Noble Energy's Natural-Gas Bonanza Opens Door to Spending Spree

Noble Energy, an independent oil-and-gas producer, hit pay dirt last week when it uncovered a huge cache of natural gas off the coast of Israel. Now the Houston-based company, which may be sitting on the largest gas discovery in its history, just has to figure out how to take advantage of it in a time when its peers are busy abandoning exploration.

It will take a considerable amount of time and money to develop the site, and funding at least part of the estimated $1 billion project would normally be an obstacle in these credit-tightening times. But Noble, a company that has slashed its debt while enjoying a steady increase in revenue, is in a position many of its peers are not. It has access to cash, Philip Weiss, senior analyst at Argus Research, told me in an interview.

Independent oil and gas companies often take on lots of debt, typically through revolving lines of credit, to pay for all that rooting around the globe in hopes of discovering oil or natural gas.

These cash-strapped companies, suffering from drops in oil and gas prices and a tanking stock market, are cutting back on exploration and selling their interests in a variety of oil and gas properties, often for a song. Nobel Energy is sitting pretty with the cash to scoop up some of these projects at a discount and take advantage of the eventual rise in oil and gas prices.

In the short term, it might make sense for many of these mid-sized oil and gas companies to cut back on exploration. It’s not bad policy to put money into the projects that have the greatest chance of generating cash more quickly. The number of exploration projects is dropping across the industry, which could lead to a diminishing supply down the road, Weiss told me. As supply contracts, gas and oil prices will likely rise. And any company that takes advantage of today’s oil and gas shopping spree could be cashing in tomorrow.