Noble Energy Inc. (NBL) reported adjusted earnings per share of $1.44 for the second quarter of 2011, which surpassed the Zacks Consensus Estimate of $1.33. The quarterly results were also ahead of the year-ago earnings of $1.07 per share reported by the company.
GAAP earnings during the quarter were $1.61 compared with $1.10 in the year-ago period. The difference between operating and GAAP earnings of 17 cents during the reported quarter was owing to the following one-time items: unrealized commodity derivative instruments gains of 79 cents, a 14 cent gain on asset divestiture and loss of 76 cents for impairments of certain assets.
Revenue
Noble Energy's net revenue of $954 million in the second quarter was above the Zacks Consensus Estimate of $872 million and 23.4% higher than $751 million reported in the second quarter of 2010.
The year-over-year growth in revenue during the quarter was driven by better performance of crude oil and condensate (up 23.7%) and natural gas and natural gas liquids (NGL) (up 41.67%).
Operational Results
Total second quarter sales volumes for Noble declined 1.8% year over year to 215 thousand barrels of oil equivalent per day (MBoe/d). The volume decline was primarily due to lower domestic sales which resulted from the 2010 sale of Mid-Continent and Illinois basin countered the decline. Net volumes produced during the quarter totaled 216 MBoe/d.
Realized oil prices in the quarter improved significantly by $32.17 per barrel to $107.53 per barrel, representing a 32.2% growth from the year-ago quarter. Realized prices for NGL was up 27.1% to $50.03 per barrel from $39.37 per barrel in the year-ago quarter. Natural gas realizations for the company improved 10.6% year over year to $3.22 per thousand cubic feet from $2.91 per thousand cubic feet a year ago.
Production costs including lease operating expenses, production and ad valorem taxes, and transportation were up 5% to $7.92 per Boe from the second quarter of 2010. The increase in production costs was primarily due to higher production and ad valorem taxes resulting from stronger commodity prices.
Financial Update
Cash and cash equivalents as of June 30, 2011 were $1.52 billion versus $1.08 billion as of December 31, 2010.
Long-term debts as of June 30, 2011 were $2.8 billion versus $2.27 billion as of December 31, 2010.
Capital expenditure for the second quarter 2011 was $719 million, up from $587 million at the end of the second quarter 2010.
The company also raised its capital expenditure guidance for 2011 by $300 million to $3 billion. The increase in capital expenditure was due to expansion of the Wattenberg horizontal Niobrara program, acceleration of major projects in Equatorial Guinea, and addition of a new near-term gas development project in Israel besides carrying out other exploration possibilities in the international arena.
Discretionary cash flow for the quarter was $659 million versus $496 million a year ago.
Guidance
The company raised its total production for 2011 to a range of 215 to 218 MBoe/d, banking on higher natural gas volumes in Israel.
The company expects third quarter 2011 volumes to average 215 to 220 MBoe/d. The company expects onshore U.S. volumes to be higher sequentially as higher crude oil and natural gas output from the DJ Basin will more than offset the decline in volumes in other onshore natural gas areas. On top of that, the company expects higher volumes in Equatorial Guinea and strong demand for natural gas in Israel to contribute to favorable volumes.
Given the possibility of new exploration opportunity in West Africa and Cyprus, the company now expects its 2011 exploration expense guidance to range from $380 million to $440 million.
Peer Update
Anadarko Petroleum Corporation (APC),which competes with Noble Energy, reported second-quarter 2011 earnings of $1.14 per share, well ahead of the Zacks Consensus Estimate of 96 cents and the year-earlier profit of 49 cents.
Anadarko's total operating revenue for second-quarter 2011 was $3.68 billion, up 41.0% from $2.6 billion reported in the year-ago period.
Our Take
Despite declining sales volumes over the prior year, the higher realized prices of the products sold enabled the company to beat our top-line expectation.
We believe the company is well tuned to reach its new guidance given the higher international demands and resumption of drilling in the deepwater Gulf of Mexico.
Noble Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain a Neutral recommendation on the stock over the long term.
Based in Houston, Texas, Noble Energy operates internationally and engages in the acquisition, exploration, development, production, and marketing of crude oil, natural gas and natural gas liquids.
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