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How Noble Is Improving Cost Efficiency and Financial Flexibility

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Cost efficiencies

Noble Energy (NBL) is focusing on improving its cost efficiency in response to lower energy prices. In a presentation released on May 4, 2016, the company noted that it has seen more than 50% reductions in its well costs in the US Onshore segment from “sustainable efficiency gains.”

In the DJ Basin, which contributes significantly to its production, NBL has seen a 40% reduction in well costs since 2014. The image above shows that DJ Basin well costs are expected to decline further in 2016.

Other companies that are focusing on reducing well costs in 2016 include Hess (HES), Anadarko Petroleum (APC), and Oasis Petroleum (OAS). These companies make up ~12% of the iShares US Oil & Gas Exploration & Production ETF (IEO).

Additionally, NBL’s lease operating expenses are expected to decline 5% in 2016 versus 2015, and general and administrative expenses are expected to drop 8% in 2016 versus 2015.

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NBL’s efforts to enhance financial flexibility

On January 6, 2016, NBL announced a series of transactions including a new three-year term loan and cash tender offers for its 5.9% senior notes due in 2024, 5.9% senior notes due in 2022, and 5.6% senior notes due in 2021.

Kenneth Fisher, NBL’s executive vice president and CFO, commented, “These transactions create significant value for Noble Energy, improving profitability through annual interest savings of up to $50 million and substantially enhancing our deleveraging flexibility. We ended 2015 with $5 billion in liquidity and are committed to continuing a disciplined capital program.”

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