Noble Energy (NBL), the Houston-based independent oil and gas producer, reported second-quarter financial results on Thursday. Though its earnings plunged 49% from a year earlier, the company once again delivered strong performance from its core onshore U.S. and offshore Israel assets. And while Noble did lower its production outlook for the year, its long-term prospects remain bright.

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Key second-quarter numbers
Noble reported a second-quarter profit of $192 million, or $0.52 a share, down from $377 million, or $1.04 a share, in the year-earlier period.Earnings were negatively affected by an 8.4% rise in operating expenses and a $187 million loss on commodity derivatives.

But excluding hedging impacts and other items, the company's net income came in at $318 million, or $0.87 per diluted share, up from $0.69 per diluted share in the year-earlier period and ahead of analyst expectations by $0.08 per share. Revenues jumped 20% year over year to $1.38 billion.

Discretionary cash flow came in at $887 million, up from $765 million in the second quarter of 2013, while net cash provided by operating activities was $827 million, up from $539 million a year earlier. Meanwhile, capital expenditures totaled $1.3 billion, up from $1.1 billion.

U.S. and Israel continue to deliver
Despite the year-over-year decline in earnings, the company's onshore U.S. operations, which account for over half of its sales volumes, delivered yet another solid quarterly performance. Production from the DJ Basin and Marcellus shale plays surged 56% year-over-year to a record 112 thousand barrels of oil equivalent per day (MBoe/d).

Beyond strong production growth, one of the things that really impressed me about Noble's onshore U.S. performance was the fact that its natural gas price realizations averaged $4.24 per thousand cubic feet (Mcf), which is much higher than Marcellus-focused peer Cabot Oil & Gas' (CTRA -0.23%) second-quarter gas price realizations of $3.47 per Mcf.

It's also likely higher than the price realizations other Marcellus-focused companies like Range Resources and Southwestern Energy will report. The fact that Noble receives such a high price for its gas production is due largely to the location of its acreage in southwestern Pennsylvania, which has much better pipeline and market access than the northeast part of the play.  

The company's Eastern Mediterranean operations also delivered strong performance, with Israel sales volumes averaging 220 MMcfe/d thanks to virtually no downtime at the Tamar gas field. Noble expects the start-up of the onshore compression project at Ashdod, which is over 60% complete, to boost the deliverability of Tamar volumes by 200 MMcfe/d gross.

Infrastructure issues
The one big letdown from the quarter, however, was DJ Basin production missing the company's guidance due largely to downtime at a third-party processing plant, facility upgrades for over 60 wells, and related higher line pressures in certain areas of the field. As a result of these infrastructure constraints, the company reduced its expectations for third- and fourth-quarter volumes.  

It also expects weakness in third-quarter Israel gas sales due to the ongoing conflict there. The markets didn't take too kindly to the downward revision, sending shares of Noble 3.5% lower on Thursday. But these are mainly near-term issues and should have little impact on the company's longer-term future. On the infrastructure side, takeaway capacity in the DJ Basin should improve significantly over the next few years.

Meanwhile, Noble is seeing encouraging results from testing new well completion techniques, including the plug-and-perf method, which boosted production from its DJ Basin horizontal wells by 50% compared to the previous technique. Additional improvements could provide a meaningful boost to the company's returns from the play, which are already in the triple digits.

Investor takeaway
While infrastructure constraints in the DJ Basin were a big letdown for the quarter and will weigh on the company's near-term production growth, Noble is still a world-class upstream operator with an exceptional portfolio of high-quality assets in some of the most promising regions around the world. Given its peer-leading growth prospects and huge opportunity to supply growing Middle Eastern gas demand, Noble looks like a pretty good long-term buy even at nearly 19 times earnings.