Noble: A Solid Play in Energy
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I'm sure many people are skeptical of energy stocks, given the turbulent nature of the sector, as of late. In the midst of all of the turmoil, however, Noble Energy (NYSE: NBL) has been one of a few shining stars and for good reason.
I don't think the good fortune is mere luck, as strategic drilling for resources and shrewd planning has led to a veritable windfall for Noble Energy. Evidence of this can be found as the firm continues to make significant discoveries of natural gas, including a recent find off the coast of Israel. The finding sparked a new 15-year deal with Israel Electric to supply natural gas. With that, Noble will begin to develop its Leviathan and Tamar fields off Israel. These fields could hold as much as 30 trillion cubic feet of gas for an estimated worth of $670 billion. If everything goes right, and you never know with this region unfortunately, Noble should be in for more than a few big paydays for years to come.
Other major energy firms, such as Chevron (NYSE: CVX), for example, are taking immense hits to its stock price due to the consistently stubborn high price for oil. I doubt the situation will improve for Chevron anytime soon, which should generate incredible opportunities for Noble Energy. Chevron's problems hint towards more ominous issues than just its dip in stock price. Reports allude to some leaks in the ocean floor due to its drilling, which have since been corrected, but this could point to shoddy drilling from Chevron. Either way, the news is not good, as the repercussions could be in the form of a large financial hit.
I don't see other competitors enjoying the same good fortunes as Noble Energy. Take First Solar (NASDAQ: FSLR) for example. Its stock is down to just about $21 per share. It has suffered serious losses as alternative energy has become more costly, and governments are becoming more reluctant to invest considering the international economic situation. First Solar is a small company when compared with the big oil corporations, but it represents where the industry may be going.
First Solar recently got its first loan for a groundbreaking solar project in Los Angeles. The company is excited and seems to be investing a lot of its future in the outcome. But, if the project were really so fantastic, the market has yet to react accordingly. First Solar is still down, and alternative energy is struggling. First Solar is definitely going to have to grow and mature, as an entire company, before it can be considered to be on the same playing field as Noble Energy.
I think El Paso (UNKNOWN: EP.DL), another of Noble Energy's competitors, has a much more promising chance to keep up with Noble Energy's unheralded success. El Paso's recently been closing at nearly $30 per share, less than a dollar off its 52-week high. Also, there are new reports that an overwhelming majority of stockholders approved the blockbuster merger between El Paso and Kinder-Morgan, to the tune of 79%. This is a major deal, as it keeps investors on the same page as the management.
Another of Noble Energy's competitors is Marathon Oil (NYSE: MRO). Marathon split from the parent Marathon Petroleum in attempts to separate business strategies and divisions. So far, though, I think Marathon is just a shell of what it has the potential to be, but I don't believe it will make it a point where it can hold a candle to Noble Energy.
Marathon Oil just finalized an agreement to sell its substantial Alaskan assets. The move should free up some capital for Marathon and give it a chance to invest somewhere else. However, the price has not reflected investor optimism with the move. If a large influx of chance fails to inspire investors, one wonders what Marathon will have to do to get people interested.
But that's not even the worst of Marathon's worries. This past January, Marathon Oil increased its dividend to shareholders by a rather significant amount. A 13% increase quarterly to $.17 per share should be very inspiring to investors, but it had no backing. Two specific things should have investors glowing about Marathon. The first is the fact that the dividend went up substantially, coupled with the fact that now, Marathon has proven that it has a cash source to back up this dividend, via the Alaska deal, to sustain it for a pretty lengthy period. And yet, nothing seems to be moving significantly, leaving the door open for Noble and other energy companies to capture some market share.
Noble, by most accounts, seems to be doing better than its competitors. This is important moving forward as the company should look to expands its market share and dominance through 2012. It will continue to rely on and be driven by natural gas. Noble is engaged in as many as six big projects currently, all of which will continue to pump cash into the corporation as it looks for new acquisitions or openings across the energy world. It certainly seems to be doing everything right for the time being.
I think that Noble Energy is getting the return on its capital for its most recent projects now. Current cash flow from operations is running over $2.2 billion annually, and I anticipate significant growth due to its latest deals. There is no reason the stock could not reach a hundred dollars by the end of this year (it currently trades around $94). Time will tell whether or not this energy giant has the clout and strategy to hold on to its market share, take over a competitor's share, and continue to dwarf the already lofty public expectations. All of these goals are well within reach for Noble, as long as it continues with success in its projects and avoids any of the pitfalls that take hold of energy companies.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.