Noble Energy NEUTRAL ZACKS CONSENSUS ESTIMATES (NBL-NYSE) SUMMARY

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1 November 18, 2014 Noble Energy (NBL-NYSE) Current Recommendation Prior Recommendation NEUTRAL Underperform Date of Last Change 04/03/2014 Current Price (11/17/14) $54.71 Target Price $57.00 SUMMARY In third-quarter 2014, Noble Energy s earnings and revenues missed the Zacks Consensus Estimate and also declined year over year. Lower total sales volumes and average realized prices adversely impacted the top line and consequently the bottom line. The company s steady focus on new discovery, operations at the Denver- Julesburg (DJ) as well as the Marcellus basins and addition of service capacity mainly in the Eastern Mediterranean operations are expected to boost its future performance. However, concerns arising from oil and gas price volatilities and operational disruption due to accidents and natural disaster are potential risks. Thus, we are maintaining our Neutral recommendation on the stock. SUMMARY DATA 52-Week High $ Week Low $53.99 One-Year Return (%) Beta 1.33 Average Daily Volume (sh) 3,266,324 Shares Outstanding (mil) 362 Market Capitalization ($mil) $19,805 Short Interest Ratio (days) 2.98 Institutional Ownership (%) 91 Insider Ownership (%) 3 Annual Cash Dividend $0.72 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 18.2 Earnings Per Share (%) 10.4 Dividend (%) 15.9 using TTM EPS 22.1 using 2014 Estimate 22.1 using 2015 Estimate 20.4 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page Risk Level * Type of Stock Industry 2014 Zacks Investment Research, All Rights reserved North Canal Street, Chicago IL Below Avg., Large-Blend Oil-Us Exp&Prod Zacks Industry Rank * 222 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) ,088 A 965 A 1,003 A 1,167 A 4,223 A ,144 A 1,149 A 1,394 A 1,328 A 5,015 A ,379 A 1,383 A 1,269 A 1,265 E 5,296 E ,345 E 1,406 E 1,499 E 5,809 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2012 $0.83 A $0.38 A $0.41 A $0.78 A $2.40 A 2013 $0.73 A $0.69 A $0.97 A $0.50 A $2.89 A 2014 $0.82 A $0.87 A $0.28 A $0.51 E $2.48 E 2015 $0.58 E $0.63 E $0.66 E $2.68 E Projected EPS Growth - Next 5 Years % 8

2 OVERVIEW Houston, TX-based Noble Energy Inc. is an independent oil and gas exploration and production (E&P) company, having high-grade hydrocarbon assets across the U.S. and several international locations. Noble Energy chiefly focuses on organic growth from exploration and development drilling activities. This is further strengthened by strategic mergers and acquisitions. The company is actively engaged in periodic divestments to upgrade its portfolio. Noble Energy gains from the strategic competitive advantage of selected basin sites for superior yield on returns. Noble Energy has operations in five core areas the Denver/Julesburg (DJ) Basin in onshore U.S., the Marcellus Shale also in onshore U.S., the deepwater Gulf of Mexico (GoM) in offshore U.S., West Africa and Eastern Mediterranean. The operations are spread over the deepwater Gulf of Mexico (GoM), the Rocky Mountains region (Powder River Basins, Bowdoin, Tri-State, Haynesville and Comanche Plains fields), the offshore Equatorial Guinea, Cameroon, Sierra Leone, Israel and Cyprus. Other international operations are spread across the North Sea, China, Falkland Islands and Nicaragua At the end of 2013, Noble Energy had total proved reserves of 1,406 million barrels of oil equivalent (MMboe). In the domestic operations, DJ Basin had proved reserves of 450 MMboe. On the international front, Israel had total crude oil, condensate, natural gas liquids (NGL) and natural gas reserves of 416 MMboe. Proved Reserves (2013) International 45% U.S. 55% REASONS TO BUY Source: Company Noble Energy manages a diversified portfolio of domestic and international assets that offer ultra-high return opportunities. In 2013, the company s total reserve replacement was 369%, which was significantly up from 136% in the prior year. Noble Energy is focused on exploiting fresh exploration prospects in both the U.S. as well as international locations. The company is advancing with its exploration program by adding new discoveries, primarily in the GoM, to its portfolio. Noble Energy recently developed oil infrastructure on Wells Ranch Central processing facility. This facility is expected to commence operations in 2015 and add 100 million cubic feet per day (MMcf/d) to the existing production. In addition, the Keota gas plant remains on track with expected start-up in the fourth quarter of 2014 with an initial capacity of 15 MMcf/d. In the recent past, Noble Energy made four new discoveries two each in the deepwater GoM and in the Eastern Mediterranean region. The company s deepwater Gulf program is in good shape with additional production coming in the next two years as the Big Bend block in the Rio Equity Research NBL Page 2

3 Grande discovery area of the GoM is set to begin first production in The Gunflint discovery, also in the GoM, is anticipated to commence in The current shale boom in the U.S. has led to an influx of Midstream Limited Partnerships (MLPs) in the U.S. Noble Energy too jumped into the bandwagon with CONSOL Energy Inc. (CNX) to jointly form a master limited partnership (MLP), CONE Midstream Partners LP. Noble Energy and CONSOL Energy individually owns a 32.1% stake in the MLP. This MLP will provide midstream services for the production from their joint venture in the Marcellus Basin. Noble Energy controls a well-balanced portfolio of high-quality oil and gas properties in onshore U.S. that will help enrich its reserves. The prime DJ and Marcellus basins continue to act as a catalyst for the surge in production volume. In the third quarter, this was exemplified by record horizontal production in three of the five core assets of the company, which lies in Marcellus, DJ Basin and Eastern Mediterranean. In the DJ basin, the company recorded production growth of 15% over the third quarter of Noble Energy commenced operations in 123 wells in the third quarter and anticipates to bring online an additional 172 horizontal wells in the fourth quarter of Systematic increase in capital investments in the last three years suggests the company s unrelenting efforts to enhance its domestic and international asset portfolios. For 2014, the company maintained its capital spending forecast in the range of $4.8 $5.00 billion, including an allocation of $1.2 $1.4 billion for the fourth quarter. Around 70% of the capital will be allocated to tap the potential onshore U.S. assets while 30% will go to the expansion of deepwater programs. In addition, the divestment of non-core Tri- State, East Texas and North Louisiana assets will allow Noble Energy to plough back the net proceeds to its core operations and drive its exploration activities. Source: Company Noble Energy s continues to maintain a healthy balance sheet. The company s cash balance jumped 24.7% year over year to $1.17 billion as of Sep 30, The company s liquidity position remains stable with $4.3 billion as of Sep 30, 2014, which will help finance its growth-centric projects. A strong cash generation capacity has enabled the company to reward its shareholders with effective share buybacks and attractive dividend payments. In the first nine months of 2014, Noble Energy utilized $15 million to repurchase 253,094 shares. As far as dividend payment is concerned, the company paid $182 million as common stock dividend during the first nine months of In Apr 2014, Noble Energy hiked its dividend by 29% to $0.18 per share. This will retain investor confidence in the stock. Equity Research NBL Page 3

4 REASONS TO SELL Noble Energy is highly sensitive to price variations in oil and natural gas. The volatile nature of these commodities is due to the effect of economic cycles. Previously, high prices of oil in the U.S. left oil and gas companies with extra profits which were then used for the development of new technologies for oil extraction. Consequently, oil production in the U.S. boomed and the average oil production per day was set at an all time record. Lately, this boom in oil has severely depressed crude prices in the international market. This directly affects the company s margins, financials and price of common stock. Noble Energy s operations are subject to federal, state and local hydraulic fracturing regulations. Currently, the U.S. Department of the Interior is evaluating the proposed federal regulation for hydraulic fracturing on federal and Native American lands. The finalized version of the new rule will likely be announced and rolled out by the end of Changes in regulations enforced in Noble Energy s operating areas in the DJ Basin and Marcellus Shale will lead to incremental costs. Marketability of Noble Energy s production from its core geographical areas depends upon the availability, proximity and capacity of pipelines, natural gas gathering systems, and processing facilities. The company usually has to rely on third party systems and facilities for transportation of oil and natural gas production, which affects supply prices. If found unprofitable, it could result in the shutdown of producing wells, or delay or interrupt development plans. In that case, it would further hurt operations and cash flow. RECENT NEWS Noble Energy (NBL) Q3 Earnings Miss on Lower Revenues Oct 28, 2014 Noble Energy, Inc. (NBL) reported adjusted earnings of $0.28 per share for the third quarter of 2014, missing the Zacks Consensus Estimate by 22.2%. Quarterly earnings decreased significantly from the prior-year figure, primarily due to a decrease in total revenues, and an increase in both total operating expenses and shares outstanding. On a GAAP basis, the company s earnings were $1.12 per share compared with $0.56 per share a year ago. The variance between adjusted and GAAP earnings was due to the combined impact of gains on commodity derivative instruments, divestitures and other adjustments, and losses from income tax adjustments and asset impairments. Total Revenue Noble Energy's total revenues decreased around 9% to $1.27 billion in the third quarter. The reported top line missed the Zacks Consensus Estimate by 1.8%. Lower crude oil and condensate revenues, resulting from lower total sales volumes and average realized prices, impacted total revenues adversely. Operational Results In the quarter under review, sales volumes averaged 302 thousand barrels of oil equivalent per day (MBoe/d), an increase of 2.7% year over year, after adjusting for divested assets. U.S. sales volume constituted 60.3% of the total, while international volumes accounted for the balance. Equity Research NBL Page 4

5 In the U.S., the Denver/Julesburg (DJ) Basin and the Marcellus Shale were yet again the prime volume drivers. Strong contribution from the Eastern Mediterranean operations boosted international sales volumes. Noble Energy's total operating expenses during the quarter increased 19.3% year over year to around $1.04 billion mainly due to higher exploration as well as general and administrative expenses, and an increase in depreciation, depletion and amortization expenses. The company s operating income decreased roughly 56% in the third quarter due to higher total operating expenses and lower revenues. Realized Prices Realized crude oil and condensate prices in the quarter decreased to $95.55 per barrel from $ per barrel in the year-ago period owing to lower prices in both domestic and international markets. Natural gas realizations increased 4.8% year over year to $3.26 per thousand cubic feet (Mcf) due to strong gas prices in Israel. Realized prices for natural gas liquids decreased 5.5% to $29.53 per barrel from the year-ago quarter. Financial Highlights Noble Energy's cash and cash equivalents as of Sep 30, 2014 were $1.17 billion compared with $1.12 billion as of Dec 31, Long-term debts as of Sep 30, 2014 were $5.5 billion compared with $4.57 billion as of Dec 31, Discretionary cash flow for the third quarter was $0.81 billion versus $0.99 billion in the prior-year quarter. Operating cash flow during the quarter stood at $0.95 billion compared with $0.91 billion in the year-ago quarter. The company s capital expenditure was $1.4 billion in the quarter compared with $1.17 billion a year ago. Guidance Noble Energy s total volume guidance for the fourth quarter of 2014 was reduced to the range of MBoe/d from the previous projection of MBoe/d, considering the sale of the Piceance Basin assets. In the fourth quarter of 2014, the company plans to invest $1.2 $1.4 billion as capital expenditure. Noble Energy expects strong performance from the onshore U.S. assets thanks to the development programs at the DJ Basin and Marcellus Shale. Equity Research NBL Page 5

6 VALUATION Noble Energy s current trailing 12-month earnings multiple is 22.1, compared with the 23.9 average for the peer group and 18.7 for the S&P 500. Over the last five years, the company s shares have traded in the band of 14.0x 27.7x compared to the S&P 500 s band of 12.0x x. Our target price of $57.00 reflects a multiple of 23.0 based on 2014 earnings per share. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low Noble Energy, Inc. (NBL) Industry Average N/A 23.1 S&P Encana Corporation (ECA) Devon Energy Corporation (DVN) Southwestern Energy Company (SWN) N/A 12.9 Pioneer Natural Resources Company (PXD) N/A 19.4 TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Noble Energy, Inc. (NBL) Industry Average N/A S&P N/A 2.0 N/A Equity Research NBL Page 6

7 Earnings Surprise and Estimate Revision History Equity Research NBL Page 7

8 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of NBL. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1013 companies covered: Outperform %, Neutral %, Underperform 7.4%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Research Analyst Copy Editor Content Ed. Lead Analyst QCA Vinita Agarwal Pushpanjali Banerjee Jewel Saha Jewel Saha Jewel Saha Equity Research NBL Page 8