Current shareholders should hold Noble Energy (NBL) long-term; interested investors should consider 2012 as an opportune entry point to initiate a position on this E&P. Noble has comparable metrics to its peers, an adequate dividend for shareholders, and is currently focused on improving its global portfolio by exploring more assets overseas. This stock should realize capital appreciation as it increases its assets overseas, oil crude prices continue to stabilize, and natural gas prices and demands increase abroad.
Apache (APA), Anadarko Petroleum (APC) and Marathon Oil (MRO) are most comparable to Noble Energy as they share mutual interests in exploration prospects. Noble's price is around 26 times earnings, 4.2 times sales, and 2.1 time its book value. These are the highest price ratios among these E&Ps. Noble's current ratio is around 0.95, and its debt-to-equity ratio is around 0.57. Noble's annualized dividend is around $0.91 per share.
Noble's EPS is around $3.62, decreasing 38.2% in 2012, and projected to increase 34.4% in 2013. Apache's $8.35 EPS and 35.6% EPS growth in 2012 are the highest among these E&Ps. Anadarko's -$2.71 and 449.6% EPS decline are the worst among these E&Ps. Noble's ROE is around 8.9%, its operating margin is around 17.5% and its profit margin is around 16.8%. Noble's sales have increased 5.06% over the last 5 years. In contrast, Marathon Oil's sales have declined 25.2% over the past 5 years.
Noble's float short is around 1.4% while its short ratio is around 2.4. Its beta is the lowest among these E&Ps and is the closest to one. Its average trading volume is around 1.02 million, also the lowest among these E&Ps. Marathon's 6.8 million average trading volume is the highest among these E&Ps. Noble's stock is up 6.4% YTD, up 0.66% over the past month and has increased 9.4% since its last earnings release.
Noble Energy recently signed a three year agreement with Atwood Oceanics (ATW) for a new drillship to improve Noble's deep-water development and exploration prospects. The Atwood Advantage drillship for Noble Energy is currently being constructed by Daewoo Shipbuilding & Marine Engineering Corporation and is expected to be completed by the end of 2013. The drillship provided by Atwood Oceanics will first be deployed to explore the deep-water targets in the Eastern Mediterranean.
Investing in the drillship underscores Noble's effort to improve its offshore exploration initiatives in order to bolster its global portfolio. Noble divested over $1.1 billion in non-core assets during the second quarter in order to expedite the investment in the overseas exploration projects.
Noble has had more success with its Galapagos assets in the Gulf of Mexico than it originally expected. The three wells have had higher production levels than initially projected; 13 mbbls of oil per day and 8 mmcf of natural gas per day have surpassed Noble's original projections by around 30%. Noble has also had recent success in the Eastern Mediterranean region; Noble's had six consecutive discoveries totaling 12 tcf net natural gas resources offshore of Isreal and Cyprus. Through the past five years, Noble has discovered 12.3 billion boe in the Eastern Mediterranean, Africa, and the Gulf of Mexico. It will use the Atwood drillship to further explore its Leviathan asset; Noble's projecting 300 to 500 mmcf per day and expects to start production in 2016.
Noble is also interested in the Falkland Islands; the E&P has 10 million acres for exploration in this region. In August 2012, Noble acquired a 35% stake in the Northern and Southern license regions and will invest $25 million and 60% of the cost of the first two wells to commensurate the agreement with Falkland Oil and Gas Limited (FLKOF.PK). Noble will take over as operator in 2013, and 2014, respectively. The top ten prospects in the region are expected to yield an average of 7 billion boe.
Noble estimates a 30% likelihood of successful production while Flalkland Oil and Gas Limited projects there is 145 to 960 million boe in the Scotia prospect. Noble will invest up to $230 million in this region in the next three years; it expects initial production by 2018, and peak rates to reach 50 mcf per day by 2020. Noble is also interested in bidding on the 12 exploration blocks Mozambique will auction in the first quarter of 2013, for E&Ps interested in developing a natural gas industry for the region.
Ennobles earnings for the quarter fell short of initial expectations due to a few significant setbacks. The delayed deployment of drillships in the Gulf of Mexico and Brazil, rig delays in Brazil, and delays due to Hurricane Isaac all had a negative impact on Noble's earnings for the quarter. These are all one-time occurrences. Noble expects operations to stabilize and production to increase in fourth quarter 2012. Despite these headwinds, rig utilization for the quarter increased to 78% from 76%, YOY.
On Noble's recent earnings release, second quarter revenue totaled $966 million, increasing 15%, YOY. During the second quarter, Noble sold 86 mmbbls of oil per day for an average of $99.81 per barrel, 706 mmcf of natural gas per day for an average of $1.82 per mcf and 20 mmbls per day of natural gas for $38.87 per barrel. The majority of Noble's sales came from the US and Equatorial Guinea. Second quarter costs totaled $828 million, increasing 34%, YOY.
Noble's second quarter crude oil revenue increased primarily due to higher sales volumes from a 33% production increase from horizontal drilling in the DJ Basin asset and additional production from the Galapagos and South Raton assets. The decrease in natural gas revenue was mainly due to downward pressure on average realized natural gas prices and reduced sales volumes. Noble Energy is allocating 20% of its $3.5 billion capital investment program to exploration; around 50% will be allocated to the onshore US, deep-water Gulf of Mexico, Eastern Mediterranean and West Africa assets. Shareholders should consider Noble a defensive asset with potential for capital appreciation in the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.