Noble Energy, Inc. (NYSE:NBL), which made significant new deep-water natural gas discoveries off the coast of Israel last month, has begun to drill at a new appraisal well off the coast of Cyprus. The company discovered 5 trillion to 8 trillion cubic feet of natural gas in 2011. The resumption of drilling is expected to quantify and confirm previous findings. In this article, I shall discuss why Noble is one of the coolest oil and gas companies to invest in at the moment, thanks to its Eastern Mediterranean operations focusing on Cyprus.
The details
The new drilling process to estimate and quantify previous gas findings in Cyprus is expected to take three to four months. The well is going to be 5,607 meters deep, and the ENSCO 5006 drilling rig will be used. In the last few years, Cyprus’ neighbors, Israel and Lebanon, have announced gas and oil findings as well. Lebanon may have as much as 30 trillion cubic feet of natural gas in its waters.
Now, a potential dispute that might occur between Israel, Cyprus and Lebanon relates to demarcation of oil and gas territory across the Mediterranean. Another cause for dispute is Turkey’s government, which controls the northern part of Cyprus Island.
However, Noble Energy, Inc. (NYSE:NBL)’s oil and gas discoveries are located to the South of Cyprus, an area that is not disputed by anyone. Israeli companies Delek Drilling and Avner Oil Exploration own 15% each of Noble’s project in Cyprus. Cyprus meanwhile has encouraged and helped Noble Energy to hasten the process of exploration and drilling, so that it can use the money to bail itself out of economic hardships. The European Union bailout deal has plunged Cyprus into recession.
Why is Cyprus important?
The drilling and exploration activity in Cyprus may not seem important to observers, but it is. What we must understand is that Cyprus is very close to Israel, geographically. Both are located in the Eastern Mediterranean and Noble Energy, Inc. (NYSE:NBL)’s infrastructure is well suited to conduct drilling in Cyprus, and engage in production in Israel. Both Cyprus and Israel have very favorable business environments, with Israel being one of the best places to do businesses in not just the Middle East, but all across the developed world.
That being said, Noble Energy, Inc. (NYSE:NBL) has potentially hit a jackpot at the Karish prospect, which is located 20 miles away from the Tamar field in the Levant Basin, Israel. This particular field alone is expected to hold 1.8 trillion cubic feet of natural gas.
Other players in Cyprus
Back in January, Eni SpA (ADR) (NYSE:E) signed exploration and production sharing contracts with Cyprus to explore and drill in blocks two, three and nine portions of the Levantine basin. It occupies an area of 12,530 square kilometers. It has significantly boosted Eni’s position in Europe and the Mediterranean. After being awarded the three blocks, Eni can now boast of this strategic area in its portfolio.
Eni SpA (ADR) (NYSE:E), which trades at about $45.53, is a great investment option too, considering its successful business in Mozambique in partnership with Anadarko Petroleum Corporation (NYSE:APC). Moreover, Giuseppe Recchi, the company’s chairman, met with the Chinese Premier who assured him that China has a lot of demand for energy and resources. Mr. Keqiang, the Chinese Premier, had given similar assurances to BHP Billiton Limited (ADR) (NYSE:BHP)‘s CEO Andrew Mackenzie.
Similarly, TOTAL S.A. (ADR) (NYSE:TOT) signed a hydrocarbons exploration deal with the Cypriot government in February. The contract includes two of the 13 blocks south of Cyprus. It is the same area where Noble Energy, Inc. (NYSE:NBL) is developing its gas field, to the east. Total is expected to make significant monetary gains from the deal in the coming years. At $50, TOTAL S.A. (ADR) (NYSE:TOT) may not be one of the most affordable oil stocks to purchase but it is certainly one of the most valuable.
Moreover, Total also has a lot of money in hand, with an operating cash flow of $27 billion. Its profit margin is approximately 4.8% and its operating margin is about 12.2%, which are not stellar results but are impressive enough for a company its size. With a price-to-sales ratio of just 0.5, it proves to be a great investment option. TOTAL S.A. (ADR) (NYSE:TOT) is Africa’s top oil and gas vendor. Africa has an ever-increasing need for energy and fuel, which makes Total’s business stronger in the coming years even if Europe’s economy slows down. If the Chinese Premier’s reassurances are considered, Total will have an even larger market in China for its oil and gas resources.
What does all this mean for investors?
With previous findings in the larger Leviathan field, companies operating in Israel sit on an estimated 38 trillion cubic feet of natural gas, all in Levant Basin. Add to that Noble’s potential reserves south of Cyprus, which is just around the corner from Levant Basin. The rig that will drill in Cyprus will relocate to Israel and back and forth with minimum expenditure to Noble, all in safe waters, under a great international business atmosphere.
I can see Israel getting really rich thanks to its new-found status as a oil and gas major, while Cyprus will manage to get out of the financial mess it is in right now. Israel will also provide greater assistance and collaborate with Cypriot Navy, which will indirectly help Noble to carry on with its drilling activities without security threats.
Noble Energy, Inc. (NYSE:NBL) will spearhead the oil and gas projects of both the countries and consequently will be rewarded with several benefits that will eventually help investors make money. Noble’s quarterly revenue was up 5.1% whereas it posted revenue of $1.1 billion for the quarter. Analysts at Raymond James upgraded the stock from “market perform” to “market outperform”. All of these factors make it clear that Noble is one of the most conservative, safe and lucrative stocks to invest in.
Jaiyant Cavale has no position in any stocks mentioned. The Motley Fool recommends TOTAL S.A. (ADR) (NYSE:TOT). Jaiyant is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Riches in Israel and Cyprus: Why You Must Invest originally appeared on Fool.com and is written by Jaiyant Cavale.
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