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Edited Transcript of NBL earnings conference call or presentation 3-Aug-18 1:00pm GMT

Q2 2018 Noble Energy Inc Earnings Call

HOUSTON Aug 15, 2018 (Thomson StreetEvents) -- Edited Transcript of Noble Energy Inc earnings conference call or presentation Friday, August 3, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brad Whitmarsh

Noble Energy, Inc. - VP of IR

* David L. Stover

Noble Energy, Inc. - Chairman, President & CEO

* Gary W. Willingham

Noble Energy, Inc. - EVP of Operations

* John Keith Elliott

Noble Energy, Inc. - SVP of Offshore

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Conference Call Participants

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* Brian Arthur Singer

Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst

* Charles Arthur Meade

Johnson Rice & Company, L.L.C., Research Division - Analyst

* Douglas George Blyth Leggate

BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research

* Irene Oiyin Haas

Imperial Capital, LLC, Research Division - MD & Senior Research Analyst

* Leo Paul Mariani

National Alliance Securities, LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to Noble Energy's Second Quarter 2018 Earnings Results Webcast and Conference Call. (Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Brad Whitmarsh. Please go ahead.

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Brad Whitmarsh, Noble Energy, Inc. - VP of IR [2]

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Thanks, Jenny, and thank you all for joining us today. I hope you've had a chance to review the earnings release and supplement that we published this morning. The press release and slides are available on the investor's page of our website, and later today, we plan to file our 10-Q with the SEC.

I want to remind everyone that today's discussion contains projections and forward-looking statements as well as certain non-GAAP financial measures. You should read our full disclosures in our latest news releases and SEC filings for a discussion of those items. Following prepared remarks, we will hold a question-and-answer session and will try to wrap up within the hour. (Operator Instructions)

Dave Stover, Chairman and CEO, and Gary Willingham, EVP of Operations, will start us off with some prepared remarks. With that, I'll turn the call to Dave.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [3]

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Thanks, Brad, and good morning, everyone. As we have transformed our company, we have focused on putting the company in the best position today to generate consistent and growing cash flows over time, a cash flow profile that is competitive across all investment sectors, not just E&P. To that end, this past quarter, we delivered a number of key achievements that will drive increasing shareholder value. We redeployed proceeds from our Gulf of Mexico divestment and CNX Midstream units as we continued our share buyback program, increased our dividend and completed our debt reduction plan.

We will continue to prioritize the share repurchase program as we move forward. Operationally, we set production records, enhanced our exploration portfolio and advanced our onshore and offshore development programs, including key infrastructure additions and takeaway agreements. We're taking advantage of our flexibility to adapt to changing conditions and are adjusting our Delaware and DJ programs to put them in an even stronger position to deliver our long-term objectives.

In both of these key basins, we installed critical gathering infrastructure to achieve the long-term capital efficiency of these high-quality contiguous acreage positions. We've also increased our exposure to higher priced export in global markets, executing on our strategy to diversify end markets for our U.S. onshore crude oil sales.

Offshore, the development of our world-class Leviathan asset is rapidly moving forward. We have agreements for over 900 million cubic feet per day, including the natural gas contracts announced earlier this year. And we continue to negotiate additional volumes that could quickly fill up the first phase. I'm also pleased that we are making excellent progress on commercial agreements to deliver our gas from Tamar and Leviathan into Egypt, to help supply the growing regional demand.

Another substantial second quarter accomplishment is the Heads of Agreement supporting development of natural gas from the Alen field offshore Equatorial Guinea. This represents the first step towards regional gas monetization, utilizing the existing infrastructure in place at both the Alen field and the onshore LNG facilities.

With linkage to global LNG markets and gross resources of 3 trillion cubic feet from our multiple discoveries in the immediate area, this represents a huge value opportunity for our shareholders.

As I mentioned earlier this year, our priority has been to continue to enhance our exploration portfolio. We've taken significant steps in that direction. Onshore U.S., we've been successful in capturing substantial new resource potential. Offshore, we've signed an agreement to operate over 2 million gross acres in a new country. We will provide more information in the coming months, as we build out our onshore position and receive necessary government approvals for our new offshore opportunity.

In looking at the global influences on commodities, it is clear -- clearly a dynamic environment. With our portfolio, we are in an advantaged position to capitalize as long as we stay disciplined. And we do that by continually reviewing and adjusting specific activities to maximize value.

Our plan is not to increase projected activity, but to continue to focus on cash flow growth and shareholder return objectives. Near term, we're making some changes to capital allocation to optimize returns and cash flow growth. Given the industry pressures in the Permian due to widening basin differentials and service cost inflation, we plan to moderate our activity in the Delaware Basin. We will be reducing planned completions later this quarter and into 2019 to better align our activity with expected timing of pipeline additions.

We will reallocate activity into our other onshore areas, primarily the DJ Basin. The diversity of our U.S. onshore portfolio provides a competitive advantage, enabling us to modify activity near term, while remaining committed to the objectives we outlined in our multiyear plan earlier this year.

Our long-term focus can be summarized in the following 5 objectives: driving peer-leading debt-adjusted cash flow growth, which we're on track to deliver through our unique combination of Eastern Med cash flows and onshore U.S. growth; the relentless focus on capital efficiency and corporate returns, and we are on pace to deliver double-digit corporate returns within 2 years; ensuring our incentive plans are aligned with shareholders, as we have demonstrated with the focus on cash flow, costs and returns in our plans; maintaining robust financial strength, which is shown through the completion of our debt reduction plans already; and commitment to our stakeholders and the environment.

Pertaining to this objective, we recently published our seventh annual Sustainability Report on our website. This report highlights continued progress in safety, environmental and corporate social responsibility. And to strengthen our commitment to these values, the board of EH&S committee charter was expanded and the committee was renamed. It is now known as the Safety, Sustainability and Corporate Responsibility Committee. These 5 long-term objectives remain fundamental to informing our decision-making process. Coupled with our high quality asset base, proven execution, capabilities and agility, I am confident that we will continue to deliver superior value to our shareholders.

Now I'll turn the call over to Gary to review our operational execution and plans.

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Gary W. Willingham, Noble Energy, Inc. - EVP of Operations [4]

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Thanks, Dave. In the second quarter, our teams executed in line with our plans with several significant operational achievements, both onshore and offshore. Within our U.S. onshore business, we delivered record oil volumes of 105,000 barrels per day, an increase of 22% from the second quarter of last year, adjusted for transactions.

In the Delaware Basin, we doubled sales volumes over the last year to 47,000 barrels of oil a day equivalent, quite an accomplishment. We also progressed the midstream build-out in both the Mustang area of the DJ Basin and the Delaware Basin to support the multiyear growth from both of these areas.

Offshore Israel, we produced an all-time record gross sales volume averaging over 1 Bcf a day for the quarter for the first time. We also progressed the Leviathan development and remain on track to deliver the substantial cash flow generation from this asset, beginning late next year. This was certainly a strong way to finish the first half of 2018, and I want to thank all of our dedicated employees who've helped us deliver our objectives safely and efficiently.

In the DJ Basin, strong well performance in the second quarter drove sales volumes of 121,000 barrels of oil equivalent per day, coming in above our expectations. A significant contributor to this were the Kona pads in Wells Ranch, which continue to outperform.

On Slide 5, we've provided an update on these 7 wells. After 150 days online, the wells are flowing over 10,000 barrels a day equivalent, of which 6,000 barrels a day is oil and have already cumed 1.3 million barrels of oil equivalent.

We're also progressing Mustang, our newest integrated development plan area. Recently, we brought online our first 2018 wells in Mustang, which are located in the southern part of the IDP. These wells tie into our new modular facility design, which delivers spec oil to the pipeline without a centralized gathering facility.

While still early, I'm encouraged by the strong tubing pressures, which are exceeding recent wells with a similar GOR in Wells Ranch.

On the takeaway side, we have secured multiple outlets for Mustang across 3 gas processing providers, maximizing our flexibility and reducing potential impacts from bottlenecks, as shown on Slide 6.

And the significant in-basin gas processing expansions that we have been looking forward to are now underway.

Mewborne 3, also known as DCP Plant 10, recently started up and will provide 200 million cubic feet a day of capacity. Additionally, DCP's Plant 11 is expected to be placed in service in the second quarter of '19, providing an additional 300 million cubic feet a day between plant and bypass capacity.

Discovery midstream is expected to bring online a 200-million-a-day plant in the fourth quarter of this year, which will process some of our Mustang gas. And in addition, we continue working other compression and offload options.

Overall, we are well positioned to benefit from gas processing expansions over the next few years, which provides support for our growth profile.

We had a busy quarter in the Delaware Basin, with the completion of our fourth and fifth central gathering facilities along with bringing online 23 wells, and I continue to be encouraged by the results we are seeing across our position.

On Slide 8, we highlight strong second quarter well results in the southern portion of our acreage. These wells are outperforming our initial completions in this area. In addition, the wells are flowing through our central gathering facilities, which has been a significant step in optimizing our development.

Another area I've been particularly excited about is the progress our marketing teams have made securing near-term flow assurance and long-term out-of-basin takeaway to the Gulf Coast, with access to exports. This includes the EPIC firm transport agreement that will provide 100,000 barrels a day of gross oil takeaway to the Gulf Coast beginning in late 2019.

The decision to moderate some of our completion activity in the near term aligns with the timing of additional takeaway capacity later next year.

This deferral of activity also provides the opportunity to transition our development, utilizing the row concept, slightly earlier than we'd originally planned. Our row style development mitigates the potential for interference that has been faced by multiple operators across multiple basins. And we are well positioned to execute this row style development design on the Delaware, just as we have in both the DJ Basin and the Eagle Ford. We remain advantaged by our contiguous acreage position and key midstream infrastructure in the basin. And transitioning to row style development now will contribute to efficiencies in the long term.

The industry is seeing cost pressures given the higher price environment, particularly for drilling rigs, completion crews, steel and other services. And to help offset this, our teams continue to be focused on capital efficiency in our well designs. In the second quarter, we brought online our first wells that utilized only 100 mesh sand and our first completion with 100% recycled produced water, and these wells are exhibiting strong early results.

In addition, we continue to drive efficiencies on the drilling side, cutting an average of 2 days per well in the first half of 2018 compared to 2017. Over this time period, our efficiency gains have increased our average drilling rate by 13%. In fact, in the second quarter, we achieved a record drilling of 7,500-foot lateral well of less than 6 days.

Moving over to the offshore, we continue to progress the Leviathan development with the project currently nearly 60% complete. We finished our drilling program and are progressing the completions of the 4 wells that will deliver up to 1.2 Bcf a day. We've also installed all the large diameter flow lines -- pipelines from the field to the platform location and then from the platform to the onshore tie-in points. And by year-end, we expect to finish the planned well completions, finalize fabrication of subsea equipment, and complete and sail the jacket from the U.S. fabrication site. Overall, the project remains on track and on budget with startup expected late next year.

Our operations in West Africa continue to produce reliably with strong run times and equally strong safety performance. Cumulative production from Alen now totals 35 million barrels, and we've achieved over 4 years without a recordable safety incident. At Aseng, we've now produced more than 90 million barrels, and the FPSO received SBM's consistent Top Operational Performance Award for the third year in a row.

In May, we announced we had executed a Heads of Agreement outlining the high level commercial terms to process Alen gas through the Alba plant and the EG LNG facility. And this is certainly a significant milestone for our West Africa business, establishing the framework to monetize our gas in the global LNG market. The Alen facility was initially designed to be a gas hub, making this project capital-efficient, requiring only minor modifications at the Alen platform and the construction of a 40-mile pipeline. Our teams have begun the pre-FEED and marketing activities, and I would anticipate a project sanction early next year with first production approximately 2 years later.

Before turning the call over to Dave, I wanted to take a few minutes to discuss guidance for the rest of 2018. We've increased our full year capital budget to $3 billion, slightly above our prior range. The portion of the higher capital is a result of scope changes on some onshore facility projects that enhance reliability and takeaway optionality. The remainder is due to cost inflation in the U.S. onshore as a result of the higher commodity price environment. Given the temporary deferral of completions in the Permian mentioned earlier, we are planning to reallocate some 2018 and 2019 capital to the DJ Basin. This will provide additional DJ volumes in 2019, partially offsetting more moderate Permian growth. We now expect our full year 2018 sales volumes to trend towards the low end of previously guided range.

Eastern Mediterranean demand and West Africa production are outperforming. This partially offsets U.S. onshore volumes, which reflect higher declines in the Eagle Ford in the second half and the deferral of some Permian completion activity. Overall, we remain on track to deliver 12% total company volume growth pro forma in 2018 compared to 2017. Sales volumes in the third quarter are expected to be between 335,000 and 345,000 barrels a day equivalent. Offshore, our West Africa volumes are anticipated to be lower in the third quarter compared to the second quarter due to lifting schedules and gas declines. We anticipate strong U.S. onshore oil growth of nearly 10,000 barrels a day from 2Q to 3Q with a further increase of approximately 5,000 barrels a day from 3Q to 4Q. This represents a 25% increase in full year U.S. onshore oil compared to 2017. And we remain well positioned for continued multiyear growth.

Now I'll turn the call back over to Dave.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [5]

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Thanks, Gary. In summary, we will stay flexible and adjust to changing conditions, remain committed to our strategic objectives and continue to exercise discipline in our approach. 2018 is an exciting year of transition, and with our onshore U.S. growth and Leviathan startup, 2019 will establish Noble Energy as an engine of accelerating cash flow and shareholder returns.

With that, Jenny, let's go ahead and open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Brian Singer of Goldman Sachs.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [2]

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Wanted to see if you could follow up on some of the drivers of the CapEx changes here. You talked about scope changes in onshore facility projects, enhancing reliability (technical difficulty) optionality. Can you go into a little bit more of what you were seeing (technical difficulty) there? What caused the change? And when we see the benefit from that? And then could you also talk a little bit more about -- on the inflationary side, where you're seeing that specifically?

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Gary W. Willingham, Noble Energy, Inc. - EVP of Operations [3]

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Sure, Brian, this is Gary. I think when you think about the onshore facility scope changes, there's been a number of things. I guess, I'll highlight a couple of them. We mentioned in the prepared comments that we have takeaway options to 3 different gas processors in Mustang -- in the DJ. So that's a bit different than how we've typically set up the DJ in the past. That obviously required a few more facility and pipeline dollars to give us that optionality, but we think, given our history in the DJ and the history of constraints that we've experienced over the last few years, we think it's prudent to make sure that we've got multiple ways to get gas out of that IDP. So that's part of it. I'd say, in the Permian, couple of examples there would be -- we've had some electrification projects going on in the Permian that increased the reliability. I'm sure you've heard from others that some of the supply of electricity is not that reliable in the Southern Delaware Basin and so we've got some dollars going towards an electrification project that will help improve reliability there. I think when you think about inflation, we've said all along that we'd expected to see about 10% to 15% inflation this year. We built some of that into the budget, but we also assumed that given our track record and where we were in the development, especially in the Permian, that we'd be able to offset a large part of that with efficiencies. I'd say, we've continued to see quite a bit of efficiencies throughout the year, both in the Delaware and the DJ, and we certainly have offset some of the inflation that we've seen. But at the same time, we've definitely trended towards the high end of that range and we've got a bit more coming in. So when you think about the capital increase that we've raised the range to, I'd say, 1/3 to 1/2 of it is the facility scope changes and the rest is the inflation.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [4]

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My follow-up with regards to the Permian, as you defer completions there, when do you bring that backlog down? And what would you need to see to allocate either more or less capital out of the Permian into the Permian and out of and into the DJ?

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Gary W. Willingham, Noble Energy, Inc. - EVP of Operations [5]

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Well, I mean, as far as allocating more back into the Permian, again, obviously, it's going to be tied to that export capacity coming on. That's why we're shifting it out to give the system time to grow the capacity to be able to deliver the wells that we'd actually be drilling and completing. So assuming the projects stay on track, those capacity expansions stay on track, then we would expect to start adding frac crews back into the Permian relatively early next year. I think -- I'm sorry, what was the first part of the question, Brian?

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [6]

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Well, I think you got the first part. But what would you (technical difficulty) allocate more capital to the DJ as well?

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Gary W. Willingham, Noble Energy, Inc. - EVP of Operations [7]

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Yes, I think as we've mentioned, the capital that we're -- or the activity that we're taking out of the Permian this year is going to the DJ. We've obviously ramped up in the Mustang IDP. Again, having those 3 gas outlets gives us the confidence that we'll be able to move the gas. The early results we're seeing on those Mustang wells are very encouraging. We've seen tubing pressures that are significantly above, similar GOR areas in Wells Ranch. And so it's very early days. We just brought them on here in last few weeks, but everything we're seeing is very encouraging. So the projects are there, the -- the economics are certainly there in the DJ. We believe the takeaway constraints in the DJ on the processing side are finally being addressed. And so there is not a lack of opportunity in the DJ. It's going to go back to, again, the overall mix of the portfolio, the economics of the portfolio and how much capital we're going to be deploying at any one time.

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Operator [8]

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And our next question comes from Doug Leggate of Bank of America Merrill Lynch.

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Douglas George Blyth Leggate, BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research [9]

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I hope you can hear me. Line seems to be cutting in and out a little bit. Dave, I got 2 questions, one onshore, one Israel, if I may. So the first one is, obviously, your focus is on cash flow, but the lower ramp in the fourth quarter now, can you give us some color as to how that impacts the 2019 outlook, the 400,000 barrels a day? I guess, what I'm really trying to understand is, whether adding the activity in the DJ is enough to compensate for the slower growth in the Delaware (technical difficulty) through that transition? Obviously, the timing of (technical difficulty) the rig. And I got a follow-up, please.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [10]

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Yes. Well, it's too early to update or change anything in 2019 and lay that out. We'll get into that as we move through the year, and as Gary said, finalize what our capital plans will be for '19. But I'd say, we are excited in the DJ about where we are, just to play off a little bit of what Gary said. What we've seen so far with Mustang, the timing of that, which was on purpose setting the timing of that development up to coincide with the capacity increase up there. So we'll see how that plays out the rest of this year. With the new facilities, new plants coming online, I think the discovery plan will be online by the end of this year also. So as we lay out the budget for next year, we'll be inside of the new facilities coming online there. And then, we'll have a better position and understanding as we see when we're timing to increase our activity or ramp up our completion activity in the Delaware also. So let's see how those play out a little bit through second half of this year and then we'll be able to give more insight into '19.

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Douglas George Blyth Leggate, BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research [11]

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Okay. My follow-up is a little in the weeds. (technical difficulty) expecting this one from me, but it's regarding Egypt and the prospect to execute your (technical difficulty). But I want to be quite specific what I'm asking. (inaudible) recently had a shareholder vote to acquire -- move forward. They're trying to acquire an interest in the East Med gas (technical difficulty). They are telling us that you will participate now also. But there is a real (technical difficulty) this could move very quickly and lead to a significant increase in (inaudible) production as early as next year. Can you just give us a general thought, as to whether that's realistic? And how you see the whole process playing out?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [12]

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Well, I think -- yes, couple things. Doug, I appreciate you asking about that, because I alluded to it in my comments, but we're making excellent progress and very fast progress on solidifying some of this infrastructure into Egypt and the delivery into Egypt. I think that could come together really quick here, just as we've been talking about. And I think it's a big step. What we've continued to see is a pull in the region -- actually in all 3 countries in the region for additional gas demand. And that's probably pulling harder and faster than I would have even projected a year ago on all cases. So yes, I'm looking forward to be able to give you a lot more clarity on that as that comes together. I know Keith was just overseas here recently. He can expand on that a little bit, but especially on the comment on the regional demand and how hard they're pulling to get Leviathan gas as quick as they can.

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Douglas George Blyth Leggate, BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research [13]

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Maybe, Keith, as you answer, if I may, (inaudible) suggesting Tamar could be up 50% next (inaudible) on the back of this. So if you could just frame whether that's realistic or not? I'd appreciate it.

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John Keith Elliott, Noble Energy, Inc. - SVP of Offshore [14]

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Sure, Doug. Yes, I think first of all, to your question about Tamar, Tamar is essentially running at capacity right now. The demand growth that we've seen in Israel from coal displacement from just the growth there and the electricity demand, for us to go substantially higher on Tamar would require the expansion project. Saying that, I mean, certainly there is capacity for gas to move into Egypt in the near term, primarily during the swing months. The swing months haven't been as big a swing as they've been in past years, as we've seen the IEC displacing coal but it does still exist to a degree. I think, to Dave's point, certainly, I was in Cairo earlier this week and the demand [pull] for the Mediterranean gas into that Egyptian market is very strong, both from the private sector and then -- and then [validated] by the government there.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [15]

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I think, Doug, what -- to add on Keith's point, a minute. I think 2 things. What you're seeing is the potential for next year or very soon as some of this comes together, is for Tamar to be essentially running full out most all the time, here as he said it -- it's been doing that on a large part already and I think it has an opportunity to solidify that almost year-round, coming up pretty soon. The other part of it is, I think you see an opportunity to essentially fill up the volume in contract for the full volume of Phase 1 of Leviathan over the next year or so, when you just look at this regional demand. So a lot of these things are really coming together nicely in that region, and it gives a lot of excitement, enthusiasm and momentum as we head into next year.

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Operator [16]

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And we'll go to our next question from Charles Meade of Johnson Rice.

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Charles Arthur Meade, Johnson Rice & Company, L.L.C., Research Division - Analyst [17]

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I wanted to go back to the DJ and you touched on it a little bit in your -- in both your prepared comments and some of this Q&A, and talk about what you guys are seeing in that Mustang IDP area. It sounds like you have seen some pleasant surprises, which is definitely a positive, but this isn't the first time you guys have drilled there. And so I'm wondering, if you could just go into a little more detail on what you're seeing? And how it's different from what you guys have seen at Wells Ranch? And perhaps touch on these different proppant tests, because you guys have learned a lot at Wells Ranch.

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Gary W. Willingham, Noble Energy, Inc. - EVP of Operations [18]

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Yes, Charles, this is Gary. It is pretty exciting early results. First off, I'd say, it's great. We expected it to be good. If you go back and look at what we rolled out back in February, we actually have a slightly higher type curve in Mustang than we do in Wells Ranch. So we expect performance to be strong there. To your question of it's not the first time we've drilled in Mustang, that's absolutely true. I would say, it's been a while and we haven't drilled that many horizontal wells in Mustang over the years. And certainly the last ones, that we did drill a few years ago, did not have the benefit of our latest enhanced completion design. So with all that, we certainly had high hopes as to what we could bring to an area that was already a strong performer with the additional benefit of the enhanced completions that we've been developing over the years in the Wells Ranch area. We're certainly seeing that, I believe, in the early days of these first 10 wells that we've brought online. We've got a lot of wells still to bring online, but I expect to see strong performance from those as well. So it's an exciting area to be moving into.

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Charles Arthur Meade, Johnson Rice & Company, L.L.C., Research Division - Analyst [19]

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And then just one quick follow-up. The constraints that -- the processing constraints in the DJ, in 2Q, did that -- did 2Q come in about like you thought it was going to in the DJ? Or was -- or were there any surprises (technical difficulty) as far as the volume? Go ahead.

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Gary W. Willingham, Noble Energy, Inc. - EVP of Operations [20]

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We were [up] slightly from what we expected. I would remind you that we had reduced our activity from historical levels in the DJ a while back knowing that these processing constraints were going to be there and choosing to deploy capital in areas where we could actually drill wells and bring them online. So we did reduce our capital. We haven't had the level of activity that we have had historically. 2Q though was a little bit better, and now that Mewborne 3 has started up and is providing another 200 million cubic feet a day capacity to the basin, we expect to see the beginning of this growth curve that we've been waiting on as we've been waiting on the midstream constraints to be removed.

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Operator [21]

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And next we'll hear from Leo Mariani of NatAlliance Securities.

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Leo Paul Mariani, National Alliance Securities, LLC, Research Division - Research Analyst [22]

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I was hoping to drill a little bit further into the Permian here. Clearly, you guys are pulling back activity, is that going to be both drilling and frac related? Do you really plan (technical difficulty) back on completions in the fourth (technical difficulty) here? I'm just trying to get a sense (technical difficulty) of how that impacts the (technical difficulty)? Is Permian still going to be growing despite the activity pullbacks? Is it just growing at a lower rate? Or is it more (technical difficulty)?

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Gary W. Willingham, Noble Energy, Inc. - EVP of Operations [23]

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Yes, Leo, this is Gary. Permian, will still be growing it. It will be growing at a little bit lower rate here in the near term, given the deferral of completions, while we're waiting for the export capacity to come up. I think when you look at it, the way we're thinking about it right now is we probably lay down 2 of our 3 frac crews late in the third quarter. And assuming that the capacity build-out continues as expected, we would start adding those back pretty early next year. Right now, we're planning on maintaining the 6 rigs. We'll continue to take a look at that as we go through the year, but maintaining that level of drilling and building the inventory of completions and building the buffers that you need, as far as the row style development goes, we think maintaining the 6 rigs is the right way to go. That will result in a slight increase in DUC inventory near term until the completion crews come back. But we've modeled that and looked at it economically. We believe that's the right thing to do.

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Operator [24]

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So at this time, we will move to Michael Hall of Heikkinen Energy Advisors.

We'll hear from Irene Haas of Imperial Capital.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [25]

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My question has to do with DJ Basin. It's very encouraging to see DCP's debottlenecking. Any thoughts on how are we going to handle the gas that comes along with the oil. Regionally speaking, we can have a feel for the regional gas price? Then secondarily, is ethane recovery working at this particular time? Are you guys seeing that? That's all I have.

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Gary W. Willingham, Noble Energy, Inc. - EVP of Operations [26]

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Yes, Irene, no, it's certainly encouraging to see the capacity start to come up. There has been a little softness in CIG pricing here in the last couple of months, and we're certainly keeping our eye on that and evaluating options there. But we expect it to get better. I think when you look at ethane, actually we're extracting ethane right now. And so we've got nice NGL volumes right now that obviously does impact our average NGL realization, bringing it down a bit. And then obviously, our NGL realizations have also been impacted in the DJ from what you've been seeing going on in Conway. About half our NGLs in the DJ go to Conway, about half to Mont Belvieu. Conway's pressured right now for a number of reasons, increasing production in the Rockies, in the Mid-continent area as well as some volumes coming in from the Marcellus, until some of their pipeline issues back East get straightened out. And then the purity takeaway from Conway is pretty well maxed out as well. So there has been pressure on Conway and that's been flowing back in the DJ and pressuring our netbacks there as well.

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Operator [27]

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And our next question comes from Gail Nicholson of KLR Group.

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Brad Whitmarsh, Noble Energy, Inc. - VP of IR [28]

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Operator, you can just hand it back to me.

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Operator [29]

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Okay. And at this time, I will go ahead and hand the call back over to Brad Whitmarsh for any closing remarks.

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Brad Whitmarsh, Noble Energy, Inc. - VP of IR [30]

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Sure. Thanks, everybody, for joining us. I know a couple of questions there at the end that we didn't get to. Sounded like we had a little bit of phone line issue. So give Megan and I a call. We're around today and look forward to having conversations with you all, and hope you have a great Friday. Thanks for joining us.

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Operator [31]

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And so that does conclude our call. We would like to thank everyone for your participation. You may now disconnect.