Houston-based super independent Noble Energy Inc. is cutting back on planned well completions in the Permian Basin and shifting some capital to adjust for a lack of takeaway capacity.
U.S. onshore oil production climbed by 22% year/year (y/y) to 105,000 b/d, with growth driven by the Permian’s Delaware sub-basin and the Denver-Julesburg (DJ) Basin in Colorado. Two additional central gathering facilities were installed in the Delaware during the quarter, with initial gathering infrastructure added for the DJ Mustang development.
The DJ and the Eagle Ford Shale look like a better bet until the Permian’s bottlenecks can be fixed, CEO Dave Stover said during a conference call to discuss quarterly results.
“Given the industry pressures in the Permian due to widening basin differentials and service cost inflation, we plan to moderate our activity in the Delaware Basin,” he said. “We will be reducing planned completions later this quarter and into 2019 to better align our activity with expected timing of pipeline additions. We will reallocate activity into our other onshore areas, primarily the DJ Basin.”
The diversity of the Lower 48 portfolio gives Noble a competitive advantage, said the CEO, “enabling us to modify activity near-term, while remaining committed to the objectives we outlined in our multi-year plan earlier this year.”
As far as allocating capital back to the Permian, “it’s going to be tied to export capacity coming on...That’s why we’re shifting out.”
The change in plans should lead to “additional DJ volumes in 2019, partially offsetting more moderate Permian growth,” Stover said. “We now expect of our full year 2018 sales volumes to trend toward the low-end of previously guided range.”
Full-year sales volumes now are expected to be 350,000-360,000 boe/d, reflecting deferred completion activity in the Delaware, as well as declines in the Eagle Ford. Overall, Noble is still on track to deliver 12% volume growth pro forma y/y, said Stover.
Global sales volumes climbed 11% y/y to 346,000 boe/d on higher volumes in each of the U.S. onshore assets. Domestic production comprised 71% of the total, with West Africa contributing 18% and Israel 11%. Liquids comprised 56% of total volumes.
U.S. onshore natural gas prices averaged $2.29/Mcf, “reflecting wider differentials” in both the Delaware and DJ. Average U.S. onshore oil prices were $64.62/bbl. Lower 48 natural gas liquids prices averaged $24.39/bbl.
In the Lower 48, production averaged 244,000 boe/d in 2Q2018, with oil volumes hitting a record 105,000 b/d, up 22%. DJ volumes were around 121,000 boe/d, with nearly 80% from the Wells Ranch and East Pony areas. Combined, Wells Ranch and East Pony volumes were up 15% from a year ago, with nine operated wells brought online in Wells Ranch, two in East Pony, and the remainder in the Mustang area.
Delaware volumes jumped by more than 100% y/y to 47,000 boe/d, with 70% weighted to oil. However, production was actually impacted by unplanned third-party facility downtime, as well as the timing of artificial lift installation.
Noble brought online 23 operated wells in the Permian between April and June, with 21 in Wolfcamp A and two in the Third Bone Spring. During July, Delaware output averaged 55,000 boe/d.
Eagle Ford production also climbed, up10% from a year ago to 76,000 b/d, with nine operated wells ramped up in the northwestern portion of Gates Ranch -- seven from the Lower Eagle Ford and two in the Upper Eagle Ford.
Noble averaged nine operated rigs between April and June, with six deployed in the Delaware, two in the DJ and one in the Eagle Ford. Three fracture crews were each working in the DJ and the Delaware.
Meanwhile, the Gulf of Mexico assets, which were sold in April, contributed 3,000 boe/d in the quarter.
Operations chief Gary W. Willingham said Noble was making progress to secure near-term flow assurance from the Permian and “long-term out-of-basin takeaways at the Gulf Coast with access to exports…”
To solve some of its Permian issues, Noble clinched an agreement with Epic Pipeline LP to transport Delaware crude to South Texas near Corpus Christi, with firm capacity for 100,000 b/d gross. The pipeline is scheduled to begin operations in late 2019. A five-year firm sales agreement was also inked to the Gulf Coast, beginning last month, for at least 10,000 b/d gross, which is to increase to 20,000 b/d in October through the remainder of the contract.
“The decision to moderate some of our completion activity in the near-term aligns with the timing of additional takeaway capacity later next year,” Willingham said.
Deferring activity also provides Noble with the opportunity to transition to “road-style development,” which mitigates the potential for drilling interference “faced by multiple operators across multiple basins,” he said. “And we are well positioned to execute this road-style development design of the Delaware, just as we have in both the DJ Basin and the Eagle Ford.”
The energy industry is seeing “cost pressures given the higher price environment, particularly for drilling rigs, completion crews, steel and other services,” he noted. To help offset higher costs, Noble is working on its well designs to make them more efficient.
“In the second quarter, we brought online our first wells that utilize only 100 mesh sand and our first completion with 100% recycled produced water, and these wells are exhibiting strong early results,” said Willingham. Noble also reduced an average of two days per well in the first half of 2018 from the first half of 2017.
Unit operating expenses in 2Q2018 -- which includes lease operating expenses, production and ad valorem taxes, gathering and transportation expenses, other royalty expenses and marketing costs -- were “consistent with expectations” at $9.48/boe.
Capital investments totaled $866 million, with about 65% allocated to U.S. upstream operations and 9% to U.S. onshore midstream assets. Another 25% was spent in Israel to develop the Leviathan natural gas project.
Israeli gross sales volumes represented a quarterly record of more than 1 Bcfe/d, primarily from the Tamar field. Net sales volumes totaled 227 MMcfe/d. Meanwhile, Leviathan is almost 60% complete, with first sales anticipated at the end of 2019. The final two wells were drilled to total depth, completion activities are underway, and pipeline installation has been completed for infield flowlines and main gathering lines.
Third quarter sales volumes are estimated to be 335,000-345,000 boe/d. U.S. onshore oil volumes in 3Q2018 are expected to be about 10,000 b/d higher sequentially. Israeli sales volumes are anticipated to be slightly higher, with West Africa lower, driven equally by natural gas decline and the timing of oil liftings.
Capital spending has also been revised to around $3 billion because of increased expenditures on onshore facilities from the first six months, as well as “inflation in the U.S. onshore as a result of the higher commodity price environment.”
Noble Energy reported a net loss of $23 million (minus five cents/share), down from a year-ago loss of $1.5 billion (minus $3.20). Adjusted net income was $81 million (17 cents/share), including the mark-to-market on unrealized derivative positions and gains on divestitures. Revenue rose to $1.23 billion, up from $1.06 billion.
Results for Noble Midstream Partners LP were consolidated into Noble Energy’s financial statements. Midstream services revenue was $15 million in the quarter, primarily composed of gathering revenue from unaffiliated third parties.