Oil and gas stock Noble Energy (NBL) has been in the news off and on this summer as it has announced asset sales both in the United States and abroad (the North Sea). But those asset sales also mean that Noble Energy and its investors are increasingly exposed to geopolitical risks as the company becomes more focused on exploring or producing oil and gas in the Eastern Mediterranean region off the coasts of Israel and Cyprus plus West Africa and the Falkland Islands. So does that mean Noble Energy is taking on too much geopolitical risk for investors?
Noble Energy's Recent Asset Sales
Over the summer, Noble Energy announced the following asset sales:
- In August, Noble Energy announced it will sell some oil and gas properties in Kansas to an affiliate of privately held Citation Oil & Gas Corp. for approximately $140 million. The deal includes 250 producing wells on about 14,000 net acres with a net production of about 1,000 barrels of oil equivalent per day.
- In July, Noble Energy sold some of its oil and natural gas properties in the Permian Basin of West Texas and New Mexico to Houston based oil and gas company Sheridan Holding Company II, LLC for approximately $309 million. These assets have production capacity of approximately 1,500 barrels of oil equivalent per day.
- In July, Noble Energy agreed to sell certain oil and natural gas properties to a subsidiary of Unit (UNT) for $617 million. The deal involves about 900 producing wells on approximately 84,000 net acres in western Oklahoma and the Texas Panhandle with the resources being sold being 65% natural gas, 27% natural gas liquids and 8% oil.
Those asset sales have completed the first phase of Noble Energy onshore non-core divestment plan while in the future the company is planning to sell small asset packages in other areas like the Gulf Coast, the Arkansas-Louisiana-Texas region and San Juan, Puerto Rico. In addition, Noble Energy has sold its Dumbarton and Lochranza properties in the North Sea to Maersk Oil North Sea Limited for $117 million in August.
All told, these transactions are expected to generate $1.1 billion worth of after-tax proceeds by the end of the third quarter.
Noble Energy: Taking on More Overseas Risks
So where do those asset sales or planned asset sales leave Noble Energy and investors? Apparently with more exposure to political and economic risks in less stable places like the Middle East, West Africa and elsewhere. Just consider the following:
- Eastern Mediterranean. Noble Energy has recently announced the discovery of a 991 billion cubic meter natural gas reservoir in the Eastern Mediterranean off the coast of Greek Cyprus and Israel. But, there are two potential geopolitical problems with this and other discoveries by Noble Energy or other companies in the region in that Cyprus is split in two between Greeks and Turks while some of the claims off the coast of Israel might actually be in waters that belong to or are claimed by Lebanon. Moreover, there is more natural gas in the region than Israel could possibly ever use - meaning some of it will need to be exported but that has also led to opposition from environmentalists and concerns over security of the infrastructure that would still need to be built. Nevertheless, Noble Energy will probably have any Israeli play largely to itself as energy companies like Royal Dutch Shell (RDS.A), Chevron (CVX) and Exxon Mobil (XOM) (or for that matter, anyone with oil and gas interests in the Middle East) won't touch an Israeli play for fear of angering the Arab Gulf States.
- Falkland Islands. Noble Energy will also be taking a 35% stake in Falkland Oil's Northern Area licenses where it will become an operator in 2013 while in the Southern Area licenses, Noble will receive a 35% interest and become operator by early 2014. Of course, the Falkland Islands are still claimed by Argentina who invaded them in 1982 only to be quickly defeated by a British task force. And while Argentina is probably too weak militarily to attempt to retake the islands by force, the country's politicians often rattle the saber and have attempted to isolate the islands from the rest of South America by encouraging the cutting off of sea or air links. Hence, don't expect Noble Energy to be welcomed with open arms if it were to decide to explore on the continent.
- West Africa. Noble Energy has been active in West Africa off the coasts of Equatorial Guinea and Cameroon since the 1990s and these interests are now among the biggest components of their international portfolio. But the country of Equatorial Guinea, which has one of the worst human rights records in the world, also served as a model for the country depicted in the book and later movie, The Dogs of War, where a group of mercenaries are hired by an industrialist to depose of a government.
Clearly, Noble Energy is getting more dependent on future oil and gas production in parts of the world prone to geopolitical problems and that could impact future revenues, margins and bottom line results.
The Final Word: Noble Energy
Should investors really be worried about Noble Energy's new international focus? That depends. Noble Energy still has onshore assets in the Denver-Julesberg or DJ Basin and Marcellus plays that are expected to provide a stable performance while its assets in the deepwater Gulf of Mexico still offer significant growth opportunities. That means Noble Energy is not putting all of its capital into risky international ventures. Likewise, some of these risky international ventures could pay off handsomely both for the company and for investors when global demand for energy starts to rise again.
For investors uncomfortable with Noble Energy's foreign adventures, there are plenty of other pure domestic energy plays to choose from while those comfortable with the extra geopolitical risks that comes with exploring and producing oil and gas abroad should be taking a second look at this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.