Noble Energy (NBL), the Houston-based independent oil and gas producer, reported first-quarter financial results on Thursday. Though the company's profit fell 23% compared to the year-earlier quarter, it continues to make solid progress in growing production from its core assets in the U.S. and Israel. Let's take a closer look at Noble's first-quarter performance and what to expect from the company going forward.
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First-quarter highlights
Noble reported first-quarter earnings of $200 million, or $0.55 a share, down from $261 million, or $0.72 a share, a year earlier. Revenue jumped 21% to $1.38 billion. Excluding one-time items, the company reported earnings of $298 million, or $0.82 a share, handily surpassing analyst expectations of $0.75 per share on revenue of $1.32 billion.
Despite the year-over-year decline in profit, which was due largely to a 36% year-over-year increase in operating expenses, the company delivered strong growth in production. Total sales volumes jumped 20% compared to the first quarter of last year, to 286,000 barrels of oil equivalent per day, or MBoe/d, adjusted for asset sales.
This growth was led mainly by continued strong performance from the company's onshore U.S. operations, as well as higher volumes from Israel and West Africa. Production from Noble's DJ Basin and Marcellus shale plays surged by 60% year over year to a record average of 100 MBoe/d, while international sales volume jumped 23% thanks to major project start-ups at Tamar in Israel and the Alen condensate field in Equatorial Guinea.
In addition to strong production growth, the company also made major progress in securing export deals to supply gas from its offshore Tamar and Leviathan gas fields, two of the largest offshore gas discoveries of the past decade. In March, it signed a production agreement with the Israeli Anti-Trust Authority and received a 30-year development and production lease for the Leviathan field -- crucial advances for the project to move forward into the development phase.
Last but not least, Noble looks stronger than ever from a financial perspective. First-quarter capital expenditures of $950 million were only slightly higher than its discretionary cash flow of $870 million and operating cash flow of $929 million. The company closed out the quarter with $1.4 billion in cash and liquidity of $4.9 billion, while maintaining a healthy net debt-to-book cap ratio of 29%.
What to expect from Noble going forward
Going forward, Noble will continue to focus the bulk of its capital on onshore U.S. operations and Tamar, which will be its primary drivers of growth over the next few years. The company continues to see strong improvements in costs and recovery rates from employing tighter spacing between wells and from greater use of extended-reach lateral wells in both the DJ Basin and the Marcellus.
As the company conducts additional downspacing tests and drills more wells using extended-reach laterals, investors can expects costs and recovery rates to improve further, boosting returns. In Israel, Noble expects to significantly boost the deliverability of gas volumes from Tamar once it brings online its onshore compression project at Ashdod by mid-2015.
Meanwhile, deepwater projects such as Big Bend, Dantzler, and Gunflint will double Noble's production in the Gulf of Mexico after they come online in 2015 and 2016 . Reflecting the company's confidence in continued double-digit production growth and strong cash flow growth, Noble's board recently authorized a 29% increase in its quarterly dividend. This was the eighth year out of the past 10 that the company has increased its payout to shareholders.
At the same time, Noble continues to whittle down its portfolio by divesting noncore assets. So far this year, the company has announced asset sales in East Texas, North Louisiana, Wyoming's Powder River Basin, and the Tri-State field located at the borders of Colorado, Kansas, and Nebraska. Noble is also working on an agreement to divest offshore assets in China's Bohai Bay by midyear.
The takeaway
Noble maintains a large, diverse, and growing portfolio of both oil-rich and gassy assets that should provide several years of highly profitable, double-digit production growth. Though the company's exceptional growth prospects are largely reflected in its stock price -- shares trade at nearly 19 times forward earnings -- Noble's various exploratory prospects in the Gulf of Mexico and West Africa could offer considerable upside in terms of production and cash flow growth.
