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Noble Energy Lags Expectations

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Noble Energy Inc. (NBL - Free Report) reported adjusted earnings per share of 93 cents for the third quarter of 2012, which lagged the Zacks Consensus Estimate of $1.04. The quarterly results were way below the year-ago earnings of $1.01 per share reported by the company.

The year-over-year shortfall was mainly due to a decline in the average realized price of natural gas and natural gas liquids (“NGL”) sold and an increase in total costs during the reported quarter.

GAAP earnings during the quarter were $1.23 per share versus $2.39 per share in the year-ago quarter.

The difference between GAAP and operating earnings in the quarter under review was due to an unrealized loss of 73 cents from commodity derivative instruments and a gain of 87 cents from assets divestures and 16 cents gain from income tax adjustments.


Noble Energy’s net revenue of $1,006 million in the third quarter was lower than the Zacks Consensus Estimate of $1,054 million. However, revenue was 14.5% higher than $879 million reported in the third quarter of 2011.

The year-over-year growth in revenue during the quarter was driven by higher contribution from crude oil and condensate, while the results were partly tempered by lower contribution from natural gas and natural gas liquids.

Operational Results

Total third quarter sales volumes for Noble expanded 11.0% from the year-ago quarter to 242 thousand barrels of oil equivalent per day (MBoe/d), comprising 35% liquids, 25% international natural gas, 30% domestic natural gas and 10% natural gas liquids.

Net volumes produced in the quarter totaled 247 MBoe/d. The difference in production and sales volume during the quarter was due to the timing of crude oil and condensate liftings in Equatorial Guinea.

Realized oil prices in the quarter increased by $2.48 per barrel, or 3.3%, year over year to $99.30 per barrel. Realized prices for NGL in the U.S. was down 40% year over year to $29.71 per barrel from $49.57 per barrel in the year-ago quarter. Realized natural gas prices also moved down 32.7% year over year to $2.14 per thousand cubic feet (Mcf) from $3.18 per Mcf a year ago, primarily due to a fall in prices in the U.S. and Israel.

Production costs including lease operating expenses, production and ad valorem taxes, and transportation were marginally up to $7.10 per barrel of oil equivalent (Boe) from the third quarter of 2011. The increase in the production cost was due to high value crude oil production from West Africa and the deepwater Gulf of Mexico.

Financial Update

Cash and cash equivalents of Noble Energy as of September 30, 2012 were $1.61 billion versus $1.45 billion as of December 31, 2011.

Long-term debts as of September 30, 2012 were $3.75 billion versus $4.1 billion as of December 31, 2011.

Capital expenditure for the third quarter 2012 was $724 million versus $1,976 million at the end of the third quarter 2011. The capital expenditure of the company in the year-earlier period included Marcellus shale acquisition costs of $1,233 million.


The company expects fourth quarter 2012 sales volumes to average 248–252 MBoe/d, which do not include volumes from discontinued operations. The company expects its sales volumes to improve from the third quarter due to higher contribution from the ongoing drilling programs in DJ Basin and increased sales in Israel.

The company expects exploration expenses for fourth quarter 2012 to be in the range of $160 million to $200 million.

Peer Update

Anadarko Petroleum Corporation (APC - Free Report) , which competes with Noble Energy, is expected to report its third quarter 2012 earnings on October 29, 2012.

The Zacks Consensus Estimates, for revenue and earnings per share, for third quarter 2012, are presently pegged at $3,417 million and 76 cents per share, respectively.

Our Take

Despite the sales volume expansion, third quarter results came in lower than expected, hit by declining realized prices for all products sold.  The recovery in the realized price of oil to some extent diluted the impact of lower natural gas prices.

The company continues to make good progress in its DJ Basin, Marcellus Shale and its West Africa operations. On the back of drilling successes, the company expects its sales volume in the fourth quarter to exceed third quarter levels.

The company seems to further strengthen its operation by making new inroads in offshore Falkland Islands and Sierra Leone and divesting its non-core operations. But the depressed natural gas prices and around 65% of sales volume in the third quarter comprising of natural gas and natural gas liquids, to a great extent will mute the initiative of the company.

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 short-term Zacks #3 Rank (Hold rating). With a market capitalization of $16.05 billion, the company has 1,876 full-time employees.

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