NBL Noble Energy Inc

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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