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Noble Keeping Marcellus Powder Dry

This year is the first in a multi-year period of growth for Noble Energy Inc. as the company realizes the payoff from "multiple years of exploration success," CEO Charles Davidson told financial analysts Thursday during an earnings conference call. However, dry gas production from the Marcellus Shale is not part of the windfall, at least not for a while.

"Noble Energy closed out 2011 with record production for the fourth quarter while significantly progressing our inventory of major projects," Davidson said. "Balancing our growing international portfolio are two lower-risk onshore U.S. developments. Production out of the DJ [Denver-Julesburg] Basin continues to grow, led by the horizontal program, which completed 25 wells in the fourth quarter. The Marcellus [Shale] JV [joint venture] is growing production, and we began to operate our first rig in early 2012 in the wet gas portion of the acreage."

Noble's Marcellus JV is with Consol Energy Inc., which recently said it was deferring some Marcellus drilling while it waits for higher dry gas prices (see Shale Daily, Jan. 27). Davidson said Noble is on the same page as its JV partner when it comes to waiting out the market for higher prices.

"The developments in the Niobrara and Marcellus continue to gain momentum and are expected to deliver consistent growth for many years," Davidson said.

Within the United States, Noble said it expects to invest $1.25 billion in the DJ Basin to expand horizontal Niobrara drilling to include 173 horizontal wells and to maintain an active vertical well program in Wattenberg in 2012. In the Marcellus, $500 million is planned to support the drilling of 99 JV wells, targeting 39 operated wells in the liquids-rich area of the play.

In the deepwater Gulf of Mexico, the company expects to spend $250 million where a one-rig program is planned to conduct appraisal drilling at Gunflint and execute a multi-well exploration program.

Sales volumes for 2012 are projected to be 244,000-256,000 boe/d, with the midpoint of the range up about 13% compared to 2011. Nearly all of the projected production increase is crude oil and condensate, which is expected to grow over 40% year-over-year, Noble said. "The expected growth in crude oil and condensate production is balanced between onshore U.S., deepwater Gulf of Mexico and offshore Equatorial Guinea," it said.

Overall liquids volumes are predicted to represent 46% of total volume in 2012, up from 39% in 2011. The remaining product split is estimated to be 31% domestic natural gas, a slight increase from 2011, and 23% international natural gas, a decrease from 32% in 2011.

U.S. volumes are anticipated to be up about 22% from 2011. The Company's onshore development programs in the central DJ Basin and Marcellus Shale, as well as new field additions in the deepwater Gulf of Mexico are expected to drive this growth.

Houston-based Noble reported a fourth quarter net loss of $296 million (minus $1.67/share) on revenues of $985 million. Noble recorded a $620 million asset impairment related to onshore U.S. dry gas properties, primarily in the Piceance Basin, as a result of declining natural gas prices. Excluding the impairment and other special items, fourth quarter adjusted net income was $211 million ($1.18/share). Noble reported net income of $52 million during the final quarter of 2010 (29 cents/share) on revenues of $783 million. Adjusted net income for the fourth quarter of 2010 was $185 million ($1.04/share).

Fourth quarter 2011 sales volumes averaged 233 Mboe/d, up 8% from the fourth quarter of 2010 excluding volumes from Ecuador, which the company exited in 2011. The sales volume split for the fourth quarter 2011 was 40% liquids, 29% international natural gas, and 31% U.S. natural gas.

Noble Energy's U.S. volumes totaled 127 Mboe/d for the fourth quarter 2011, up 7% from the same quarter last year. The increase was attributed to the addition of the Marcellus joint venture and continued growth in the horizontal Niobrara play in the Denver-Julesburg Basin. Natural production declines were experienced in the deepwater Gulf of Mexico and various onshore gas properties, the company said.

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