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Still Neutral on Noble Energy

Zacks Equity Research

Prominent oil & natural gas exploration company, Noble Energy Inc.’s (NBL) dull top- and bottom-line outcomes in the second quarter 2012 resulted from a downward trend in crude oil and natural gas prices. The company reported pro forma earnings per share of 77 cents for the second quarter 2012, which considerably lagged the year-ago earnings of $1.44 per share.

We believe a gradual improvement in energy prices in the US market will add to the company’s top-line results in the near term. In addition, the company’s onshore assets, especially in the Denver-Julesberg (:DJ) and Marcellus play, are expected to provide stable performance. In the offshore operations, assets in the deepwater Gulf of Mexico are also expected to offer significant growth opportunities.

However, Noble Energy’s international business operations are exposed to political and economic risks rife in West Africa and the Middle East countries. Also, unexpected factors like accident or natural disaster and government intervention could hurt the company’s margins and financials.

On a positive note, Noble Energy’s planned divestiture programs will enable the company to acquire lucrative assets which will fetch high returns. Noble Energy continues to expand its infrastructural facilities which will aid in augmenting growth.

Nevertheless, we believe reliance on third parties for marketability of production and commodity price volatilities owing to the effect of periodic economic cycles in the US market could hurt the company’s margins.

The company expects third quarter 2012 sales volumes to average 242–250 thousand barrels of oil equivalent per day (MBoe/d), which does not include volumes from discontinued operations.

The Zacks Consensus Estimates for the third quarter and full year 2012 currently stand at $1.09 per share and $5.09 per share, respectively.

Noble Energy presently retains a Zacks #3 Rank implying a short-term Hold rating. The company competes closely with Anadarko Petroleum Corporation (APC).

Based in Houston, Texas, Noble Energy, Inc. engages in the acquisition, exploration, development, production, and marketing of crude oil, natural gas and natural gas liquids.

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