Noble Energy Inc. (NBL) encountered a setback in Ecuador, when the national government terminated the Block 3 production sharing contract (PSC) with the company’s subsidiary EDC Ecuador Ltd. The company operates this block with a 100% working interest.
The Ecuadorian government enacted a new hydrocarbon reform bill, by which it will replace all production-sharing deals with service contracts, turning all operators into service providers. Noble’s existing contract for Block 3 is yet to be renegotiated. The net book value of the company’s investment in Ecuador was $59 million as of September 30, 2010.
The company is still trying to negotiate with the Ecuadorian government to renew the deal. However, the company’s total production would be impaired if it fails to come to a resolution. Total production of the company during the third quarter 2010 was 232,000 barrels per day (Boe/d.)
We note that some international energy companies have also failed to renegotiate with the Ecuadorian government with the latter expecting an orderly withdrawal of the companies that fail to sign the new contracts. Significant oil majors that are yet to sign the deal are Brazil’s state-run Petroleo Brasileiro S.A. (PBR) and China National Petroleum Corp.
The adjusted earnings per share of Noble Energy at the end of third-quarter 2010 were $1.27 compared with $1.10 in the year-ago comparable period. The Zacks Consensus Estimates for fourth quarter 2010, fiscal year 2010 and fiscal year 2011 are 94 cents per share, $4.01 per share and $4.34 per share, respectively.
Noble currently retains a Zacks #3 Rank (short-term Hold rating). We maintain a Neutral rating on the stock.
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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