Houston-based Noble Affiliates said Tuesday it would reduce its capital budget for the year, dumping 29% from its downstream projects and cutting more than half of its domestic offshore budget. However, domestic onshore exploration and development was almost doubled from last year’s allocation to $136 million, with the focus on properties picked up through its acquisition last year of Aspect Resources LLC of Denver.

With the announced capital program, Noble expects average production for 2002 to increase 4-7% over 2001 in both natural gas and liquids, with most of the growth from its international assets.

“While lower commodity prices, especially for natural gas, are currently challenging our industry, Noble remains well positioned for continued growth, both in the near term as well as in future years,” said CEO Charles D. Davidson. “Our fourth quarter 2001 Aspect transaction brings focus to our onshore program while deep shelf and deepwater drilling showed strong success in 2001. Major international project start-ups were achieved in 2001 and our remaining international projects remain on track.”

On the downstream side, Noble said it is budgeting $519 million for 2002, a decrease of 29% from 2001’s budget of $727 million. Almost 60% will be allocated to development and 40% to exploration. The 2002 domestic offshore program is budgeted for $144 million, also less than half of the 2001 budget. Deepwater projects represent about 25%, or $37 million, of the total offshore allocation, with $107 million budgeted in 2002 for shelf opportunities, concentrating on its core shelf holdings.

Another $239 million is planned for investment in the company’s 2002 international exploration and development prospects with approximately 92% for upstream projects and about 8% for downstream projects. The $220 million allocated for upstream prospects is about 13% below last year’s upstream budget of $252 million, and the focus will be on projects in China, Ecuador, Israel and the North Sea. As in prior years, Noble’s budget does not include a provision for acquisitions, which are typically funded throughout the year as they are identified. During 2001, Noble made one significant acquisition, Aspect Resources, for $125 million.

Noble entered into several costless collar hedges to support its 2002 investment program. For the period February to March 2002, the company has entered into hedges of 100,000 MMBtu/d of natural gas production with an average floor price of $2.04/MMBtu and average ceiling price of $2.54/MMBtu. For the period April to June 2002, the company has entered into hedges of 50,000 MMBtu/d of natural gas with an average floor price of $2/MMBtu and an average ceiling price of $3.09/MMBtu. All of the April to June hedges have a knockout price of $1.70/MMBtu.

Noble has hedges related to the Aspect Resources transaction that cover an average gas volume through 2003 of 44,000 MMBtu/d. Of these hedged volumes, 87% are collars, while the remainder are at fixed prices. The hedged positions have an average floor or fixed price of $3.10/MMBtu. The average ceiling price on the collars is $3.78/MMBtu. In addition to the gas hedge position Noble has relating to Aspect properties, Noble had previously announced hedged volumes amounting to 50,000 MMBtu/d in 2002 with a floor of $3.25/MMBtu and a ceiling of approximately $5.07/MMBtu. Of the 50,000 MMBtu/d previously announced, 25,000 MMBtu/d were terminated. As a result, Noble will recognize an additional $0.70/MMBtu on 25,000 MMBtu/d this year.

In its earnings release on Tuesday, Noble reported net income of $134 million, or $2.36 per share, for the year — the company’s second highest year of earnings, but down 30% from its record earnings in 2000 of $192 million, or $3.42 per share. Production levels in 2001 grew 7% from the previous year’s 94 MBoe/d to 101 MBoe/d. Total worldwide reserves reached 463 MMBoe by Dec. 31, 2001, up 17% from a year earlier. More complete earnings figures are available on the web site at www.nobleaff.com.

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