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Noble Energy Raises Output Forecast by 4% as DJ, Permian Performance Jumps

Houston-based Noble Energy Inc. during the first three months of this year delivered cost reductions across the board, while its U.S. natural gas-rich production, led by the Denver-Julesburg (DJ) and Permian basins, outperformed.

U.S natural gas volumes rose sharply year/year to 910 MMcf/d from 619 MMcf/d, while domestic crude oil/condensate climbed to 102,000 b/d from 73,000 b/d and liquids more than doubled to 53,000 b/d from 25,000 b/d. Total U.S sales volumes jumped by more than one-third to 306,000 boe/d from 201,000 boe/d.

In total, Noble's worldwide volumes increased to 416,000 boe/d, up 31% year/year, with gas comprising 55% and oil/condensate 31%. Lease operating expenses (LOE) for the super independent, which works in offshore and onshore basins, averaged $3.63/boe, 34% lower than in 1Q2015.

The lower spending primarily was the result of "impressive and sustainable efficiency gains in our U.S. onshore business," CEO Dave Stover said during a conference call Thursday to discuss quarterly results. "Capital expenditures were below the low end of our guidance and decreased for a sixth consecutive quarter as we managed within cash flow." In January Noble set a 2016 capital plan of $1.5 billion, about half of 2015 spend (see Shale DailyJan. 28).

"We came in well below guidance on most of our key cost metrics," and the LOE reduction "is a powerful indication of our cost reduction efforts when you consider the company added almost 100,000 boe/d over that same period," Stover said. At the same time, Noble exceeded the high end of its volume guidance, up more than 30% overall and 8% pro forma.

"In fact, every core area is delivering or exceeding our plans so far in 2016," he told analysts.

Execution was the key word in the outperforming DJ of Colorado, where completion optimization and longer laterals drove 34% growth in Wells Ranch and East Pony production from a year ago. And in the Permian's Delaware sub-basin, where Noble only recently began working, a third party analysis of Texas data indicated that Noble had "the highest productivity per lateral foot in the basin this year," the CEO said.

Equally important, he said, is the financial position, as Noble ended March with $5 billion in liquidity. Since April 1, it already has executed sales transactions totaling almost $550 million, including the $505 million it is to receive from a DJ transaction announced Wednesday with Synergy Resources Corp. (see Shale DailyMay 4).

As to when activity could accelerate, Stover said once oil prices "move and sustain above $50/bbl, we will begin to consider additional capital allocation to the U.S. unconventional business, with initial focus on our low cost and liquid rich assets in the DJ Basin and Texas. We've continued the trend of improving our performance in the first quarter and I'm confident there is much more to come."

Noble now expects to spend less than its $1.5 billion plan for the year, the CEO said. The watchword is "flexibility," both activity-wise and spending-wise, depending on where commodity prices are, he added.

Total volumes for 2016 have been raised 4% to an expected average of 405,000 boe/d, with U.S. volumes increased because of improved productivity from the DJ, "even with slightly fewer completions expected to commence production."

In the Colorado play DJ volumes in 1Q2016 averaged 118,000 boe/d, up 2% from 1Q2015, with liquids comprising 66% of output and gas 34%. Total well costs fell more than 35%, while the company shifted its designs to focus on extended-reach laterals with monobore drilling, slickwater completion fluid and enhanced proppant loading. Normalized extended-reach lateral well costs for historical completion designs have declined to $2.4 million.

"We continue to shift our well design to include more monobore drilling, which provides many benefits, particularly for the combination of longer laterals and slickwater fractures," operations chief Gary Willingham said during the conference call. "On the first 35 monobore wells we've drilled, we're observing reduced drill times of 1.5 days to 2.5 days or 30%, the ability to eliminate gel and tow stages in the long laterals, and finally, the monobores also provide more options for future well interventions."

Between January and March, 24 wells were drilled in the DJ with average laterals of more than 7,300 feet. It took less than six days on average to drill a standard lateral (4,500 feet), while medium laterals (6,000 feet) took seven days and long laterals (9,000 feet) took eight days. However, one long lateral was completed in a record time of under six days, spud to rig release. Noble ended March with 46 wells drilled but uncompleted (DUC) in the basin.

In the two Texas plays, the Eagle Ford Shale and the Permian, production volumes averaged more than 60,000 boe/d, with liquids comprising 64% of the output. Eagle Ford production accounted for 84% of the total volumes in the state. Four operated wells were drilled to depth, including two in South Texas and two in the Delaware's Wolfcamp A formation.

Noble also began ramping up its first two Delaware completions in Reeves County in West Texas. The Calamity Jane 2001H, with a lateral length of 4,190 feet, was completed with nearly 1,700 pounds of proppant/lateral foot. The well's initial production rate over 30 days (IP-30) was 1,599 boe/d. The Soapy Smith 36 1H, a western extension test, was completed with 1,800 pounds of proppant/lateral foot using slickwater with a lateral length of 2,790 feet. The well's IP-30 rate was 728,000 boe/d.

Noble had 48 DUCs in Texas at the end of March, with 33 in the Eagle Ford and 15 in the Delaware.

Production volumes in the Marcellus Shale averaged 573 MMcfe/d in 1Q2016, a 46% increase year/year, with gas representing 88% of the total. Noble ramped up production from 25 wells including eight operated by Noble and 17 by partner Consol Energy Inc. The eight operated wells, on the Rich Hill 23 pad in Greene County, PA, had an average lateral length of 10,800 feet and held a combined production of 100 MMcf/d gross, for more than 60 days.

Noble and Consol exited March with 79 DUCs in their Marcellus joint venture. Also, Cone Midstream Partners gathered volumes in the Marcellus that averaged 1.3 Bcf/d gross, 52% higher than in the year-ago period.

In the Gulf of Mexico, Noble's volumes averaged 29,000 boe/d, a 91% surge year/year, with oil/condensate comprising 84% of output.

Noble plans to remain "flexible" this year with its spending and its activity, with full-year capex now expected to fall below the original $1.5 billion plan.

During the second quarter, Noble expects capex to average $350-400 million with total volumes of 405,000-415,000 boe/d. Compared to 1Q2016, higher volumes are expected in the Texas assets, driven by the timing of well completions in the Eagle Ford. Gas volumes in the DJ are expected to be impacted by a previously scheduled facility turnaround maintenance at the Wells Ranch central processing facility.

Noble reported a net loss of $287 million (minus 67 cents/share) in 1Q2016  from a year-ago loss of $22 million (minus 6 cents). Capital expenditures totaled $374 million, less than half of year-ago spend of $914 million. Revenue fell to $724 million from $767 million, with net cash declining to $251 million from $541 million.

Realized U.S. gas prices fell to average $1.90/Mcf in the quarter versus $2.72 a year earlier. U.S. liquids prices declined to $11.18/bbl from $18.80, while domestic oil/condensate prices fell to an average $30.14/bbl from $44.39.

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