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Noble (NBL) Ups Sales Volume View From Offshore Israel Assets

Zacks Equity Research

Noble Energy NBL and its partners have amended their natural gas supply agreement with Dolphinus Holdings Limited. Noble and its partners have made an arrangement to supply natural gas from Leviathan and Tamar fields located offshore Israel.

Per the new agreement, Noble will supply nearly 3 trillion cubic feet (Tcf) of natural gas, more than doubling the firm’s volume commitments previously agreed upon. In addition, the duration of the supply contract has been extended by five years to reflect 15-year terms.

What Does This Revision Indicate?

The upward revision in sales volume from these assets points toward higher demand of natural gas in the region and a transition to clean burning fuel in the Eastern Mediterranean.

Per a Daily News Egypt release, domestic gas consumption in Egypt will likely touch 7.3 billion cubic feet per day (bcf/d) during the 2020-2021 time frame due to Egypt’s industrial development plan, increase in electricity production and the number of households connected to the natural gas grid, as well as conversion of cars to natural gas.

Hence, the increase in natural gas imports from Israel’s Leviathan and Tamar fields makes sense. Given energy usage and overall development trend in Egypt, gas usage can improve further over the long term.

Noble, with its offshore assets, is poised to benefit from rising demand of natural gas in Israel. The acquisition of interest in the EMG pipeline, which provides a connection point for the export of natural gas from Israel to Egypt, will further strengthen the company’s position in Egypt’s market.

Domestic Assets

Noble has strong domestic assets, which help the company to deliver strong production. In addition to organic growth, the company is gaining from the acquisition of Rosetta Resources, which has enhanced its presence in the resource-rich Eagle Ford Shale and Permian Basin.

Noble now expects 2019 sales volume in the range of 353-363 thousand barrels of oil equivalent per day (MBoe/d), up from prior projection of 345-365 MBoe/d. The company aims to invest in the range of $2.3-$2.5 billion in 2019. Notably, 70% of its planned capital expenditure for 2019 will be directed toward the development of U.S. onshore assets. The higher number of wells brought online in the DJ Basin, Eagle Ford and Delaware area will increase production volumes. U.S. onshore production is expected to account for a major portion of Noble’s total production.

U.S. Natural Gas Production

The U.S Energy Information Administration forecasts that U.S. natural gas production capacity will touch 91.4 billion cubic feet per day (Bcf/d) in 2019, indicating a 9.6% improvement from 2018 levels. Moreover, 2020 production is expected to improve nearly 2% year over year to 93.2 Bcf/d.

Shale revolution in the United States is the primary reason behind the massive increase in natural gas production. Companies like Exxon Mobil XOM, ConocoPhillips COP and Devon Energy DVN, among others, contribute considerably toward overall natural gas production in the United States.

Price Movement & Zacks Rank

Noble Energy’s shares have outperformed its industry year to date.

Noble Energy currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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