Noble Energy Inc. (NBL) continues to experience the Arabian bonanza in terms of winning contracts from the Middle-Eastern companies. The company’s unit NBL Eastern Mediterranean Marketing Ltd. (“NBL Eastern Mediterranean”) has entered into agreements with two Jordanian companies, the Arab Potash Company ("Arab Potash") and the Jordan Bromine Company ("Jordan Bromine"), to provide natural gas.
Though the actual sales will depend upon the final purchased quantities and oil prices at the time of sale, NBL Eastern Mediterranean is expected to accumulate gross revenues of $0.5 billion from this transaction.
Per the contract, NBL Eastern Mediterranean will supply a gross total of around 66 billion cubic feet (“Bcf”) of natural gas, generated from the Tamar field, to both organizations for an initial period of 15 years. The deal is expected to start in 2016, once the requisite pipeline construction is completed. The finalization of the transaction is subject to several approvals.
The selling price of natural gas will be ascertained on the basis of floor price of minimum $6.50 per thousand cubic feet (“Mcf”) of natural gas with upside connected to the Brent crude oil prices.
We note that two Amman-based organizations will utilize the natural gas at their facilities located near the Dead Sea.
Tamar field is located in the offshore of Israel. The prospect has an estimated discovered natural gas resource of 10 trillion cubic feet (“Tcf”). Noble Energy is the major operator in Tamar owning 36% interest while Israel’s Isramco Negev 2 holds 28.75%. Delek Drilling and Avner Oil Exploration are the minor stake owners carrying 15.625% interest each. The remaining 4% is retained by Dor Gas Exploration.
It is evident from the order book that Noble Energy is continuously winning big ticket size contracts from several Arab firms. In Jan 2014, the company signed an agreement, worth $1.2 billion, with Palestine Power Generation Company to supply natural gas.
To cope up with the growing demand for natural gas in Israel and the adjacent regions, Noble Energy is aggressively investing at its Israeli ventures and will start development of the onshore compression terminal in Israel. For 2014, the company plans to invest $0.53 billion at its Eastern Mediterranean operations.
We believe signing of long-term contracts at regular intervals will encourage Noble Energy to invest more for the exploration and production activities in the Middle-East, thereby improving future reserves as well as ensuring steady cash inflow.
However, we are concerned about the political unrest in the Middle-East and West Africa. As Noble Energy has a strong presence in the region, the company’s businesses are exposed to several risks.
Noble Energy currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the same sector include Athlon Energy Inc. (ATHL), Clayton Williams Energy, Inc. (CWEI) and Matador Resources Company (MTDR), each with a Zacks Rank #1 (Strong Buy).
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