Noble Energy Inc. (NBL)

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Noble Energy (NBL)

Q2 2011 Earnings Call

July 28, 2011 10:00 am ET

Executives

David Larson - Vice President of Investor Relations

David Stover - President and Chief Operating Officer

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

Analysts

Brian Singer - Goldman Sachs Group Inc.

Dan McSpirit - BMO Capital Markets U.S.

Joseph Magner - Macquarie Research

Bob Brackett - Sanford C. Bernstein & Co., Inc.

Leo Mariani - RBC Capital Markets, LLC

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

John Herrlin - Societe Generale Cross Asset Research

Peter Kissel - Howard Weil Incorporated

Douglas Leggate - BofA Merrill Lynch

David Kistler - Simmons & Company

Irene Haas - Wunderlich Securities Inc.

David Wheeler - AllianceBernstein

Presentation

Operator

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

David Larson

Thanks, Jenny. Good morning, everyone. Welcome to Noble Energy's Second 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 have issued our earnings release for the second quarter, and hopefully, you all have had a chance to review the results. Later today, we expect to be filing our 10-Q with the SEC, and it will be available on our website at that time.

The agenda for today's call will begin with Chuck, discussing the quarter and an overview of our major projects. Dave will then give a more detailed overview over our operations, along with a review of our activity levels to the second half 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 ask that the participants limit themselves to one primary question and one follow-up. Should you have any questions that we don't get a chance to get to this morning, please call and we'll do our best to 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 future periods to differ materially from what we discuss.

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. 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's because we believe they are good metrics to use in evaluating our performance. Be sure to see the reconciliations in our earnings release tables.

One other item before handing it over to Chuck, is hopefully you all receive notice that we are planning an analyst meeting later this year, on November 15, in Houston. Please make sure to put that on your calendar. We look forward to providing a significant update on our global portfolio, highlighting significant growth and on opportunities that we believe is unique in the industry. With that, let me turn the call over to Chuck.

Charles Davidson

Thanks, David, and good morning, everyone. Noble Energy's second quarter wrapped up a very positive first half of 2011. As we look forward to the rest of the year, we're accelerating a number of our development projects and we've also made important additions on the exploration side. I want to begin this morning with just some brief comments on our quarterly results, which were supported by better-than-expected volumes and robust oil prices, both of which led to another quarter of strong earnings and cash flow.

I'll follow with the review of our updated guidance and comment briefly on our plans for the remainder of the year.

Adjusted net income for the second quarter was $263 million or $1.44 per share, that's up 35% from the second quarter of last year. Excluded from adjusted net income were a couple of items, including a gain on asset divestiture related to our exit from Ecuador, as well as a couple of asset impairments onshore in the U.S. Field performance at Oliver Creek field in East Texas and Iron Horse in Wyoming, combined with the low natural gas price environment led to the impairment. And finally, we have the unrealized portion of the mark-to-market on our hedges as well. Our all-in GAAP net income for the second quarter this year was $294 million or $1.61 per share, diluted. Revenues were nearly $1 billion with approximately 75% coming from liquids, pricing for both West Texas Intermediate, as well as Brent-made [ph] crude drove our liquid revenues to its highest quarterly amounts since mid-2008. Global liquids pricing also supported our equity method income and we've now raised our full year equity earnings outlook for the NGL and methanol plant and Equatorial Guinea by $40 million.

Total sales volumes for the first quarter averaged 215,000 barrels of oil equivalent per day, outperforming the midpoint of our second quarter guidance as a result of both high demand in Israel, as well as a strong contribution from the DJ basin. Our domestic volumes made up 53% of total volumes or 115,000 barrels of oil equivalent per day. The DJ basin with high vertical and horizontal drilling activity continues to deliver growth. It was up 8% from the second quarter of last year and up 5% from the first quarter this year. Production growth in the basin is coming primarily on the liquid side as we continue to accelerate development in a lower GOR regions of the Wattenberg field and the Basin. Total U.S. oil volumes were down versus second quarter last year, and that primarily is a result of the 6,000 barrel-a-day sale of onshore mature assets last year.

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