Shares of Noble Energy, Inc. (NBL) bounced higher on Tuesday and were up 11% at 2:30 p.m. EST. Fueling the oil stock's rise was its strong fourth-quarter results and a bullish outlook for the coming years.
Noble Energy ended 2017 on a positive note, producing $156 million, or $0.32 per share, of adjusted net income. That was not only an improvement from the $0.26 per share it pulled in during the year-ago period, it also blew past the consensus estimate by an impressive $0.28 per share. A 40.5% increase in output from higher-margin U.S. resources plays, a $7.14-per-barrel improvement in pricing, and a 50% drop in operating expenses helped fuel the company's expectation-trouncing results.
As good as Noble Energy's fourth-quarter results were, the company expects even better ones in the coming years. The company said that it would spend about $2.8 billion in capital to develop its oil and gas properties per year through 2020, which is about 6% more than last year. However, that capital should drive 20% compound annual production growth over that time frame. Further, cash flow should rise by an even higher 35% compound annual growth rate as long as oil averages $50 a barrel. That cash flow growth rate is well above most peers, with Pioneer Natural Resources (PXD 0.39%) and Encana (OVV -1.56%), for example, expecting cash flow to grow at compound annual rates of 20% and 25%, respectively. Though, in Pioneer Natural Resources' case, it hopes to maintain that 20% rate through 2026, while Encana's estimate runs through 2022.
Noble Energy's forecast suggests that it will generate a growing stream of free cash flow in the coming years. That positions the company to return even more money to investors above its recently announced $750 million share buyback program. It probably won't be alone, since larger buybacks are also likely for both Pioneer and Encana after the two oil stocks authorized $100 million and $400 million in share repurchases this year.
Noble Energy is one of a growing number of shale drillers that are transforming into cash flow machines. Further, like rivals, it only needs oil in the $50s to fuel its growth engine, which means it could produce even more excess cash if oil stays in the $60s or heads higher. The forecast suggests that this oil stock could have plenty of fuel to continue running higher.