Noble Energy Management Discusses Q2 2012 Results - Earnings Call Transcript

Noble Energy (NBL)

Q2 2012 Earnings Call

July 26, 2012 10:00 am ET

Executives

David R. Larson - Vice President of Investor Relations

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

David L. Stover - President and Chief Operating Officer

Analysts

Brian Singer - Goldman Sachs Group Inc., Research Division

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

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

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

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

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

Arun Jayaram - Crédit Suisse AG, Research Division

John Malone - Global Hunter Securities, LLC, Research Division

John P. Herrlin - Societe Generale Cross Asset Research

Charles A. Meade - Johnson Rice & Company, L.L.C., Research Division

Presentation

Operator

Good morning. Welcome to Noble Energy's Second Quarter 2012 Earnings Call. I would now like to turn the call over to David Larson, Vice President of Investor Relations. Please go ahead, sir.

David R. Larson

Thanks. Good morning, everyone. Welcome to Noble Energy's Second Quarter 2012 Earnings Call and Webcast. On the call today, we have Chuck Davidson, Chairman and CEO; Dave Stover, President and COO; and Ken Fisher, CFO.

Earlier this morning, we issued our earnings release for the second quarter, and it is available on our website. We have also posted a few supplemental operational slides that we hope you will find useful as you review our results today. You may have also noticed in the morning's press release that we have reclassified our North Sea operations as discontinued operations. To assist you with the accounting impact, we provided an additional table to our earnings release.

Following our call today, we expect to be filing our 10-K with the SEC, and it will be available on our website. In a few moments, I will be turning the call over to Chuck, who will discuss our results for the quarter and some of our ongoing efforts to grow and monetize our project inventory. Dave will then provide a detailed operational review and our -- on our near-term plans and outlook. We'll leave time for Q&A at the end and plan to conclude the call within the hour. [Operator Instructions]

I want to remind everyone that this webcast and the 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 periods to differ materially from what we discuss here today. You should read our full disclosures on forward-looking statements in our latest news release and SEC filings for a discussion of the risk factors that influence our business.

Finally, we will be referencing certain non-GAAP financial measures, such as adjusted net income or discretionary cash flow on the call. When we refer to these items, it is because we believe they are good metrics to use in evaluating the company's performance. We provide you with reconciliations in our earnings tables.

Now let me turn the call over to Chuck.

Charles D. Davidson

Thanks, David. Good morning, everyone, and thanks for joining us today. We've got lots to cover as our activity levels remain very high. I'm going to start out by reviewing our second quarter results, including our full year guidance and then comment on some of our planned activities for the rest of the year.

And before we get to the numbers, let me just comment on the reclassification of our North Sea properties to discontinued operations. David referenced this in the opening. We are doing this as a result of our recent announcement to divest the majority of our North Sea business. Previous quarters have also been reclassified to reflect the impact of this change, and you can see the references to discontinued operations in the schedules that accompany our earnings release this morning.

Adjusted net income for the second quarter totaled $145 million or $0.77 per share diluted. Excluded from adjusted net income were unrealized gains from commodity hedges and 2 domestic asset impairments related to commodity prices. As previously announced, we have recorded $118 million pretax in exploration expense related to the Deep Blue project, which reduced earnings this quarter by approximately $0.42 a share.

Revenues from continuing operations were $966 million for the quarter. That's up 15% from the second quarter last year, with a big driver in the growth being crude and condensate revenue, which was up 57%. Our total sales volumes for the quarter, including sales from discontinued operations, were 231,000 barrels of oil equivalent per day, which was near the upper end of our second quarter guidance range. As expected, total sales were down from the first quarter due to planned maintenance early in the quarter at the Atwood plant, as well as reduced gas sales in Israel where we continue to manage reservoir depletion.

In addition, we experienced an impact in the DJ basin of approximately 4,000 barrels a day equivalent as a result of third-party processing downtime and hot weather. Over 85% of the volume decrease from the first quarter was in natural gas sales, with the remaining decrease in natural gas liquids. Crude oil volumes were actually up 2% over the first quarter. Sales from continuing operations averaged 224,000 barrels of oil equivalent per day. Of that amount, sales of crude and condensate represented 86,000 barrels a day, which is a 62% increase over the second quarter last year.

Domestic sales totaled 134,000 barrels of oil equivalent per day and benefited from the first full quarter of production from South Raton, as well as the start up of Galapagos near the end of the quarter, as well as strong results from the horizontal drilling programs in the Marcellus and the Wattenberg and the Niobrara. Internationally, sales volumes were 90,000 barrels of oil equivalent per day. We brought Alba back to full production after completing maintenance early in the second quarter and delivered another very strong quarter of production from Aseng.

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