Please ensure Javascript is enabled for purposes of website accessibility

More Good News for Noble Energy

By Arjun Sreekumar - Feb 22, 2014 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Having secured two long-term contracts to supply natural gas from its Tamar and Leviathan gas fields offshore Israel, Noble Energy can breath a little easier.

As operator of the massive Tamar and Leviathan gas fields offshore Israel, Houston-based oil and gas producer Noble Energy (NBL) has a truly massive opportunity in the Eastern Mediterranean region. The company recently made a big move to validate the value of these assets by locking in a long-term sales contract with two major customers. Let's take a closer look.

Noble inks supply contract in Jordan
On Wednesday, Noble announced that it has signed a gas sales agreement to supply two customers with natural gas from its operations at the Tamar field. Under the terms of the contract, Noble will supply the Arab Potash Company and the Jordan Bromine Company with approximately 66 billion cubic feet of natural gas over the next 15 years.

Gas sales are expected to commence in 2016, after the requisite pipeline infrastructure to transport the gas has been constructed. Noble will sell the gas based on a floor price of at least $6.50 per thousand cubic feet, with upside linked to Brent crude oil prices.

The agreement marks the second major contract secured by Noble to export its gas to neighboring countries. Last month, it inked a 20-year agreement with the Palestine Power Generation Company to supply gas from Leviathan. For Noble, these long-term supply agreements are crucial, because they validate the value of the company's Eastern Mediterranean assets.

Strong local export market
They also highlight the strong demand for natural gas in the region and bode well for additional lucrative contracts in the months and years ahead. Keith Elliott, Noble's senior vice-president for the Eastern Mediterranean region, noted that the agreement with Jordan is evidence of "the growing regional opportunities for our natural gas."

Further, by supplying gas to nearby places such as Jordan and Palestine, Noble will generate stronger returns than it would exporting the gas to more distant markets such as Europe. That's because shipping the gas to neighboring markets can be accomplished with a few miles of pipelines, whereas exports to Europe would require the construction of expensive liquefied natural gas export facilities.

Tamar, discovered by Noble in 2009, was the largest conventional gas discovery in the world that year. The field, which is estimated to contain as much as 9 trillion cubic feet, or tcf, of gas, began pumping gas in March of last year. Leviathan, discovered in 2010, is even bigger, with an estimated resource potential of 19 tcf, enough to meet Europe's gas demand for a year. Production from the field is expected to commence in late 2017.

Noble also announced earlier this month that it has signed a non-binding agreement to sell a quarter of its stake in Leviathan to Australia's Woodside Petroleum (WPL 2.06%) for $1.03 billion in cash and future revenues. By doing so, the company will benefit from Woodside's offshore drilling expertise and strong working relationships with Asian LNG buyers.

Noble's other opportunities
In addition to its massive opportunity in the Eastern Mediterranean, which represents a resource potential of about 40 trillion cubic feet, Noble also has sizable stakes in onshore U.S. resource plays, most notably in Colorado's DJ Basin and Pennsylvania's Marcellus shale. Fourth-quarter volumes from these plays surged 16% and 61% year over year, respectively, and should continue growing at a strong pace this year as regional infrastructure improves.

Returns from both plays should also continue to improve. In the DJ Basin, Noble is seeing major efficiency gains from its recent acreage swap with Anadarko Petroleum (APC) and its Integrated Development Plan approach, which has already reduced well costs by $0.4 million to $0.8 million per well. In the Marcellus, the company is working with joint venture partner CONSOL Energy (CNX -0.13%) and is seeing stronger results by using shorter spacing between frac stages.

The bottom line
Having secured two major gas supply agreements and with additional contracts likely to be signed in the year ahead, Noble can now focus on optimizing its development program in the DJ Basin, Marcellus, and Tamar. In addition to these three key regions, the company's operations in the Gulf of Mexico and West Africa position it extremely well to deliver double-digit production growth over the next several years.

Arjun Sreekumar and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Noble Energy, Inc. Stock Quote
Noble Energy, Inc.
NBL
CONSOL Energy Inc. Stock Quote
CONSOL Energy Inc.
CNX
$15.75 (-0.13%) $0.02
Anadarko Petroleum Corporation Stock Quote
Anadarko Petroleum Corporation
APC
Woodside Petroleum Ltd Stock Quote
Woodside Petroleum Ltd
WPL
$31.75 (2.06%) $0.64

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.