Noble Energy Inc. (NBL)

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Noble Energy, Inc. (NBL)

Q2 2009 Earnings Call Transcript

July 30, 2009 10:00 am ET


David Larson – VP, IR

Chuck Davidson – Chairman & CEO

Dave Stover – President & COO


Dave Kistler – Simmons & Company

Michael Jacobs – Tudor Pickering Holt

Irene Haas – Canaccord Adams

Leo Mariani – RBC Capital

Ellen Hannan – Weeden & Co.

Dan McSpirit – BMO Capital Markets

Crystal Choi [ph] – Raymond James



Good morning. Welcome to Noble Energy’s second quarter 2009 earnings conference call. As a reminder, this call is being recorded. For opening remarks and introductions, I would like to turn the conference over to David Larson. Please go ahead, sir.

David Larson

Thanks, Rogy. Good morning, everyone. Welcome to Noble Energy's second quarter 2009 earnings conference call and web cast, and thanks for joining us. I'd like to start out with a few introductions. On the call today, we have Chuck Davidson, Chairman and CEO; and Dave Stover, President and COO.

The agenda for the call includes some opening comments from Chuck, who will also review a few financial items for the quarter, as well as discuss some of our major ongoing project developments. Dave will then go over our operating highlights for the quarter and an outlook on major projects going forward.

We will leave some time for Q&A and try to wrap up the call in less than an hour. Should you have any questions that we don’t get to in this morning's call, I’d encourage you to call Brad Whitmarsh or myself, and we will do our best to answer your questions.

We hope everybody has seen our earnings release that we issued this morning. Of course later today, we expect to be filing our 10-Q with the SEC, and it will be available on our Web site.

I want to remind everyone that this conference call does contain projections, 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. 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 and influences on our business.

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

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

Chuck Davidson

Thanks David and good morning everyone. While the second quarter continued to experience the challenges of a weak global economy, I'm somewhat encouraged by recent trends and certainly have a more optimistic outlook today than I had at the end of the first quarter.

Within our industry, both the debt and equity markets have opened up and many have taken advantage of these markets to plug some holes. And in the commodity markets, while natural gas remains weak we've seen a significant improvement in the oil markets, which has seen oil climbing from approximately $50 per barrel at the end of the first quarter to close to $70 at the end of the second quarter.

And for Noble Energy, I'm even more encouraged with regards to our position and outlook today. With 40% of our current volumes being global liquids we're benefiting from these improving oil markets. Our portfolio diversification has allowed us to significantly mitigate the risk of the US gas market with only 30% of our production coming from US gas. In addition, we have almost 50% of that gas hedged for 2009, and we've significantly increased our gas hedges for 2010.

As many of you know, the remaining 30% of our production is from international gas, which is mainly sold under either fixed prices or price formulas tied to oil. Operationally, as Dave will cover in a moment, we believe we are positioned extremely well. The unique issues we highlighted at the end of the first quarter that impacted second quarter production have been mainly addressed and we are now entering the third quarter at much stronger production levels.

We've completed our appraisal well at Tamar in Israel and announced that discovered resources have been grown by approximately 25% there to 6.3 trillion cubic feet. With three wells drilled in this program, all being successful, we've now found nearly 7 trillion cubic feet of gross natural gas resources in a new basin that is just now beginning to be explored.

Finally, we have just sanctioned the Aseng oil development in Equatorial Guinea. Aseng, which used to be known as Benita is the first of many projects being advanced to develop our West Africa discoveries.

Turning to our quarterly results, our financial performance was a bit above our internal estimates and appeared to be ahead of most of the Street expectations. Adjusted net income for the quarter was $116 million or $0.66 per share diluted, and that's after removing certain items, primarily our unrealized mark-to-mark hedge losses. Rolling the adjustments back in, we had a GAAP net loss of $57 million this quarter or $0.33 per share diluted.

Earnings and cash flow benefitted over the first quarter from improved oil prices as well as the oil component of our production mix being up a couple of percent. Cost performance for the quarter was strong as well.

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