Neutral on Noble Energy

We retain our Neutral recommendation on Noble Energy Inc. (NBL - Analyst Report), as we expect the stock to continue performing in line with the broader market.

Noble Energy's third quarter top-line and bottom line results continued to impress driven by better price realizations from hydrocarbons sales. We believe the company is well tuned to reach its 2011 guidance given the additional volumes from the Marcellus Shale joint venture with CONSOL Energy Inc. (CNX - Analyst Report) and the early start-up of Aseng in Equatorial Guinea.

Further, the prospects of Noble Energy look good mainly due to its well-balanced high-grade hydrocarbon portfolio, brilliant execution capability and competitive cost structure. Additionally, a slew of exploration projects and a dynamic acquisition and divestiture policy present significant growth opportunities for the company.

Noble Energy's recent acquisition in the Marcellus along with an accelerating Niobrara drilling, the new and rapidly growing Marcellus production, and the pending startups of Aseng in West Africa, as well as Raton South in Galapagos in the Deepwater Gulf of Mexico present Noble a significant inflection point in its growth profile.

Alongside this, Noble retained its 2011 capital program of $3.0 billion, which excludes the Marcellus shale joint venture acquisition costs, but includes about $110 million for planned development in the new Marcellus shale core area during the remainder of 2011.

Though the company's future prospects look good with a strong line-up of projects and an impressive financial position, there remains a major risk of time over-runs which may affect the company’s bottom line.

Noble's exploration projects are mainly long-term projects that extend over many years and have numerous complexities to overcome. Any delays or setbacks in the execution of these projects could materially impact the timing of first production and growth, ultimately affecting the company’s top line and bottom line.

Noble also has increased leverage to international operations, particularly in Equatorial Guinea and Israel. Operations in all of these regions expose the company to greater geopolitical risk than faced by many of its US-focused peers. Apart from this, the company’s International operations are also exposed to currency and sovereign risks.

Also, we believe the volatile commodity environment might weigh on Noble’s financial performance, at least in the near term.  We retain our short term Zacks #3 Rank on Noble Energy.

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

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