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Noble Charted Record Marcellus Production During 1Q

Noble Energy Inc.'s first quarter production from the Marcellus Shale set a company record as Noble continued to drill longer lateral wells.

Marcellus volumes averaged a record 227 MMcfe/d. Nineteen operated wells were drilled during the quarter, averaging more than 7,500 lateral feet. The Marcellus results combined with those from the Denver-Julesburg (DJ) Basin made for record horizontal production of 100,000 boe/d on average, up more than 60% from the year-ago quarter.

"In our U.S. unconventional areas, we are creating substantial value in the DJ Basin and Marcellus development programs, through material production growth, facility and well efficiencies, and an increased application of extended reach laterals," said CEO Charles Davidson.

In the Marcellus, the WFN3 pad in the Majorsville, PA, integrated development plan (IDP) came online during the quarter at a peak rate of 35 MMcfe/d from four wells averaging 7,500 lateral feet. One of the wells was completed using reduced stage and cluster spacing and experienced rates that were more than 25% higher than similar wells on the same pad.

Also during the quarter, two 8,000-foot lateral sections were drilled in less than 48 hours each, which is a 50% reduction in drilling time from last year, according to Noble. Joint venture (JV) partner Consol Energy drilled 17 wells during the quarter. The JV is operating nine rigs split between the wet and dry gas portions of the acreage.

The company anticipates initial drilling this year in the Pittsburgh International Airport area, said COO David Stover.

"As we look at the long-term expansion plans for natural gas from the Marcellus, we continue to believe being in the southwestern part of the play is advantageous for market access," Stover told financial analysts during a conference call Thursday.

Stover added that Noble strives to maintain market diversification for its Marcellus production, accessing multiple pipelines and pricing points in combination with holding firm capacity. He said the company has not seen some of the "larger deducts" seen in the northeastern Marcellus. He added that Noble recently secured 200 MMcf/d of firm capacity during an open season on a Columbia Pipeline Group pipeline, which will ultimately access the Gulf Coast market. "And we continue to pursue additional out-of-basin projects as well," he said.

BMO Capital Markets analyst Dan McSpirit said in a note following the conference call that getting out of the Marcellus still could be a worry for Noble.

"A chief takeaway from the period was that the company expects its Marcellus firm transportation to increase to more than 500 MMcf/d in 2017, up from about 250 MMcf/d currently,” McSpirit wrote. “However, only 200 MMcf/d will take product out of the basin, maybe leaving the company less insulated from potentially wider differentials than what the 500 MMcf/d in firm transportation implies. Still, the company continues to drive efficiency gains, both in the Appalachian and DJ [Denver-Julesburg] basins."

In the DJ Basin sales volumes averaged 95,000 boe/d for the first quarter, of which 64% was liquids. Production volumes for the quarter were impacted by severe winter weather and facility upgrades. Fifty-four standard-length laterals and 13 extended-reach laterals were drilled during the quarter. Due to continued strong performance in the extended-reach lateral program, the Noble is now targeting more than 90 extended-reach lateral wells in 2014, up 65% from its original plans.

Noble continues to pursue DJ Basin downspacing, which represents more than 40% of the wells planned for this year. Five standard-length wells on the Loeffler pad within the core IDP have been producing more than 100 days and are tracking a 600,000 boe type curve. In the Mustang IDP, three standard-length horizontal wells were drilled during the quarter on a 16-well per section equivalent amongst densely drilled verticals with performance above the type curve.

Across the Basin, 10 rigs are developing the Wells Ranch and East Pony areas as well as progressing the other IDPs. In the third quarter, one rig is to move back to the Wilson play in northeast Nevada to continue drilling the new venture opportunity.

Overall, first quarter sales volumes averaged 286,000 boe/d, an increase of 20% compared to the first quarter of 2013, after adjusting for divested assets. U.S. sales volumes made up 57% of the total with the remaining 43% from international operations. U.S. volumes increased 16% compared to the year-ago quarter, after adjusting for divested assets.

This year Noble has struck agreements for the sale of certain noncore U.S. onshore assets, including its positions in East Texas, North Louisiana, Tri-State and the Powder River Basin. Onshore U.S. asset sales either have closed or are expected to close by the end of April.

To account for pending and recently closed asset sales, Noble adjusted its full-year 2014 volume guidance to a range of 302,000-310,000 boe/d, with the midpoint of the range reflecting the 6,000 boe/d of divestitures. Second quarter volumes are expected to be 290,000-296,000 boe/d, taking into account U.S. onshore asset sales.

Noble reported first quarter net income of $200 million (55 cents/share) compared with $261 million (72 cents/share) during the year-ago quarter. First quarter adjusted income was $298 million (82 cents/share), which beat analyst expectations of 72 cents/share.

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