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Noble’s Record Gains Driven by DJ, Permian, Eagle Ford

Lifted by Colorado and Texas leaseholds, as well as a massive Israeli natural gas project, Noble Energy Inc. delivered strong oil and natural gas volumes, while capital spending at the lower end of expectations.

Quarterly sales volumes averaged 355,000 boe/d, up 10,000 boe/d from the original midpoint, on capital expenditures of $633 million, at the lower end of guidance.

The strong 3Q2017 results reflected “particularly strong performance from our U.S. onshore business,” said CEO Dave Stover during a conference call Tuesday. “The significant value of our recent strategic portfolio repositioning is being realized as onshore cash flows and volumes grow at a rapid pace as we move toward the end of 2017...

“With our focus on significantly improving per unit cash margins and enhancing our overall corporate returns, nearly 100% of our forward capital is being allocated to our three U.S. onshore plays and the Eastern Mediterranean."

Operating cash flow from Colorado’s Denver-Julesburg (DJ) Basin, and from two big plays in Texas, the Eagle Ford Shale and Permian Basin’s Delaware sub-basin, increased more than 40% year/year.  Sales volumes across the U.S. onshore portfolio totaled 219,000 boe/d, 42% weighted to oil, 33% to natural gas and 25% to natural gas liquids (NGL) -- all at the high end of guidance.

Adjusting for the impact of rain storms in late September that affected Eagle Ford production, total onshore volumes would have been 2% above the high end of original guidance, management said.

U.S. onshore oil volumes of 93,000 b/d hit a quarterly record for the company, up 8% sequentially and 25% higher than in the year-ago period, pro-forma for selling the Marcellus Shale portfolio earlier this year.

In the DJ, production in 3Q2017 averaged 112,000 boe/d, including record oil output of 61,000 b/d, 54% of production. Oil volumes climbed more than 6% sequentially driven by strong well performance in the Wells Ranch and East Pony areas. 

Production from the Eagle Ford averaged 76,000 boe/d, up 10% from 2Q2017. From the Permian Delaware, output climbed 17% sequentially to 27,000 boe/d, in line with expectations.  Other U.S. onshore assets contributed the remaining 4,000 boe/d.

The company maintained an average of seven operated drilling rigs onshore during the quarter, running five in the Delaware and two in the DJ. Noble also drilled 49 wells total, 32 in the DJ and 17 in the Delaware.

“With our teams' persistent focus on continuous improvement, we anticipate even further progress, particularly in the Delaware Basin, where we are still in the early days of development,” said operations chief Gary Willingham. “In the third quarter, we increased the average footage drilled per rig, per day by more than 30% over the average of the first half of the year.

“Our reduced drill-time has also led to a 38% cost reduction for lateral foot compared to 2016. The continued drilling efficiencies that we are seeing allow us to maintain two rigs in the DJ Basin and five rigs in the Delaware Basin rather than increasing rig counts in both basins by year-end as previously planned.”

On the completions side, Willingham said operations teams in each area are optimizing designs to deliver maximum value.

“In addition to the higher proppant concentrations that we've been utilizing, we're also testing alternative staging cluster spacing designs,” he said. “And with our post job data analytics on completions, we continue to refine our understanding of predicted versus actual performance of our simulation designs. We continuously plow those learnings back into the next set of designs, always focused on creating the highest value completions for each area.”

U.S. onshore crude oil differentials during the latest period were less than $2/bbl on average below West Texas Intermediate (WTI), while NGL pricing strengthened to represent 47% of WTI, and U.S. onshore natural gas pricing averaged slightly below Henry Hub. The company's Israeli gas price averaged $5.36/Mcf.

Operating expenses in the quarter, including lease operating expenses (LOE), production taxes, and gathering, transportation and processing (GTP) expenses, were below expectations at $8.58/boe.  Lower-than-expected LOE was supported by a further decline in DJ Basin LOE, which averaged less than $4.00/boe. GTP expenses were about $30 million lower than in 2Q2017 primarily from removing Marcellus costs.

Nearly 78% of Noble’s capital was directed to U.S. onshore plays and 20% was spent in Israel, primarily for the Leviathan development.

Gas production in Israel averaged an all-time gross record of 997 MMcfe/d, with net sales volumes totaling 285 MMcfe/d. Gross gas sales volumes exceeded 1 Bcfed for 79 days.

In the Gulf of Mexico, sales volumes were at the high end of expectations at 25,000 boe/d, 83% weighted to oil.

Noble also reiterated its fourth quarter guidance, with total sales volumes estimated at of 380,000-390,000 boe/d. U.S. onshore volumes are forecast 15% higher sequentially, with oil volumes reconfirmed at 102,000-108,000 b/d. The oil increase primarily should result from ramping up more wells in the Delaware.

“As we establish next year's detailed plan, we remain focused and committed to delivering double-digit corporate returns within the next few years in a $50 oil price world,” Stover said. “This will be driven by a significant increase of cash flow per share over that period.”

The Houston-based super independent recorded a net loss in the period, which bested Wall Street estimates. Net losses totaled $136 million (minus 28 cents/share) versus a year-ago loss of $144 million (minus 33 cents). Excluding one-time items, Noble lost 2 cents/share, versus the Street’s expectation of a 13-cent loss.

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