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Noble Energy shares jump on news of improved production, cost reductions

Shares of Noble Energy Inc. shot higher Aug. 2 after the company reported topping production estimates while significantly reducing costs during the second quarter.

During the company's second-quarter earnings call, President Brent Smolik said the company was at a "significant inflection point" as its domestic operations are becoming more efficient.

Smolik said Noble's drilling activities in both the DJ and Delaware Basins were exceeding projections while costing less. The news appeared to impress investors, as shares of Noble were up 7.1% to $21.96 in late morning trading on the New York Stock Exchange.

"The U.S. onshore business delivered a very strong second quarter. ... Production was above plan and capital and operating cost was lower than forecast. For Q3, we expect total U.S. oil production to be up nearly 10% for both oil and equivalents, and capital to be down about $75 million sequentially," he said.

Noble has been able to cut well costs from its U.S. onshore operations by nearly 20% since the fourth quarter of 2018, with the DJ and Delaware basins experiencing significant cost reductions in the first half of the year.

"We are exceeding the planned cost reductions of $500,000 to $1 million per well in the DJ Basin and $1 million to $1.5 million in the Delaware," he said.

Smolik said technological improvements and greater familiarity in the Delaware Basin, which is part of the Permian Basin, had spurred improved production for less cost.

"We're seeing from the row developments ... we have less between-well interference and more consistency in the well performance. So we get less of the parent-child kind of interference," he explained. "We've been spending a lot of time on the capital efficiency, and we talked a lot about it in the first half of the year and the results are compelling."

In spite of the improved production numbers, Noble executives said they were not expecting to increase their budget this year or the next two years in order to drill more. Instead, they vowed to stick to their capital expenditures projections and return money to investors.

"2020, 2021 will be delivering that free cash flow," CEO David Stover said.

In spite of the positive production numbers, Noble reported a loss of $49 million, or 10 cents per share, for the second quarter. That was, however, better than the S&P Global Market Intelligence consensus estimate calling for a 12-cent-per-share loss.