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Noble Hits Record Sales Volumes in 3Q, Brings More Wells Online Early

Noble Energy Inc. achieved record sales volumes during the third quarter, due in large part to the company continuing to develop its assets in the Denver-Julesburg (DJ) Basin and Marcellus Shale, but also thanks to an increase in natural gas demand in Israel.

Meanwhile, the Houston-based company said that it has already brought online this month more than one-third of the wells it had planned to bring online in 4Q2014, putting it on track to meet its planned year-end exit rate.

On Wednesday, Noble reported that sales volumes for 3Q2014 averaged a record 102,000 boe/d in the DJ Basin, a 5% increase from the preceding quarter and 15% higher than 3Q2013, although the latter figure reflects subtracting volumes associated with an acreage exchange that closed in late 2013. Liquids accounted for 67% of DJ Basin production volumes in 3Q2014 -- 49% crude oil and 18% natural gas liquids (NGL) -- while natural gas made up the remaining 33%.

Noble hit record production in the Marcellus, too, averaging 327 MMcfe/d in 3Q2014. That figure was a 31% increase over the preceding quarter and 95% over 3Q2013. Natural gas made up 87% of Marcellus volumes, with the remaining 13% primarily NGLs.

The company drilled 75 wells in the DJ Basin and 23 operated wells in the Marcellus during the third quarter. Noble also brought 73 operated wells in the DJ Basin and 23 operated wells in the Marcellus into production.

During an earnings call Wednesday, CEO Dave Stover said the company had brought 123 horizontal wells online during 3Q2014, and plans to bring another 172 horizontal wells online in 4Q2014. He said Noble was on track to meeting its planned year-end exit rate.

"In fact, we have already brought online more than one-third of the planned fourth quarter wells this month alone and are currently producing 145,000 boe from the horizontal program in the U.S. onshore," Stover said.

According to Stover, the company has a three-prong strategy for improving well performance: extended laterals, increased density and enhanced completion techniques. Twenty-two of the 75 wells drilled in the DJ Basin during the quarter had longer laterals, for an average lateral length of more than 6,000 feet. In the Marcellus, all 23 operated wells that were drilled had an average lateral length of more than 8,600 feet.

"We are clearly seeing better investment efficiency through extended laterals," Stover said. "In the quarter, 30% of the wells drilled were a combination of mid- and long-laterals."

Stover added that Noble had seen "some very encouraging results" from wells completed on two pads with reduced stage and cluster spacing in West Virginia. At the Oxford-1 pad in Doddridge County, six wells were flowing at a combined rate of 40 MMcfe/d after more than 30 days, with more than 20% liquids. Meanwhile, at the Shirley-1 pad in Tyler County, four wells were flowing at a combined rate of 50 MMcfe/d after more than 30 days.

Noble said all of the Shirley and Oxford wells were performing better than expected type curves for the area. The wells' initial performance was also in line with the company's best wells in the Majorsville, WV, area.

Elsewhere, Noble's sales volumes averaged 18,000 boe/d in the Gulf of Mexico and 76,000 boe/d in West Africa. In the eastern Mediterranean, Israeli natural gas sales volumes averaged a record 265 MMcfe/d. Last June, Noble signed a nonbinding agreement to supply natural gas from Israel's Leviathan field to liquefaction facilities in Egypt owned by BG International Ltd. (see Daily GPIJune 30). Noble operates Leviathan and holds a 39.66% working interest in the field.

Noble said it anticipates 4Q2014 production volumes to range from 307,000 to 327,000 boe/d. The company reported 3Q2014 net income of $419 million ($1.12/share), more than double the $205 million (56 cents/share) from 3Q2013. Excluding special items, however, adjusted net income was $110 million, (28 cents/share).

And while production grew, revenues were down 9% to $1.27 billion on lower oil and natural gas prices. Noble collected $94.21/bbl of oil in the U.S., down from $103.59/bbl in 3Q2013 and $3.41/Mcf of natural gas this third quarter, compared to $3.57/Mcf at the same time last  year. Natural gas liquids prices this past quarter averaged $29.53/bbl, compared to $31.26 a year ago.

Stover was elected CEO last week, succeeding Chuck Davidson (see Daily GPIOct. 21). Davidson will continue to serve as chairman of the board until his retirement in May.

During a Q&A session with analysts, Davidson said that in many cases the economics surrounding U.S. shale plays are more affected by producers managing their cash flow and balance sheet, rather than the so-called "economic break-even point" for unconventionals.

"I think that's where we will see many producers, as they look at a particular commodity environment," Davidson said. "We've seen this cycle on natural gas several times [over] the past couple years. We've seen this cycle for oil as well. I think it's a matter of managing cash flow. Some of these unconventional plays have very strong economics, even at lower oil prices, but you want to manage your balance sheet."

Stover concurred. "We're set up to be in two of the best unconventional plays in the U.S.," he said. "When you look at a lot of the analysis of break-even economics that various folks do on these plays, and especially in the DJ [Basin], it looks very good against that. Obviously, there [are] different portions of it that have different economics, as you have different [mixes] of oil and gas across the play. But we're very comfortable and very pleased that we've got the portfolio we have."

Stover said the company will release its capital expenditure (capex) budget for 2015 by late January.

Last month, Noble and its partner in the Marcellus, Consol Energy Inc., completed an initial public offering (IPO) for their master limited partnership, MLP Cone Midstream Partners LP (see Shale DailySept. 26). Stover said the IPO generated more than $200 million in net proceeds for Noble.

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