Strengthen Your Energy Portfolio with Noble
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Like other drilling companies with substantial operations in the Gulf of Mexico, Noble Energy (NYSE: NBL) was hit hard by the BP oil spill in 2010. After nearly a year of downtime in the Gulf, the company received the first permit in 2011 to restart a deepwater well off the coast of Louisiana. But Noble Energy is not confined to deep water operations. The company, along with Anadarko Petroleum and Chesapeake Energy, has significant holdings in the Niobrara play of Wyoming and Colorado. All three companies are bullish on the region. Noble has decided to invest over $8 billion in the area over the next 5 years.
Noble is a leader of exploration and production within the integrated oil and gas sector. One region that Noble has seen great success in is the Mediterranean. Noble recently announced the discovery of a 991 billion cubic meter natural gas reservoir off the coast of Cyprus and Israel. This is an important discovery for two reasons. First, the amount of gas is far more than Israel and Cyprus can use, so the company will be able to export the gas to other markets. Second, the geopolitical situation means that Noble will have the region to itself, which will bring enormous profits going forward, especially given that natural gas prices are expected to rise.
Energy companies such as Royal Dutch Shell, Exxon Mobil (NYSE: XOM), and Chevron have all made it clear that they will not invest in any production in Israel given their desire to not anger any of the Arab states. Further, these companies have felt the sting of natural gas prices and appear to be withholding investments in gas.
This area should also prove to be cheaper when transporting the gas to various markets. Shipping resources from the Middle East and central Asia can be very troublesome. Noble will avoid a lot of the problems other companies face when shipping product through unstable areas. Having this entire region to itself will be great news for Noble investors.
Competitors, though, are not leaving the entire Mediterranean region to Noble. Exxon Mobil is planning to produce 15 trillion cubic feet of shale gas in Turkey, while British Petroleum is starting a project to bring natural gas from the Azerbaijan fields to the Turkish-European border. This pipeline will connect Europe to the natural gas reserves of Asia. But this pipeline seems risky to say the least, given the number of countries that are involved and the relative instability of the region. The Noble discoveries off the coast of Israel and Cyprus will prove to be far easier to transport.
Noble recently announced that it has entered into an agreement with Falkland Oil and Gas Limited ("FOGL"), under which Noble Energy is acquiring an interest in FOGL's extensive license areas consisting of approximately 10 million acres located south and East of the Falkland Islands. This area has a gross resource potential exceeding 6 billion barrels of oil. South America’s markets are sometimes ignored, but the region is still seeing a large expansion of energy usage. Being able to produce in this area makes Noble very attractive. While Argentina might have some objections from a country investing in the British controlled Falklands, the rest of South America will see no issue.
The company has a unique strategy of growing both its liquid sector as well as its gas sector at the same time. While many of its competitors, such as Newfield Exploration (NYSE: NFX), are reducing or even abandoning natural gas production, Noble continues to find ways to expand the sector. Newfield is in the process of virtually abandoning the natural gas sector. That company has sold all of its Gulf of Mexico natural gas assets and only considers oil as a core asset.
As natural gas prices rise and inventories decrease Noble will be in a rather unique position to capitalize on the market, certainly a stronger position than many of its competitors. Through its Mediterranean discoveries the company is seeking to expand its natural gas production capabilities and increase profitability. On top of this, it believes its largest growth is going to come from the Marcellus Shale located in eastern North America. Noble expects growth near 126% annually. The company is partnering with Consul Energy in the region and expects to begin production 2013. With gas prices rising, this will prove to be a very profitable venture, especially given that many energy companies are cutting their natural gas production.
But Noble has made decisions to sell some of its natural gas assets, most notably in the Permian Basin, Texas, and in Kansas. In September the company completed its sale of Permian Basin properties for $309 million to Sheridan Holding Company. It sold properties in Texas to Unit (NYSE: UNT) for almost $600 million, and its Kansas properties to Citation Oil for $130 million. Unit is looking like a contrarian in the energy sector, as it has been selling oil assets in favor of paying down debt and purchasing gas assets. These sales were designed not only to fund other operations, but also as a shift in focusing its attention to the Gulf of Mexico, and its international holdings.
Noble is a very balanced energy company, with significant plays in both oil and natural gas. It is also well positioned both domestically and internationally. It is poised for very healthy growth into the future and will make a very good investment. It is in great shape to take advantage of expected rises in natural gas prices as its discoveries in the Mediterranean and eastern North America begin production. In addition, Noble is also a major player in oil, and its expansion into South America will make the company even stronger.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Unit. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!