Noble Energy Announces Operations Update
In the DJ Basin, sales volumes averaged a record 102 MBoe/d, up five percent from the second quarter of 2014. Versus the same quarter of last year, after excluding the impact of volumes associated with an acreage exchange executed late in 2013, volumes were up 15 percent. Production during the quarter was impacted approximately three MBoe/d by third-party facility downtime and localized line pressure issues. Liquids made up 67 percent of DJ Basin volumes for the third quarter of 2014 (49 percent crude oil and condensate and 18 percent natural gas liquids) and 33 percent was natural gas. Highlights for the quarter included:
• Record quarterly horizontal volumes, which totaled 74 MBoe/d for the third quarter of 2014, up more than five percent from the second quarter of 2014 and 30 percent from the same quarter of last year, after excluding the impact of volumes associated with the exchange executed in late 2013.
•Drilled 75 wells in the quarter, including 22 extended reach laterals, for an average lateral length of more than 6,000 feet.
• Commenced production on 73 operated wells, including 14 extended reach lateral wells (86 standard length equivalent wells). Approximately 50 percent of the wells brought online during the quarter were evaluating downspacing performance.
• Included in the wells brought online in the quarter were 23 wells from the Wells Ranch 30 Section, with six of the wells developed at 16 wells per section spacing and seventeen wells developed on a 32 well per section spacing pattern. The downspaced wells include wells in each of the Niobrara benches. On average, the downspace wells are performing in line with standard spacing wells on the pad and slightly better than the Wells Ranch type curve after more than 30 days on production.
•Four additional Plug-n-Perf completions were performed late in the third quarter. Production from these wells and additional Plug-n-Perf completions are planned to come online in the fourth quarter of 2014. The Company’s initial two Plug-n-Perf completion wells, at the Peppler/Peaks pad in the Core IDP, continue to outperform the comparable sliding sleeve completion after 150 days on production.
• Additional expansion of oil handling at the Wells Ranch Central Processing Facility was complete and is fully operational, increasing oil handling capacity to approximately 45 MBbl/d.
• Progress on the Company’s Keota gas plant and LNG facility, which will service the East Pony IDP, remains on schedule, with project start-ups anticipated in the fourth quarter of 2014 and the first quarter of 2015, respectively. When complete, the Keota gas plant will be able to process up to 30 million cubic feet of natural gas per day (MMcf/d) and the LNG facility will produce up to 100,000 gallons per day of LNG.
• Noble Energy continues to expand its transportation on pipeline and rail projects exporting crude oil out of the DJ Basin. Approximately 80 percent of the Company’s gross crude oil production was transported outside of the DJ Basin in the third quarter.
• Currently operating nine drilling rigs in the DJ Basin.
Production volumes in the Marcellus Shale averaged a record 327 million cubic feet of natural gas equivalent per day (MMcfe/d), a 31 percent increase versus the second quarter of 2014 and 95 percent versus the same quarter of last year. Natural gas represented 87 percent of the third quarter 2014 volumes, with the remaining 13 percent primarily composed of natural gas liquids (NGLs). Gross production from the NBL/CNX Joint Venture has recently surpassed 875 MMcfe/d. Highlights for the quarter included:
• Net operated production volumes averaged approximately 130 MMcfe/d, up more than 50 percent from the second quarter of 2014 and nearly 250 percent from the third quarter of last year.
• Drilled 23 operated wells at an average lateral length of more than 8,600 feet. Included in the wells drilled for the quarter was the Moundsville-6A well, with a 12,425 foot lateral. This well represents an Appalachian Basin and Company record for lateral length, with the lateral drilled in just three days, and located 100 percent within target reservoir.
• Commenced production on 23 operated wells, including nine wells completed with Reduced Stage and Cluster Spacing. Included in the wells brought online during the quarter were the Company’s first pads in the Oxford and Shirley areas of West Virginia (Doddridge and Tyler counties, respectively). Initial production from these areas is performing in line with the Company’s best wells in the Majorsville area.
• At the Oxford-1 pad, six wells (6,400 foot average lateral) are flowing back at a combined rate of 40 MMcfe/d after more than 30 days, with more than 20 percent of the volumes representing liquids. Each of the wells is completed on an average of 550 foot lateral spacing, versus historical spacing patterns of 750 to 1,000 feet. The downspaced wells are all performing better than expected type curves for the area.
• At the Shirley-1 pad, four wells (8,710 foot average lateral) are flowing back at a combined rate of 50 MMcfe/d after more than 30 days, while two additional wells on the pad are planned to come online in the fourth quarter. The wells are all performing better than expected type curves for the area.
• Joint Venture partner CONSOL Energy drilled 27 wells during the quarter (8,100 foot average lateral length), including seven Upper Devonian wells. These wells represent the Joint Venture’s first Upper Devonian wells in 2014. Initial production from these wells is anticipated in early 2015.
• CONSOL Energy brought 14 wells to first gas sales. Eleven of these wells were completed with Reduced Stage and Cluster Spacing.
• Agreed on binding terms to add additional firm capacity out of basin, with 100 MMcf/d commencing in mid-2015 to Gulf Coast, Mid-Continent, and Northeast markets, and 75 MMcf/d to Great Lakes markets beginning late 2017. Following the completion of these agreements, total firm capacity and firm sales commitments have been increased to approximately 800 MMcf/d net beginning late 2017.
• The Joint Venture is currently operating eight horizontal rigs in the Marcellus Shale, split evenly between the wet and dry gas areas.
• Successfully completed the CONE Midstream MLP Initial Public Offering, generating over $200 million in net proceeds to Noble Energy.
GULF OF MEXICO
In the Gulf of Mexico, sales volumes averaged 18 MBoe/d, which were comprised of 80 percent crude oil and condensate, seven percent NGLs, and 13 percent natural gas. Strong performance at the Company’s existing fields, including Galapagos, Swordfish, and Ticonderoga, has maintained production at a level essentially flat since the third quarter of last year. Highlights for the quarter included:
• Cumulative gross production at Swordfish exceeded 30 million barrels of oil equivalent (MMBoe).
• Announced positive results at Katmai, which represents the Company’s fifth exploration discovery in the Gulf of Mexico since 2011. Located in Green Canyon 40, total gross discovered resources at Katmai are 40 to 60 MMBoe, with further upside potential to a total of 100 MMBoe.
• Successfully drilled the Dantzler-2 appraisal well, increasing total gross discovered resources at the field to between 65 and 100 MMBoe. A drilling rig is currently performing completion operations at Dantzler-2, to be followed by the completion of the Dantzler-1 well.
• Development progress remains on schedule for the Company’s near-term major projects, including Big Bend, Dantzler, and Gunflint. The subsea installation schedule for all fields has been finalized and necessary topside facility modifications are underway. First production at Big Bend is estimated in the fourth quarter of 2015, Dantzler in the first quarter of 2016, and Gunflint in mid-2016. Following field ramp-up, the combined initial net production rates for the three developments is approximately 30 MBoe/d, with more than 80 percent of the volume anticipated to be oil.
• Accelerated the Madison exploration prospect for drilling in the fourth quarter. Madison, located on Mississippi Canyon 479, contains unrisked gross resources of 45 to 120 MMBoe (P75-P25). Noble Energy is operator of the Madison prospect with a 60 percent working interest. Results are expected in early 2015.
Hydrocarbon sales in West Africa averaged 76 MBoe/d, which was comprised of 41 percent crude oil and condensate, eight percent NGLs, and 51 percent natural gas. Sales volumes for the quarter were less than production volumes by approximately two MBbl/d as a result of the timing of liquid liftings. Highlights for the quarter included:
• Active production management and strong reservoir performance at the Aseng oil field, which averaged 40 MBbl/d gross during the quarter, maintained production essentially flat with the second quarter of 2014.
• Successful sidetrack at the Alen 1P well commenced production in early October, and additional workover activities are planned in the fourth quarter of 2014.
• Recently completed a 1,700 square kilometer 3D seismic acquisition over Blocks O and I offshore Equatorial Guinea. Data processing, which is anticipated to be complete in late 2015, and interpretation is designed to assist in the Company’s project development and exploration plans over the licenses.
In the Eastern Mediterranean, Israel natural gas sales volumes averaged a record 265 MMcfe/d, up 21 percent from the second quarter of 2014 and three percent from the third quarter of last year. Highlights for the quarter included:
• Exceptional reservoir and facility performance continued at Tamar, with only two hours of downtime experienced during the quarter.
• Additional progress was made at the Ashdod Onshore Terminal compression project, which is approximately 80 percent complete. The expansion is targeted to increase deliverability at Tamar to 1.2 billion cubic feet per day (Bcf/d), gross, beginning in mid-2015.
• Debottlenecking of the Tamar facilities has increased current peak production deliverability at Tamar to more than 1.1 Bcf/d, gross. This peak production rate was reached at various intervals during the third quarter to meet local Israel demand for natural gas.
• Executed a Letter of Intent to supply a minimum of 300 MMcf/d of natural gas for 15 years from the Leviathan field to the National Electric Power Company of Jordan. Combined for Tamar and Leviathan, Noble Energy and partners have executed Letters of Intent to export gross daily volumes of up to 1.7 Bcf/d and total volumes of more than 8 trillion cubic feet of natural gas to regional export customers. Negotiations of final gas purchase and sales agreements are underway.
• Received Israel government approval for a Leviathan gas delivery point in the northern region of the country.
• Submitted the Plan of Development for the initial phase of development at the Leviathan field to the Ministry of Energy and Water Resources. The initial phase of development is planned to include a 1.6 Bcf/d Floating, Production, Storage, and Offloading (FPSO) vessel, with initial sales targeted to begin in early 2018 at 75 percent of total FPSO capacity.
Key highlights for the quarter included:
• Secured an exploration license, Block F15, offshore Gabon, covering 670,000 gross acres in the pre-salt Gabon Coastal Basin. 3D seismic acquisition is planned to commence in the first half of 2015.
• Entered into a rig sharing agreement for offshore Falkland Islands, to provide rig resources for two Noble Energy-operated exploration prospects in 2015. The first of the prospects has been named Humpback, one of multiple stacked fan prospects located in the Fitzroy sub-basin of the Southern Area license. The group of stacked fan prospects combined has an estimated gross unrisked resource potential of approximately one billion barrels of oil equivalent. Drilling operations at Humpback are anticipated to commence in mid-2015.
• Relocated a drilling rig from the DJ Basin to the Company’s NE Nevada Wilson play. Drilling operations commenced in September 2014, and the Company is planning to drill three additional wells testing the extent of the Elko reservoir in new areas. The Company’s initial vertical well began oil sales in July 2014 and has proven the productive nature of the Elko reservoir.
FOURTH QUARTER GUIDANCE
Noble Energy anticipates fourth quarter 2014 volumes to range from 307 to 327 MBoe/d, consistent with the Company’s prior expectations after adjusting for the impact of the sale of its Piceance Basin assets. At the time of sale, the Company’s Piceance Basin assets were producing approximately 20 MMcfe/d, net. The midpoint of the updated sales volume range represents an eight percent absolute increase over the fourth quarter of last year. Excluding the impact of divested assets impacting the periods, the comparable increase is approximately 15 percent versus the fourth quarter of 2013. Versus the third quarter of 2014, the midpoint of the range is up five percent and is driven by higher expected volumes in the onshore U.S. through the development programs in the DJ Basin and Marcellus Shale. Offshore, liquids volumes in West Africa are anticipated to be higher as a result of the timing of liftings, while volumes are anticipated to be down in Israel due to seasonal demand and in the Gulf of Mexico from natural field performance.
Detailed guidance is available in the supplemental information for the conference call, which can be located on the Company’s website.
Beginning in the fourth quarter of 2014, the Company is reporting its equity earnings in CONE LLC, within revenue, following the successful recent Initial Public Offering for CONE Midstream Partners. The resulting impact is shown in the updated guidance for Equity Method Investment Income and Transportation Expense.
(1) A Non-GAAP measure, see attached Reconciliation Schedules