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

Q3 2018 Noble Energy Inc Earnings Call

HOUSTON Nov 12, 2018 (Thomson StreetEvents) -- Edited Transcript of Noble Energy Inc earnings conference call or presentation Thursday, November 1, 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

* John Keith Elliott

Noble Energy, Inc. - SVP of Offshore

* Thomas H. Walker

Noble Midstream Partners LP - Director of Noble Midstream GP LLC

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Conference Call Participants

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* Arun Jayaram

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* 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

* Jeanine Wai

Barclays Bank PLC, Research Division - Research Analyst

* Leo Paul Mariani

National Alliance Securities, LLC, Research Division - Research Analyst

* Michael Anthony Hall

Heikkinen Energy Advisors, LLC - Partner and Senior Exploration and Production Research Analyst

* Scott Michael Hanold

RBC Capital Markets, LLC, Research Division - Analyst

* Welles Westfeldt Fitzpatrick

SunTrust Robinson Humphrey, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to Noble Energy's Third Quarter 2018 Earnings Results Webcast and Conference Call. (Operator Instructions) Please note 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, Allison, and thank you all for joining us today for our third quarter conference call. 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 our prepared remarks, we will hold a question-and-answer session. (Operator Instructions)

Dave Stover, Chairman, President and CEO, will provide this morning's prepared comments, and we will have plenty of time for a Q&A session. Ken Fisher, EVP and CFO; Hodge Walker, SVP of Onshore; and Keith Elliott, SVP of Offshore, are here to participate in the Q&A session.

With that, I'll turn the call over 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, and thanks for joining us. I will start by stating what I hope is obvious. Over the past month, we have seen tremendous volatility from market concerns about global trade impacts, supply uncertainties from the pending Iran sanctions and overall capital efficiency questions about this industry. The market disconnect from energy stocks and commodity price seems overdone.

Over the last few weeks, the U.S. public E&P space has lost approximately $100 billion in market cap, which is truly astonishing to me in light of where oil prices are and the growing uncertainty as to whether supply can keep pace with global demand over the next few years. This is despite the fact that we're seeing more commitment to shareholder returns and capital discipline than I can remember against a backdrop of constructive oil market fundamentals.

Renewable energy. We have evolved and deliberately transformed our portfolio to be competitive in any environment and remain focused on delivering value for our shareholders. The diversification in our asset base provides multiple options to allocate capital to the highest-margin, highest-return opportunities, leveraging our high-quality onshore assets as well as global pricing exposure with Equatorial Guinea and Israel. While accomplishing this portfolio transformation, we've also paid down substantial debt, enhanced our financial flexibility and accelerated the return of capital to shareholders.

We are well on our way to achieving our 2018 objectives. Execution was strong in the third quarter as we delivered volumes at the high end while capital and cost were at the low end of our guidance. Year-over-year, we generated nearly 30% operating cash flow growth. The cash flow growth number is even higher on a debt adjusted per share basis, resulting from debt reduction in excess of $1 billion and a decrease in shares outstanding from the buyback program.

Looking back, our quarterly operating cash flow generated was the highest it's been in 4 years. Within the third quarter, we progressed a number of items across our global operations that create near and long-term value. Starting with the U.S. onshore, we delivered record liquid volumes, substantially grew cash flows and maintained disciplined capital spending.

In the DJ Basin, we advanced our Mustang IDP development, with 31 wells now online. These wells are currently producing a gross rate of 27,000 barrels of oil equivalent per day, with an oil mix of over 60%. Productivity from the first row of Mustang highlights the quality of our acreage and will contribute to continued growth in the fourth quarter from the DJ Basin.

Earlier this week, we received regulatory approval for our comprehensive drilling plan for a 100-square mile position in Mustang. This provides full operational control, ability to accelerate permits and efficiency advantages across discontiguous 75,000 net acres. I want to acknowledge and thank our teams as this is the first comprehensive drilling plan of this scale approved. Also, we've strategically positioned our operations in the DJ to diversify across multiple gas processors.

Within the third quarter, we began to see the benefit of gas processing expansion with DCP's newborn plants that started up in August and ramped throughout the quarter. We also benefited from utilizing multiple outlets for our gas flow.

Looking forward, we're well positioned to take advantage of the processing capacity additions coming online later this quarter and in the first half of 2019.

In the Delaware Basin, sales volumes in the third quarter more than doubled from the prior year, driven by a continued strong Wolfcamp A well productivity across the acreage position. Over the last year, we've build out the necessary central gathering infrastructure to support our activity. These facilities operated by Noble Midstream are contributing to enhance capital efficiency.

In addition, we've secured long haul takeaway on the EPIC pipeline that will provide access to premium-priced Gulf Coast markets, anticipated to begin in the third quarter of 2019.

Finally, just as we have done in Mustang and the DJ, we've transitioned our Delaware drilling program to row development, with 4 of our rigs now focused on multizone development around existing central gathering facilities. We expect row development will maximize the value of this asset, while also driving significant operating efficiencies. Our first pads of row development are expected to come online early next year. And in the Eagle Ford, we continue to generate solid cash flows from existing wells with little incremental investment.

Moving to the offshore, in the Eastern Mediterranean, we delivered another gross sale volume record of nearly 1.1 billion cubic feet per day. At the same time, in-country demand is exceeding domestic gas deliverability, requiring Israel to import higher-cost LNG in order to meet power demand. This underscores the importance of bringing Leviathan online, which will provide a second major domestic source of natural gas for Israel. Leviathan is nearly 70% complete, and we continue to pursue multiple options for quickly filling up the first phase and supporting additional development.

Looking at the domestic market, the government of Israel recently acted to accelerate the remaining coal conversion, as the government's plan calls for coal to become solely a backup fuel. To move this policy forward, the government has mandated additional excise tax on coal imports beginning next year. Israel also announced plans to fully convert to gas and electric-driven transportation by 2030, and enacted tax incentive plans to encourage these conversions.

Regionally, late in the third quarter, we announced pipeline agreements to deliver gas into Egypt, further solidifying the substantial cash flows we will generate from our world-class Eastern Mediterranean assets. We expect to flow at least 350 million cubic feet per day through the EMG pipeline from Leviathan at start-up just over a year from now. And we're well positioned to meet growing regional gas demand as well as provide gas to global markets through the under-utilized Egyptian LNG facilities.

Shifting to West Africa, we continue to see strong performance from our producing assets, generating significant cash flows from its linkage to Brent pricing. We're progressing the LN gas monetization feed and marketing activities, targeting a project sanction early next year. This is a significant step towards gas monetization of over 3 trillion cubic feet gross we have discovered in the area. This gas will benefit from linkage to higher-priced global LNG markets and the capital-efficient use of existing infrastructure.

To summarize, we're operating well across our diversified portfolio, and our deep inventory of global projects includes the potential to test 1 billion barrels of net risk exploration resources over the next few years. Our portfolio of world-class assets, robust financial strength and operational execution positions the company to deliver a sustainable free cash flow profile, competitive not only across E&Ps but across all investment sectors.

I want to take a moment to discuss next week's vote in Colorado. As a part of the Colorado community for many years, we have taken a leadership role in opposing Proposition 112. I'm proud of the engagement of our employees in helping the community understand the substantial negative impacts Prop 112 would have on Colorado's economy. While the results of the vote will not be known until next week, I remain confident that the measure will be defeated.

We continue to receive questions regarding future impacts under different scenarios in the state. Rest assured, we have completed thorough contingency planning and have plans in place for all potential outcomes. I want to reiterate that we've been strategic in how we've set up our DJ Basin position. Through a number of transactions over the past several years, we have concentrated our acreage in the oil-rich rural areas of the basin.

In the meantime, we've also been protecting our drilling inventory through proactive permitting, including the comprehensive drilling plan I previously mentioned.

Last week, I was extremely pleased to announce that Brent Smolik will be joining us as president and Chief Operating Officer later this month. Brent will bring to the team a wealth of operational and technical expertise from over 35 years of oil and gas experience, deep capital markets knowledge and extensive executive leadership from his prior roles, most recently as the CEO of EP Energy. I've known Brent for a number of years as have many of you, and I am excited to have him join our executive team and look forward to his contributions. It says a lot that an individual with Brent's capabilities sees the potential in Noble Energy and wants to be a key part of our future.

This morning, we've provided guidance for the fourth quarter, which keeps us well on track to meet the total volume, cost and capital for the full year that we previously communicated. It's too early to provide details on 2019, as we're in the process of setting the budget and activity levels. We are making decisions to drive the best returns and create the most value for our shareholders.

Our guiding principles remain the same as outlined earlier this year. Our focus is on delivering leading cash flow growth on a debt adjusted per share basis; our 2019 investments will drive improving corporate returns as we target double-digit return on capital employed in 2020; and we will continue to return significant capital to shareholders going forward, progressing the share-buyback program and growing the dividend as cash flow grows.

We are confident that we are taking the right steps to unlock the tremendous value inherent in Noble Energy, and we are optimistic that the market will recognize and reward our progress.

With that, Allison, let me 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) Our first question today will come from Michael Hall of Heikkinen.

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Michael Anthony Hall, Heikkinen Energy Advisors, LLC - Partner and Senior Exploration and Production Research Analyst [2]

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So I guess I just wanted to talk a little bit about that dislocation you described in the opening remarks there in the context of equities relative to commodities and the capital discipline being exhibited by the industry. And you all accelerated your repurchase somewhat in the third quarter. And I'm just wondering to what extent you might be willing to take that even further forward and accelerate more aggressively as we think about heading into 2019? How hard can you really press on that? And what are the current thoughts in that context?

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

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No, I appreciate it, Michael. And thanks for recognizing that we did accelerate some this quarter. I think as we look at this -- we've always talked about is being a balance. Here you're balancing your management of return to shareholders, your management of your balance sheet and your activity that supports the underlying value of the company. So as we look at '19, we'll look at where the market is, we'll look at how we want to lay out our activity, and that will be part of all the considerations as we go forward. I think as we look longer term here, not that longer term, we're putting ourself in the position here over the next year or so where we're going to start to generate significant free cash flow. And we want to make sure that, that's one of the key attributes as we set up our activity levels and so forth is that to -- we're setting ourselves up to support and deliver that significant free cash flow as you bring Leviathan on, as you continue to have the ramp up onshore. And this doesn't end in 2020. What we believe with our asset base and the portfolio and the plan we've set up is that we set ourselves up to be able to sustain that going forward and so that balance is something we'll continue to look at relative to how the market's rewarding the plan and the underlying value of the company.

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Michael Anthony Hall, Heikkinen Energy Advisors, LLC - Partner and Senior Exploration and Production Research Analyst [4]

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Okay, make sense. And I guess as my follow-up, maybe on the operations front. Just curious on the Mustang development and the wells brought online during the quarter. I know that's kind of the first time coming back with these new completions. What additional color can you provide? Maybe quantify some of these -- the wells performing above expectations as you have on the deck and just remind us how much more additional Mustang turning lines we should expect over the course of the rest of the year? And how is that situated from the infrastructure front?

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

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Yes, for this year, the plan was to bring on this first row of Mustang, and so it's pretty much now online. I'll turn it over to Hodge to talk a little more here in a minute. But we ramped it up here through the third quarter. You can see if you look at the slide, I think it's Slide 6. You can see that ramp-up from -- going back to July to what it's doing now. Extremely pleased with that productivity. I mean, we're up to, what, over 25,000 barrels a day, just from Mustang alone. I think what it does do is, it highlights what the value of that whole area is -- we -- another piece that ties into that is that, comprehensive drilling plan that we just got approved. I mean, that is unique. that only comes about because of the position that we've built for the large contiguous acreage -- we have got 75,000 net acres out there at Mustang, and what that will do is give us the certainty of the planning going forward, the ability to streamline the permitting and expectations and be able to line this out as a true manufacturing play, as we move from row to row through this field. So I couldn't be more pleased with what the team's done and the foresight they've had to lay this out on a very comprehensive plan and now put in place and get the support from the regulatory agency to be able to plan this out extremely well as we move row to row. And Hodge, anything else to add there?

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Thomas H. Walker, Noble Midstream Partners LP - Director of Noble Midstream GP LLC [6]

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Just -- I would just add that, this is a new facility in a new area, and we wanted to make sure that we ramped up everything appropriately. We're really excited about what we're seeing in this area. I mean, it's going to be a key contributor to our 2019 plans.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [7]

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Michael, just to take that 1 step further and use the analogy, this highlights why we move to row development in the Permian Basin. Now if you want to see how we expect to see things developed in the Permian, this is a good example, when you look at that plot on Page 6 as we move into the Permian and start to see the row development really come forward in towards the end of the first quarter and into the second half of next year.

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Operator [8]

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Our next question will come 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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Dave, I wonder if I could just have a quick follow-up on Mustang first of all there. I just wanted to clear up some misconceptions, I think, that are out there in the market around gas processing availability. DCP obviously had -- there have been some speculation about allocation from extraction, I think it was, and that seemed to be true to you on the day. Can you just clear that up in terms of whether you are constrained or not as it relates to your ramp-up?

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

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Absolutely right, Doug. That's one of those overreactions we've talked about and alluded to because when you look at it, we've seen benefit from the first plant come on here in the third quarter, as we expected. I think also as you look forward, we've got -- in the Basin, there will be a second plant coming on Discovery, now Williams plant here by the end of the year and another DCP plant next year. And we still expect to see some nice benefit from those, especially when you look at where our activity is located relative to these new plants. The other piece that helps us, too, is the fact that, we've got diversified outlets now in the area. We continue to diversify our outlets, especially up around the Mustang area and where some of this new production's coming on. And that's going to be very helpful also. So we're very confident in our expectations, and I think that's showing up with what you're seeing in the ramp-up already this year.

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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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So just to be clear, no constraints related to DCP impacting Noble?

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

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I think what we've laid out and what we've planned for, we're seeing come to fruition here.

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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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My related follow-up on that is just to your comments on Colorado and the election. Can you give us some idea of what you’re drilling -- well, obviously, you're a bit more rural than your peers. The permitting appears to have stepped up pretty dramatically across the industry. So, in the event Prop 112 did get voted through, what would your running room look like as it relates to your current drilling backlog?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [14]

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Yes, Doug. I think, what we've been clear is, we don't want to get into those numbers right now for obvious reasons. I think if that's the way it played out, we'd quickly highlight to you where we are on that. But I think right now, we're keeping everybody focused on the activity to continue to educate the public, which is working extremely well. I mean, I think when you look at probably 1 month or 2 ago, probably very small percentage of the public even knew what this Prop 112 was. When you go out now and look at it, probably over the vast majority, probably 3/4 of the public now knows what that is. And I think that's a result of this education program, and I think that's the benefit that we're seeing up there.

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Douglas George Blyth Leggate, BofA Merrill Lynch, Research Division - MD and Head of US Oil and Gas Equity Research [15]

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I thought it was worth a try to try that one. Maybe try one final one then, Dave, if I may. It was actually out there last week, and John Elliott seems to be doing his thing, so we'll see how it goes. My last one is really going to Israel very quickly, Mari-B, as we all know from the trip you guys did recently, has got a ton of ullage. How quickly could you move to bring Tamar gas into that East Med gas pipeline if that was needed to solution via Mari-B?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [16]

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Well, I'll let our Redland expert, Keith, talk a little bit about that here.

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John Keith Elliott, Noble Energy, Inc. - SVP of Offshore [17]

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As we talked about in Israel, Doug, we can move pretty quickly to turn it around. I think, obviously our focus is on getting Leviathan online, getting Leviathan up and running, making -- getting the closure of the EMG transaction and as you well know, we've got ample running room of new expansion projects there as we've seen that regional market growing substantially both in Israel, Jordan and in Egypt. And there's certainly opportunity for Mari-B to play a meaningful role in subsequent expansion of our capacity there.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [18]

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Doug, to your point. What you bring up is -- and highlight is even this first phase of Leviathan is just the beginning of tapping into what that potential is over there. I mean, the expectation of where this will go from -- beginning of Leviathan to another phase, Tamar expansion, potentially Cyprus and matching with the growth of that market over there, it's just -- it's been astounding to watch as that's developed.

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Operator [19]

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Our next question will come from Irene Haas of Imperial Capital.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [20]

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Congratulations on how well Mustang has taken off. My question actually goes back to sort of a Noble route, your exploration program. So you've got 3 projects highlighted plus 2 new ventures. Can we have a little color? Because it looks like you're going to be testing in 2019 and '20. Which area would start first? Can we have a little sort of timeline or expectation on these new projects?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [21]

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Yes, Irene, I'd love to give you a little more color and with some of the onshore leasing activity that's still going on, I'm going to have to wait a little bit there and then getting some final government approvals on some of the new country piece. But in not too distant future, I'll be able to give you more color. What you do highlight, though, is the fact that we've talked about the ability now to test probably around 1 billion barrels of risked resource potential over the next 2 years, couple of years starting probably late in 2019. It will be a mix. I would expect some of that will be some appraisal work onshore U.S. and probably 1 to 2 very material offshore exploration wells each year, starting -- maybe not a couple next year. But by 2020, we'll have ramped up to probably a couple material offshore exploration wells with maybe 1 late next year.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [22]

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And may I have a follow-up? How soon would you be able to get to the oil target in East Med, and also in Newfoundland, when would we see the first well?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [23]

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Yes, I think in Newfoundland, it's probably a 2020 type time frame, I would think. In the Eastern Med, we're going to be sitting down with -- the team's done some more regional work continuing to make sure we're understanding the carbonate aspects of the plays over there. And so we'll be sitting down with partners here over the next few months, next few quarters to talk some more about what should be the timing of testing, what could be still a very large resource over there. I'd say that's probably a still a year or so away.

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Operator [24]

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Our next question will come from Charles Meade of Johnson Rice.

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Charles Arthur Meade, Johnson Rice & Company, L.L.C., Research Division - Analyst [25]

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I appreciate your comments earlier about you not wanting to dive too much into your 2019 plan. But if we go back to February of this year, you guys put a flag in the ground, we're talking about 400 MBoe a day, as an approximate number for '19. And I know there's been a number of things that have changed since then; you guys have sold some assets and some productions in DJ, you pulled in your horns a bit in the Delaware with the bases blowout, and you've had more of the shift towards returning cash to shareholders. So as we in the market look back at that as a flag in the ground for '19, what are some of the other pieces that we should keep in mind have changed as we're calibrating our expectations for '19?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [26]

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Yes, Charles, I think the thing to really focus on or where the flag is planted is on the making sure that we're in a position in that we're setting up our program to deliver leading operating cash flow growth, CAGR. If you look back at the numbers we had laid out for that -- CAGRs on operating cash flow, that's what we're really focused on in delivering over that multiyear period and making sure that we set up the activity and the capital program to do that. The other couple of things that we said that are driving how we'll allocate capital and the program is making sure that we're setting ourselves up to get back to double-digit return on capital employed by 2020. And also, like I talked earlier, to make sure that with Leviathan coming online that we're setting ourselves up on an activity basis and cash flow basis that we'll have significant free cash flow in 2020 so that when -- we continue to support returning part of that to the shareholders. So I think the other thing that impact how we match up activity and capital is just what's been the cost pressures, cost inflation over that period. When we set that up, that was a $50 world assumptions, and it's been much higher with much higher cost inflation pressure. So what we're going to be watching is to maintain the capital discipline that enables us to drive those 3 factors that I -- principles that I highlighted previously. So I think managing forward those factors by the end of that 2020 period.

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Charles Arthur Meade, Johnson Rice & Company, L.L.C., Research Division - Analyst [27]

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Got it. That's helpful insight. That's a little bit I was looking for. And my second question, if I could ask more about this comprehensive drilling plan that you guys have for Mustang. I saw that news come through earlier this week and it really struck me as something really of a impressive scale. Can you talk about exactly how long the process of getting this done? And what it's going to enable you to do differently? I think, in your prepared commentary, you indicated, it doesn't mean you have all the permits there. But can you just talk about what that is and if you have a desire or need to replicate that elsewhere in the DJ?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [28]

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I'll turn it over to Hodge, but I'll go back to again, you can only do this if you've built that extremely large contiguous acreage position like we've been fortunate enough to do in the DJ. I'm saying it's fortunate enough; it was done deliberately through some of the property trades and so forth that we pulled together over the last few years, and it's resulted now in the ability to put this streamlined plan together. But let me turn it to Hodge to give you a little more of the specifics. But I think you're absolutely right, it is fairly unique and it's extremely important.

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Thomas H. Walker, Noble Midstream Partners LP - Director of Noble Midstream GP LLC [29]

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Charles, building off the points that Dave made, we started this process over a year ago, and it kind of builds off of what we've been doing with shoring up our acreage position in the basin and the fact that we've got a large contiguous acreage position here in the Mustang has allowed us to move forward on this CDP process. Team's done a great job. They kicked this effort off over a year ago and a lot of -- really appreciate what they've done there. What it allows us to do is control the pace of development across this acreage position. It names us as the operator and it really allows us to move through the row development across this acreage and execute our business effectively.

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Operator [30]

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Our next question will come from Leo Mariani of Nat Alliance Securities.

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Leo Paul Mariani, National Alliance Securities, LLC, Research Division - Research Analyst [31]

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I was hoping you could expand a little bit upon some of the potential expansion plans that could happen in Egypt over time. You obviously mentioned another phase of Leviathan, potentially getting Cyprus moving, a Tamar expansion. Clearly, the goal is to get Leviathan on at the end of next year. But just trying to get a sense of how these things are progressing till we see some of these other expansions sanction here in 2019. And if so, when will we start to see incremental volume benefit there?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [32]

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Yes, Leo, let me let Keith kind of address how he's thinking the sequence of things coming together with -- obviously, you're right, the emphasis right now is on filling up Leviathan, the first phase and then contracting the volumes that are going to support the next proportion. So, Keith?

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John Keith Elliott, Noble Energy, Inc. - SVP of Offshore [33]

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Yes, Leo, if you think about it, all of this -- as we've talked about in the past, all these assets have a significant expansion potential and plans for putting those expansions in place. I guess the sequencing that I would think about would be if you look at Egypt right now, we've got 700 million a day contracted to deliver into the country. Of that, 350 million a day is firmed from Leviathan and 350 million a day is interruptible to be firmed up at our discretion from Tamar. The reason it's interruptible is because, right now, Tamar's full. And so if you think about it in that context, the logical thing would be, we need to create some additional productive capacity to fill that contract. Looking beyond that, we're certainly actively in negotiations to move gas from Cyprus into the infrastructure in Egypt and working closely with partners and government on that one. And then, of course, Leviathan, we've built Leviathan with expansion in mind. Our base platform, our infill infrastructure, our subsea infrastructure are all being constructed to be easily expandable to the 2.1 Bcf a day. And so I guess, in a large sense, that's the way to think about it. Overall, we'll be driven by managing these things against what I would call a disciplined kind of reinvestment approach. We'll be driven by market and be driven by firming up contracts.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [34]

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Leo, what you highlight, I think, is a good point, which is when you look out for Noble Energy, the visibility of the already discovered, if you will, growth opportunities is, I think, somewhat unique and enlightening. I mean, if you just think over the next 4 or 5 years, 2019 will be growing from the onshore business. 2020, you get the big boost from Leviathan while you're still growing your onshore business. '21, you've got Alen, big gas influx -- high-value gas influx, global market gas coming in. And then beyond that, you also have the visibility of what Keith just talked about with a number of Eastern Med projects. So when you think about that discovered inventory and how it cues up in sequences over the next 3 to 5 years, it's pretty impressive array of opportunities here.

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Leo Paul Mariani, National Alliance Securities, LLC, Research Division - Research Analyst [35]

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Yes, no doubt about that for sure, Dave. Just as a follow-up here. I wanted to focus a little bit on the Eagle Ford. I know it's an area you're not throwing as much capital at. But just wanted to get a sense, production's kind of been drifting lower over the last handful of quarters. What does that trajectory look like in the Eagle Ford? Is it expected to go down again in the fourth quarter then start going up in '19? Just trying to get a sense of that. And also, how do you see the Eagle Ford fitting in, from a portfolio perspective, over the longer term?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [36]

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Yes, I mean, I'll go back to how we've talked about it in the past, and it really hasn't changed. We expected this year to be declining, coming off just bringing on some big wells late last year into the first part of this year, and that's what we're seeing. It'll continue to decline through the rest of this year. And then that will start to turn around in the first half of next year, and you'll have more of an incline through next year as we bring some of the new wells on. But probably fairly flat year-on-year overall is the way we've been talking about it. What we've also talked about is that next year, we'll be conducting some tests and have a chance to bring on some production on some of this upper Eagle Ford, and that will give us some more visibility to the longer-term aspects of how this fits in our portfolio.

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Operator [37]

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Our next question will come from Welles Fitzpatrick of SunTrust.

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Welles Westfeldt Fitzpatrick, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [38]

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On 112, the polling seems to be decently net-no at this point. So if you'll indulge me and we just assume a no on 112 scenario, can you talk to your strategy and the industry strategy post the election to make sure that this doesn't come back and presumably higher turnout year in 2020?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [39]

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Yes, probably too early to get into specific strategies, nor would we want to in this forum, but I'd say, it's fair to say one of the things that this has highlighted this year and brought a lot of good conversation together is that no one wants to go through this again. Whether you talk about voters, whether you talk to industry, investors, government, I think that's a strong alignment. The good part about this, if you will, the bright spot of having this out in front and driving this conversation is, the discussions with the leaders of both parties in Colorado recognize that particular fact. I think the other part of that is, everybody wants to drive longer-term solutions so that this doesn't come back in a couple years. I would say that, that's something that has been in our repertoire, if you will, when you look back at how we've dealt with -- and we've got experience here in this arena, how we've dealt with putting a framework in place to address longer-term impacts in Israel. How we dealt with helping the industry return to work in the Gulf of Mexico post Macondo, getting the first permit. The engagement with the government in Colorado on progressive air regulations. So I think this is something that I think Noble Energy can help play a key role in going forward and we will.

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Welles Westfeldt Fitzpatrick, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [40]

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Yes. I know. That's great to hear that industries have focused on it. And then, if I could sneak one other one in. The 74, the Farm Bureau's bill, also seems to be pulling very well. Can you talk to any thoughts you might have that, that would have on the oil and gas industry and how it might help you to stand against some future regulations?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [41]

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No. We'll just have to see how that plays out. I'll tell you, our focus is back to what you originally talked on, on 112. That's what we've stayed focused on and that's where we're putting our energy.

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Operator [42]

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Our next question will come from Scott Hanold of RBC Capital Markets.

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Scott Michael Hanold, RBC Capital Markets, LLC, Research Division - Analyst [43]

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I was wondering if I could ask question on the Permian and, obviously, you guys pulled the reins back a little because of dips. Where do you all stand on that right now? I mean, there's been ebbing and flowing a little bit. Is there an opportunity for you to move back to the Permian sooner than sort of anticipated as we look at late this year, early next year?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [44]

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Well, I think, definitely in the second half of next year. Scott. I think if you look at how we've timed this, I think it's working out extremely well with how we've moved to the row development now. So we can get out ahead of this and set us up for the long-term development over that acreage position. What that, as (inaudible) said, is that it's slowed down some of the completion in bringing on new wells until we get out in front of this a little further and create the space that we need with the drilling program. As I mentioned, we'll start to bring some of these rows on towards the end of the first quarter. We've built some of this inventory here so that by second half of next year, timing very well with the new facility or the new takeaway infrastructure. We'll be in a position that we'll have a lot more flexibility on activity in the second half next year. And the nice part about it, we'll have established our row development concept so that we can make sure that we're maximizing our opportunity on productivity here. So I think it's actually come together pretty well now as we start to see the announcements on some potential new pipelines in the second half of next year.

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Scott Michael Hanold, RBC Capital Markets, LLC, Research Division - Analyst [45]

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Yes, I know. Certainly looks good for that. But just to, maybe, dive into it a little bit more. Is there -- is it more of a takeaway constraint, say, over the next couple quarters that keeps you from accelerating sooner? Are there other things constraining you to pivot a little bit -- to pivot to the Permian a little bit sooner? Or is it more of you're just...

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [46]

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No, it's more just the time it takes to get the drilling out in front of the completions. If you go back and look at some of the diagrams we've shown over the last few months on how this row development plays out and the buffer zones, if you want, between the drilling and the completion side, it's just taking the time to get the drilling out in front of the completion activity and then be able to start ramping the completion activity back up. So that just takes a couple quarters to do that. And that's why I said, I'm glad we're doing that now. And so that we'll have that behind us and then we'll be ready as the new infrastructure comes on place.

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Scott Michael Hanold, RBC Capital Markets, LLC, Research Division - Analyst [47]

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Got it. Okay. And then on the Permian, if I can stay on the Permian, this quarter -- well, 2 questions, one, this quarter, we did see the oil cuts overall on average drop a little bit, and can you give us a little bit of color? Was that sort of a mix of where you were drilling or some other maturation aspect of existing production? And then, I guess, second, still on the Permian, what do you expect the improvement in well cost with this row development to look like as we go through 2019 versus where you are today?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [48]

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Yes, I think on the oil cut portion that it's really a reflective of that mix of bringing in production from different areas. I think what we've seen from the different areas, we still have a high oil cut, 65% to little over 70%, depending what area you're bringing on at one point in time, and we've brought on some mix, so there's some more of these appraisal areas on some of this. So it'll just fluctuate over time, but it's going to be in that range. So it's still a pretty tight range when you look at it overall, but it -- quarter-on-quarter, it can vary a little bit. I think when you talk about the impacts of row development that some of the things we're still looking at as we put the budget together for next year, what impacts do embed in there, still early in this. It's pretty easy to see the expected benefit as you move sequentially down a row, how that ought to be able to provide some benefit versus coming and going from different areas. But we'll be quantifying that and laying that out when we lay out the budget. The other thing you got to balance against is what other cost inflation pressures are there out there, so that's looking at that whole spectrum.

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Operator [49]

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Our next question will come from Arun Jayaram of JPMorgan.

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [50]

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Just wanted to ask you a little bit about the timing of the EPIC NGL kind of conversion coming in 3Q. Does that impact the way you're thinking about completion activity in the Delaware next year, or is it more driven by the row development that you talked about?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [51]

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Well, I think it starts with the row development, Arun, but it's -- it kind of coincides nicely with how we've laid out the row development plan to be well down the road by the time these -- this EPIC line goes into place. So I think it matches up extremely well. That goes back to my point earlier, that I'm glad we took the steps to start the row development now, so that we get out ahead of this by the time this line comes on, and that gives us a lot more flexibility when this line's in place.

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [52]

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Right. And then the row development, obviously, a question -- a caller earlier asked about the 3-year plan that you put out earlier in the year, is the row development kind of a shift from the thinking when you all put that plan together? Because we're just still trying to think about your activity levels next year.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [53]

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Yes, I mean, it has a little bit. It's changed some of the activity profile near term. I'd say longer-term, it creates or the value protects or creates more value longer term. But near term, it changes some activity profile like we've talked about and as expected. So takes a little longer to catch back up to that, but I think in the long run, we'll see tremendous benefit from this.

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Arun Jayaram, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [54]

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Great. And just my follow-up, Dave, is regarding the DJ 2019. We expect you to be pretty active in Mustang. You highlighted some wells in Bronco, but any broad thoughts on what the mix of wells could look like between your areas and the DJ?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [55]

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Yes, I think, and Hodge can correct me here, but it's -- there will be a mix of Mustang, some Wells Ranch and we'll actually be back to some East Pony next year also. Is that fair to say, Hodge?

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Thomas H. Walker, Noble Midstream Partners LP - Director of Noble Midstream GP LLC [56]

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Correct.

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Operator [57]

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Our next question will come from Brian Singer of Goldman Sachs.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [58]

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Earlier in the year, I believe it was, you talked about your long-term growth targets in areas like the DJ Basin and the Permian and, obviously, there have been some changes that you've made to your capital allocation and then maybe some uncertainty at least for the next week over the DJ. But I wonder if you could just kind of talk about where you see the long-term or 3-year CAGRs from both those basins? Or when you would expect to address that?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [59]

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Well, I think, first thing, Brian, is to get through the budget for 2019 and then look at how we want to lay out capital and how that ties to activity. Again, what we're managing to are the 3 things I mentioned earlier when you look at our long-term targets. They're managing to that cash flow CAGR and making sure we're driving that leading cash flow CAGR. I think that's one of the key things that's going to make us competitive, not only within our own industry but other industries. We've committed and we've told investors that we're going to get back to double-digit return on capital employed, so we'll make sure we're setting up our capital program and our activity to support that by 2020. And we've also told folks that we're going to, as Leviathan come on, be generating significant amount of cash flow, so that can support our shareholder returns and the activity growth going forward. So I'd stay focused on those 3 key things as the -- what we're focusing on as we lay out our capital plans.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [60]

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And my follow-up is on the capital allocation, shareholder return and also M&A. Noble, over the years, has not been shy about doing M&A; that's how you built the strong position in the DJ and built your positions in the Permian Basin. As we inch closer to that cash flow you talked about -- from free cash flow you talked about from Leviathan coming on, how are you thinking about the importance of retaining that for share repurchase versus considering additional M&A?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [61]

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Well, I think it's going to be important to have the balance that provides some aspect of that return to shareholder. I mean, I think that's just part of the new world here or maybe the world we've always should have been in, I don't know. But the other aspect is, and you go back to the things I talked about, the visibility on the new projects and so forth that are already in our inventory, and sequence of those things coming on over the next 5 years. I think, that gives us plenty to work on right now. So I think that's the focus of what we're doing, both of those items.

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Operator [62]

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Our next question will come from Jeanine Wai of Barclays.

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Jeanine Wai, Barclays Bank PLC, Research Division - Research Analyst [63]

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Just wanted to follow up on your prepared comments regarding proppant solvent and hitting on some of the other questions that were asked. In your prepared commentary, you talked about how you've completed thorough contingency planning, and you mentioned your more rural position in the basin and proactive permitting, and my apologies if I missed it, but can you talk about your non-DJ-related contingency planning specifically? What is the efficient frontier in the Delaware right now in terms of activity, as it stands today, given your footprint and whatever other considerations you have? Row development, clearly, is a big step change in efficiency there. But it also seems like the time line of meaningfully folding into cost of oil exploration might be a little bit far off, and I know that you've always focused on efficient growth.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [64]

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Well, I think the opportunity, so I mean that's the advantage of having a portfolio of opportunities of different things. Next year, we'll be spending some money, I expect, in West Africa on some opportunities that we see there that will be helpful next year. We'll be positioning some things in the Eastern Med for the next opportunities here on just what we've talked about getting ready, I think. In the onshore, the nice part is we always have inventory in the Delaware and the Eagle Ford also that we can allocate capital to, especially after we get this row development in place and up and running by the middle of next year or so. We'll look at all of those things as to what's the right thing to be doing. And in the DJ, our plans are laid out pretty well right now for what we need to be doing. So to your point, we're not going to get into discussing specific contingency plans on various items right now or any speculation. But I think the takeaway is that with the portfolio that we have -- the quality of the portfolio and inventory of opportunities, that gives us a lot of capability to redirect as we need to.

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Jeanine Wai, Barclays Bank PLC, Research Division - Research Analyst [65]

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I guess, so if you had to redirect more activity to the Delaware, is there kind of a ballpark rule of thumb with, given your current footprint and how you're set up with infrastructure or whatever else, your acreage could handle x amount of rigs and still operate efficiently versus where you are today?

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [66]

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Yes, I think we need to work through the budget on that and lay out some of the timing of various things, but it's safe to say, we could handle a little bit more activity than we are today. We wouldn't want to ramp things up too dramatic to where you start to create efficiency problems and take a step backward on things. So we'd need to be smart about it.

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Operator [67]

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Ladies and gentlemen, this will conclude our question-and-answer session. I would now like to turn the conference back over to Brad Whitmarsh for any closing remarks.

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Brad Whitmarsh, Noble Energy, Inc. - VP of IR [68]

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Thanks again, Allison. I really appreciated everyone joining us on the call today. Wish Dave Stover a happy birthday.

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David L. Stover, Noble Energy, Inc. - Chairman, President & CEO [69]

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Thank you, Brad.

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Brad Whitmarsh, Noble Energy, Inc. - VP of IR [70]

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And Park and Megan and I will be around for questions all afternoon or rest of this morning. Thanks, guys.

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Operator [71]

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The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.