Noble Energy, Inc. reported second quarter 2012 net income of $292 million, or $1.58 per share diluted. Excluding the impact of unrealized commodity derivative gains and certain other items, second quarter 2012 adjusted net income was $145 million, or $0.77 per share diluted. Net income for the second quarter 2011 was $294 million, or $1.61 per share diluted. Adjusted net income for the second quarter of 2011 was $263 million, or $1.44 per share diluted.
Discretionary cash flow for the second quarter 2012 was $703 million, compared to $659 million for the same quarter in 2011. Net cash provided by operating activities was $506 million, and capital expenditures were $859 million.
As previously announced, Noble Energy is divesting the majority of its North Sea properties and has reclassified the results of its entire North Sea operations as discontinued operations for all accounting periods presented in this release.(2) Net income from continuing operations for the second quarter was $275 million, or $1.49 per share diluted, compared to $269 million, or $1.47 per share diluted, for the second quarter of 2011.
Key highlights for the second quarter 2012 include:
- Horizontal net production within the DJ Basin increased 33 percent from last quarter
- Improved Wattenberg horizontal well estimated ultimate recoveries (EURs) of 340 thousand barrels of oil equivalent (MBoe) in the extension area
- Marcellus Shale well with extended-reach lateral of 8,500 feet produced at an initial rate of 17.9 million cubic feet per day (MMcf/d)
- Aseng field offshore Equatorial Guinea produced at a record average rate of 63 thousand barrels per day (MBbl/d) of oil
- Initiated production from the Noa field offshore Israel at a rate of 100 MMcf/d
- Signed a sales agreement to divest Dumbarton and Lochranza assets in the North Sea
- Achieved start-up at the Galapagos project in the deepwater Gulf of Mexico at rates 30 percent above original estimates
- Identified as high bidder on six deepwater Gulf of Mexico blocks at OCS Sale 222
Charles D. Davidson, Noble Energy’s Chairman and CEO, commented, “The second quarter was another good quarter for Noble Energy. Production and operating costs were in line with our expectations, and we brought online our second major project at Galapagos. The growth of crude oil and liquids continues to be a key driver of our results as they accounted for nearly 50 percent of production and 85 percent of revenue for the quarter. Galapagos, as well as the horizontal programs in both the DJ Basin and Marcellus Shale, will make significant contributions to our production growth in the second half of the year. We continue to make excellent progress on our major international developments, which will extend our growth profile into 2013 and beyond. Exploration activity will move forward into the second half of the year, as we test and appraise several sizable opportunities in our key offshore basins.”
Second quarter 2012 sales volumes totaled 231 thousand barrels of oil equivalent per day (MBoe/d). Sales volumes from continuing operations averaged 224 MBoe/d, up 10 percent from the second quarter 2011. The entire increase was from crude oil, which was up 33 MBbl/d in the quarter. Approximately 47 percent of the Company’s sales volumes were liquids, up from 39 percent last year. International and U.S. natural gas comprised the remaining 21 and 32 percent of sales volumes, respectively. Production volumes from continuing operations for the quarter were 223 MBoe/d, with the difference attributable to the timing of crude oil liftings in Equatorial Guinea.
U.S. sales volumes were 134 MBoe/d, up 17 percent from the second quarter last year. The growth was primarily attributable to the ongoing horizontal drilling program in the DJ Basin and the addition of the Marcellus Shale. Natural production declines in both non-core onshore properties and the deepwater Gulf of Mexico were partially offset by a full quarter of operations at South Raton.
International sales volumes totaled 90 MBoe/d for the quarter, up slightly from the same period last year. Strong operational performance at Aseng offset lower volumes resulting from the management of the reservoir at Mari-B offshore Israel and the timing of planned maintenance activities at the non-operated Alba facilities in Equatorial Guinea.
The average realized price for crude oil and condensate was $99.67 per barrel for the second quarter, down five percent from the prior year period. Natural gas realizations in the U.S. averaged $2.10 per thousand cubic feet (Mcf) and $5.44 per Mcf in Israel. Natural gas liquids pricing in the U.S. averaged $33.06 per barrel, which equates to 33 percent of the Company’s average realized price for U.S. crude oil.
Total production costs per barrel of oil equivalent (Boe), including lease operating expense (LOE), production and ad valorem taxes, and transportation and gathering expenses were $8.29 per Boe, up 12 percent from the second quarter of 2011. LOE was $4.91 per Boe and depreciation, depletion, and amortization (DD&A) was $15.94 per Boe. The unit rates were impacted mostly by the growing contribution from new high-value crude oil production in the deepwater Gulf of Mexico and West Africa. General and administrative expenses were up due to staffing increases supporting major development projects and increased exploration activities. Exploration expense includes the dry hole costs related to the Deep Blue prospect. The Company’s adjusted effective tax rate for the second quarter 2012 was 33 percent, with 35 percent deferred.
In the DJ Basin, the horizontal development program delivered strong performance in the second quarter with net production reaching 24 MBbl/d, a 33 percent increase from the first quarter of 2012. Total basin net volumes averaged 73 MBoe/d of which 57 percent was comprised of crude oil and other liquids. Production this quarter was adversely effected by 4 MBoe/d related to third-party processing plant downtime and hot weather. Noble Energy continued to report excellent results in the DJ Basin from its efforts to improve recoveries. Within the extension area of Wattenberg, 38 wells have been brought online this year. The average production from these wells is tracking a type curve that indicates an EUR of 340 MBoe, which is up from a 315 MBoe EUR in 2011. At the nine-well pilot, where the Company is evaluating down-spacing and multi-zone development, all the wells are performing above a 310 MBoe type curve after a four-month period. The 40-acre down-spaced wells have shown the best performance to date within the pilot area. As a result, the Company plans to execute a 15-well pilot to further test 40-acre spacing in multiple zones and various development patterns. Three new extended-reach wells, with lateral lengths from 7,000 to over 9,800 feet, were turned to sales in the second quarter and are showing excellent results. After one year, the original extended-reach well continues to produce at a rate of approximately 400 Boe per day and remains above a 750 MBoe type curve.
In the Marcellus Shale, production averaged 74 MMcf/d net for the quarter and several pads are expected to come online during the third quarter. In the wet gas area, Noble Energy’s activities were focused in Marshall County, WV, with one operated horizontal rig and a dedicated completion crew. Completion of a gas gathering system in late July will facilitate the production from the Company’s first operated pad. An eight-well pad is also undergoing completion operations and should commence sales in late August. In addition, drilling operations are in progress on a seven-well pad and the Company plans to add two more horizontal rigs in the wet gas area in the third quarter. In the dry gas area, our partner is operating two rigs and recently completed a four-well pad in Westmoreland County, PA with lateral lengths averaging 8,000 feet. Early results show the initial well produced 17.9 MMcf in 24 hours. Noble Energy has raised its EURs in southwestern Pennsylvania to 7 billion cubic feet in the dry gas area, an increase of 17 percent over the Company’s acquisition model curve.
In West Africa, the Aseng field continued to perform at the highest levels, setting a single-day gross production record of 70 MBbl/d. For the second quarter, field operations ran at nearly 100 percent uptime and produced at a record average rate of 63 MBbl/d, which is up nine percent from the first quarter average of 58 MBbl/d. In the eight months since start-up, Aseng has produced a cumulative 13.8 million barrels and operated with less than one percent downtime.
Noble Energy has increased its full-year 2012 volume guidance midpoint by 2 MBoe/d on a pro forma basis, which reflects the U.S. property sales announced to date and North Sea discontinued operations. The resulting full-year range has been raised to 236 to 244 MBoe/d. The Company’s LOE guidance range has been lowered to $5.00 to $5.40 per Boe and DD&A revised to $15.25 to $15.75 per Boe. The range for exploration expense is anticipated to be $450 to $500 million.
For the third quarter of 2012, Noble Energy estimates average daily sales volumes to be between 242 and 250 MBoe/d, which excludes volumes from discontinued operations. The midpoint of the range represents an increase of 10 percent from second quarter volumes. The forecasted production growth is driven by a full quarter of operations at Galapagos, continuation of the horizontal drilling programs in DJ Basin and Marcellus Shale, and increased sales in Israel due to the contribution from the Noa and Pinnacles fields.
Press Release, July 27, 2012