Noble Energy


Impact on our views: NBL and partners announced the success of the Leviathan-1 exploration well offshore Israel. Following an operational update last month, and speculation in the local press of a success, NBL expects the results to confirm the pre-drill resource range (gross mean, 16 Tcfe). While today’s announcement likely implies $3-4/shr absolute upside for the shares, we maintain our view that post-discovery market focus should shift to the value of the resource, timeline for development, and broader fiscal questions surrounding oil & gas regulation in Israel. We maintain our Equal-weight rating.

What’s it worth?: We have adjusted our base case NAV associated with today’s announcement. De-risking the prospect from 75% to 35% risk (assuming $0.40/Mcf of value) increases our NAV from $100/shr to $106/shr (Leviathan value moves from $3.50/shr to ~$9/shr). We expect 50%+ of this upside to be priced in by the market following today’s announcement.

What’s next?: The rig is expected to stay on site to drill the deeper (potentially oil bearing) horizons below. NBL acknowledges higher risk associated with this target (5-10% pos), however the resource potential as discussed by partners is substantial (1+ bn bbl prospects) and worth monitoring. Results here expected by 1Q11 before the rig moves to start development work at Tamar.

Investment thesis: NBL continues to offer one of the most attractive multi-year production growth outlooks in our coverage group. The project backlog from Israel, West Africa, and the Gulf of Mexico provides accelerating growth and incrementally higher returns than the base business. Our Equal-weight rating is driven by what we have viewed as high expectations surrounding the Israeli exploration & development program in an uncertain fiscal environment. We see the stock at 7.4x our 2011e EV/DACF (fwd net debt) at the current commodity strip.]


Leviathan-1 results encouraging; management re-affirms 16 Tcfe estimate NBL disclosed that its highly anticipated Leviathan prospect offshore Israel encountered several Miocene sands with reservoir quality and net feet of pay consistent with the expectations supporting its 16 Tcfe pre-drill estimate. Two or more appraisal wells will be required to further define the resource range. In addition to NBL’s (operator) 39.66% working interest, its partners include Delek Market cap. Drilling (22.67 %), Avner Oil (22.67 %), and Ratio Oil (15%). Shares o/s

How valuable could Leviathan be to NBL? We assume Leviathan will be monetized via an LNG project or pipeline exports to southern Europe, & first production would likely be late this decade. We believe it conservatively adds +$6/share to NBL’s NAV but it may be several years before a development plan is finalized. Note: we value the 8.4 Tcfe Tamar prospect (36% w.i.) higher given assumed lower development costs and quicker time to develop.

What’s next for NBL at Leviathan? The Sedco Express rig will continue to drill toward two deeper objectives at Leviathan with additional gross resource potential of 3 BBoe and 1.5 BBoe and relatively low probabilities of success of 8-15% (vs the pre drill 50% for the gas objective). Results are expected within a few months. A second rig arrives in February to spud an appraisal well of the gas zone. Forecast stock return

Forecast price appreciation Forecast dividend yield

Valuation: Raising price target from $86 to $90 We are raising our price target from $86 to $90, on de-risking of Leviathan. Our

$90 price target assumes 7.0x 2011 “normalized” EBITDX, or 0.85x NAV (in line with peers).


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