Wall Street typically likes those oil producers which can generate profits as well as free cash flows while growing production in a weak oil price environment. Noble Energy (NBL), however, has struggled with losses this year and also outspent cash flows. But the Houston, Texas-based company will turn its business around in 2020 as it starts producing gas from the highly anticipated project in offshore Israel. The company has also improved its US operations which will likely deliver solid earnings and cash flows in 2020. Noble Energy may also receive support from oil prices which have recently improved to $60 a barrel. Therefore, I think 2020 will be a great year for the company.
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Amid persistent weakness in oil prices, the shale oil drillers are no longer focusing on aggressively growing production. Instead, the industry has been working on reducing costs, increasing operational efficiencies and well productivity, showing capital discipline, generating profits and free cash flows, and boosting shareholder returns. Oil producers like Pioneer Natural Resources (PXD) which were targeting more than 20% increase in volumes have tapered down their plans and can now generate profits as well as free cash flows in a low oil price environment of mid-$50s a barrel. The free cash flow generating companies have lifted shareholder returns by increasing dividends and buying back shares.
Noble Energy, however, booked a loss of $47 million, or $0.10 per share, for the third quarter and a loss of $140 million, or $0.29 per share, for the first nine months after adjusting for one-time items. The company also generated low levels of operating cash flows which couldn't cover its capital expenditures. As a result, the company outspent cash flows by $6 million in the third quarter and $335 million in the first nine months, as per my calculation based on the company's operating cash flows
