Nomura Raises Price Target on Noble Energy

On Sunday, Israeli Prime Minister Benjamin Netanyahu approved a deal that he and members of his ruling coalition hope will get the ball rolling on developing a huge offshore natural gas field. The main stakeholders in the development are Noble Energy Inc. (NYSE: NBL) and Israel’s Delek Group. A framework agreement had been reached last December, but Israel’s highest court tossed out the deal on constitutional grounds in March.

The prior agreement had promised pricing and regulatory stability for 10 years. The newly approved law says only that the developers may be compensated for future changes in regulation. Noble said that the new language was “an important milestone in creating a stable investment environment.” While not exactly a guarantee, at least the new language offers some protection for the huge investment necessary to develop the Leviathan field and its more than 32 trillion cubic feet of natural gas.

Nomura Securities analyst Lloyd Byrne thinks Sunday’s deal, though it is likely to be tested in court again, removes “an important uncertainty and discount to NBL’s valuation” if it passes court muster. Byrne noted:

Once/if the hydrocarbon framework is agreed upon, coupled with progress on the commercial, technical and financing fronts, NBL can move towards sanctioning of Leviathan. NBL has been targeting 4Q16 / 1Q17 for sanction, with start up ~3 years after. We are modeling mid-2020 for 1st gas.

Noble and Delek have letters of intent in place from buyers in Jordan, Turkey and Egypt, according to The Wall Street Journal, and converting those into gas sales contracts is the next critical step to advance the work.
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Nomura thinks that development of the Leviathan field will allow Noble eventually to reduce its stake in the much smaller adjacent Tamar field, as well as lowering its stake in Leviathan, “reduc[ing] the applied discount” to Noble’s stock price.

Nomura retains a Buy rating on the stock, but lifted its price target from $36 to $41 in Monday’s note.

Shares traded up about 0.2% early Monday afternoon, after a low opening at $35.68 in a 52-week range of $23.77 to $46.93. The consensus price target on Noble’s shares is $41.03.