Independent oil and gas producer Noble Energy Inc. (NBL) reported adjusted earnings per share of $1.24 for the third quarter of 2011, which surpassed the Zacks Consensus Estimate of $1.03. The quarterly results were 3 cents lower than the year-ago earnings of $1.27 per share reported by the company.
GAAP earnings during the quarter were $2.39 per share compared with $1.31 per share in the year-ago period. The difference between operating and GAAP earnings of $1.15 per share during the reported quarter was primarily attributable to unrealized commodity derivative instruments gains, with only 1 cent coming from other items.
Revenue
Noble Energy's net revenue of $924 million in the third quarter was $1 million below the Zacks Consensus Estimate and 18.3% higher than $755 million reported in the third quarter of 2010.
The year-over-year growth in revenue during the quarter was driven by better performance of crude oil and condensate (up 24.4%) and natural gas liquids sales (NGL), up 59.1%.
Operational Results
Total third quarter sales volumes declined 2.6% year over year to 224 thousand barrels of oil equivalent per day (MBoe/d). The volume contraction was primarily due to lower domestic sales. The company experienced a growth in sales in Equatorial Guinea and Israel.
Realized oil prices in the quarter improved significantly by $24.74 per barrel to $98.15 per barrel, representing a 33.7% jump from the year-ago quarter. Realized prices for NGL was up 36.6% to $49.57 per barrel from $36.30 per barrel in the year-ago quarter. Natural gas realizations for the company improved 13.8% year over year to $3.21 per thousand cubic feet from $2.82 per thousand cubic feet a year ago.
Production costs including lease operating expenses, production and ad valorem taxes, and transportation were up 11% to $7.42 per Boe from the third 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 September 30, 2011 were $1.25 billion versus $1.08 billion as of December 31, 2010.
Long-term debts as of September 30, 2011 were $3.5 billion versus $2.27 billion as of December 31, 2010.
Capital expenditure for the third quarter 2011 was $1.97 billion, up from $0.7 billion at the end of the third quarter 2010. The significantly higher capital expenditure during the quarter was attributable to the $1.23 billion investment made in Marcellus Shale.
Discretionary cash flow for the quarter was $588 million versus $500 million in the year-ago quarter.
Guidance
The company raised its total production forecast for 2011 to a range of 220 to 222 MBoe/d, up from 215 to 218 MBoe/d, taking into consideration the benefits from the solid performance in the first nine months and the joint venture with CONSOL Energy.
The company expects fourth quarter 2011 volumes to average 226 to 234 MBoe/d with 10 MBoe/d coming from the Marcellus. The company projects sequentially higher onshore U.S. volumes as additional output from the Marcellus shale and 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. However, the company expects a sequential decline in international volumes due to lower seasonal demand for natural gas in Israel.
Peer Update
Anadarko Petroleum Corporation (APC), which competes with Noble Energy, is expected to report its third-quarter 2011 earnings on October 31, 2011. The Zacks Consensus Estimate, for third-quarter 2011, is presently pegged at 68 cents per share.
Anadarko had reported strong results in the second quarter 2011, with its earnings surpassing both the year-ago figure and our expectation.
Our View
During the reported quarter the company experienced growth in international sales volumes, while domestic sales received a year-over-year beating. Overall, in the reported quarter, combined sales volumes fell below year-ago levels. However, total revenue of the company increased on the back of strong realized prices in all its product categories.
In the third quarter the company entered into a joint venture with CONSOL Energy Inc. (CNX) to develop the latter’s Marcellus Shale properties in southwest Pennsylvania and northwest West Virginia. Per the arrangement, Noble Energy will pay $3.4 billion to CONSOL to acquire a 50% interest in CONSOL's 663,350 Marcellus Shale acres including a 50% interest in CONSOL's existing Marcellus Shale wells. We believe the generation from this shale will boost the top line of the company in the long term.
The company is well tuned to reach its new guidance given the additional volumes from the joint venture and the early start-up of Aseng in Equatorial Guinea.
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. Noble Energy currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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