Houston-based Noble Energy Inc. spent less and produced more in 2019, boosted by the ramp of the Leviathan natural gas field offshore Israel and better performance from Lower 48 properties in Colorado and Texas.
Capital expenditure (capex) plans for 2019 had been set 17% lower than in 2018, with volume growth forecast at 5%.
“We actually drove nearly 7% total production growth on 25% less capital,” CEO Dave Stover said during a quarterly conference call on Wednesday. In the Lower 48, total boe production was up 10%, and oil output also climbed 10% over 2018.
Organic capex funded by Noble totaled $406 million last year, below the low end of guidance, while gas and oil volumes of 373,000 boe/d were near the top end.
Noble produced 285,000 boe/d from the U.S. onshore, led by record output from the Denver-Julesburg (DJ) Basin in Colorado.
More than 1 Bcfe/d gross of natural gas last year also was produced from Israel fields offshore, Tamar and Leviathan. The super independent had promised to ramp up the massive Leviathan field before year’s end, which it did, $200 million under budget.
The estimated 22 Tcf development is to include four subsea wells, each capable of flowing more than 300 MMcf/d. Noble last year also expanded total gas sales contracts while securing a pathway to acquire stakes in the Eastern Mediterranian Gas pipeline to move gas into Egypt.
The offshore portfolio was “clearly punctuated by the startup of Leviathan at year-end,” COO Brent Smolik said during the conference call. “As we signaled, we expect demand and Leviathan to be the growth engine for the company in 2020.”
Since the startup of production offshore Israel, the Leviathan and Tamar fields combined on peak days have exceeded 1.8 Bcf/d.
Noble also has opened markets in the region for gas exports into Jordan and Egypt.
“As we ramped up production in the field, the Leviathan wells have proven to be even more prolific than we anticipated, with well deliverability exceeding 100 MMcf/d due to the very high reservoir permeabilities and thickness.”
The focus this year for the Israeli fields is to “demonstrate supply reliability and increased value to greater contracted sales,” Smolik said. “We have a combined 2.3 Bcf of capacity, and we’re primarily focused on increasing the utilization of that capacity this year.”
In addition to regional economic benefits, Leviathan promises to be a “very long-term source of clean, reliable energy because of the use of more natural gas and less coal for electrical generation.”
On the U.S. portfolio side, Noble improved its unconventional acreage position in the Lower 48 by adding more than 200,000 acres, primarily in Wyoming’s Powder River and Green River basins. However, in the near term, it’s all about the DJ in Colorado and the Permian Basin’s Delaware formation, Smolik said.
“Our 2019 execution success has also shaped or thinking about capital allocation for 2020,” he said. Total capex this year is set at $1.6-1.8 billion, with close to $1.3 billion allocated for the U.S. onshore. Sixty percent of the U.S. onshore capex is for the DJ, while 40% would go to the Delaware.
DJ growth is projected to offset a retreat from the Eagle Ford Shale, where natural gas liquids (NGL) and gas production is in decline.
“We expect this capital plan to deliver moderate onshore oil growth as production increases in the more oily DJ assets and offsets decline in the NGLs and natural gas in the Eagle Ford,” Smolik said. “All three U.S. basins are designed to generate free cash flow in 2020.”
Last year, the DJ delivered 20%-plus growth over 2018, with reserve additions of almost 27 million boe. Operating costs, meanwhile, were down more than 15% year/year, with record lows in the fourth quarter, he noted.
In the first quarter, Noble plans to run three rigs and two fracture crews in the DJ that target about 20 turned-in-line (TIL) wells. There are political ramifications of the keep-it-in-the-ground crowd in Colorado, but Noble’s drilling permit inventory in hand provides “clarity” for about “two more years of drilling activity,” Smolik said.
In the Delaware, meanwhile, production last year jumped 25% year/year, which the COO credited to improved consistency in row development, while completions efficiencies reduced well costs by 20%-plus. Lease operating expenses also fell, down by more than 30% on a per-unit basis.
“In my experience, it is rare to see such dramatic year/year improvements in an asset, and it would be difficult for us to replicate the magnitude of the 2019 improvements,” Smolik said. “However, we still expect to see cost structure and well performance gains in the Delaware again in 2020.”
For example, in 4Q2019, four wells were completed in the southern portion of the Delaware, with average 30-day initial production rates averaging 200 b/d of oil/1,000 feet, or 260 boe/foot, Smolik said.
“Those great results demonstrate how we can further improve well performance with optimized landing zones and customized completion designs. As we apply those ideas and techniques across the acreage position, we expect to see improved well performance, increased capital efficiency and even better returns in 2020.”
Noble plans to run two rigs and two fracture crews in the Delaware through March. It also expects to have around 15 TILs in the Eagle Ford, which continues to be a “considerable cash flow generator,” despite declining output.
Last year, Noble replaced 233% of production at slightly more than $7/boe development cost, Stover said. U.S. onshore proved developed reserves were added at under $8/boe.
Noble expects to generate at least $200 million in organic cash flow this year at the upstream level.
“With substantial cash flow and volume growth expected from Leviathan, we are prioritizing free cash flow generation over U.S. onshore growth in 2020,” Stover said. “Conventional major project developments, where we have a deep lineup of low-cost discovered resources, along with a return to exploration drilling, provide significant catalysts for our company this year as we build long-term value.”
Similar to 2019, Noble expects to drill and complete 110-120 wells in the DJ and 50-60 wells in the Delaware. No new drilling or completion activity is planned for the Eagle Ford. As compared with 2019, average well costs this year in the DJ and Delaware are expected to be down about 10%.
Delaware spend this year includes $35 million for line fill associated with the Permian-to-Texas-coast Epic Crude Pipeline startup, expected by the end of March. About 60% of the U.S. onshore spend is targeted for the first half of the year.
Offshore development capex for this year is set at $275 million, significantly lower than 2019 as the Leviathan start-up costs were concluded. Two-thirds of the spend is to be deployed in West Africa to progress the natural gas monetization project at Alen in Equatorial Guinea. The remaining one-third is for Israel, primarily for pipeline expansion work related to meeting contracted regional demand growth and finalizing Leviathan phase one development.
Gas and oil volumes for 2020 are expected to be about 10% higher overall than 2019 at the midpoint of 385,000-405,000 boe/d. Growth is primarily anticipated from the impact of the Leviathan ramp. Gas sales volumes from Israel alone are forecast to average 445-485 MMcfe/d in 2020, an anticipated increase of 100%-plus year/year.
U.S. gas and oil volumes in 2020 are designed to be flat with the 2019 average, with onshore oil volumes around 3-5% higher year/year. The expected production profile has 4Q2020 onshore oil volumes 5-7% higher than in 4Q2019, reflecting a shift to the DJ and Delaware from the Eagle Ford. DJ volumes are forecast to be nearly 10% higher year/year with the Delaware flat from 2019 levels and output declining from the Eagle Ford.
Total volumes are forecast to be higher in the first half of 2020, while natural gas sales from the Israel assets are slated to be higher in the second half of the year based on contracted volumes to Egypt and Jordan.
Additionally, U.S. onshore volumes should be “substantially higher in the second half of the year, reflecting the timing of wells commencing production,” management said. “The second quarter is anticipated to be the highest quarterly TIL count for the year, with peak U.S. onshore production in the third quarter.”
Noble reported a 4Q2019 loss of $1.206 billion (minus $2.52/share), versus year-ago losses of $824 million (minus $1.72). For 2019, Noble lost $1.512 billion (minus $3.16/share), compared with 2018 losses of $66 million (minus 14 cents).
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