Noble Energy's Massive Opportunity in Israel

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Though it's concentrating the bulk of its capital on onshore U.S. resource plays, Noble Energy (NYSE: NBL  ) has an ace up its sleeve. It's the operator and majority owner of the Tamar and Leviathan gas fields offshore Israel -- two of the largest deepwater gas discoveries of the past decade. Let's take a closer look at how Noble plans to exploit this tremendous opportunity.

Noble's huge opportunity in the Eastern Mediterranean
The Tamar field, discovered in January 2009, was that year's largest conventional gas discovery in the world, with estimates pegging its gross resource potential at 9 trillion cubic feet. Similarly, the Leviathan field, discovered in December 2010, has been hailed as the largest deepwater natural gas discovery of the past decade, with estimated gross natural gas resources of 17 tcf.

Noble commenced drilling at Tamar in March and achieved maximum output from the field within just three days. Over the next couple of years, the company plans to boost its intake of supplies from Tamar by expanding its gas compression project at the Ashdod reception terminal. Noble hopes to boost the terminal's capacity to 1.2 billion cubic feet per day by mid-2015 and to 1.5 bcf/d in 2016.

Meanwhile, Leviathan will be developed in multiple phases over the next few years and is expected to cost $8 billion. Initial production from the field is now expected in late 2017, a year later than the company's previous estimate, because of uncertainties regarding Israel's export policy. Still, Noble plans to develop the field as quickly and efficiently as possible and is working with its partners and the Israeli government to resolve any potential challenges.

Last year, Noble and its partners, which include Delek Drilling, Avner Oil Exploration, and Ratio Oil Exploration, decided to sell a 30% working interest in Leviathan to Australia's Woodside Energy (ASX: WPL  ) , a company that offered both technical expertise and strong working relationships  with Asian LNG buyers. The partners plan on exporting gas from Leviathan to nearby markets in Egypt and Jordan using pipelines, as opposed to liquefying the gas and shipping it via tanker to more distant markets.

Noble also struck it big in Cyprus with its 2011 discovery of the Aphrodite gas field in Cyprus Block 12, estimated to contain gross resources of 7 tcf. The company's recently drilled A-2  appraisal well in Block 12 yielded encouraging results that confirmed the field's high natural gas resource potential. Going forward, Noble plans to continue assessing its acreage in Cyprus Block 12 through additional appraisal drilling.

It's also currently in talks with the Cypriot government to allow the development of an LNG terminal to export gas from the island. French oil major Total (NYSE: TOT  ) also recently signed a memorandum of understanding with Cyprus to develop an LNG project, though that agreement is nonbinding and will depend on Total's success in discovering gas in the blocks it is currently exploring.

Risks to consider
Overall, Noble's acreage position in the Eastern Mediterranean represents roughly 40 tcf of gross discovered resources, including approximately 3 billion barrels of gross oil potential in Cyprus and Israel. But despite Tamar and Leviathan's vast resource potential, there are a couple of risks to keep in mind. The first is execution risk, given the technical complexity of extracting gas from deepwater regions and delivering it to customers.

And the second is uncertainty regarding future Israeli energy policies. Though Israel recently authorized as much as 40% of the nation's gas to be exported, unforeseen risks such as rising geopolitical tensions in the Middle East could lead to a reversal of the policy and potentially delay the development of the Leviathan field. However, given Noble's solid track record of success in other deepwater regions, such as offshore West Africa and the Gulf of Mexico, it should be able to successfully mitigate execution risk.

The bottom line
All told, Noble has a large and diversified portfolio of both domestic and international assets, onshore and deepwater, providing visible growth over both the near term and longer term. The company's U.S. operations in Colorado's DJ Basin and Pennsylvania's Marcellus shale offer a stable production base and should continue to deliver double-digit production growth over the next several years, given the company's huge inventory of undrilled locations, while its operations in the Eastern Mediterranean should begin to deliver sustained strong production growth, along with superior returns and cash flow, after 2015. For these reasons, I expect Noble to deliver substantially higher growth than similarly sized E&P peers over the next several years

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