Noble Energy (NBL)

Q3 2011 Earnings Call

October 20, 2011 10:00 am ET

Executives

David L. Stover - President and Chief Operating Officer

Charles D. Davidson - Chairman, Chief Executive Officer and Member of Environment, Health & Safety Committee

David R. Larson - Vice President of Investor Relations

Analysts

Brian Singer - Goldman Sachs Group Inc., Research Division

John P. Herrlin - Societe Generale Cross Asset Research

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Brian Kuzma - JP Morgan

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

David W. Kistler - Simmons & Company International, Research Division

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Noble Energy Third Quarter 2011 Earnings Conference Call. I would now like to turn the call over to Mr. David Larson. Please go ahead, sir.

David R. Larson

Thanks, Anna. Good morning, everybody. Welcome to Noble Energy's Third Quarter 2011 Earnings Call and Webcast. On the call today, we have Chuck Davidson, Chairman and CEO; Dave Stover, President and COO; and Ken Fisher, CFO.

This morning, we issued our earnings release for the third quarter, and hopefully, you all have had a chance to review the results. Later today, we expect to be filing the 10-Q with the SEC and it will be available on our website at that time.

The agenda for today will begin with Chuck discussing the quarter, along with an update on our annual guidance and touch on our ongoing exploration activities. Dave will then give a more detailed overview of our operations and plans for the remainder of the year. We'll leave plenty of time for Q&A at the end and plan to wrap up the call in less than an hour. We would please ask that our participants limit themselves to one primary questions and one follow-up. Should you have any questions that we don't get to this morning, please don't hesitate to call and we'll do the best answer you.

I want to remind everyone that this webcast and conference call contains projections and forward-looking statements based on our current views 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 to differ materially from what we would talk about today. You should read our full disclosure on forward-looking statements in our latest news release and SEC filings for a discussion of all the risk factors that influence our business. We'll reference certain non-GAAP financial measures such as adjusted net income or discretionary cash flow on the call today. When we refer to these items, it is because we believe they are good metrics in using -- to be used in evaluating the company's performance. Be sure to see the reconciliations in our earnings release tables.

One other item before handing it over to Chuck. Hopefully, you all are aware that we are hosting an Analyst Day on November 15 in Houston. Please make sure to put it on your calendar. We look forward to providing a significant update on our global portfolio, the significant growth that we expect and the opportunity set that we believe is unique within the industry. With that, let me turn the call over to Chuck.

Charles D. Davidson

Thanks, David and good morning, everyone. The highlights section of this morning's earnings release clearly shows what an outstanding quarter it was for Noble Energy. Sales volumes were well above expectations and if adjusted for last year's sale of onshore U.S. assets as well as our exit from Ecuador, would have been a record. The quarter saw a record production from our horizontal Niobrara program in the DJ Basin as well as record production in Israel. Our major projects remain on track with the same continuing to be well ahead of schedule. And finally, we announced and closed in the quarter the acquisition of a very significant position in the Marcellus Shale to the formation of a joint venture with CONSOL Energy. As a result, we now find ourselves rapidly speeding toward a significant inflection point in our growth profile. An inflection point that's driven by accelerating Niobrara drilling, the new and rapidly growing Marcellus production, as well as the pending startups of Aseng in West Africa, as well as Raton South in Galapagos in the Deepwater Gulf of Mexico.

It has indeed been a very busy and exciting quarter for Noble Energy, so I'm going to start with a quick summary of the quarter. We reported adjusted net income for the third quarter of $234 million or $1.24 per share. That's up from $225 million for the third quarter last year. Adjustments this quarter were primarily related to unrealized mark-to-market gains on our hedges. GAAP net income for the third quarter this year was $441 million or $2.39 per share diluted.

Revenues were $924 million, down slightly from last quarter, with weaker commodity prices offsetting the volume growth. 73% of our revenue this quarter was from liquids, including natural gas liquids and methanol. Discretionary cash flow was $588 million for the quarter, up 18% over the third quarter 2010. Total sales volumes for the quarter averaged 224,000 barrels of oil equivalent per day, outperforming the high end of our guidance for the quarter. Our domestic volumes made up just over 50% of total volumes or 113,000 barrels of oil equivalent per day. Total U.S. volumes were down versus the third quarter last year, as a result of the sale of the onshore mature assets we had at that time as well as some natural depletion.

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