Noble Energy Inc. (NBL)

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Noble Energy, Inc. (NBL)

Q4 2009 Earnings Call Transcript

February 18, 2010 10:00 am ET

Executives

David Larson – VP, IR

Chuck Davidson – Chairman and CEO

Dave Stover – President and COO

Analysts

Dave Kistler – Simmons & Company

Anne Cameron – J.P. Morgan

Mike Jacobs – Tudor, Pickering, Holt

Brian Singer – Goldman Sachs

TJ Schultz – RBC Capital

Dan McSpirit – BMO Capital Markets

Presentation

Operator

Good morning. Welcome to Noble Energy's fourth quarter 2009 earnings conference call. As a reminder, this call is being recorded. I would now like to turn the call over to Mr. David Larson. Please go ahead, sir.

David Larson

Good morning, everyone. Welcome to Noble Energy's fourth quarter and year-end 2009 earnings call and webcast. I'd like to start out today with a few introductions. On the call, we have Chuck Davidson, Chairman and CEO; Dave Stover, President and COO; and, Ken Fisher, our new CFO.

The agenda for today will include some opening comments by Chuck and review the financial results for the quarter as well as discuss our guidance and capital outlook. Dave will then talk about operating results for the quarter and the highlights of our activity levels in 2010. Ken will be available to address any financial topics during the Q&A session. As usual, we'll leave time for Q&A at the end, and try to wrap up the call in less than an hour. Should you have any questions that we don't get to, please feel free to give us a call and we'll do the best we can in answering them.

We hope everybody has seen both of our news releases that we issued this morning, one announcing our fourth quarter full year results, and the other covering our 2010 guidance. Later today, we expect to be filing the 10-K with the SEC, and it will also be available on our Web site.

I want to remind everyone that this conference call does contain 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 actual results in future periods to differ materially from what we discussed. You should read our full disclosures on forward-looking statements in our latest news release and SEC filings for a discussion of all of our risk factors that influence our business.

We'll reference certain non-GAAP financial measures today such as adjusted net income or discretionary cash flow. When we refer to these items, it's 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. I thought maybe it would be helpful to step back a bit as we open this call up and take a big picture look at 2009. There certainly are a number of things to reflect upon. It's certainly easy to predict – forget the predicament all of us were facing at this time a year ago, probably because most of this is spent all year trying to forget them. But in reflection, I believe we at Noble Energy made some of our best decisions ever as we entered into 2009, decisions that were certainly not made easily and not without pain.

First of all, we knew a year ago at this time that we were experiencing an incredible run of exploration success, success that was delivering formidable inventory of major projects to us. These projects certainly had the potential to bring huge growth to our company over the next decade.

I think second at that time, it was clear that we were bearish on US natural gas. As a result, it made no sense for us to spend a lot of money drilling up our US gas inventory in the environment that we faced. So at the beginning last year, we cut capital. We cut it hard, initially from $2.3 billion in 2008 to $1.6 billion, and later, we lowered our 2009 budget to $1.4 billion. And then we held the line, actually ending 2009 at $1.3 billion. Harder chip with these reductions were our US onshore programs, which suffered close to a 40% cut in organic spending last year from the 2008 levels.

Looking back, I believe we would make these calls over and over again. These decisions kept us positioned well to execute our major project program. We're able to generate free cash flow for the year, strengthen our balance sheet, ending with a debt-to-book capital ratio net of cash of 14%. And we retained substantial financial firepower, which opened the door to make what I believe was a great acquisition at the end of the year. So I think we can't be happier with where we are today.

Of course, the offset was that we had to take a timeout on growth. Onshore in the US, even with the severe capital cuts, we're able to grow our volumes led by our liquid-rich Wattenberg field. We also increased our onshore footprint, adding to our large acreage positions and increasing our core Wattenberg and the growing DJ Basin opportunity set. And we achieved positive initial results on our East Texas Haynesville program, while our teams continued to improve drilling times in a number of plays throughout our portfolio.

And the deepwater Gulf of Mexico exploration results at Santa Cruz and the subsequent sanctioning of the oil development at Galapagos are important steps for Noble Energy. Success at the deepwater lease sale also allowed us to increase our inventory of exploration prospects in the deepwater Gulf of Mexico, which now contained more than 1.6 million barrels of net unrisked potential resources. Late in the year, we initiated drilling on two significant exploration prospects from this portfolio.

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