Noble Delivers 2Q Beat on Higher Prices and Lower Costs

Highlighted results from onshore drilling were generally positive, especially in the Delaware. The firm's average cumulative production (at 120 days in the Wolfcamp A zone) is higher than its 1.2 mmboe type curve, and selected Wolfcamp B and C wells support higher type curves as well. Enhanced completions are also driving outperformance in Wells Ranch and East Pony (in the DJ Basin). Unfortunately, these advances have been mirrored by numerous peers, driving down the marginal cost of supply. As the U.S. is the swing producer in our global supply and demand framework, that weighs on our oil forecasts and caps our midcycle estimate at $55/bbl (WTI). In that environment, the rig count increases that we previously assumed for Noble no longer look realistic, and tempering these forecasts weighs on our valuation. Our new fair value estimate is $26 per share.

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