Summary
- Noble Energy released fairly good third quarter results. However, some weaknesses remain.
- The company presents an excellent potential for growth in 2020, but the meager dividend may prevent long-term investors from taking the company seriously.
- My suggestion is to trade short term the stock and keep a small long term position.
Image: Noble Energy Leviathan from Noble Energy.
Investment Thesis
Houston-based Noble Energy (NBL) is an independent US company focusing on exploration and production of oil and natural gas. Noble Energy presents an excellent production profile
A healthy Shale production (DJ Basin, Delaware, and Eagle Ford), which reached 293K Boep/d in Q3.
The substantial gas assets offshore Israel, including the producing Tamar field and the soon-to-be producing Leviathan field - 90% complete as of the end of September, with the first production expected this month. The company also is involved with Cyprus offshore natural gas called the Aphrodite troubled project.
Equatorial Guinea with producing (e.g., Alba, Allen, Aseng, etc.).
Noble Energy is similar to Apache (APA) and EOG Resources (EOG) that I recently covered on Seeking Alpha.
This sector has been weak for quite a while now. Hence, the investment thesis the most suitable, in my opinion, should be to trade short term the stock while keeping a reduced long-term position that could be gradually increased by the dividend and mainly by short-term profit.
Oil and especially natural gas are facing a slow price degradation since May due to a bearish demand growth outlook, as the chart below are indicating and despite some renewed strength since October. Long-term trend is down with a descending channel pattern with support around $54-$55.
Source: Finviz
Oil and gas prices are directly affecting the company's cash flow, especially while being in the process of substantial projects' ramp-up that will not produce before 2020. This fact is illustrated by the negative free cash flow recurring quarter after quarter. We will see later that Noble Energy has not been able to generate positive free cash flow since 3Q'16, in spite of the company achieving costs reduction and looking for innovative ways to produce more.
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