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06 Jun 2006
MOODY'S CHANGES NOBLE ENERGY'S RATING OUTLOOK TO STABLE FROM NEGATIVE
New York, June 06, 2006 -- Moody's Investors Service changed Noble Energy's (Baa2 sr. unsecured)
rating outlook to stable from negative. The change in outlook reflects
the resolution of issues identified at the time it was changed to negative
as well as Moody's evaluation of recent changes in Noble's asset portfolio,
organic reserves and production growth, full-cycle cost structure,
and leverage relative to proved reserves.
When Moody's changed Noble's rating outlook to negative in December 2004
in response to the pending Patina acquisition, we indicated that
it could move back to stable through a combination of organic reserves
and production growth at improving full-cycle costs, a leveraged
full-cycle ratio above 2x, a reduction in leverage to below
$4 per proved developed (PD) reserves, and the successful
integration of Patina's assets and personnel. Based on Moody's
evaluation of 2005 year-end figures, Noble achieved all of
these items. However, before returning the outlook back to
stable, Moody's wanted to evaluate the impact of recent significant
activity including the acquisition of United States Exploration,
Inc. (U.S. Exploration) for $412 million in
February 2006 and, more recently, the announced sale of its
Gulf of Mexico (GOM) shelf assets to Coldren Resources LP for $625
million ($525 million, after-tax).
In terms of diversification and the quality of its asset portfolio,
Moody's believes that Noble is well positioned within its rating category.
The addition of the domestic resource plays, a growing position
in the deepwater, a longer track record with respect to its international
assets, and the elimination of the GOM shelf position has improved
Noble's profile relative to prior years by offering greater stability
and a longer-lived resource base. That being said,
Moody's recognizes that the Wattenberg is a very mature and capital intensive
play. Should expectations for continued production and reserves
growth come down for whatever reason, as such disappointing geology
or a worse-than-expected impact resulting from a softening
of natural gas prices, Noble could lose a significant piece of its
growth story. Also, Moody's recognizes that while production
from Noble's deepwater plays is quite strong this year, production
from such plays often faces rapid decline and is subject a relatively
low degree of stability.
As of the end of 2005, Noble had total proved reserves of 806 MMboe
and PD reserves of 605 MMboe. Noble's current annual production
rate is about 65 MMboe (180,000 Mboe/d), including the U.S.
Exploration assets and pro forma for the sale of the GOM shelf assets,
which is up significantly from 2005's production of 52 MMboe (143,000
Mboe/d). The increase in production reflects the full impact of
the Patina acquisition, which closed in May 2005, as well
as production from three significant deepwater projects (Swordfish,
Ticonderoga, and Lorien; together, currently producing
approximately 30,000 Mboe/d net to Noble) as well as increased production
from Noble's international assets.
Moody's calculates that Noble's 3-year average drillbit (organic)
finding and development (F&D) costs are approximately $12/boe,
which is generally in line with its similarly rated peers. In terms
of all-sources F&D costs, Moody's calculates a 3-year
average of approximately $15/boe, which is higher than its
similarly rated peers. However, this figure includes $4.5
billion of costs associated with the Patina acquisition (271 MMboe),
which includes additions to unproved properties and goodwill (the goodwill
additions largely relate to a gross-up of deferred tax balances).
This relatively high 3-year average F&D figure puts Noble's
full-cycle costs at about $25/boe and its leveraged full-cycle
ratio in the 2.0x-2.5x range. Noble's
leveraged full-cycle ratio also is impacted by hedging losses,
which have been significant in recent periods. For example,
hedging losses reduced Noble's revenues by $107 million (approximately
$6/boe) in the first quarter of 2006.
Noble's leverage and cash flow coverage of debt is well within ranges
appropriate for its rating. As of March 31, 2006 and pro
forma for the GOM shelf divestiture, Noble had long-term
debt of approximately $2.2 billion, total proved reserves
of approximately 820 MMboe, PD reserves of approximately 600 MMboe,
and future development costs of approximately $2.6 billion.
Accordingly, debt to PD reserves is approximately $3.70/boe
and debt plus future development costs to total proved reserves is approximately
Noble Energy is headquartered in Houston, Texas.
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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