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Gold/Mining/Energy : Nabors Industries(NBR)

NBR 48.52

-1.7%

Oct 31 9:30 AM EDT

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From: Dennis Roth	8/2/2007 6:38:50 PM
	of 174

Size of offshore discoveries is key near-term value driver - Goldman Sachs - August 02, 2007 What's changed Noble Energy reported 2Q2007 adjusted EPS of $1.21 versus First Call consensus of $1.19 and our estimate of $1.36. Total production was 1.18 Bcfe/d versus our 1.24 Bcfe/d estimate. Operating cash flow was at $472 million versus our $551 million estimate. Implications While the quarter was not as exciting to us as we believe it was to the Street, recent exploration success in Equatorial Guinea and the deepwater Gulf of Mexico and steady-state expected growth from the Rockies are positive and, in our view, remain the main drivers of performance for Noble. Going forward the key catalysts in the near term are determining how much resource is recoverable from Equatorial Guinea and the Gulf of Mexico. Valuation Noble trades at 5.3X 2008E EV/debt-adjusted cash flow, although our estimates for cash flow next year could prove high and are under review. Noble's multiple is not dissimilar from the 4.9X-5.5X at which diversified E&P companies trade. For now we do not believe Noble deserves a meaningful premium. Noble shares have outperformed over the last year, and we see greater upside for other E&Ps. We are assuming $3-$4 per share in value for unbooked potential in Equatorial Guinea and the GOM in our $58 12-month discounted-cash-flow-based price target, but we see upside from the recent GOM success at Isabela. We see 8% downside potential to a $58 12-month target versus 4% upside for E&P stocks. Key risks Commodity price volatility, drilling results, cost pressures, and government pronouncements are key risks.

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