Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Is Noble Energy Making Money?

Noble Energy (NYSE: NBL) is an investor favorite that is taking huge risks in the Middle East.

Currently, investors are rewarding Noble Energy for building Israel’s largest energy project the gigantic Leviathan gas rig. Noble claims Leviathan is could pump natural gas by the end of 2019.

In response, Noble Energy’s share price rose from $20.44 on 14 October 2019 to $21.03 on 15 November 2019.  Hence, Mr. Market likes Noble Energy’s business plan of drilling for natural gas in the Mediterranean Sea off the coast of Israel. To elaborate, Noble Energy owns 39.66% of the Leviathan Project.

Noble claims Leviathan could produce 1.2 billion cubic feet of natural gas a day. Leviathan could tap 22 trillion cubic feet of natural gas in the Leviathan gas field and pump it to Israel via Israel Natural Gas Lines limited.

Noble Energy’s Strange and Dangerous Business Plan

Noble Energy’s Leviathan business plan; however, is both strange and dangerous. For instance, the main market for Leviathan natural gas is Israel’s neighbor; and historic enemy, Egypt.

In fact, Noble Energy Chairman David Stover met with Egyptian dictator Abdel Fatah al-Sisi in May 2019. Al-Sisi directed Egyptian officials to “cooperate with Noble Energy,” Egypt Today reports.

Furthermore, Noble Energy has signed agreements to sell three trillion cubic feet Leviathan natural gas to Dolphinus Holdings Limited, a press release indicates. Dolphinus Holdings Limited plans to sell the natural gas in Egypt.

In addition, Noble and its partners are trying to buy the EMG (East Mediterranean Gas) Pipeline. Reuters reports EMG’s operator signed a $15 billion deal to “use a terminal belonging to Israel’s Europe Asia Pipeline Company (EAPC) for the export of natural gas to Egypt.”

Egypt could be a huge market for natural gas. For instance, Worldometers estimated Egypt’s population at 101.096 million people in November 2019.  Plus Egypt’s population is growing rapidly, Egypt had a population of 81.135 million 2009.

Hence, Noble could make a lot of money selling natural gas to Egypt. All those Egyptians will need electricity; produced by burning natural gas, and gas to cook with.

Noble Energy’s Dangerous Gamble in the Middle East

However, Noble is taking an incredible risk by putting itself in the Middle of the Egypt-Israel and Arab-Israeli conflicts.

Israel and Egypt fought five wars between 1947 and 1973. The Egyptians tried to destroy Israel; and Israel seized large areas of Egyptian territory, so there is bad blood on both sides. More recently, Israel’s harsh treatment of the Palestinians and close alliance with the United States has turned Egyptian public opinion against the Jewish state.

The current Egyptian government is sympathetic to Israel; or more precisely to Israel’s benefactor the USA and American money. However, recent history shows Egyptian politics can change dramatically overnight.

For instance, the 30-year-old government of President Hosni Mubarak collapsed completely during the Arab Spring in 2011. Meanwhile, the democratically elected government of Mohamed Morsi collapsed after less than a year in 2013.

Thus, a new Egyptian government hostile to Israel could take power at any time. Notably, Stover’s friend Al-Sisi is the man who overthrew Morsi. Morsi’s party the Muslim Brotherhood is still the largest political party in Egypt and the group most likely to win a future Egyptian election.

Is Noble Energy buying a pipeline through a War Zone?

A pipeline between Egypt and Israel will probably cross the Sinai Peninsula. Egyptian forces have been fighting insurgents in the Sinai since 2013.

In fact, the Egyptian military deployed 42,000 personnel; including 88 army battalions, to fight the Sinai insurgents, The Rand Organization estimates. RAND alleges the Sinai Insurgents affiliate with ISIS. Plus the Sinai fighting has killed over 1,000 Egyptian security personnel and over 7,000 insurgents, Rand estimates.

Thus, Noble Energy is planning to buy a pipeline that runs through a war zone. I think an American-owned pipeline moving Israeli gas is a target the insurgents cannot resist. The insurgents could attack the EMG pipeline to hurt three of their enemies; the Egyptian government, America, and Israel.

All it will take to disrupt the gas flow is one charge of explosives on the pipeline; or a few mortars, rockets, or artillery shells aimed at it. Thus, guarding the pipeline is tough and expensive for Egypt. Conversely, destroying the pipeline is easy for insurgents.

Will Drones Target Leviathan?

Plus, the Leviathan itself is a big target for ISIS, the Sinai insurgents, Palestinian radicals, Hezbollah, and other enemies of Egypt and Israel.  

Similarly, Yemen’s Houthi rebels damaged Saudi Arabia’s Abqaiq and Khurais oil facilities in a September 14, 2019 drone attack. The Houthis were retaliating for Saudi Arabia’s support of their enemies in the Yemen Civil War.

Like Abqaiq and Khurais, Leviathan will be a big target that drones can easily damage. Defending Leviathan will be difficult, because sits in the middle of the sea. Nor is military technology capable of protecting Leviathan.

The Houthi drones easily evaded Saudi Arabia’s 313 fighter jets and 122 batteries of antiaircraft missiles. Israel uses the same; mostly American-made, defenses that failed at Abqaiq and Khurais.

Terrorists could target Leviathan because its destruction would be a humiliating blow to Israel’s economy and reputation. I think wrecking or damaging a giant gas drilling platform could be easy. One missile, torpedo, or a speedboat filled with explosives, could set Leviathan on fire. A swarm of drones could destroy Leviathan by firing missiles or dropping bombs.

Is Leviathan an Investment or a Terrorist Target?

Obviously, the biggest casualty of a drone attack on Leviathan will be Noble Energy’s stock price. Noble is taking a massive risk by building such a giant facility in one of the world’s most volatile regions.

The Leviathan gas field is close to war zones in the Sinai, the West Bank, Syria, Gaza, and Lebanon. In addition, Leviathan could be within missile range of terrorist bases in Syria, the Sinai, and Lebanon. I predict terrorists will target Leviathan with drones, missiles, torpedoes, or suicide attacks, because it is a big target.

I have to question any management spending $3.75 billion on a project that is an obvious target for terrorists. Yet Noble Energy is doing just that. Offshore Energy Today estimates Leviathan could cost $3.75 billion.

Ironically, Noble’s website dubs Leviathan “History in the Making.” Sadly, Leviathan could make a different kind of history as the first drilling platform terrorists destroy.

 Is Noble Energy Making Money?

Thus, Noble Energy (NYSE: NBL) is a contrarian investment because of its risky business plan.

I think investors need to stay away from Noble Energy because it takes risks and loses money. For instance, Noble Energy reported a -$9 million quarterly operating loss on 30 September 2019. In contrast, Noble reported a $32 million operating income on 30 June 2019; and a $305 million quarterly income on 30 September 2018.

Additionally, Noble reported a $726 billion quarterly gross profit on quarterly revenues of $1.119 billion on 30 September 2019. The quarterly gross profit was up from $720 million on 30 June but down from $924 million on 30 September 2018. Meanwhile, Noble’s revenues were up from $1.093 billion on 30 June 2019 but down from $1.273 billion on 30 September 2018.

How Much Cash does Noble Energy Have?

Interestingly, Noble Energy is generating some cash from its business.

For instance, Noble Energy reported an operating cash flow of $437 million and a financing cash flow of $265 million on 30 June 2019. However, Noble reported a negative free cash flow of -$156 million on the same day.  

As a result Noble Energy had $473 million in cash and equivalents on 30 September 2019. That number was down from $720 million on 30 September 2018.

I conclude, Noble Energy makes a little money from its business but not enough money to justify the risks it is taking. Thus, I think Mr. Market overpriced Noble’s shares at $21.03 on 15 November 2019.

Is Noble Energy a Good Dividend Stock?

I advise investors to stay away from Noble Energy (NYSE: NBL) because I cannot see how its dividend is sustainable.

Noble Energy paid a 12₵ quarterly dividend on 1 November 2019, reveals. However, Noble Energy is not a good dividend stock because it offers only one year of dividend growth and a negative “payout ratio” of -135.83%. NBL also offered a dividend yield of 2.28% and an annualized payout of 48₵ on 15 November 2019.

I think Noble Energy’s dividend is too low to justify the risk this company is taking with Leviathan. In conclusion, I think the only reason to buy NBL stock is religious or ideological support for the state of Israel, or faith in Middle Eastern peace.

I conclude the risks Noble Energy is taking with Leviathan and the EMG pipeline are too great to make NBL a good stock for ordinary investors.