Noble Energy curtails 5,000-10,000 b/d of oil output in May, more coming

Houston — Noble Energy has voluntarily curtailed a net 5,000-10,000 b/d of oil production this month from its US onshore plays, but that will rise in June at the expected peak of glutted crude sparked by the global coronavirus pandemic, its top executives said Friday.

June curtailments are targeted around 30,000-40,0000 b/d, mostly from assets in the DJ Basin in Colorado, and the Delaware sub-basin in the western Permian Basin, Noble said.

The company also operates in the Eagle Ford Shale in South Texas.

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The shut-in wells are older and have lower production rates, Noble President and Chief Operating Officer Brent Smolik said during a first-quarter earnings call.

"We made these decisions on shut-ins in two tranches," Smolik said. "The first bucket is lower-productivity wells, which are not covering variable operating costs. We're also deferring production from certain higher-rate wells for better value" when prices are higher.

About two-thirds of curtailed wells are in the DJ where there are a lot of vertical, older, later-life, higher-cost wells and one-third are in the Delaware, where Noble's wells are relatively newer, Smolik said.

The precise amount and duration of the curtailments is uncertain and will depend on the recovery of oil prices and economics, he added.

NO US BASIN IS ECONOMIC NOW: EXECUTIVE

At current low oil prices, "there's no basin in the US that's economic," he added. "But if you look at our stack [portfolio of operations], the DJ Basin is the highest-return we have in the US onshore, and it will be the first to come back to being an acceptable rate of return."

From the five rigs running in its plays in Q4 2019, Noble now just has one rig running: in the DJ Basin. It will build inventory for well completions that will be placed online in the second half when oil prices are widely presumed to be higher, or whenever prices move up, Smolik said.

"That program has pretty good economics around $40 flat" per barrel, Smolik.

Delaware Basin activity is deferred for a better price environment. In the Eagle Ford, the company is focused on cash flow optimization, Noble said in a statement.

REDUCES CAPEX ANOTHER $400 MILLION

In addition, the company has reduced its capex a second time, and is now in a range of $750 million-$850 million, down 53% from its original budget just three months ago. More than 70% of the company's 2020 capex will be spent in the US onshore.

Noble also has Eastern Hemisphere operations in Equatorial Guinea and Israel.

The company began this year with a $1.6 billion-$1.8 billion capital spending plan but in March took it down to $1.1 billion-$1.3 billion after crude prices plunged when Russia and OPEC+ could not agree on production cuts and walked away from the negotiations.

The two sides eventually forged an agreement for nearly 10 million b/d, but the market remains glutted.

For the last two months crude oil prices have been volatile and very low. NYMEX WTI crude futures were in the teens for a couple of weeks, but moved to the $20s/b this week as more oil companies have continued to voluntarily curtail production.

According to S&P Global Platts Analytics, nearly 1.5 million b/d of oil production has been shut-in voluntarily in the past couple of months from lower prices that makes wells uneconomic. Another 960,000 b/d of Canadian output is shut-in, plus 2.3 million b/d outside North America.

RBC Capital Markets said Thursday that voluntary US shut-in production could eventually total as much as 3 million b/d in Q2.