HOUSTON Aug 3, 2015 (Thomson StreetEvents) -- Edited Transcript of Noble Energy Inc earnings conference call or presentation Monday, August 3, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brad Whitmarsh Noble Energy Inc - Director of IR * Dave Stover Noble Energy Inc - Chairman, President & CEO * Gary Willingham Noble Energy Inc - EVP of Operations * Susan Cunningham Noble Energy Inc - EVP of Exploration & New Ventures * Ken Fisher Noble Energy Inc - EVP & CFO * Keith Elliott Noble Energy Inc - SVP of Eastern Mediterranean ================================================================================ Conference Call Participants ================================================================================ * Doug Leggate BofA Merrill Lynch - Analyst * Dave Kistler Simmons & Company International - Analyst * Ryan Todd Deutsche Bank - Analyst * Leo Mariani RBC Capital Markets - Analyst * Charles Meade Johnson Rice & Company - Analyst * Brian Singer Goldman Sachs - Analyst * Bob Morris Citigroup - Analyst * Michael Rowe Tudor, Pickering, Holt & Co. Securities - Analyst * Mike Kelly Seaport Global - Analyst * John Herrlin Societe Generale - Analyst * Phillip Jungwirth BMO Capital Markets - Analyst * Irene Haas Wunderlich Securities, Inc. - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to Noble Energy's second-quarter 2015 earnings conference call. (Operator Instructions) Please note, today's event is being recorded. I would now like to turn the conference over to Brad Whitmarsh. Please go ahead, sir. -------------------------------------------------------------------------------- Brad Whitmarsh, Noble Energy Inc - Director of IR [2] -------------------------------------------------------------------------------- Thank you for joining us today. This morning, we issued our quarterly earnings release and new guidance for the remainder of the year. Following another strong quarter, we have again raised our full-year volume outlook for Noble Energy, while keeping our capital program consistent with prior expectations. Our new guidance and comments today also incorporate an outlook for these new Texas assets, which we are excited to share following the closing of the Rosetta Resources acquisition in late July. We also posted to our website a number of supplemental slides for this call, which you will find helpful as we talk through our prepared remarks. Later this morning, our 10-Q will be available as well. Following prepared comments from Dave Stover, Chairman, President & CEO and Gary Willingham, Executive VP of Operations. We'll open the call for questions and complete in about an hour. We ask that participants limit themselves to one primary question and one follow-up. Management members joining for the Q&A session are Ken Fisher, Executive VP & CFO; Susan Cunningham, Executive VP - Exploration & New Ventures; and Keith Elliott, Senior VP - Eastern Med. I want to remind everyone that this webcast and conference call contains projections and forward-looking statements as well as certain non-GAAP financial measures. You should read our full disclosures in our latest news release and SEC filings for a discussion of those items. With that, I'll turn the call over to Dave. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Thanks, Brad. Good morning, everyone. Thank you for joining us. I want to share with you why I continue to have great confidence in our business and strategy. While these are challenging times in our industry, it does not diminish the fact that Noble Energy has exceptional assets, as well as the financial strength and operational excellence to realize their potential. Our positive momentum, including the recent closing of the Rosetta acquisition, gives us great optimism for the future as we continue to execute on our strategy of driving value from a high-quality, diversified portfolio that provides investment choices. Our core competitive advantages continue to be focused in US onshore unconventional development, combined with material offshore explorations and proven major project execution. Additionally, we have the financial strength to navigate through a volatile market and take advantage of opportunity. All oil and natural gas companies are facing choppy seas right now, but I believe investors are very well-positioned with Noble Energy. We continue to effectively manage the things that are within our control and position the business for long-term value creation. Our diversified portfolio underpins strong performance in the second quarter. Volumes again exceeded expectations and meaningful reductions are being realized on both capital and operating costs. Sales volumes were nearly 300,000 barrels of oil equivalent per day, even with the impact of scheduled facility maintenance in both the Gulf of Mexico and West Africa. For the second time this year, we raised our Noble Energy legacy volume outlook for the full year. This is a result of our flexibility to reallocate capital throughout the year as we continue to see efficiency improvements in the DJ Basin program. Second quarter capital expenditures declined sequentially to under $800 million. We remain on track to meet our original $2.9 billion capital forecast. Our capital is trending lower quarterly through the year as we manage the cash flow in the second half of the year. I'm also extremely pleased with our progress in reducing cash costs, specifically in the onshore business where lease operating expense was reduced to approximately $4 per barrel of oil equivalent in the quarter. This is down more than 20% from the first quarter. Total lease operating expense per barrel of oil equivalent for Noble Energy is now back to pre-2010 levels, reflecting our portfolio changes and an intense focus on reducing controllable costs. Operational execution continues to be an area of keen focus as we look to maximize long-term profitability with a number of major accomplishments achieved during the second quarter. This included onshore horizontal production growth of 45% versus the same quarter of last year and record low drilling times in both the DJ Basin and Marcellus Shale. Drill and complete costs, all in, are trending below targeted well costs in both plays. In our offshore business, the Ashdod compression project in Israel has been completed, increasing our peak deliverability. At the same time, pipeline installation and topside facility modifications are progressing as planned on Big Bend and Dantzler in the Gulf of Mexico. First production from these fields is expected in the fourth quarter and around the end of the year, respectively. On the offshore drilling side, we have three rigs currently operating. One progressing our Gunflint development and two drilling material exploration wells including prospects offshore the Falkland Islands and Cameroon. So from an execution standpoint, I am pleased with how our business is operating. The acquisition of Rosetta enhances and further diversifies our onshore unconventional portfolio by adding two premier, low-cost operating assets. Strong underlying asset performance, results from other operators in and around our acreage, as well as recent M&A activity in these basins continues to affirm the long-term value of our transaction. It was the right opportunity at the right time for Noble Energy. These high-quality assets provide prolific and low-cost production in the Eagle Ford with running room and a deep inventory of liquids rich opportunities in the emerging Delaware Basin. Without question, these new areas will have a substantial impact to Noble Energy. When you think about more than 60,000 barrels of oil equivalent per day of production, at least 1,800 identifiable locations and around 1 billion barrels of oil equivalent potential, that's a very sizable business that can grow materially into the future. We've hit the ground running and we're already seeing more value potential than we originally assumed. Combined, our Texas assets will deliver 15% compound annual growth for several years within the operating cash flows of this business. As such, we aren't pulling capital away from any of our other strong return opportunities, which is one reason this investment was so unique. As shown on slide 3, we now have sizable position in four of the premier US unconventional plays. This provides substantial flexibility in our future capital allocation and the ability to accelerate activity when appropriate. We will also realize about $40 million per year in G&A synergy, while taking advantage of Noble's lower cost of capital. Let me now hand it over to Gary to walk through an operations update. -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [4] -------------------------------------------------------------------------------- Thanks, Dave. I'd like to start off by sharing my thoughts on why the Rosetta acquisition was such a great move for Noble Energy. Our technical knowledge of these basins was built over the last several years as our business development and new venture teams assessed all of the best basins in the US. From this work, two things became apparent. First, we needed to focus our existing onshore US portfolio on the DJ Basin and Marcellus Shale, which consistently rank among the top basins. This caused us to exit a number of other plays over the last few years. Second, we wanted to be ready to further enhance our portfolio by capturing opportunities in other competitive basins when they became available. The Eagle Ford and Delaware Basins are both top-tier plays. We've now attained premier positions in some of the best parts of each. Over the last few years, we have dramatically improved performance in the DJ Basin and then transferred and accelerated those learnings in the Marcellus. With the addition of the Eagle Ford and Delaware positions, we are confident that our operational expertise will again unlock incremental value that otherwise would not have been delivered. Our acquisition model applies value almost entirely to the existing production, the lower Eagle Ford inventory and the upper Wolfcamp potential in the Delaware. We see a lot of room to increase value further, from multi-zone development in both plays, refrac potential and additional locations that are not assumed in our current counts. The high-quality nature of our Eagle Ford assets is demonstrated on slide 5. The map illustrates estimated recoveries per lateral foot in the Basin. You can see the outline of our acreage, the largest being a core position in northern Webb County, where we will focus our Eagle Ford activity over the next few years. This is a sweet spot of some of the most productive rock in the play, with tremendous resource recoveries ranging between 1 million and 3 million barrels of oil equivalent per well, based on a 5,000-foot lateral. We have highlighted in the table our current assumptions including inventory counts based on current strip pricing and assumed spacing, estimated ultimate recoveries and average well costs. Highlighted on slide 6 is the 3 million barrel equivalent type curve for South Gates Ranch, represented by the blue line. This is an increase of 25% from Rosetta's prior type curve shown in red. The green line is the average of two recent wells, which are outpacing even our increased type curve by another 20%. We have provided our detailed Eagle Ford activity plans on slide 7, showing accelerating well activity through at least 2018. Our plan is to focus on the lower Eagle Ford for the next few years, increasing well lateral lengths to an average of around 7,000 feet. We are currently drilling our first Eagle Ford well and have already implemented improvements that have materially increased footage drilled per day. Moving over to the Permian, this is an area where we see tremendous value and upside as we accelerate appraisal activities and move quickly to development mode. The Delaware is emerging as a world-class basin with multi-zone potential. Development plans will include multi-well pad drilling, centralized production facilities and the potential for long laterals; none of which were being done in these assets. We will rapidly incorporate and leverage learnings from the DJ Basin and the Marcellus, as we plan the long-term developed of the Basin. Our focus in the Permian will be on the Delaware Basin position, which is a contiguous 45,000 net acres. In the DJ Basin, we've already experienced a significant value uplift that a large-scale systematic development approach can bring in terms of maximizing recoveries, lowering capital and operating costs and minimizing the above-ground impacts. On slide 8, we have shown how this acreage compares to our DJ Basin, East Pony IDP area in terms of size. So this is clearly a material position for Noble. We've already identified over 1,200 gross locations based on current strip prices for development with 70% of these in the Wolfcamp A and 3rd Bone Spring and the remainder in lower Wolfcamp zones. Highlighted on slide 9 are recent Noble wells and those from other operators in and around our acreage. For the Noble wells, the peak 30-day average production rates from a normalized 5,000-foot lateral is nearly 1,300 barrels of oil equivalent per day on a two stream basis and more than 70% of this production is crude oil. These production rates are impressive and consistent with other operator results in the area. Similar to what we have shown for the Eagle Ford, we have provided our 700,000 barrel of oil equivalent type curve again for a 5,000-foot lateral on slide 10. This type curve is up 30% from Rosetta's previous type curve. Recent well performance represented by the 14 wells in the green line gives us a lot of confidence in the potential of these assets. We've also highlighted on this slide some of the anticipated operating efficiencies that Noble Energy will bring to these assets. You can see the substantial reduction in drilling cost per lateral foot that we have driven in the DJ Basin and Marcellus versus historical performance in these areas. Combining Noble's drilling expertise and knowledge of multi-zone developments with Rosetta's skill set and knowledge will no doubt deliver substantial operational improvements in the Delaware. On slide 11, we have provided our detailed plans for acceleration in the Permian, resulting in 70 wells drilled in 2018 and anticipating continued activity growth beyond that. Under the current plan, capital investment in the Delaware is essentially equivalent to the Eagle Ford beginning next year and exceeds the Eagle Ford beginning in 2018, with even earlier acceleration of the Delaware possible as our plans continue to evolve. Our outlook for the combined Texas asset has production growing to more than 100,000 barrels equivalent per day in 2018 as shown on slide 12. We estimate substantial annual free cash flow at the end of our forecasted period, which would only provide additional investment flexibility. I'll now transition to the DJ Basin, where both our underlying operational performance and the infrastructure capacity continue to improve. Spud to rig release time averaged just over six days in the quarter for a standard length lateral. Last quarter it was seven days, which was already below our budgeted assumption for 2015. Dave mentioned well costs are trending under our target for the year. Second-half 2015 all in well costs including drilling, completion and allocated facilities are expected to be $3.5 million in Wells Ranch and $3.9 million in East Pony. These are both $300,000 below our budgeted assumptions. In addition, when you normalize our long lateral well costs back to a normal length equivalent well, we are slightly below $3 million for these more capital efficient wells and roughly 60% of our drilling in the second half of this year will be extended laterals. With current rig efficiencies and four rigs for the rest of the year, we expect to drill a total of 240 equivalent wells in 2015 compared to our original budget expectation of about 200 with the same number of rigs. That's an amazing increase in performance and a key contributor to our 2015 production uplift. On the completion side, we continue to optimize stage lengths, profit loads and fluid types across our IDPs. Most recently, we've seen very strong performance utilizing slick water in East Pony with the majority of these wells outperforming similar hybrid gel completions nearby. Our success and growth in East Pony has been tremendous. Net production in the East Pony IDP is now approximately 25,000 barrels of oil equivalent per day, up 100% from this time a year ago. As a reminder, more than 75% of East Pony volumes are oil. At the end of the second quarter, third-party infrastructure in greater Wattenberg got a much-needed boost with the startup of DCP's Lucerne II gas processing plant, which is ramping to full capacity of 200 million cubic feet per day. The addition of Lucerne II is increasing third-party gas capacity on the DCP system by one-third, to a total of 800 million cubic feet per day. Now earlier this year in certain parts of the field, line pressures averaged north of 250 psi, which created a tough producing environment for many of the legacy vertical and horizontal wells. Since the Lucerne II start up, we've seen line pressures reduce by as much as 50 to 70 psi in the early part of July. That should be even greater as the plant reaches full capacity. Volumes through July averaged more than 110,000 barrels of oil equivalent per day with peak days greater than 115,000 per day. Additional infrastructure projects in the Basin continue to progress on schedule as well, including the Grand Parkway low pressure gathering loop. The combination of all of these projects position the Basin well, exiting 2015 and into 2016. While we remain guarded in our production guidance, until consistent midstream performance is seen, the early look is certainly very positive. Finally in the Marcellus Shale, our operations continue to improve. Our drilling teams are performing extremely well. We drilled our longest lateral ever as a Company in second quarter, nearly 14,000-foot horizontally. In addition, we're looking forward to production results from our first Utica well before the end of the year. Given the price environment, we're further reducing drilling activity in the Basin in alignment with our joint venture partner. In the middle part of the third quarter, operated horizontal drilling will be reduced to zero rigs for the remainder of the year. On the dry gas non-operated side, we anticipate going from two horizontal rigs to zero early in the fourth quarter. These shifts in drilling do not impact our completion scheduled for the remainder of 2015. We are working with our partner on the right level of investment for 2016, with both Companies focused on a cash neutral program for the JV next year. Let me now hand it back to Dave. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [5] -------------------------------------------------------------------------------- Thanks, Gary. I want to spend a few minutes on the progress on the regulatory front in Israel and our upgraded 2015 outlook before opening for questions. Over the last several months, we've worked diligently with the government on establishing a regulatory framework to provide necessary certainty for future investments. The product is a comprehensive framework that addresses the needs and interests of all parties including Noble Energy, the government and citizens of Israel, and its neighbors, who can all benefit from these abundant gas resources. Both the Prime Minister's office and the Minister of Energy have endorsed the framework and are working to achieve final approval. For Noble Energy, this framework should provide certainty around regulatory and fiscal matters necessary to support future investments in the expansion of Tamar and the first phase of development at Leviathan. For Israel, it provides price transparency and market competition. These projects can develop additional gas supplies within the country and bring the financial and geopolitical benefits of regional exports. We continue to engage with future export customers in the region on the potential to deliver both Israeli and Cypriot gas to market. The opportunity for expansion of natural gas use in Israel and the demand for natural gas in the region remains strong. I look forward to unlocking tremendous unrecognized value in Noble as these projects come together. Company-wide, there are a number of positive catalysts in the second half of the year, which provide both near and long-term benefit. We are encouraged that production capacity in the DJ Basin will continue to respond positively as we benefit from important infrastructure expansions, while we focus on long laterals and additional completion learnings through the remainder of the year. As Gary mentioned, the integration of the Rosetta assets is going very well. With a strong second quarter, where volumes were higher and costs lower than expected, these assets are off to a great start and complementary to Noble's overall performance. Offshore, two new fields are anticipated to add 20,000 barrels equivalent per day by the end of the year in the Gulf of Mexico. In addition, we will have results from two material exploration prospects this quarter, including the 250 million barrel-plus Humpback prospect in the Falkland Islands and 100 million barrel-plus Cheetah prospect in Cameroon. Success in either of these wells or with our Rhea well in the Falklands later this year would derisk additional exploration potential, provide new development opportunities and add significant value for Noble Energy. As mentioned earlier, we are raising our previous full-year 2015 volume guidance. I'm pleased we can see this amount of increase while holding full-year capital flat to original plans and maintaining flexibility in our onshore activity should conditions and cash flow outlook change. We've also provided new quarterly guidance for the remainder of the year, which includes the integration of the Eagle Ford and Permian assets. Base guidance reflects the quarterly trend of lower capital and operating costs through the remainder of the year, while underlying volumes grow. Yes, these are tough times. But we are well-positioned with exceptional assets and strong operating and financial capacity to navigate through these challenges, no matter the duration. We've been very thoughtful in our decision processes throughout the year, as we continue to maintain strong capital discipline and manage to cash flow in the second half of the year. I am convinced Noble Energy's future is very bright. At this time, we would like to go ahead and open the call to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Doug Leggate, Bank of America Merrill Lynch. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [2] -------------------------------------------------------------------------------- Dave, I wonder if I could squeeze a couple in. My first one's, really, just a point of clarification on one of Gary's comments. Relating to cash, breakeven on neutrality. Obviously, you're not there yet. You've got a bunch of startups in 2016, in the deepwater, backend of this year in 2016, so what should we think in terms of you getting to cash breakeven? Is that an objective for management? Or do you expect to continue your spending for the time being? I've got a follow-up, please. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Doug, when you look at how we're managing the cash flow, if you look at how that plays out this year, especially when you -- I refer you to the guidance we laid out for third and fourth quarter, you see our capital spend continues to come down dramatically as we enter the fourth quarter. A big part of that is the roll-off, if you will, of the capital spending on some of those Gulf of Mexico projects. We'll actually have Dantzler on here by middle of the fourth quarter -- I mean, Big Bend, by the middle of the fourth quarter and Dantzler by the end of the year. So you'll have two of the three big projects and their capital spend actually rolling off. So we expect to be -- even in this $50 to $60 world, we expect to be managing to cash flow here by the end of the year. That will set us up very nicely for next year. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [4] -------------------------------------------------------------------------------- That's what I was hoping to hear. Thanks, Dave. My follow-up is -- I'm sure there's going to be a ton of questions on Rosetta, so I'm going to go to a different one if I may, which is the Marcellus decision to take rigs away there. I'm just wondering if you could tell us what the underlying decline rate is going to look like in the Marcellus with no rigs running? I'll let someone else take the other ones. Thanks. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [5] -------------------------------------------------------------------------------- Doug, I think the real decision there is that it's not the time to be continuing to drill wells in the Marcellus with the outlook on gas price till we see that change. That being said, with some of the completion inventory and some of the completion activity, we'll still be ramping up in the second half of this year. I think we'll still be flat to up some next year with that inventory even with the drilling activity. I think the real impact of the drilling activity is when you start to look at the late 2016 and into 2017 time frame. Then that will be dependent on when we ramp back up will be dependent on our outlook for gas price. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [6] -------------------------------------------------------------------------------- So we shouldn't confuse no drilling rigs with no completion activity? Is that what you're basically saying? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [7] -------------------------------------------------------------------------------- Right. Right. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [8] -------------------------------------------------------------------------------- Got it. Okay. Thanks very much, Dave. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company. -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [10] -------------------------------------------------------------------------------- Real quickly, following-up on the CapEx just a little bit for 2016. If I look at your run rate in Q4, can I assume that's the run rate you'll be doing on a quarterly basis going forward plus incrementals associated with Delaware and Eagle Ford round numbers? I know you don't want to commit to a number, but puts you down year-over-year maybe around a 2.8% type number? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [11] -------------------------------------------------------------------------------- Yes. Dave, I think when we look at 2016 -- you're right, it's too early to get too far ahead of ourselves. But when you look at it and you look at how we're finishing this year and how we're set up for next year, we've got a lot of flexibility. When I sit here and look at 2016, managing to cash flow, we can be down significantly in capital and still realize low to mid-single digit production growth. So I think that positions us extremely well. That flexibility allows us to adapt to a changing environment and a changing cash flow environment to be ready to accelerate when it makes sense and to be able to have the flexibility to hold back as that makes sense, but still have a growing business. -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [12] -------------------------------------------------------------------------------- Okay. Appreciate that color. Then maybe one more just slipping over to the Delaware, where you guys outlined your costs on an annual basis in the wells. Obviously, when I look at 2016, if I just did the math on wells versus capital, it would assume a pretty high cost that comes down dramatically by 2018 to about $5.4 million a well? I assume 2016 is incorporating upfront infrastructure associated with the IDPs? Maybe if that's the case, could you talk to us a little bit about the capital or cash flow savings benefits you see from IDPs? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [13] -------------------------------------------------------------------------------- Yes. Dave, we wanted to make sure we laid out for all of the Rosetta assets, what our plan looks like for the next three years. I'd take a hard look at all that. I'll have Gary add some color to some of this. But I'll start with that when you look at 2016 and even the future years on some of the Delaware piece, you've got a mix of operated and non-operated spend in there. I think we asterisk that. I think you also have some facility capital up front as you put in some of this. You brought up the point of the IDPs and I think -- we showed of the overlay of how that Delaware Basin acreage compares to, for example, an East Pony acreage position out there. I think it sets up extremely well for being able to apply the IDP concept in some of that value that will bring over time. But let me have Gary just talk a little bit more. -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [14] -------------------------------------------------------------------------------- Yes, Dave, that's right. It's largely driven by fluctuations that we forecast in non-op activity, in addition to some up front infrastructure costs. Dave's right, our experience in the DJ Basin has clearly shown that pre-investing in infrastructure in these areas certainly pays off on the long run. Every time we look at our performance in the DJ we see 25% to 30% uplift in the present value of those projects by our IDP type concept and the integrated infrastructure. So we do have some pre-investment in there for that as well. -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [15] -------------------------------------------------------------------------------- Okay. Really appreciate that added color. Thank you, guys. Great work. -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [16] -------------------------------------------------------------------------------- Thanks, Dave. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [18] -------------------------------------------------------------------------------- Maybe if I could follow-up on capital, one more time. As you think about the run rate into 2016 and the priorities that you've outlined up to this point. If the commodity prices were to be lower or higher, can you talk a little bit about how you would prioritize either further reductions in capital? Or if the commodity price were a little bit higher, where we should expect to see additional acceleration or capital increase? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [19] -------------------------------------------------------------------------------- I think we've added some more flexibility and diversity when you look at our mix of onshore assets, now. I think between the Marcellus, we've talked about how we're thinking about that going into the year. On the DJ, we'll continue to see the impact of the Lucerne II plant coming up. We'll see the line looping system later this year. So that will give us some more insight on how we want to play off capital and match capital with capacity going into next year. Then in the -- both the Delaware Basin and Eagle Ford, we've laid out our base plan. I'd say all of those, we've got the flexibility to adapt and adjust as makes sense when you look at the commodity outlook. Our big offshore projects, the only one really we'll still have in play next year, will be finishing Gunflint. So the majority of that investment will be done by this year. We'll have Gunflint online by middle of next year. We finished the compression project at Ashdod this year. So the next investment in Israel will be dependent on this framework coming together. So I think we're in real good place there. On the exploration front, we'll have our rig in the Gulf of Mexico focused on appraisal and exploration next year. But overall, we're well-positioned to bring capital down, continue to follow the trend that we've got into the fourth quarter this year and then make sure we're managing to the outlook that we see. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [20] -------------------------------------------------------------------------------- Is there explicit commodity price implicit in the guidance for the Delaware and Eagle Ford programs? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [21] -------------------------------------------------------------------------------- I think what we've laid out is -- implicit is the strip price we've been seeing here recently. So that's in that $50 to $60 some range over the next year or two. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [22] -------------------------------------------------------------------------------- Great. Thanks. Then maybe if I could ask one on the revisions to the type curves. You talked about a few of the things that you're doing differently. But can you maybe -- they've been impressive obviously and particularly in a relatively short period of time. Can you talk a little bit about the primary drivers of the revisions up to this point? Changes that you made and maybe the types of wells that we're drilling? I know there's some in lateral length? Maybe even what you're seeing on the most recent performance that's still exceeding the revised type curves? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [23] -------------------------------------------------------------------------------- Yes. I'll let Gary expand on it, but it really comes down to just the recent well performance; not only our recent well performance, but recent well performance in the Basin, for example in the Delaware. Then in the Eagle Ford, we have history especially as you move into South Gates Ranch from some wells that were drilled previously and then the more recent wells, so you have a nice data base in both areas. Gary? -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [24] -------------------------------------------------------------------------------- Yes, Ryan, first off you mentioned lateral length, those curves are normalized to a 5000-foot lateral. So even though we're drilling longer and longer laterals in the area, that's not driving the type curve. Dave's right, it's really two things. It's moving more South into the Gates Ranch area, which is a much more prolific area. Then it's just continuing to improve on the completion designs, very similar to what we've done in the DJ Basin and the Marcellus with reduced stage and cluster spacing. Also starting to increase our sand loadings up to 2,000 pounds in some cases. So a lot of the same types of things we've done in the other areas, just bringing them to the Eagle Ford and soon-to-be the Permian as well. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [25] -------------------------------------------------------------------------------- Okay. Thanks. I'll leave it there. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [26] -------------------------------------------------------------------------------- Thanks, Ryan. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Leo Mariani, RBC. -------------------------------------------------------------------------------- Leo Mariani, RBC Capital Markets - Analyst [28] -------------------------------------------------------------------------------- Just wanted to get a little bit more color on Israel. When do you guys expect to see a vote and a final approval? If you have a rough timeframe for the new regulatory framework? Then additionally, if that occurs, will you guys start -- when will you guys start spending capital there? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [29] -------------------------------------------------------------------------------- Yes, Leo. We're watching as everybody is, as the governments gone through the public process. They're in the process of working to bring that framework to final resolution, final approval. I think we're both committed and still remain committed to seeing this done by the end of the summer. But I'll say the timing's important on this, but the actual lasting and sustainable framework and the nature of the framework and having a framework that allows us to move forward with investment in Israel is the most important element. I think what's very encouraging so far is that -- think back about this, when you go back to over the last year, what's been accomplished, the progress on getting to a framework has been nothing short of a tremendous effort on all parties -- on the party of the government that's been committed to doing this and on our team and our partners that have worked so hard to bring that to bear. I mean, a complete, comprehensive framework that sets up the ability to go forward with confidence and investment, is a big step. Another big step has been the commitment and support of the Prime Minister's office and the Energy Ministry to make this happen. So I think when you look at it, the step of getting the framework to where it is and now the recognition and understanding of how important this is not only to the country but to the region, has just been tremendous. -------------------------------------------------------------------------------- Leo Mariani, RBC Capital Markets - Analyst [30] -------------------------------------------------------------------------------- That's helpful color. Just shifting gears over to the exploration front. Obviously, you guys are drilling away at Humpback in the Falklands and Cheetah as well. You guys have a rough probability of success on each of those two wells respectively? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [31] -------------------------------------------------------------------------------- Well, I'll go through what we've laid out on probabilities. Then Susan can probably give you some more insight as to her thoughts on both of those wells. Then also don't forget the Rhea prospect later this year, which probably has a slightly higher probability. I think on Humpback and Cheetah, they're both in that 25% -- plus or minus 25% range. Both interesting, exciting prospects, both with a little different color. In Humpback, that's our first true exploration test on this huge acreage position down in the Falklands. You think about it, you think about how our acreage position overlays the North Sea for example, it's just our position down there in the Falklands is about half of the North Sea. So it will be real interesting to see what transpires here as we breakout a new play, but it's a new play in areas where there's been proven hydrocarbon discoveries, some fairly significant, when you look at the whole scheme of things. In Cameroon, to me what's exciting there, it's a Gulf of Mexico prospect on steroids, as I've talked about it. When you look at that shallow water depth in the high potential. But let me turn it over to the real expert here, Susan? -------------------------------------------------------------------------------- Susan Cunningham, Noble Energy Inc - EVP of Exploration & New Ventures [32] -------------------------------------------------------------------------------- Thanks, Dave. Dave, the 25% is about right, plus or minus, for the two prospects that are drilling right now. Rhea will be higher than that regardless of the outcome of Humpback. What's great about Humpback is the follow-up. It's over one billion barrels of oil equivalent just in that immediate area, if we have some encouragement there. So it's pretty significant. Cheetah's only 10 miles offshore from the coast in Cameroon. It's about 85 feet of water. So it will be very quick and easy and cheap to tie in, to develop if it's successful. -------------------------------------------------------------------------------- Leo Mariani, RBC Capital Markets - Analyst [33] -------------------------------------------------------------------------------- All right. Thanks, guys. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [34] -------------------------------------------------------------------------------- Thank you, Leo. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Charles Meade, Johnson Rice. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [36] -------------------------------------------------------------------------------- I was wondering if I could ask a bit about the Eagle Ford assets and your outlook there. I think you mentioned in your prepared comments and also in the slides that your location count at the strip. But as I look at these assets, one of the defining -- one of the things that sets them apart is the NGL percentage. So the strip is a little more obscure when it comes to talking about NGLs. Can you talk about what your current assumptions are there? What your outlook is? Especially in light -- it's been maybe -- yes, it's taken it on the chin hard here in 2015. Maybe what your thoughts are for an outlook? How that affects your appetite for those NGL heavy assets? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [37] -------------------------------------------------------------------------------- I think it's something you have to take a hard look at, Charles. I think as we looked at it -- we've not assumed that NGL pricing is really going to change a lot this year. I think as we look at it and visit with our marketing folks, it's probably into next year as you get more ships and so forth, especially can move more propane and butane that you start to see some real alleviation of pressure there. That being said, you are close to the Gulf Coast and some Gulf Coast markets with the Eagle Ford volumes. So that's helpful. But it's just part of the mix that we take into effect and account when we look at the economics of these. I'll say the economics of the Eagle Ford, especially as you're hearing Gates Ranch and South Gates Ranch stack up with everything and anything; even considering all those facts. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [38] -------------------------------------------------------------------------------- Got it. Dave, I think I heard that you think there will be some improvement of NGL prices in the 2016-2017 timeframe as you get more export capacity? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [39] -------------------------------------------------------------------------------- That's what we're hopeful. I think it's going to take something like that to really change that outlook. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [40] -------------------------------------------------------------------------------- Got it. Thank you. Then on the Delaware Basin, can you talk about -- the slide you put together with your results and the industry results is really helpful. You're really focused on the Wolfcamp A there, but can you talk about what -- you mentioned other zones, can you talk about what those other zones are in rough order of what you think the prospectivity is? What your timeline would be to test some of those other concepts? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [41] -------------------------------------------------------------------------------- Yes, you're right, Charles, that we're focusing initially on the Wolfcamp A. I think within that, you have to look at how do you most effectively drain that whole Wolfcamp A horizon. I think there's opportunities to maybe even have multiple laterals, not that we're counting on that, in that Wolfcamp A, but also start to pick up some of that 3rd Bone Spring drainage. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [42] -------------------------------------------------------------------------------- Got it. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [43] -------------------------------------------------------------------------------- But I think those would be the two initial pieces. Then you move down to the B and C as a longer-term optionality, that I don't doubt the industry will breakout economically over time, but we're not counting on it. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [44] -------------------------------------------------------------------------------- Got it. So that more extensive development of the Wolfcamp A that could get the 3rd Bone Springs that something we could maybe start to see in 2016? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [45] -------------------------------------------------------------------------------- I think as we get into 2016, 2017 and also into 2018, where we start to see that Delaware program really ramp-up, you'll start to draw in some of that horizon. So we'll start to see some impact from that. But really still what we've laid out as a plan is landing all our laterals in the Wolfcamp A. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [46] -------------------------------------------------------------------------------- Got it. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [47] -------------------------------------------------------------------------------- We haven't specifically targeted landing a lateral in the Bone Springs yet in that program. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [48] -------------------------------------------------------------------------------- Okay. Thank you, Dave. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [50] -------------------------------------------------------------------------------- When you built your position in the DJ, you followed your Patina acquisition with the US Exploration acquisition. As you look to the Eagle Ford and Permian, what's your ultimate goal in terms of the size of the position you're looking for? Do you see additional opportunities that are front and center in this downturn to make that happen? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [51] -------------------------------------------------------------------------------- Yes. Brian, I'll go back to what we've talked about since we announced the Rosetta acquisition. One of the first keys to the Rosetta was to be comfortable that in and of itself it had enough size and growth within those assets that it wasn't dependent on another acquisition. That said, being in the neighborhood, I think we'll continue to look at what's available out there and make sure we understand the value of different opportunities. I'd say we have a strong, solid balance sheet that gives us the ability and flexibility to be able to take advantage of opportunities if a great opportunity came around. But that's not the focus of what we're doing now. The focus of what we're doing now is on execution. I think you can see that showing up not only in what was delivered in the first half of the year but what we're set up to deliver in the second half of the year. That's the same focus we're applying to the Rosetta assets. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [52] -------------------------------------------------------------------------------- That's a good to tie-in to my follow-up, which is on that execution point and the legacy assets. The increased guidance does seem to reflect a lot of your outlook for second half uplift. Can you talk more specifically about the drivers of the increased production guidance between the Marcellus, DJ or elsewhere? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [53] -------------------------------------------------------------------------------- Glad to, Brian. We've been looking -- actually, we've been looking forward to this call for a period of time, because we've been looking forward to getting to midyear here. The exciting part for us is, we put a plan in effect at the beginning of the year and we got in motion very, very quickly. Now we're benefiting from the results of delivering on that plan. I'd say we're actually ahead of that plan. I think that's framed in what you look at for the outlook for the second half of the year. When you go back to what we started the year, we ramped down the -- and pushed down the Marcellus program pretty quickly. We very quickly reduced activity levels in the DJ from 10 rigs to 4. We level loaded and slowed down some of our completion activity till we could get Lucerne II in place. As a result of how things have moved through the year, we actually saw some of the Marcellus planned capital come down. We actually moved some of that capital to the DJ. Part of that was a reflection on just the continued improvement on efficiency. We've talked before about those for rigs are drilling about 70% of the total lateral footage that we did with 10 rigs. So that's all enabled us to where the real driver in the second half of the year and the biggest driver in that increased guidance is the outlook on this activity and performance in the DJ. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [54] -------------------------------------------------------------------------------- Got it. That's partly, as you say, on the well productivity front but also on just unlocking the midstream bottlenecks? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [55] -------------------------------------------------------------------------------- I think it all comes together. Gary may have some more to add on his thoughts there. -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [56] -------------------------------------------------------------------------------- Yes, I think it's unlocking the midstream bottlenecks, which we had some increase in there on the original budget, but we've added a bit more based on the early results we're seeing. It's partly the underlying improvement in the completions; we mentioned the phenomenal success that we've seen recently in East Pony. Then it's just a greater number of wells coming online throughout the year, as we've continued to drive down the drilling times. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [57] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- Bob Morris, Citi. -------------------------------------------------------------------------------- Bob Morris, Citigroup - Analyst [59] -------------------------------------------------------------------------------- Gary, you confirmed that the increase in the type curves at Gates Ranch and Eagle Ford were driven a lot by the cluster spacing and the sand loadings. Is -- I know overall costs have come down, but on today's costs can you quantify for every 30% or 25% to 30% increase in EURs, what the associated increase in cost is percentage-wise for doing the increased cluster spacing and the greater profit loading? -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [60] -------------------------------------------------------------------------------- Yes, Bob, I think it's probably in the 10% range. But at the same time, I think we've got greater efficiencies that are going to offset quite a bit of that. I think when you look at what we're seeing already on the drilling side -- since we've closed the deal, we have been able on these first couple of wells to significantly improve the drilling times, especially through the lateral lengths. I think at the end of the day, we're going to be able to take probably conservatively a couple of days off of the average drill time on the Eagle Ford wells. So certainly more stages or more cluster spacing and greater sand loadings adds to the cost, but we see some efficiencies offsetting that. -------------------------------------------------------------------------------- Bob Morris, Citigroup - Analyst [61] -------------------------------------------------------------------------------- Okay. Then the second question is just on refracs. In the Marcellus, I know you're laying down all your rigs this year, but will you continue to test refracs in the Marcellus? What have you seen there? Then in the Eagle Ford you mentioned some of the upside being potential for refracs. What gives you confidence that refracs can be successful in that play? -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [62] -------------------------------------------------------------------------------- Yes, it's a combination really of refrac and in some cases adding perfs or tightening up those cluster spacings, just like we're doing on the new completions. So we may have a few more scheduled in the Marcellus this year. I don't think it's going to be a significant number, but the early results we've seen on the ones we've done have been very encouraging, initial rates back up to the original initial rates in many cases. I think what gives us the same level of confidence in the Eagle Ford is on those older completions, very much kind of a similar story to the Marcellus, much wider stage spacings, fewer perf clusters. So it's an opportunity to go in and not only add perfs, but improve the completion designs as well. So I think we'll see some nice uplift there as well. -------------------------------------------------------------------------------- Bob Morris, Citigroup - Analyst [63] -------------------------------------------------------------------------------- When do you plan to do your first refrac in the Eagle Ford? -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [64] -------------------------------------------------------------------------------- I don't know. We've got one on the scheduled yet. We may try a couple before year end, but I would suspect 2016 will be more of a test. -------------------------------------------------------------------------------- Bob Morris, Citigroup - Analyst [65] -------------------------------------------------------------------------------- Okay. Great. Thank you. -------------------------------------------------------------------------------- Operator [66] -------------------------------------------------------------------------------- Michael Rowe, Tudor, Pickering, Holt and Company. -------------------------------------------------------------------------------- Michael Rowe, Tudor, Pickering, Holt & Co. Securities - Analyst [67] -------------------------------------------------------------------------------- Just wanted to quickly confirm that your Marcellus capital spending for this year is still going to be maintained at that $700 million level? Is the DJ Basin also staying at $1.1 billion, given the additional wells that you talked about adding into the program? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [68] -------------------------------------------------------------------------------- Yes, Michael, I think on the Marcellus, it's probably just a hair under that, which contributes to DJ maybe being a hair above that. So I think plus or minus $100 million on either of those. -------------------------------------------------------------------------------- Michael Rowe, Tudor, Pickering, Holt & Co. Securities - Analyst [69] -------------------------------------------------------------------------------- Okay. Got it. Then just one corporately. Can you talk about how comfortable you are with your current hedge book? Discuss how you're going to approach adding on more protection given the volatility? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [70] -------------------------------------------------------------------------------- Yes, I'll make a few comments. Then Ken Fisher can add to that because he watches that continuously, drags me into more meetings than I can believe on that. But no, we're taking a hard look at that all the time. We do meet on that probably every couple weeks to look at what makes sense? How has the market moved? How are we positioned? For -- not just the current year but the following two years, as we look at both our global oil mix and our domestic gas mix. It's also a time period where we reflect and remind ourselves how appreciative we are of having our Israel gas contribution also. That's kind of a natural hedge, an additional hedge, if you will. But we continue to look for periods, especially in any market upswings, which we'd like to see more of on a commodity basis, but as we get into some market upswings, how do we layer in some positions as we go forward? Our philosophy and objective has been to hedge up to 50% on those different streams for managing cash flow. I think with our legacy position on oil, we were about 30% for next year. I think on gas, it was 25% to 28% somewhere in that range. But I'll let Ken add a little more color. -------------------------------------------------------------------------------- Ken Fisher, Noble Energy Inc - EVP & CFO [71] -------------------------------------------------------------------------------- As Dave said, we were -- the program's been very successful through time, ensuring that we cut off the tail risk. So if you look at it, historically, we had big positive settlements into 2009 in the global financial crisis. Then we'll have about $750 million in settlements this year. We're -- as Dave mentioned, about 30% hedged on oil, 25% hedged on gas going into next year. We don't typically make big moves all at one time, but average in, so we'll continue to look at that. Then we picked up the Rosetta hedge book as well. They are pretty well hedged as well, about 35% for oil and 45% on gas production next year. So, all in all, our competitive position on the hedge book is strong. It's a shock absorber that allows us to realize those gains as we bring down the capital plan to the current investment environment and achieve cash flow neutrality. -------------------------------------------------------------------------------- Michael Rowe, Tudor, Pickering, Holt & Co. Securities - Analyst [72] -------------------------------------------------------------------------------- Okay. Thanks very much. -------------------------------------------------------------------------------- Operator [73] -------------------------------------------------------------------------------- Mike Kelly, Seaport Global. -------------------------------------------------------------------------------- Mike Kelly, Seaport Global - Analyst [74] -------------------------------------------------------------------------------- Was hoping to get a little bit more color on the production profile in the DJ. You dropped sequentially Q1 to Q2, but the July numbers look good. With the midstream constraints abating and efficiency gains becoming more apparent, I was hoping you could talk about what the progression could look like here in the second half? Then maybe just initial thoughts going into 2016 there? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [75] -------------------------------------------------------------------------------- I'll start with that, Mike. Then have Gary provide some more insights. But as Gary said in his notes and his dialogue earlier, we've still remained pretty guarded as to what the full impact of this Lucerne II facility will be. Then still what the line loop will be later this year. We're seeing some very good encouraging results, I would say, we expect volumes to be up from second quarter and third and fourth. But I think it will be nice to get this Lucerne II plant fully ramped up. It's been down here for -- or not down, but it's been impacted by the fact that they've had another facility planned maintenance that we've still got a couple weeks to see the full impact out there. But we've been very pleased, very, very pleased with what we've seen so far as it's ramped up. Let me have Gary give you some more color on that. -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [76] -------------------------------------------------------------------------------- Yes, Mike, it's -- in 3Q and 4Q will definitely be up from 2Q in our guidance. I second what Dave said, we're being very guarded, I would say at this point, until we see more of a sustained performance. The early look is very encouraging, though. We've said, we are north of 110 in July, peak days greater than 115. We've actually even seen a couple days in the 120 range. So that is all without Lucerne II running at full capacity yet. They haven't yet made it to the 200 million a day. In the meantime, as Dave mentioned, they've had another facility down for some planned maintenance, which took about 120 million a day out of the system capacity. So that's part of the reason we're still being a bit conservative for now until we see more than just a couple of days with some decent rates through the system. But I think from the early performance we're seeing, line pressure is down 50 to 75-psi across the field, when they've got everything up and running. Very excited about what we're seeing. I think we'll see some very nice numbers into 3Q and 4Q there. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [77] -------------------------------------------------------------------------------- Should really position us well as we exit the year. -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [78] -------------------------------------------------------------------------------- As we exit the year, than the Grand Parkway starts up, which provides even greater pressure relief and allows us even a better opportunity to get some of those legacy vertical volumes that have been so constrained over the last 1.5 years into the plants. -------------------------------------------------------------------------------- Mike Kelly, Seaport Global - Analyst [79] -------------------------------------------------------------------------------- Great, guys. Good color. The follow-up is on the Eagle Ford. If you look at page 5 of your presentation here, it does look like it's a pretty big delta in the lateral foot EURs. You talked about the sweet spot here in the Southern Gates Ranch area. Maybe you could talk about the difference in returns between that acreage versus what you do see in the upper Eagle Ford? What you've categorized as the lower -- other lower Eagle Ford? Then as a follow-up to that, just what the opportunity set is to ultimately see the number of gross locations increase in that 600 BOE per lateral foot area? Thank you. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [80] -------------------------------------------------------------------------------- Yes. I'll start with that. But the Southern Gates Ranch/Eagle Ford is the best of the best down there. You can see that even when you compare that across all the Eagle Ford acreage in the Basin. It is a pure sweet spot down there. Then when you compare it -- so it's got the highest returns. Obviously, I'd say everything that we've put on here has a decent return at a strip price, especially when you look out into the future. The upper Eagle Ford probably has the most challenge yet. But I think we've got plenty of time before we get to those opportunities. I would expect we'll continue to improve the outlook on those by the time we get there beyond that 2018 time period. But Gary, did you have anything else? -------------------------------------------------------------------------------- Gary Willingham, Noble Energy Inc - EVP of Operations [81] -------------------------------------------------------------------------------- Yes. No, South Gates Ranch is really the area we are focusing in right now. When you look at how prolific those wells are -- we see returns even in current strip price conditions of 75% to 100% returns in those areas. So extremely strong economics. The other Gates Ranch/lower Eagle Ford is obviously lower return than that given the EUR per lateral foot but still quite economic in this price environment. Then as Dave mentioned, the upper Eagle Ford is the most challenge to date. But we do have a while before we get there, so hopefully we'll see a little help on those from prices improving in the meantime. I'm confident we'll see help between now and then as we continue to refine the completion techniques in areas where we're working in the meantime. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [82] -------------------------------------------------------------------------------- It's also worth noting that those locations referenced are only the locations that met an economic hurdle within the strip pricing environment. So more opportunity beyond that if we get a little better pricing environment at some point. -------------------------------------------------------------------------------- Mike Kelly, Seaport Global - Analyst [83] -------------------------------------------------------------------------------- Okay. Thanks a lot, guys. -------------------------------------------------------------------------------- Operator [84] -------------------------------------------------------------------------------- John Herrlin, Societe Generale. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [85] -------------------------------------------------------------------------------- Regarding the Delaware, you've given an outline of how you're going to spend in terms of drilling completions and IDPs. Would it be in your best interest to own more infrastructure there so you don't have similar bottlenecks as you've had in the DJ with third-party GDP? Or you'll just wind your business strategically like you did in the DJ and the Delaware? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [86] -------------------------------------------------------------------------------- John, I think when you look at it there's probably more infrastructure close to their -- in the Basin than there was with what we started in the DJ. That being said, I think as we continue to look at how to create the most value, both from integrating the subsurface with the surface facility piece, especially as we start getting further into an IDP concept, we'll continue to look as to what makes sense from an overall facility structure. I think this is all about going in and having a totally integrated plan, if you will, that includes everything from how you produce it under the ground to how you market it on the surface. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [87] -------------------------------------------------------------------------------- Okay. Thanks, Dave. Last one for me is on the estimated dry haul costs for Humpback and Cheetah, Susan, could you give me that? -------------------------------------------------------------------------------- Susan Cunningham, Noble Energy Inc - EVP of Exploration & New Ventures [88] -------------------------------------------------------------------------------- I don't have it. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [89] -------------------------------------------------------------------------------- If I remember, right, John, on Humpback, it's plus or minus $100 million well, I think. We've got, what? 35%. We're paying a little disproportionate higher percentage than that as far as what it took to get into play. On Cheetah, it's a much cheaper well. I think that's maybe in the $60 million type range, maybe on the high side on that. But again, on Humpback, a big part of the cost is mobilization cost. Also, the allocated mobilization down there is for a part of the rig sharing. But I think those are order of magnitude. Susan will correct me if I'm wrong. -------------------------------------------------------------------------------- Susan Cunningham, Noble Energy Inc - EVP of Exploration & New Ventures [90] -------------------------------------------------------------------------------- Yes, that's correct. Those are exactly the right order of magnitude. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [91] -------------------------------------------------------------------------------- Great. Thank you. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [92] -------------------------------------------------------------------------------- Thanks, John. -------------------------------------------------------------------------------- Operator [93] -------------------------------------------------------------------------------- Phillip Jungwirth, BMO. -------------------------------------------------------------------------------- Phillip Jungwirth, BMO Capital Markets - Analyst [94] -------------------------------------------------------------------------------- With the increase in Eagle Ford and Wolfcamp EURs, is there a reason the 100,000 BOE a day production target by 2018 is unchanged? Was improvement in recoveries already considered at the time of acquisition? Or is this just conservatism around giving multi-year growth targets? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [95] -------------------------------------------------------------------------------- We've matched up the growth with the capital spend and the activity level. Again, you've got flexibility here as conditions change and more information is available to continue to update that. But what we're doing right now is honoring the activity level and performance that we've input into the model to lay out that three-year program along with the capital and cash flow that it provides. So we'll continue to update that as we go. We're just two weeks into this since we've closed. But very excited about what we've got and where we're going. -------------------------------------------------------------------------------- Phillip Jungwirth, BMO Capital Markets - Analyst [96] -------------------------------------------------------------------------------- Great. Then with minimal capital being allocated in the Marcellus in the second half and likely into 2016. Noble having a deep portfolio of high return opportunities to allocate capital towards, how strategic is this asset to the Company? Do we need to consider anything about the JV structure impacting a potential divestiture should you choose that route? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [97] -------------------------------------------------------------------------------- I think what we like about the Marcellus it is still the premier gas play in the US. When you look at the operational performance, it's been outstanding out there. But it's that operational performance across the industry that's contributed to this supply-demand imbalance. I think when you look at it though, you love having a high quality asset that's the premier asset in its mix in the portfolio and the optionality that gives you for the future with the tremendous amount of running room. The other thing that's I think very nice about our position and came with the JV is the fact that it's all essentially held by production out there. So you have the flexibility to adapt to changing conditions and make sure that you're making smart decisions on how you create the most value out of an asset like this. -------------------------------------------------------------------------------- Phillip Jungwirth, BMO Capital Markets - Analyst [98] -------------------------------------------------------------------------------- Great. Can you update us on your latest thoughts around the DJ Basin, midstream MLP? I didn't see it mentioned in the presentation. Just any color around specific assets, invested capital or EBITDA would help? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [99] -------------------------------------------------------------------------------- Yes. On the DJ midstream, we've worked and we've talked about it over the last couple calls, being in position and having the assets set up so that we've got flexibility on how we monetize and create value and leverage, our midstream business up there, if you will. So we've got that in place. I think we still have the flexibility to decide what we want to do with that. When you look at that part of the business that we've bracketed, if you will, if I remember right -- Ken will straighten me out if I misquote this, but I think we've probably spent $500 million to $600 million invested in those assets so far. -------------------------------------------------------------------------------- Phillip Jungwirth, BMO Capital Markets - Analyst [100] -------------------------------------------------------------------------------- Great. Thanks a lot. -------------------------------------------------------------------------------- Operator [101] -------------------------------------------------------------------------------- Irene Haas, Wunderlich. -------------------------------------------------------------------------------- Irene Haas, Wunderlich Securities, Inc. - Analyst [102] -------------------------------------------------------------------------------- This will be quick. Question on Cypress, a little more color on the timeline from this point on? How many months would we require to get through the necessary steps to probably first production? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [103] -------------------------------------------------------------------------------- Cypress is still a ways off in the future, but it's a great opportunity. We've got a sizable discovery there. I think the next steps in Cypress are establishing a market, which we're in discussions with potential customers on. Then establishing someone to invest and put the equity into laying the pipeline that would probably be required to establish and tie in that market. So I think that's the sequence of things, Irene. -------------------------------------------------------------------------------- Irene Haas, Wunderlich Securities, Inc. - Analyst [104] -------------------------------------------------------------------------------- So it's going to be a subsea pipeline? Or what are we thinking? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [105] -------------------------------------------------------------------------------- Definitely. I think what you'd be thinking as a subsea line. One of the possibilities is a line from Cypress that would tie into Egypt, given the needs and the regional demand in that part of the world. But that's why we've got to get the customers in place first and also the equity owners in a pipeline. But it's -- I think when you think of things over there, we've got three big projects over there between Tamar expansion, Leviathan and Cypress that are all pretty interesting in their own right. -------------------------------------------------------------------------------- Irene Haas, Wunderlich Securities, Inc. - Analyst [106] -------------------------------------------------------------------------------- Great. We're looking at two to three years possibly? -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [107] -------------------------------------------------------------------------------- I'd say at least that period. I think what we're thinking of on something like that is the end of the decade type of thing. Keith, do you have any additional thoughts on that? -------------------------------------------------------------------------------- Keith Elliott, Noble Energy Inc - SVP of Eastern Mediterranean [108] -------------------------------------------------------------------------------- Yes. So for first production, looking at the late 2019, mid-2020 timeframe. I think in terms of sequence forward, really, we are progressing the marketing efforts now, as Dave described, and building the project team and progressing toward project FID that would put us in place for that kind of late in the decade first production. -------------------------------------------------------------------------------- Irene Haas, Wunderlich Securities, Inc. - Analyst [109] -------------------------------------------------------------------------------- Great. Thank you. -------------------------------------------------------------------------------- Dave Stover, Noble Energy Inc - Chairman, President & CEO [110] -------------------------------------------------------------------------------- Thanks, Irene. -------------------------------------------------------------------------------- Operator [111] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would now like to turn the conference back over to Brad Whitmarsh for any closing remarks. -------------------------------------------------------------------------------- Brad Whitmarsh, Noble Energy Inc - Director of IR [112] -------------------------------------------------------------------------------- I want to thank everyone for joining us today. We've run a good bit over our one hour timeframe. I appreciate everyone's interest in Noble Energy. Certainly, we are available on the phone today, love to continue some conversations with you. Thank you. -------------------------------------------------------------------------------- Operator [113] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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