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This report covers the years 2010-2012 and the first 9 months of 2013. Perhaps more importantly it analyzes statements by the CEO of Noble Energy Inc. (NBL) on December 16, 2013, on possibilities of discovering about 3 billion barrels of oil in Cyprus and Israel by deeper drilling in 2014 and 2015 in the same concessions where the company has already discovered huge resources of natural gas.

The announcement by Noble Energy on December 16, 2013 that deeper drilling in the Eastern Mediterranean is expected on the basis of geological and seismic surveys to discover as much as 3 billion barrels of oil provides a bright future and a most significant increase in the value of the company's ordinary shares.

Executive Summary and Conclusion

In quantitative terms Noble Energy Inc. is about equally divided between the production of natural gas and liquids (crude oil and natural gas liquids). Geographically it has operations in the USA, West Africa, (Equatorial Guinea, Cameroon, and Sierra Leone) and the Eastern Mediterranean (Cyprus and Israel).

In 2012, total production of 86.88 million barrels of oil equivalent (BOE) consisted of 47.09 million boe of natural gas (54.20%), 6.7 million boe of natural gas liquids (8.83%) and oil and condensate of 32.12 million barrels (36.97%). Revenue, however, during the same year was provided by oil ($3,263 million or 77.31%), natural gas liquids ($339 million or 8.02%) and natural gas ($619 million or 14.66%). Noble Energy Inc. has stated,

"Our latest forecast projects that we double in size, with a 17% compound annual growth in production over the next five years. Looking ahead we envision years of sustainable material growth driven by the development of major exploration discoveries and unconventional US onshore resources. This is a very exciting outlook!" (2012 Annual Report, Page 03).

The above statement was made by Noble Energy prior to an announcement by the company on Monday, December 16th,

"Significant exploration potential remains on the company acreage position in the Eastern Mediterranean with approximately 3 billion barrels of gross unrisked oil potential in the deep Mesozoic play in both Cyprus and Israel and four trillion cubic feet gross of natural gas potential in Cyprus. Current plans are to resume exploration drilling in the Eastern Mediterranean in late 2014 or early 2015."

This is indeed a very exciting outlook!

Noble Energy Inc. has adequate proved reserves of crude oil, natural gas liquids and natural gas to achieve its forecast, other things being equal, especially with regard to the price of oil. It has good prospects for new oil discoveries but it may have to overcome financial problems in developing its vast discoveries of natural gas in the Eastern Mediterranean. This is especially apparent when prices of liquefied natural gas (LNG) exports may be affected negatively because of large LNG exports from the United States resulting from their shale gas revolution with huge supplies and very low prices. Noble Energy Inc. has also moved into shale areas in the United States rather than putting more efforts to increase their conventional oil reserves, especially in West Africa, and accelerating their exploration for oil in the Eastern Mediterranean where possibilities exist with deeper wells. Similarly the Falkland Islands where other companies have made very encouraging discoveries. According to a report in 2011, Rockhopper Exploration PLC (OTCPK:RCKHF) will be capable of producing up to 120,000 barrels per day in 2018 from its discovery of the Sea Lion offshore oilfield with reserves of 350 million barrels (PennEnergy, September 14, 2011). Noble Energy Inc.'s Participation Agreement for another offshore area is with Falkland Oil and Gas Limited (OTCPK:FLKOF) (2012 Annual Report, page 5.)

Between 2010 and 2012, revenues increased from $2,713 million to $4,223 million or by 55.7% while net income increased from $725 million to $1,027 million or 41.7%.

During the first 9 months of 2013 (ending September 30, 2013) revenues increased from $3,062 million in 2012 to $3,687 million in 2013 or 20.4% while net income increased from $776 million to $843 million in 2013 or 8.6%. During 2013, the stock of Noble Energy Inc. has climbed from $61.62 on January 2nd to $77.13 on October 29th - but as several other oil and gas stocks dropped, Noble Energy followed suit and declined to $68.68 by December 13th.

Deutsche Bank expected the price to reach $112. This is possible, depending on overall stock market performance and no lower oil and gas prices. As an overall evaluation, Noble Energy Inc. is considered a buy because it has already achieved substantial growth that can continue for the next 5 years on the basis of proved reserves of oil, natural gas liquids and especially natural gas. In addition, prospects for probable and possible oil reserves and new discoveries appear to be encouraging. The announcement of the company on December 16 as stated above (Para 3) on the possibility of discovering 3 billion barrels of oil in Cyprus and Israel confirm this expectation. The experience of Noble Energy Inc. in offshore oil production in the United States area of the Gulf of Mexico as well in Equatorial Guinea may provide an opportunity to participate in the expected opening up of the Mexican part of the Gulf, in view of the historic decision to open up to foreign oil companies, apparently as early as 2014. In fact, on December 17, Noble Energy's CEO announced that he has talked to Mexican government officials over possible investments in that country's oil and gas resources.

If the expected oil discovery in Cyprus and Israel in fact materializes, the price of Noble Energy's stock can easily double and treble.

Table 1 shows production for 2010-2012 expressed in barrels per year or barrels of oil at equivalent. Note especially the change in oil production, which increased from 20.44 million barrels in 2010 to 32.12 million barrels in 2012, an increase of 54.14%. Adding the production of natural gas liquids in 2012 Noble Energy's production was 45.8% in oil and liquids and 54.2% natural gas. This was obviously a management decision to concentrate on oil because its price was about $100/barrel as compared to less than $20/barrel or barrel equivalent for natural gas. Noble Energy is now about half oil and half natural gas.

Another important point from Table 1 is the growth rate in production that was 3.49% in 2011 over 2010 and 12.10% in 2012 over 2011. Can they do the same or better in the next two years, i.e. 2013 and 2014? This is examined by analyzing reported reserves and their adequacy for growth.

Table I Production: Million Barrels Of Oil Equivalent

PRODUCTION

2010

2011

2012

Change % (Y/Y)

MILLION BOE

SHARE

MILLION BOE

SHARE

MILLION BOE

SHARE

2010

2011

2010

2011

2012

2012

Oil & Condensate

20.44

27.29%

21.17

27.32%

32.12

36.97%

3.57

29.05

57.14

Natural Gas Liquids

6.94

9.27%

7.3

9.42%

7.67

8.83%

5.19

5.07

10.52

Natural Gas

47.51

63.44%

490.03

63.26%

47.09

54.20%

3.20

-9.60

-0.009

TOTAL

74.89

100%

77.5

100%

86.88

100%

3.49

12.10

16.01

Revenue and Relative Importance of Oil and Gas

Table II shows Noble Energy's revenue from oil, natural gas liquids and natural gas for the same years of 2010-2012. Note the great importance of oil revenue, which reached $3.3 billion in 2012 or 77.31% of total revenue of $4.22 billion. In other words, in revenue terms Noble energy is now an oil company, not a natural gas company. Noble Energy is following the right direction since the collapse of gas prices in 2012. Gas prices have improved but nobody expects prices to go much above 25% of oil prices even with the continuing and increasing demand in the USA for electricity generation, heating and petrochemicals. The supply is too big and the costs too low.

Table II Revenue: Million U.S Dollars/Shares Change%

Revenue

2010

2011

2012

Change %

2010

2011

2010

Revenue

Shares

Revenue

Shares

Revenue

Shares

2011

2012

2012

Oil & Condensate

$1,550

57.17

$2,106

62.14

$3,263

77.31

3.57

29.05

57.14

Natural Gas Liquids

$312

11.49

$400

11.81

$339

8.02

5.19

5.07

10.52

Natural Gas

$849

31.33

$883

26.05

$619

14.66

3.2

-9.6

-0.09

TOTAL

$2,711.00

100.00

$3,388.00

100.00

4220.00

100.00

3.49

12.1

16.01

Adequacy of Proved Reserves of Oil and Gas and New Areas

Table III provides information on the total proved reserves of oil, natural gas liquids, and natural gas for 2012 in Noble Energy's 10k form. Total proved reserves amounted to 1,184 million boe. At the production rate of 86.88 million boe in 2012, Noble Energy's proved reserves could last for 13.63 years. Oil and natural gas liquids could last for 8.98 years and natural gas for 17.56 years.

It should be noted that developed proved reserves could last for only 5.31 years, while undeveloped proved reserves could last another 8.32 years. Of course, Noble Energy would need to invest to transform the undeveloped into developed proved reserves. This will be even more essential if Noble Energy is to continue to shift to more oil production for more revenue and profits.

Noble Energy's oil production is mainly in the offshore Gulf of Mexico, USA and offshore Equatorial Guinea. Similarly with natural gas, although huge discoveries in Eastern Mediterranean (Offshore Israel and Cyprus) await development. In addition, Noble Energy is moving into the shale areas in the USA. One of the new areas to be watched closely is the Falkland Islands where Noble Energy has started exploration in areas where other companies have already made significant oil discoveries.

The overall conclusion is that Noble Energy will need new oil discoveries in order to sustain a significant growth rate for a numbers of years.

Table III: Adequacy of Proved Reserves

Total Proved Reserves (Million BoE)

1,184

Production 86.88 (Million BoE)

Reserve Production Ratio 13.63 (Years)

Oil & Natural Gas Liquids- (Million BoE)

357

39.79

8.98

Natural Gas

827

47.09

17.56

Developed Proved Reserves

461

86.88

5.31

Undeveloped Proved Reserves

723

86.88

8.32

Evaluation Parameters for the Value of Noble Energy's Stock

Table IV provides basic information for the years 2010-2012 on Noble Energy's performance with regard to production, revenue, expenses, net income, reserves and their impact on the shares of the corporation which varied from 177 to 180 million.

Investors are motivated by a variety of the factors in view of their objectives. Some may prefer steady output, profits and dividends. Others may favor growth and the degree of risk involved.

In the case of Noble Energy Inc., as discussed, the objective of doubling output in the next 5 years appears to be quite realistic. In addition, prospects for new discoveries can be regarded as optimistic.

In the author's opinion the price of shares can be expected to increase by at least 20% per year and reach as much as $140 in the next 5 years while any sizable oil discovery can add a significant premium.

Table IV: Author's Evaluation Parameters

2010

2011

2012

Production-Total (Million BoE)

74.89

77.50

86.88

Oil --Million BOE

20.44

21.70

32.12

NGLs --Million BOE

6.94

7.30

7.67

Natural Gas --Million BoE

47.51

49.03

47.09

Revenue --Million $

$2,713.00

$3,404.00

$4,223.00

Expenses --Million $

$1,944.00

$2,870.00

$2,811.00

Net Income Million $

$725.00

$453.00

$1,027.00

Number of Shares --Million

177.00

179.00

180.00

Stock Equity --Million $

$6,848.00

$7,265.00

$8,258.00

Equity Per Share --$

$38.69

$40.59

$45.88

Net Income per share -- $

$3.56

$2.31

$5.37

Dividend per share --$

$0.72

$0.80

$0.91

P/E Ratio (End Year)

20.74

36.73

17.63

Assets--Million $

13,282

16444.00

17554.00

Long-term Debt--Million $

2,272

4100.00

3736.00

Costs-- $/BOE

26.40

37.99

36.55

Prices-- $/BOE

36.23

43.93

48.61

Fuels Reserves--Million $

N/A

N/A

$357.00

R/P Ratio (Fuels)-- Years

N/A

N/A

8.97

Natural Gas Reserves --Million BOE

N/A

N/A

827.00

R/P Ratio (GAS) -- Years

N/A

N/A

17.56

Number of Employees

1,772

1,876

2190.00

Source: Noble Energy Drilling Its Way To New Heights