Noble Energy's Davidson looks beyond Gulf of Mexico

Sept. 9, 2005
Noble Energy Inc. Chairman, Pres., and CEO
Charles D. Davidson
"The US is the only developed country in the world with our type of blanket moratoria that have prevented even the consideration of energy development for decades."

Paula Dittrick
Senior Staff Writer

Charles D. Davidson, Noble Energy Inc. chairman, president, and chief executive officer, is guiding the company toward greater selectivity in its Gulf of Mexico shelf prospects.

The Houston company has diversified its production base in recent years by high-grading its gulf holdings and simultaneously expanding its international interests.

"It's getting difficult to maintain production on the Gulf of Mexico shelf because of the smaller prospect sizes and high decline rates," Davidson said. "Growing international production offsets that reliance."

Noble Energy developed reserves outside North America at lower cost than it could have acquired them in the US and Canada. Just as importantly, Davidson noted that Noble Energy acquired strategically important assets through its acquisition of Patina Oil & Gas Corp. (OGJ, Jan. 17, 2005, p. 39).

International projects and the Patina acquisition helped lower the company's total operating costs. Noble Energy also found ways to market what had been stranded natural gas.

"We took on some unique projects where we were able to find markets for natural gas or convert natural gas into other products that we could market," Davidson said. "As a result, this created good projects, leading to a very high growth rate for the company in international projects."

Noble Energy's marketing efforts include a methanol plant in Africa, a natural gas-fired power plant in Ecuador, and a natural gas discovery in Israel that now provides power to an Israeli electricity company.

Increasing production
Noble Energy reported record second quarter earnings and strong production rates, which Davidson said reflected the Patina acquisition.

Second quarter 2005 production was 139,765 boe/d. US production was up 21% compared with the 2004 second quarter. US production, excluding Patina, decreased primarily because of natural decline on the Gulf of Mexico shelf and because of Gulf of Mexico production shut-in due to damage from Hurricane Ivan of September 2004.

International production was up 39% above the second quarter last year, primarily because of increases in condensate and gas volumes in Equatorial Guinea.

Noble Energy reported $137 million in net income for the second quarter, up 90% from the same period last year. Discretionary cash flow of $330 million was the company's highest since 1999.

The independent continues to look for new-venture opportunities and to expand its existing production areas. It sees more exploration potential in Equatorial Guinea.

"We have two additional blocks there, and we are going to begin exploration on one of those, Block O, in September," Davidson said. "It's a sizeable block, and only one well has ever been drilled on that block. There is a second block, Block I, that we might drill on next year. It never has been drilled."

Noble Energy also has a position off Nigeria in a joint development zone jointly leased by Nigeria and Sao Tome.

"It is in the early stages because there haven't been any production sharing contracts or any joint operating agreements actually finalized yet," Davidson said. "So it's in the development stage, but it's the type of thing that we are looking at in new ventures."

In the US, Noble Energy is shifting its focus toward the deepwater Gulf of Mexico.

"The deep water is by no means as mature as the Gulf of Mexico shelf," Davidson said. "That is an exciting area that technology continues to enhance."

The Swordfish development is the first of three deepwater projects from which Noble Energy expects new production through 2006. Swordfish is scheduled to begin producing during the third quarter at 10,000 boe/d.

Lorien is expected to follow at the end of the first quarter 2006 with anticipated production of 12,000 boe/d, and Ticonderoga is to go on stream in the third quarter of 2006 with anticipated production of 12,000 boe/d.

Noble Energy's onshore operations, excluding Patina assets, drilled 80 wells during the second quarter, and 71 of them were successful. The company plans to drill nearly 350 onshore wells in 2005, of which 57 are to be drilled in the Gulf Coast area with the rest planned for the Rocky Mountain and Midcontinent areas.

Operations were also active on Patina's assets during the second quarter. The company had 10 rigs running in the Midcontinent region and 4 in the Rocky Mountains, along with 37 workover rigs (23 in the Rockies and 14 in the Mid continent).

Planned projects for Patina properties from the merger's effective date of May 16 through yearend include drilling 270 new wells, of which 150 are planned for the Midcontinent region and 120 are planned for the Rocky Mountain region.

Noble Energy also plans to complete 360 refrac and recompletion projects during this period, primarily in Wattenberg oil and gas field of Colorado.

"Right now, Noble Energy is blessed with a lot of investment opportunities," Davidson said. "We have growing cash flow not just from higher prices but also from growth in production. We need to make sure we will be challenged to wisely reinvest that."

Like other oil and gas companies, Noble Energy faces challenges in securing adequate field services and in finding skilled workers, he said.

As chairman of the offshore committee of the Independent Petroleum Association of America and vice-president of the Domestic Petroleum Council (DPC), Davidson promotes greater access to land for exploration and development.

"We are very limited in the US. There are a lot of areas still in moratorium along the East Coast, West Coast, and in Alaska," Davidson said. "Only 10% of US waters outside of Alaska are available for us to apply the best energy technology in the world. Put another way, the US is the only developed country in the world with our type of blanket moratoria that have prevented even the consideration of energy development for decades."

Industry has established a good track record of operating safely and doing it in ways that are compatible with the environment, he said.

Technology has decreased the number of wells needed in exploration and development, decreased the need for surface facilities, and decreased the visibility of operations.

"One of the best tools in the Gulf of Mexico is the utilization of subsea tiebacks to central manifolds. These tiebacks, some of which cover 20-30 miles, allow producers to produce natural gas and oil over great distances from a single production platform," Davidson said.

Subsea projects enable wells to be produced from fewer facilities, perhaps well over the horizon and beyond sight of the coast, he said.

He also is concerned about land access and permit streamlining in the Rocky Mountain region.

"The DPC is working with government and private landowners to find ways to move development forward," Davidson said. "If we can develop more Rocky Mountain natural gas, it can add supplies and mitigate declining supplies in other areas."

Regarding the recent energy bill, Davidson said: "There are a lot of things in this legislation, but we are most interested in what provisions might help us access known resources."

He noted that some coastal states, particularly Virginia, support energy development off their shorelines. Davidson also acknowledged that other states, such as Florida and California, emphasize tourism and avoid energy development.

"It makes sense, if the states desire it, to have some legislation that would give the states more authority to move forward with offshore development," he said.

Davidson noted that US restrictions on exploration and development encourage the country's growing dependence on imported LNG. But he welcomes the globalization of gas.

"Going forward, LNG is more likely to be priced on a spot basis. Some projects being developed now anticipate that one cargo might go to the US and the next cargo might go to Europe. You would basically be selling LNG on a much shorter-term basis," he said.

Davidson favors market liquidity, but he dislikes price volatility and the uncertainty associated with it.

"It is better that people can have more transparency in terms of prices," Davidson said. "Whether you are a producer or a purchaser of energy, it's a very big planning job when you have got such volatility in the commodity prices."

Career Highlights
Charles D. Davidson has been Noble Energy Inc.'s chairman, president, and chief executive officer since 2000.

Previously, he was chairman, president, and chief executive officer of Vastar Resources Inc., which merged with BP PLC in 2000. Davidson was named president and CEO of Vastar in 1997 and was a senior vice-president when Vastar was started in 1993 as a spin-off from Atlantic Richfield Co. Davidson worked in various engineering, operations, and executive assignments for ARCO. He has more than 30 years of oil and gas experience.

Davidson has a bachelor of science degree in chemical engineering from Purdue University and a master's degree in management from the University of Texas-Dallas.

Currently chairman of the IPAA's Offshore Committee, Davidson also is chairman of the Domestic Petroleum Council and a member of the Society of Petroleum Engineers and the American Institute of Chemical Engineers.