Noble Inks Deal with Israeli Electric - Analyst Blog
March 15 2012 - 2:11PM
Zacks
Independent oil and gas producer Noble Energy
Inc. (NBL) entered into an $18 billion natural gas sales
agreement with Israel Electric Corporation Limited (“IEC”). Per the
terms of the deal, Noble Energy along with its partners will supply
about 2.7 trillion cubic feet (“Tcf”) of natural gas from its Tamar
field project to IEC over a period of 15 years.
IEC, on its part, has the option to increase the quantity to
about 3.5 Tcf under specific conditions. As per the agreement, IEC
will utilize the natural gas as fuel for electricity generation.
The clean burning fuel will significantly reduce greenhouse gas
emissions.
Prior to this contract, in January, 2012, Noble Energy and its
partners had signed a $5 billion natural gas sales agreement with
Tel Aviv-based Dalia Power Energies Limited. They will supply a
maximum of 48.7 Billion Cubic Feet ("Bcf") per year of natural gas
for a span of 17 years.
The company has entered into several other long-term sales
contracts for natural gas quantities in the range of 3.9 - 4.7 Tcf
in the Tamer field. These agreements are expected to generate total
revenue of $27 - $32 billion over a span of 15 - 17 years.
The gas price calculation takes into account a base price and
is aligned with the US Consumer Price Index.
Tamar natural gas field is located offshore Israel in the Levant
Basin. Noble Energy has already started field development drilling,
platform jacket and deck fabrication, pipeline installation and
onshore facility expansion from 2011 with an expected investment of
$3.0 billion.
The company expects first production by second quarter of 2013.
Initial development of Tamar will include five subsea wells, each
with a capacity of 200 to 250 million cubic feet per day (“Mmcf/d”)
of natural gas.
Noble Energy has a strong foothold in the Israeli territory. In
fiscal 2011, the company’s Mari-B field operations contributed 150
million cubic feet per day (“MMcf/d”) with average realized price
of $5.10 per thousand cubic feet (“Mcf”).
During the company’s earnings call in February 2012, Noble
Energy announced its 2012 sales volume guidance in the range of 244
thousand barrels of oil equivalent per day (MBoe/d) - 256 MBoe/d.
The midpoint of the range will be 13% higher than the sales volume
of 233 MBoe/d in 2011. This revision was primarily driven by
higher-than-expected sales from Israel and Equatorial Guinea.
We expect that Noble Energy is well positioned with its sales
volume expansion and better-than-expected realized prices. These
might act as key growth drivers for the company. Fiscal 2012
revenues are likely to increase as a result of the recent joint
venture with CONSOL Energy Inc. (CNX) for the
development of Consol’s Marcellus Shale properties.
Apart from that the increasing exposure of Noble Energy in
the Levant basin, which has an estimated reserve of 122 Tcf
of natural gas is also a key positive for the
company. The company has also expanded its Chinese operations and
is all set to explore new opportunities in the North Sea.
But we are cautious about the volatile commodity market,
uncertainties related to exploration, increase in interest rates
and the Euro-zone crisis. We presently retain a Zacks #3 Rank on
the stock, which translates into a short-term Hold rating.
Based in Houston, Texas, Noble Energy operates internationally
and engages in the acquisition, exploration, development,
production, and marketing of crude oil, natural gas and natural gas
liquids.
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