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Shares of Noble Energy Surge on Earnings Results

By Tyler Crowe – May 8, 2020 at 11:15AM

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Better-than-expected numbers and some extreme measures to preserve cash have Wall Street cheering today.

What happened

Shares of oil and gas producer Noble Energy (NBL) were up 9.2% as of 11 a.m. EDT on Friday after being up as much as 12% earlier in the trading session. Today's big price jump comes after the company announced earnings and plans to curtail production in North America.

So what

The earnings number for Noble looked horrible. The company reported a net loss of $4 billion for the quarter, or $8.27 per share. For a company with a $4.7 billion market cap, that sounds terrible. That massive loss was predominately attributed to $4.2 billion in asset impairments it took on its onshore shale assets. Absent those impairments, adjusted net income was $0.18 per share. That actually beat consensus estimates of $0.02 per share.

An offshore oil and gas platform.

Image source: Getty Images.

In addition to the earnings results, the company announced the following steps to cut spending and stem losses from low oil prices: 

  • It is cutting its 2020 capital expenditure budget in half to a full-year range of $750 million to $850 million.
  • It is voluntarily curtailing oil production. In May, it expects to curtail 5,000 to 10,000 barrels per day and anticipates June curtailments of 30,000 to 40,000 barrels per day. 
  • Management has identified $225 million in cash cost savings it expects to implement throughout the year, including cuts to executive pay.

The result of these moves thus far was enough to generate some cash in the quarter in excess of capital spending. That allowed Noble to end the quarter with $1.4 billion in cash on the books. 

Now what

For all of the positives that management highlighted in the quarterly release, it's hard to get past the fact that it took asset impairment charges almost equivalent to its market cap and just slightly less than the $4.5 billion it spent over the past five years acquiring Rosetta Resources and Clayton Williams Energy

NBL Chart

NBL data by YCharts.

Perhaps the one saving grace for Noble is that it has some assets outside of shale. Its natural gas assets in the Mediterranean Sea look more attractive than its U.S. onshore assets. Whether the strength of those will be enough to offset the extremely challenging operating environment in North America is yet to be seen. Even though the company has taken some steps to survive the downturn, investors are probably better off waiting to see how long this extremely low oil price environment lasts before considering an investment in Noble. 

Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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