EUR 850.00 For Business Accounts Only

Morningstar | Noble Energy Delivers Strong 2Q Production but Sees U.S. Oil and Gas Differentials Widening

Noble Energy delivered production of 346 thousand barrels of oil equivalent per day in the second quarter, above the midpoint of prior guidance and 11% higher year on year (divestiture-adjusted). This was partly driven by U.S. onshore volumes, which averaged 244 mboe/d in the period (of which 43% was oil, reflecting 22% year-on-year growth due to increasing output in the DJ and Delaware basins). However, firmwide volumes also included a higher-than-expected contribution from Tamar in the eastern Mediterranean, which experienced very high capacity utilization in the period with average sales above 1 billion cubic feet per day.

Nevertheless, Noble's financial results were below Street estimates. Adjusted EBITDA and adjusted earnings per share were $669 million and $0.17, respectively, while consensus estimates were $734 million and $0.22. Unit costs were essentially unchanged from the prior quarter, but basis differentials deteriorated for both oil and natural gas in the United States. In the Permian Basin, Noble is relatively insulated, given that less than one fourth of its U.S. oil output is exposed to Midland pricing. But for the time being, the company does have substantial exposure (over 50%) to West Texas Intermediate (Cushing) prices, which also slipped against Gulf Coast benchmarks during the quarter due to regional pipeline congestion. This will be addressed in the second half of 2019, as the firm has secured firm capacity on the EPIC pipeline and will sell associated volumes at Gulf Coast prices. But in the meantime, realizations could remain soft.

We plan to incorporate these operating and financial results in our model shortly, but after this first look, our fair value estimate and no-moat rating are unchanged.