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Noble Energy Plans 'Achieving More While Spending Less,' Focus on DJ, Eagle Ford

Noble Energy Inc. spent 14% less sequentially to build its wells during the third quarter but it shattered production records following outperformance from more efficient well designs in northern Colorado and Texas.

Capital expenditures fell year/year to $664 million from $1.34 billion. Meanwhile, U.S. natural gas production increased to 741 MMcf/d from 538 MMcf/d, oil volumes to 83,000 b/d from 67,000 and natural gas liquids (NGL) output nearly doubled to 49,000 b/d from 25,000. Total domestic volumes rose year/year to 255,000 boe/d from 182,000.

CEO Dave Stover discussed the quarterly results during a conference call Monday. Enough has been said about the impact of lower prices on activity and earnings. He instead focused on the positives of better efficiencies and lower operating costs and how they will carry the company forward.

"Next year's onshore capital program will again focus on those activities with the highest returns and value," he said. The Denver-Julesburg (DJ) Basin and Texas portfolios "should continue to attract the majority of our investment. Offshore capital will mainly be attributed to one rig exploration and appraisal program in the Gulf of Mexico.

"While exploration capital will remain lower in 2016 than previous years, we believe this is a great environment to enhance and deepen our exploration inventory of high quality opportunities at a relatively low cost of entry. Although production growth is not the focus, our 2016 volumes will likely be higher than pro forma 2015 levels. The momentum of our business can deliver this at a significantly lower capital program than this year...

"We intend to continue achieving more while spending less."

Noble, 55% weighted to natural gas, "delivered tremendous performance in the third quarter," said the CEO. "This was highlighted by material reductions in our quarterly capital and controllable unit costs, which were driven by continued operational efficiency gains throughout the business. Production outperformed expectations once again, setting us up to operate within cash flow..."

The volumes included Eagle Ford Shale and Permian Basin oil and gas starting in late July after Noble completed its purchase of Rosetta Resources Inc. (see Shale DailyAug. 4). Legacy volumes totaled 337,000 boe/d, an increase of 12% year/year. Production costs fell 14%, with lease operating expense (LOE), production taxes, and transportation/gathering declining to $6.74/boe. LOE by itself fell 20% from a year ago to $3.81/boe -- the lowest level in more than five years.

In the DJ, volumes averaged 13% higher to hit a record 116,000 boe/d. Gas processing capacity on the DCP system, following the start-up of the Lucerne-2 plant, increased to more than 800 MMcf/d, which allowed Noble to reduce line pressures in the northern part of the field particularly the Wells Ranch area, by up to 100 psi. A third-party low-pressure line-loop system (DCP Grand Parkway) is expected to be completed soon.

Noble operated four drilling rigs in the DJ for most of the third quarter; it has since dropped to three with two full-time completion crews. The big news for the DJ are improved designs, with longer laterals and the use of slickwater fluid. Noble drilled 39 wells at an average lateral length of more than 7,300 feet, versus an average well of about 4,500. Production ramped up at 58 wells, equivalent to 70 standard lateral length wells.

"Cumulative production from the slickwater completions is outperforming the hybrid gel wells by more than 20% on average after 30 days," Stover noted. For a standard lateral length well, those designed with slickwater are about 10% lower in total well cost. Based on current activity, Noble expects to exit the year in the DJ with about 40 wells drilled but uncompleted (DUC).

In Texas, Eagle Ford and Permian volumes together averaged 54,000 boe/d from July 21 to the end of September. Most of the production was from the Eagle Ford (84%). From late July, Noble drilled eight operated wells to total depth, including seven in the Eagle Ford and one Wolfcamp A well in the Delaware. Noble expects to exit the year with one rig operating in each Texas play. Fifty wells, including 35 Eagle Ford wells, are expected to be DUCs.

Noble isn't running any rigs in the Marcellus Shale, where it works with partner Consol Energy Inc., but volumes still averaged a record 493 MMcfe/d, a 50%-plus increase year/year. Noble ramped up 16 operated wells during the quarter and expects to exit the year with about 80 DUCs. Although the assets are good ones, don't expect to see the Marcellus getting much attention until prices cooperate, Stover said.

Projected capital expenditures this year have been reduced by about $100 million to $2.9 billion. However, fourth quarter volumes are expected to be higher than previous guidance at 385,000-405,000 boe/d.

Noble lost $283 million (minus 67 cents/share) in 3Q2015, compared with earnings a year ago of $419 million ($1.16). The one-time charges included derivative losses of $17 million, terminating a benefit pension program ($67 million), costs incurred as part of the merger with Rosetta ($71 million) and various other items ($22 million). Revenue declined to $801 million from $1.27 billion. Operating losses totaled $467 million versus profits a year ago of $230 million. Net cash provided by operating activities fell to $520 million from $945 million. The U.S. realized gas price fell year/year to $2.01/Mcf from $3.41, with oil to $42.42/bbl from $94.21, and NGLs to $7.49 from $29.53.

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