Noble Energy Inc - Zacks Investment Research



| Noble Energy Inc. |(NBL - NYSE) |$33.07 |

Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.

Reason for Report: Flash Update: 1Q18 Earnings Results.

Prev. Ed: 4Q17 Earnings Update on Mar 28, 2018.

Flash Update [Note: earnings update in progress; final report to follow]

On May 1, 2018, Noble Energy reported adjusted earnings of 35 cents per share in the first quarter of 2018, beating the Zacks Consensus Estimate of 28 cents by 25%.

On a GAAP basis, the company reported earnings of $1.14 per share compared with 8 cents in the year-ago quarter.

 

The difference between adjusted and GAAP figures was caused by the combined effect of gain on divestiture, charges including asset impairment, loss on investment in Tamar Petroleum Ltd., loss on Commodity Derivative Instruments, and income tax adjustments.

Total Revenues

Noble Energy's total revenues increased around 24.1% year over year to $1,286 million in the first quarter. Reported revenues also surpassed the Zacks Consensus Estimate of $1,199 million by 7.3%.

Operational Results

In the quarter under review, sales volume averaged 370 thousand barrels of oil equivalent per day (MBoe/d), exceeding the guided range of 358-368 MBoe/d. Prior to the implementation of ASC 606, total company sales volumes in the first quarter of 2018 were 361 MBoe/d.

U.S. onshore assets are a major contributor to the total sales volume, contributing nearly 246 MBoe/d in the first quarter. Onshore sales volume was up 30% year over year, primarily due to solid contribution from Delaware Basin assets.

Operating expenses in the quarter were $578 million compared with $1,001 million in the year-ago quarter. Operating income was $708 million versus $35 million in the year-ago quarter.

The company announced $750 million of share repurchase program and repurchased nearly $67.5 million shares during the quarter.

Realized Prices

U.S. Onshore realized crude oil and condensate prices (Post ASC 606 adoption) in the quarter increased 25.8% to $61.50 per barrel from the year-ago level of $48.88.

U.S. Onshore Natural gas prices decreased 24.6% to $2.60 per thousand cubic feet from $3.45 in the year-ago period.

U.S. Onshore Realized prices for natural gas liquids were up 6.8% to $25.47 per barrel.

Financial Highlights

Noble Energy's cash and cash equivalents as of Mar 31, 2018 were $992 million, down from $675 million as of Dec 31, 2017.

Long-term debt was $6,858 million as of Mar 31, 2018 compared with $6,746 million as of Dec 31, 2017.

Cash flow from operating activities in the quarter was $583 million, up from $536 million in the prior-year quarter.

Guidance

Noble Energy updated its guidance to reflect the adoption of ASC 606 and the timing of closing the Gulf of Mexico transaction.

Noble Energy’s 2018 sales volume has been increased to the range of 350-360 MBoe/d, up from the prior range of 343-353 MBoe/d. Second-quarter sales volumes are anticipated to be between 340 MBoe/d and 350 MBoe/d.

Noble Energy reiterates its 2018 capital expenditure to be between $2.7 billion and $2.9 billion, with second-quarter expenses to come in within $750-$850 million.

MORE DETAILS WILL COME IN THE IMMINENT EDITIONS OF ZACKS RD REPORTS ON NBL

Portfolio Manager Executive Summary [Note: Only highlighted material has been changed.]

Noble Energy Inc. through its subsidiaries, engages in the exploration, development, production and marketing of crude oil and natural gas in the United States and internationally.

Of the 18 firms covering the stock, 15 gave positive ratings, 3 gave neutral ratings and none of the firms rendered negative rating. Target prices range from $31.00 (5.6% upside from the current price) to $56.00 (90.7% upside from the current price) with price an average Zacks Digest price target of $41.07 (( $3.94 from the previous report and 39.9% upside from the current price.)

Positive or equivalent (83.33%, 15/18 firms): The bullish firms are of the opinion that the company benefits from its U.S onshore natural gas assets. In addition, shareholders will also gain from its Leviathan project and ownership interest in the Tamar and Dalit fields. The firms believe that the company’s ability to reward its shareholder with dividend, and share buyback makes it an attractive choice for the investors.

Neutral or equivalent 16.67%, 3/18 firms): Some neutral firms expect stable future performance from Noble Energy as it is focused on free cash flow generation and dividend distribution. They believe the company’s healthy balance sheet, well balanced portfolio of assets, development and exploration in The United States and Israel will boost performance. However, they remain apprehensive about rising competition in the Eastern Mediterranean gas markets.

Mar 28, 2018

Overview [Note: Only highlighted material has been changed.]

The firms identified the following factors for evaluating the investment merits of the company:

|Key Positive Arguments |Key Negative Arguments |

|Transformation: The company completed its transformation from an |Reliance on Third-Party Providers: The company usually has to rely on |

|offshore/international-oriented exploration and production (E&P) to a |third parties for the transportation of oil and natural gas, which has a |

|more balanced E&P between U.S./international & onshore/offshore. |direct effect on its costs. |

| | |

|Success in Exploration: The company is a world-class exploration firm and|Availability of Pipelines: Marketability of Noble Energy’s production from|

|has a steady exploration track record in several deep-water, high-impact |its core geographical areas depends upon the availability, proximity and |

|discoveries. |capacity of pipelines, natural gas gathering systems, and processing |

| |facilities. |

|Cost-Efficiency: Noble Energy is focused on maintaining a healthy balance| |

|sheet to sustain investment grade rating. The company also curtailed its |International Risks: The company’s operations outside the U.S. expose it |

|capital budget for 2016 through supplier negotiations and operational |to political and currency risks. Political risks include adverse changes |

|efficiencies in order to retain financial strength and flexibility. |in the host country’s laws and policies governing foreign companies. |

| |Currency risks include legal restrictions on currency transfers and |

|Eastern Mediterranean Assets: Leviathan and Tamar field holdings will |exchange rate fluctuations. |

|help the company to gain from rising demand of natural gas in the region.| |

| |Fluctuations in Oil and Natural Gas Prices: The company’s operating |

| |results are highly influenced by volatile crude oil and natural gas prices|

| |due to economic cycles. |

Houston, TX-based Noble Energy Inc. is one of the nation’s leading independent energy companies. The company’s domestic onshore production areas consist of the Denver/Julesburg (DJ) Basin and the Marcellus Shale. The company also has a presence in Northeastern Nevada. The company’s international areas of operation include the deep water GoM, West Africa (Equatorial Guinea, Cameroon and Sierra Leone), the Eastern Mediterranean region (Israel and Cyprus) and in the North Sea. Other international operations are spread across the Falkland Islands, China and Nicaragua. The company also markets domestic crude oil and natural gas through a wholly owned subsidiary, Noble Energy Marketing, directly to end users, and to natural gas marketers and pipelines. Following the acquisitions of Patina, US Exploration and Rosetta Resources Inc., Noble Energy has a more balanced asset base with an encouraging organic production growth profile, greater opportunities for high impact exploration drilling as well as lower risk projects.

Noble Energy’s total proved reserves at the end of 2017 were 1,965 million barrels of oil (MMBoe) compared with 1,437 MBoe at the end of 2016. Out of the total reserves, 1,097 MMBoe is proved undeveloped reserves. In December 2017, Noble Energy entered in a definite agreement to divest 30,200 net acres from the company's non-core DJ Basin position in Weld County, CO to SRC Energy Inc. for $608 million.

The company’s website is . Noble Energy’s financial year references coincide with the calendar year.

2018

Long-Term Growth [Note: Only highlighted material has been changed.]

Noble Energy is a worldwide producer of crude oil and natural gas. The firms believe that its strategy is to achieve growth in value and cash flow by continued expansion of a high-quality portfolio of producing assets that is balanced and diversified across the U.S. and international projects, crude oil and natural gas.

Through a series of successful exploration programs, Noble Energy transformed its portfolio into a set of low-risk assets capable of generating strong free cash flow. In addition, the company has an attractive organic growth profile, along with one of the lowest cost structures in the sector. Noble Energy is actively involved in intermittent divestiture activities and utilizes the proceeds for growth ventures. The company’s selected basin sites lend it a competitive advantage and fetch superior returns.

With the acquisition of Rosetta Resources, the company has strengthened its presence in the Eagle Ford Shale and Permian Basin. Additionally the Clayton Williams Energy, Inc. has further strengthened its position in onshore U.S.

In Israel, Noble Energy received necessary permission to go ahead with its Leviathan development work with first gas targeted by 2019 end. Leviathan project is 40% complete.  The company is targeting 1 billion cubic feet per day of volume under contract, when it expects to start operation from Leviathan. The firms expect that the company will be able to secure more long term contracts for Leviathan, given the rising awareness to use clean source of fuel. Nov 09, 2017

Mar 28, 2018

Target Price/Valuation [Note: Only highlighted material has been changed.]

|Rating Distribution |

|Positive |83.33%( |

|Neutral |16.67%( |

|Negative |0.0% |

|Average Target Price |$41.07( |

|Highest Target Price |$56.0( |

|Lowest Target Price |$16.67( |

|No. of Brokerage Firms with Target price/Total | 14/18 |

Potential risks involved in target price realizations include commodity price volatilities on its unhedged production, unplanned accidents and disasters in exploration plays and setbacks or delay in execution of long-term exploration projects. Other limitations are geopolitical, currency and sovereign risks.

Recent Events [Note: Only highlighted material has been changed.]

On Mar 14, 2018 Noble Energy, declared the closing of divestment in the Tamar field, offshore Israel, to Tamar Petroleum Ltd of a 7.5% working interest.

On Feb 20, 2018, Noble Energy, Inc. reported adjusted earnings of 32 cents per share for the fourth quarter of 2017, beating the Zacks Consensus Estimate of 4 cents by a whopping 700%.

On a GAAP basis, the company reported earnings of $1.01 per share against a loss of 59 cents in the year-ago quarter.

The difference between adjusted and GAAP figures was caused by the combined effect of loss on divestiture and undeveloped leasehold impairment, offset by a gain from divestitures.

Revenue [Note: Only highlighted material has been changed.]

Noble Energy's total revenues increased around 18.9% year over year to $1,201 million in the fourth quarter. Reported revenues also surpassed the Zacks Consensus Estimate of $1,152 million by 4.3%.

Sales Volumes & Reserves

In the quarter under review, sales volume averaged 380 thousand barrels of oil equivalent per day (MBoe/d), which is at the low end of the guided range of 380-390 MBoe/d. Volumes in the quarter were impacted by nearly 7 MBoe/d as a result of winter storms and third-party facility impacts in the company's Texas operations.

U.S. onshore assets are a major contributor to the total sales volume, contributing nearly 249 MBoe/d in the fourth quarter. Onshore sales volume was up 40% year over year, primarily due to solid contribution from Noble’s Eagle Ford and Delaware Basin assets.

Noble Energy’s total proved reserves at the end of 2017 were 1,965 million barrels of oil (MBoe) compared with 1,437 MBoe at the end of 2016.

Realized Prices

U.S. Onshore Realized crude oil and condensate prices in the quarter increased 15.3% to $53.83 per barrel from the year-ago level of $46.69.

U.S. Onshore Natural gas prices increased 17.1% to $2.87 per thousand cubic feet from $2.45 in the year-ago period.

U.S. Onshore Realized prices for natural gas liquids were up 40% to $27.77 per barrel.

Guidance

Noble Energy expects 2018 sales volume to be in the range of 343-353 MBoe/d. First-quarter volumes are anticipated to be between 358 MBoe/d and 368 MBoe/d. Sales volumes are expected to drop sequentially due to the impact of divestitures on the U.S. onshore (8 MBoe/d) and Tamar (3 MBoe/d).

Outlook

The neutral firms believe that the company will gain from higher oil production from U.S offshore assets.

Margins [Note: Only highlighted material has been changed.]

Operating expenses in the quarter was $740 million compared with $1,373 million in the year-ago quarter, reflecting a decline of 46.1% primarily due to lower exploration expenses, Gathering, Transportation and Processing expenses and drop in depreciation, deletion and amortization.

Interest expenses in the quarter were $83 million, down 3.5% year over year.

Earnings per Share [Note: Only highlighted material has been changed.]

Noble Energy, Inc. incurred adjusted earnings of 32 cents per share for the fourth quarter of 2017, beating the Zacks Consensus Estimate of 4 cents by a whopping 700%.

On a GAAP basis, the company reported earnings of $1.01 per share against a loss of 59 cents in the year-ago quarter.

The difference between adjusted and GAAP figures was caused by the combined effect of loss on divestiture and undeveloped leasehold impairment, offset by a gain from divestitures.

|Research Analyst |Sanhita Banerjee |

|Copy Editor | |

|Content Ed. |Jewel Saha |

|Lead Analyst |Jewel Saha |

|QCA |Jewel Saha |

| | |

|No. of brokers reported/Total brokers | |

|Reason for Update |1Q18 Earnings Flash |

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May 1, 2018

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