Noble Energy’s enterprise multiple
As of 3Q15, Noble Energy’s (NBL) EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is around 12.4x, which is higher than the company’s historical average EV/EBITDA multiple of ~9.8x over the last five years.
As the above chart shows, the EV/EBITDA multiple has increased over the last three quarters, mainly due to the much steeper fall in EBITDA (earnings before interest, tax, depreciation, and amortization) than EV (enterprise value) in the same period.
S&P 500 (SPY) upstream companies Pioneer Natural Resources (PXD), EOG Resources (EOG), and Murphy Oil (MUR) have enterprise multiples of ~10x, ~7x, and ~3.2x, respectively. Noble Energy’s forward EV/EBITDA multiple is 7.6x, which is lower than its own historical average of 9.8x. For 2016, Wall Street analysts estimate the company’s EBITDA will be ~10% higher YoY (year-over-year), at ~$2.6 billion.
The enterprise multiple
The EV/EBITDA multiple, or ratio, is preferred over the PE (price-to-earnings) ratio, especially for upstream companies. This is because it takes into account the debt of a company. In the enterprise multiple, enterprise value is the summation of market capitalization and market value of debt minus total cash and cash equivalents.
As of December 31, 2014, Noble Energy’s worldwide proved reserves totaled ~1.4 billion BOE (barrel of oil equivalent), very close to the level seen in 2013. As of December 31, 2014, ~33% of the company’s proved reserves consisted of US natural gas, ~36% were international natural gas, and ~31% were worldwide liquids. Of the total proved reserves, ~58% is in the United States and ~42% in international locations.
According to Noble Energy’s 2014 annual report, the discounted value of its reserve base at the end of 2014 was ~$13.9 billion. Given the decline in commodity prices in 2015, this value would be much lower today.