Noble Energy (NBL) is a diversified exploration company with operations throughout the world and in the U.S., with 47% of its reserves located in the U.S. The company has demonstrated robust growth over the past five years and discovered 2.3 BBOE in reserves, or 29 times its annual production.
Production in the Eastern Mediterranean
In 2011, Noble Energy assisted Israel in discovering large gas reserves off the coast of Cyprus in the Exclusive Economic Zone. These gas reserves, called Aphrodite, were estimated at 991 billion cubic meters. Turkey does not interfere with trade treaties; however the find only heightened the tension between Turkey and Cyprus. Noble now plans to spend $400 million in the Eastern Mediterranean in 2013. Israel will become a major new force in energy production and the World Petroleum Council estimates that the country holds 250 billion barrels of oil shale reserves, which is almost as much as Saudi Arabia currently holds. It is also a well known fact that it is getting harder to extract energy in Saudi Arabia and the Persian Gulf. Natural gas prices are increasing in the U.S. and at $4 per thousand cubic feet the price has increased more than 70% since last year. Noble had announced that its Leviathan 4 field contains 17 trillion cubic feet of natural gas, which has since been revised to 18 trillion cubic feet, which is worth $72 billion at the current prices. The Israeli projects are expected to help Noble achieved increases in net profits by almost 30% by the year 2015.
Production in the United States
You would have thought it unlikely that the United States would be like Russia or Saudi Arabia when it comes to energy production but, by 2020, the U.S. could produce 11 million barrels a day. Elko is in the middle of what is known as the 'Gold Country' in Nevada, and Noble completed 3-D seismic exploration in 2012 and is hoping to become a major producer in that area. In the next two years, the company will drill wells around Tabor Flats and begin producing by 2014. It will have access to 350,000 acres with the potential of producing 50,000 barrels per day. It is worth noting that most major oil companies are concentrating on Texas. EOG Resources (EOG) has been active in Eagle Ford, which has made Texas an oil rich region while Chesapeake (CHK) operates in several areas in and around Texas, with the Barnett Shale being its best unconventional gas resource.
2013 first-quarter financials
The company announced net income of $261 million ($1.45 per share diluted) on revenue of $1.1 billion and net income from continuing operations of $232 million ($1.28 per share diluted). Excluding certain items, adjusted net income from continuing operations of $269 million ($1.48 per share diluted). The corresponding figures for the same quarter of the previous year were $249 million ($1.39 per share diluted) and $297 million ($1.65 per share diluted). Discretionary cash flow generated by continuing operations for the quarter was $761 million compared with $690 million for the prior year period and net cash generation was $705 million with capital expenditures of $910 million.
Highlights for the quarter included the first production from the Tamar gas field where the mean resource estimate was also raised by 1 trillion cubic feet to 10 trillion cubic feet. Additionally, Record sales volume of 92,000 barrels of oil equivalent per day was achieved in the DJ Basin. The gross mean resource estimate of Leviathan was increased to 18 trillion cubic feet, which is 1 trillion cubic feet more the previous estimate. Sale agreements were signed for three non-core asset divestment packages and the expected proceeds will be in excess of $105 million. Apart from the Tamar project in Israel, the other major project, Alen in Equatorial Guinea, is expected to commence production in the third quarter of 2013.
The bottom line
As soon as Noble announced its plans for Elko and Nevada, Societe Generale reiterated its 'buy' rating for the stock. Against the current price of around $58.61, both the mean and the median target price for the stock is $67.25, which means that there is an upside to be expected. The average EPS estimate for 2013 is $3.46 per share compared to $2.47 per share a year ago. Based on the growth record of the company, I would have no hesitation in recommending a Buy.