Noble Energy, Inc. (NBL)

Q2 2010 Earnings Call

July 29, 2010 10:00 am ET


David Larson - VP, IR

Chuck Davidson - Chairman and CEO

Dave Stover - President and COO

Ken Fisher - CFO


Dave Kistler - Simmons & Company

Leo Mariani - RBC Capital

Brian Singer - Goldman Sachs

Bob Morris - Citi

Irene Haas - Canaccord

David Wheeler - Alliance

Joe Allman - JPMorgan

Dan McSpirit - BMO Capital Markets



Good morning. Welcome to the Noble Energy second quarter 2010 earnings call. It is now my pleasure to turn the conference over to David Larson. Please go ahead, sir.

David Larson

Thanks, Nicole. Good morning, everyone, welcome to Noble Energy's second quarter 2010 earnings call and webcast. On the call today, we have Chuck Davidson, Chairman and CEO; Dave Stover, President and COO; and Ken Fisher, CFO.

The plan for the call today is to have Chuck review our results for the quarter as well as discuss some updated guidance. Dave will then review our global operations focused on second quarter highlights and our ongoing activity levels. Many of you participated in our Analyst Meeting held June 3, either in person or via webcast. We won't be reviewing much of the detail in the call today so I encourage those who haven't had a chance to, to review the replay of that webcast.

Today we will leave plenty of time for Q&A at the end of our prepared remarks but we are going to try to wrap up the call in less than an hour. We know that everyone is busy with the earnings schedule. Should you have any questions that we don't get to this morning, please don't hesitate to call and we will do the best we can to answer you. We hope everyone has seen our earnings release that we issued this morning.

Later today, we expect to be filing our 10-Q with the SEC and it will also be available on our website. I want to remind everyone that this webcast and conference call contains projections and forward-looking statements based on our current view and most reasonable expectations.

We provide no assurances on these statements as a number of factors and uncertainties could cause actual results in the future periods to differ materially from what we've discussed. You should read our full disclosures on the forward-looking statements in our latest news release and SEC filings for a discussion of the risk factors that influence our business.

We will reference certain non-GAAP financial measures today, such as adjusted net income or discretionary cash flow. When we refer to these items, it is because we believe they are good metrics to use in evaluating the company's performance. Be sure to see the reconciliations in our earnings release tables.

With that, let me turn the call over to Chuck.

Chuck Davidson

Thanks, David and good morning, everyone. Today I plan to go through our quarterly results and also our updated guidance items. I'll also be discussing the deepwater Gulf of Mexico and also touch on a few of our major projects, which Dave Stover will go into greater detail on.

Our results for the quarter, for the second quarter were outstanding with GAAP net income at $204 million or $1.10 per share diluted. Adjusted net income was $198 million or $1.07 per diluted share and that's after removing the impact of the unrealized commodity derivative gain as well as a rig termination charge that I will touch on in a few minutes.

Sales volumes for the second quarter were a very robust 219,000 barrels of oil equivalent per day, outpacing production due to additional oil listings in both Equatorial Guinea and the North Sea. But even without the extra listings, our production volume was at 214,000 barrels of oil equivalent per day, which was on the high end of the quarterly guidance that we previously provided to you.

Volumes in the US were up a strong 3.5% from the first quarter. That was driven largely by our Wattenberg development program and the impact of the DJ Basin asset acquisition that closed the first of March this year. This was offset by some third-party downtime we experienced at the Swordfish and Tri-Conderoga assets in the deepwater Gulf of Mexico.

Internationally, our volumes were up a very substantial 22% over the first quarter, led by our operations in Equatorial Guinea, as well as Israel. In Equatorial Guinea, the Alba field maintenance was completed early in the second quarter and we again saw additional listings of crude there.

And in Israel, demand for our natural gas was very strong with sales up nearly 40% from the first quarter. On the pricing side of things, we continue to benefit from the strength in liquid markets, which combined with higher oil volumes contributed to a 13% increase in oil revenues over the first quarter.

Going the other direction, our natural gas revenues declined slightly, primarily a result of the softer US gas markets in the second quarter. I know I'm sounding like a broken record on this, but the US gas market is not where one should be trying to accelerate dry gas production. However, on the flip side, our natural gas realizations in Israel this quarter were actually 11% above our US gas realizations. I'm very pleased with our cost performance for the quarter. Lease operating expense stayed relatively flat from the first quarter, right at $5 per barrel oil equivalent.

Production taxes and transportation were as expected, while DD&A per unit came down significantly driven by higher low-cost volumes coming from Equatorial Guinea and Israel. G&A and taxes were in line as well. Exploration expense was lower than our original expectations which had contemplated having results by now from our deepwater drilling at the Santiago and Deep Blue wells. Drilling operations at both of these wells were suspended with the announcement of the deepwater moratorium.

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