Noble Energy Inc. (NBL) reported adjusted earnings per share of $1.04 for the fourth quarter of 2010, which outdid the Zacks Consensus Estimate and the year-ago earnings of $1.01. Such outperformance was mainly driven by robust volume growth across the company’s businesses.

For the full-year 2010, Noble earned $4.22 per share, substantially higher than the Zacks Consensus Estimate of $4.15 as well as the year-ago earnings of $3.37.

Revenue

Noble Energy’s net revenue of $783 million in the fourth quarter was above the Zacks Consensus Estimate of $779 million and grew 3% from $760 million in the fourth quarter of 2009.

Full-year revenue of $3.02 billion grew 30.7% year over year from $2.31 billion in 2009. The company’s 2010 revenue was almost at par with the Zacks Consensus Estimate of $3.05 billion.

In the fourth quarter, revenues from oil, natural gas and natural gas liquids (NGL) were $482 million (up 25%), $187 million (down 7.9%) and $61 million (up 90.6%), respectively. Revenue from these three segments in 2010 was up by 42%, 19% and 107%, respectively.

Operational Results

Total fourth quarter sales volumes for Noble grew 6% from the year-ago quarter to 219 thousand barrels of oil equivalent per day (MBoe/d), comprised of 40% liquids, 30% international natural gas, and 30% domestic natural gas. Net volumes produced in the quarter totaled 220 MBoe/d. Full-year 2010 sales volumes totaled 216 MBoe/d, up 2.9% from 2009 levels.

Realized prices for oil and NGL showed upward movement in the fourth quarter, while natural gas price realizations in the U.S. and for the company as a whole dipped compared to last year. Oil prices in the quarter improved significantly to $83.02 per barrel, representing a 21% growth from the year-ago quarter. Realized prices for NGL was up 12.6% to $43.88 per barrel, representing 54% of the company’s average U.S. crude oil realization. On the other hand, natural gas realizations for the company as a whole declined 12.7% year over year, while in the U.S. alone it 18.3% to $3.57 per thousand cubic feet.

Price realizations for oil, natural gas and NGLs in 2010 improved by 37%, 18% and 47%, respectively, to $76.46 per barrel, $3.00 per thousand cubic feet and $41.21 per barrel.

During the final quarter of 2010, Noble Energy made significant progress on its major projects in all four core areas. In the U.S., the company moved ahead with its horizontal Niobrara drilling program in the Central DJ Basin and moved ahead with well completion work at the Galapagos project in the deepwater Gulf of Mexico.

Internationally, Noble Energy sanctioned the Alen project, offshore Equatorial Guinea and continues to progress with its Aseng oil project in West Africa. The company also discovered its largest exploration success at Leviathan, offshore Israel, with gross mean natural gas resources of 16 trillion cubic feet.

Proved Reserves

Noble Energy recorded year-end proved reserves of nearly 1.1 billion barrels of oil equivalent (BBoe), up 33% from 2009. Noble Energy added roughly 412 million barrels of oil equivalent (MMBoe) to proved reserves in 2010, replacing about 520% of 2010 production at a cost of $6.50 per Boe.

Reserves in the U.S. accounted for 45% of the company’s total reserves in 2010, while International contributed the remaining 55%. The company’s 2010 reserve mix consisted of 33% global liquids, 42% international natural gas, and 25% U.S. natural gas. 

Balance Sheet and Cash Flows

As of December 31, 2010, Noble had cash and cash equivalents of $1.1 billion and long-term debt of $2.3 billion. The company ended the year with over $2.8 billion of liquidity.

During the fourth quarter, the company generated $494 million of cash from operations and deployed $596 million towards capital expenditure. Discretionary cash flow for the quarter was $516 million.

For the full-year, operating cash flow and discretionary cash flow was $1.9 billion, while capital spending for the year totaled $2.1 billion.

Guidance

Moving forward, Noble expects 2011 sales volumes to average 208 −218 MBoe/d, implying a 3% growth from 2010 volumes. Product mix for 2011 is estimated to be 40% of crude oil, condensate and natural gas liquids, 30% international natural gas, and 30% domestic natural gas. 

On the expense side, Noble Energy estimates lease operating expense in the $4.95-$5.35 per Boe range, transportation expense in the $0.90 – $1.05 per Boe range and depreciation, depletion and amortization in the $11.50 -$12.00 per Boe range.  The company expects exploration expense in 2011 to be $340 – $400 million and general and administrative expense of about $300 – $320 million.

In 2011, the company expects to spend $2.7 billion towards capital expenditure, with investments split evenly between the U.S. and international operations. The company has slated about 42% of the budget for major project investments, 18% for exploration and appraisal activities, and the remaining 40% for ongoing maintenance and near-term growth opportunities.

Noble’s major project investments in the year ahead include its ongoing development activities in the horizontal Niobrara, deepwater Gulf of Mexico, West Africa, and Eastern Mediterranean.

Our Take

Based in Houston, Texas, Noble Energy operates internationally and engages in the acquisition, exploration, development, production, and marketing of crude oil, natural gas and natural gas liquids.

One of Noble Energy’s peers Anadarko Petroleum Corporation (APC) also reported robust earnings in the first week of February. Anadarko’s fourth quarter and full-year 2010 earnings of 29 cents and $1.80 per share, respectively, were ahead of the Zacks numbers by 7 cents and 4 cents.

Noble Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain a Neutral rating on the stock.

 
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