[UNITED STATES] Noble Energy swings to loss because of futures contracts
Noble Energy, the oil producer that's expanding in the Rocky Mountains and Africa, posted its first quarterly loss in two years because of a drop in the value of contracts that lock in prices on future petroleum sales. The loss was $144 million, or 84 cents a share, compared with profit of $209 million, or $1.21, a year earlier, Houston-based Noble said today in a statement. Excluding the change in contract valuations, profit was $1.93 a share, 12 cents lower than the average of 18 analyst estimates compiled by Bloomberg.
The company fell short of estimates because of an almost tenfold increase in expenses related to a deferred-compensation program, said Michael Jacobs, an analyst at Tudor, Pickering, Holt & Co. in Houston. Revenue jumped 52 percent to $1.21 billion and output rose 9 percent, Noble said.
"They continue to run the company exceptionally well," said Darren Peers, who helps manage $30 billion at NWQ Investment Management in Los Angeles. "They had some higher compensation expense, but that's always a bit of a moving target. Operationally, they were quite good."
Noble also announced the $291 million acquisition of 15,500 acres in western Oklahoma with production equivalent to 25 million cubic feet of gas a day. The company plans to drill 70 wells on the properties in the next two years to double output.
Noble fell 11 cents to $74.51 at 9:40 a.m. in New York Stock Exchange composite trading. The stock has dropped 6.3 percent this year, the third-worst performance in the 10-member index of independent oil and gas producers in the Standard & Poor's 500.
U.S. accounting rules require oil and gas producers that use forward sales to record costs or gains to reflect changes in the valuation of their hedging contracts based on current market prices. Such costs, which don't affect cash flow or the amount of money a producer is paid for oil and gas, reduced Noble's net income by $481 million, according to the statement.
The contracts locked in prices before crude surged to a record and natural-gas futures rose to their highest level since 2005. Noble put many of its hedges in place late last year, after oil prices jumped 57 percent and surpassed $99 a barrel for the first time.
So-called market-to-market adjustments represent "money left on the table" as prices continued to rise this year, Kenneth Carroll, an analyst at Johnson Rice & Co. in New Orleans, said in a July 16 interview. Carroll said he expected Noble to earn $2.13 a share, excluding the hedging loss.
The company pumped the equivalent of 218,000 barrels of oil a day during the quarter, up from 200,000 a year earlier. Rising gas output in West Africa and Israel more than made up for a drop in crude production in every region where Noble has operations.
Noble was paid an average of $105.46 per barrel of crude, a 46 percent increase. The company's average gas price was $5.86 per thousand cubic feet, up 11 percent from a year earlier.
Chief Executive Officer Charles Davidson is expanding the search for untapped oil and gas fields to the coastal waters of Equatorial Guinea, deeper areas of the Gulf of Mexico and the North Sea.
Noble's 28 percent profit margin is fourth-highest in the company's U.S.-based peer group, behind Fort Worth-based Quicksilver Resources, Ultra Petroleum and CNX Gas, according to data compiled by Bloomberg.