|
 Both steps, carefully choreographed over the past month, should help
Noble achieve its goal of doubling production by 2018 and mitigate
Wall Street's fears about the company's prospects in the politically
unstable region.
In a deal worth $2.55 billion in cash and future revenue,
Australia's Woodside Petroleum <WPL.AX> agreed last week to help
Houston-based Noble Energy and three Israeli companies develop the
offshore natural gas field Leviathan. The field, along with smaller
ones nearby, holds nearly 40 trillion cubic feet of natural gas, the
same amount consumed each year in the United States.
The deal came a month after the Noble Energy consortium signed a
$1.2 billion contract to begin supplying natural gas to the
Palestine Power Generation Co. in a couple of years.
The group is already shipping gas to Israel from a small field near
Leviathan, meaning Israel and the Palestinian Authority will both
rely on the same source for natural gas.
Woodside's experience in liquefied natural gas (LNG) projects will
help regional exports begin sooner. Selling to a broad range of
neighboring countries should reduce the project's appeal as a target
for attacks, security analysts say.
Regionally, Jordan, Turkey and Egypt are hungry for natural gas
supply and could be future buyers, analysts say.
In a sign of how vital the natural gas is to Israel, its military
patrols the seas above the deposits to defend against any potential
attacks.
Despite turmoil in nearby Egypt and Syria, as well as roller-coaster
negotiations between Israel and the Palestinian Authority, Noble
insists it's not naive about operating in the region.
The company decided potential risks of developing the fields amid
the geopolitical turmoil were acceptable considering the probable
rewards, said a well-placed source who declined to be named, citing
a policy of not speaking to the media.
"When you think of Middle East conflicts, Israel really is in the
best place in terms of risk," said the same source, who is close to
the company's board of directors.
Noble will remain the project's operator after the Woodside deal
closes later this year, holding 30 percent to Woodside's 25 percent.
The other three partners — Delek Group <DLEKG.TA>, Avner Oil & Gas
Exploration <AVNRp.TA>, and Ratio Oil Exploration <RATIp.TA> — will
each hold less than 17 percent.
For Noble, the enormous offshore project in foreign waters is one it
must undertake, analysts and investors say, if it hopes to replenish
declining reserves faster than fellow rivals such as independent
energy producers Marathon Oil Corp <MRO.N>, Anadarko Petroleum Corp
<APC.N>, and Apache Corp <APA.N>.
Noble first began operating off Israel's coast in 1998, but it was
not until 2010 that Leviathan was discovered. The company recently
said there could be large oil deposits near the formation as well.
The cost to produce natural gas in the Mediterranean is only
slightly less than market prices in much of Europe right now,
suggesting that Asia — where prices are double Middle Eastern
production costs — could be an attractive export opportunity.
[to top of second column] |
That global export potential helped lure Noble and its partners to
Woodside in the first place, given the Australian company's LNG
expertise.
Indeed, Noble Energy Chief Executive Chuck Davidson flew to Perth
last month to negotiate with Woodside, which agreed tentatively to
the deal in late 2012, then cooled to the idea when it was unclear
whether Israel would allow LNG exports.
Noble and its development partners fought aggressively for the right
to export 40 percent of the natural gas in Leviathan and nearby
fields, winning that right late last year in a decision from
Israel's supreme court.
"You knew that Israel would be pragmatic about negotiations with
Noble Energy on this," said Tim Rezvan, an energy analyst at Sterne
Agee. "Leviathan is too important for the country as it works to
produce more energy locally."
Expectations are high on Wall Street, where Noble Energy's shares
have sagged in the past three months amid a dip in the price of
crude oil and rising production costs. At current estimates,
Leviathan is expected to begin operations in 2017.
"Assuming the project comes online, it'll be a big part of the pie
at Noble Energy," said Rezvan.
To be sure, Noble is still investing aggressively in its United
States onshore shale operations, planning to spend 70 percent of its
$4.8 billion capital budget this year on projects in Colorado's
Denver-Julesburg Basin and the Pennsylvania Marcellus formation.
But it's spending the remainder of that budget on deepwater projects
in the Mediterranean and elsewhere, and hopes to use cash flow, not
debt, to finance future Israeli expansion.
"The continued demand for our gas in both Israel and other regional
areas combined with the potential for multiple LNG or FLNG solutions
sets us up for some dramatic growth in this region over the next
decade or longer," David Stover, Noble Energy's president, told
investors early last week.
A rare snowstorm in Jerusalem in December sharply increased natural
gas demand, giving investors a hint of the project's longer-term
potential. Many Israeli power plants had to temporarily switch from
coal to natural gas to produce power.
That storm helped Noble Energy's fourth-quarter sales volumes jump
16 percent.
"This whole region has a lot of potential due in part to the size of
these energy reserves," said Emre Tuncalp of Sidar Global Advisors,
a geopolitical risk advisory firm that specializes in energy
matters. "Given all the components that need to come together to
develop this area, I think it's moving forward pretty well."
(Editing by Terry Wade and Bernadette
Baum)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
