10 from 10(
): 10 Interesting Takeaways from the 2011 10-K; Revising
Our take: NBL shares have been under pressure given Middle East
geopolitical concerns. While the near-term risk-reward is more
balanced, we believe this is a compelling entry point for
longer-term oriented investors. Analysis of NBL's 10-K provides
validation that our bullish thesis is playing out faster than
anticipated given strong early returns from its Wattenberg
horizontal program and clear signs NBL will monetize a portion of
its giant Mediterranean gas discoveries to unlock value (possibly
in 6 to 9 months). The only 'fly in the ointment' is rapid declines
at the legacy Mari-B field in Israel and a 10-K disclosure that NBL
would be on the hook for financial penalties for the under-delivery
of volume commitments. That said, production woes in Israel should
prove temporary given the onset of Tamar volumes in Q213.
Meanwhile, the current valuation embeds little or no value for two
high-impact deepwater wells in progress at Leviathan Deep and
Gunflint, which could significantly boost our NAV.
Raise NAV to $125 from $116. Following analysis of the company's
updated reserve report, we raise our NAV estimate to $125 from $116
per share to reflect $5 of higher PDP value given stronger than
expected drilling performance in the US (largely Wattenberg) and
$7.40 of higher value associated with West Africa (Aseng and Alen),
partially offset by a modest decrease in value ($3.50) associated
with Aphrodite in Cyprus (we are now assuming 5 tcf recoverable vs.
7 tcf previously).
Estimate revision: We revise our 2012 and 2013 EPS estimates to
$6.22/$10.85 from $6.45/$9.96 to reflect a more favorable
production mix (US onshore, West Africa, and deepwater GoM) as well
as reduced output from Mari-B. Our 2014 EPS estimate is raised to
$14.29 from $12.91. Our estimate revision also incorporates higher
cost guidance issued by the company post its Q411 earnings