $496 million for the similar quarter in 2010. Net cash provided by operating activities was $745 million, and capital expenditures were $702 million.
Key highlights for the second quarter 2011 include:
- Sold 174 million cubic feet per day (MMcf/d) of natural gas in Israel, up 44 percent from the second quarter last year
- Produced a record 59 thousand barrels of oil equivalent per day (MBoe/d) in the DJ basin
- Drilled longest-ever horizontal Niobrara well in the DJ basin with a 9,100 foot lateral in the Wattenberg field
- Announced a discovery at Santiago in the deepwater Gulf of Mexico and increased Galapagos net production impact to over 10 thousand barrels of oil per day
- Accelerated startup of Aseng, offshore Equatorial Guinea, with first oil production now expected by year-end 2011
- Completed transfer of assets and exit from Ecuador
- Increased liquidity to over $3.6 billion, with $1.5 billion in cash at the end of the period
Charles D. Davidson, Noble Energy's Chairman and CEO, commented, "The second quarter was another strong quarter for Noble Energy. With our performance to date, we now expect sales volumes for the year will fall in the top end of our original guidance range. The second half of the year will be very active for our Company with further expansion of the DJ basin horizontal Niobrara play and active rig programs in all of our key offshore regions. We continue to make excellent progress on our major development projects with Aseng in Equatorial Guinea now well ahead of schedule and our exploration success at Santiago being integrated into the Galapagos project plans. In addition, we anticipate testing multiple exploration opportunities in West Africa, the Eastern Mediterranean, and the deepwater Gulf of Mexico before the end of the year."
The Company's total sales volumes for the second quarter 2011 averaged 215 MBoe/d. Production volumes were 216 MBoe/d, with the difference attributable to crude oil and condensate underliftings in Equatorial Guinea. Excluding the 2010 sale of certain onshore U.S. assets, as well as the impact of the Company's exit from Ecuador, sales volumes were up 3 percent from the second quarter 2010. Growth in the DJ basin and Israel more than offset timing differences in Equatorial Guinea liftings, as well as natural decline in the Company's various other onshore U.S. and deepwater Gulf of Mexico assets.
International sales volumes were 100 MBoe/d, up slightly from the second quarter last year despite lower liquid liftings in Equatorial Guinea and the termination of the Company's activities in Ecuador. Strong power generation demand and lower competing imports led Noble Energy's natural gas sales in Israel to be up substantially from the prior year. In the North Sea, field performance at Dumbarton and Lochranza accounted for increased oil volumes. The Company's 2010 volumes included 27 MMcf/d of natural gas in Ecuador, where its production sharing contract was terminated in late 2010.
Noble Energy's U.S. volumes were 115 MBoe/d for the second quarter of 2011, down versus the prior year period as a result of the 2010 sale of approximately 6 MBoe/d of Mid-continent and Illinois basin oil assets. In the DJ basin, second quarter 2011 volumes averaged over 59 MBoe/d, up 8 percent from the same period in 2010. The increase is attributed to the continued acceleration of the Company's vertical and horizontal drilling programs in Wattenberg. A third-party processing facility expansion came online in June 2011, which is allowing for further field production growth.
The Company's barrel of oil equivalent (Boe) realizations were up significantly for the second quarter 2011 versus 2010. International natural gas as a percentage of total Company volumes grew to 32 percent for the second quarter 2011, with global liquids representing 39 percent, and U.S. natural gas the remaining 29 percent.
Total production costs per Boe, including lease operating expenses, production and ad valorem taxes, and transportation were $7.92 per Boe, up approximately 5 percent from the second quarter 2010. The increase was largely attributable to higher production and ad valorem taxes caused by stronger commodity pricing. Lease operating expense was $5.06 per Boe and depreciation, depletion, and amortization was $12.01 per Boe for the second quarter 2011. Exploration expense for the quarter included recognition of dry hole cost on the Kora well, offshore Senegal and Guinea-Bissau. General and administrative expenses were up primarily related to increased staffing for the development of the Company's major development projects. Noble Energy's adjusted effective tax rate was 33 percent, with 52 percent deferred. Deferred taxes for the second quarter 2011 were impacted by the resolution of prior year tax reviews.
The Company recorded asset impairments totaling $131 million in the second quarter 2011, resulting from field performance at Oliver Creek in East Texas and Iron Horse in Wyoming, combined with a low natural gas price environment. Other operating income/expense includes a $26 million gain on the divestiture of assets, primarily a result of the Company's transfer of assets and exit from Ecuador. The gain and asset impairments are excluded from net income in determining adjusted net income. Also included in other income/expense is a $7 million deferred compensation income item relating to the quarterly value change of Noble Energy stock held in a benefit program.
Noble Energy has raised its full year 2011 sales volume guidance to range from 215 to 218 MBoe/d, with the primary driver being higher natural gas volumes in Israel. For the third quarter 2011, the Company expects volumes to average 215 to 220 MBoe/d. Onshore U.S. volumes should be up versus the second quarter, with crude oil and natural gas growth from the DJ basin offsetting natural declines in other onshore natural gas areas. The deepwater Gulf of Mexico is expected to have lower sales volumes as result of natural decline and the impact of a Swordfish gas well that recently watered out. Higher volumes in Equatorial Guinea and strong demand for natural gas in Israel should contribute to increased international volumes.
The Company also adjusted its 2011 total capital program to approximately $3.0 billion. Over a third of the $300 million increase is related to new high-impact international exploration opportunities, with the remainder supporting the expansion of the Wattenberg horizontal Niobrara program, the acceleration of major projects in Equatorial Guinea, and the addition of a new near-term gas development project in Israel.
The addition of the offshore Senegal and Guinea-Bissau opportunity, as well as the updated timing of a Cyprus exploration well (now planned to spud in the fourth quarter) comprises the majority of the higher exploration capital for 2011.
The Company continues to expand its Niobrara drilling program at Wattenberg, with plans to bring a fifth horizontal rig into the field in the middle part of the third quarter. As a result of the additional rig and continued efficiencies, the Company anticipates drilling around 85 horizontal Niobrara wells in the DJ basin in 2011, up approximately 20 percent from original estimates. Offshore Israel, the Company is proceeding with development of the Noa field in the third quarter of 2011 (first production is expected in the second half of 2012).
In Equatorial Guinea, the Company is continuing to progress its liquid developments at Aseng and Alen. First production at Aseng is now expected by year-end 2011.
Noble Energy has modified its full year exploration expense guidance to range from $380 to $440 million as a result of the new exploration opportunities in West Africa (Senegal and Guinea-Bissau) and Cyprus. In addition, income from equity method investees has been increased to between $165 to $185 million, up from original guidance as a result of strong global liquid prices.
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