Is Noble Energy getting cold feet?

Amiram Barkat

Noble Energy is unwilling to take an investment decision until the gas agreement with Jordan is finalized.

The next milestone in the Israeli gas sector is scheduled for mid-2017; the partners in the Leviathan natural gas reservoir must produce a commitment to a $1.5 billion investment in developing the resource by then. According to the partners' interpretation, this amount includes the $1.2 billion that had already been invested in Leviathan before the current gas plan was formulated. If this is correct, then the milestone inserted in the plan is meaningless, because the developers have already gone far beyond that. Beyond that, one simple question arises: why has there been no official and binding decision to develop the reservoir?

It was not very long ago that Noble Energy and its partners announced that the investment decision would be made by the end of 2016, but this did not happen in January 2017, and will probably not happen in February, either. Noble Energy's quarterly reports, published last week, mention the first quarter of 2017 as the period for making the investment decision. This delay is uncharacteristic of a company like Noble Energy, which completed development of the Tamar reservoir exactly on time and within budget. Is Noble Energy getting cold feet? Is it reconsidering what to do?

Sources in Israel say that the original date was too ambitious, and that the investment decision will be taken in a few more days. It is mainly technical approvals that are lacking, such as building permits and work licenses, they say.

It is important to realize that what is involved is not just a formal declaration. A final investment decision (FID) is the foundation of the entire Leviathan development project. In the FID, the Leviathan partners declare that they are going ahead and making a commitment to invest billions of dollars in developing the reservoir. There is no way back from this, regardless of what happens.

The weakest link

The order of actions in the gas reservoirs industry is sacred. Investment decisions are not taken before the financing for developing the reservoir is closed, and bank financing is not closed before deals are closed for selling the gas to ensure a stream of monthly payments for the banks to cover the monthly financing costs for the loan.

It is not hard to find the weak link in this chain. Development of Leviathan depends on a single strategic gas agreement - the gas deal with Jordan, which has not yet been closed. There is no progress in the deal with Egypt, and forget about Turkey. Sales of gas to Greece and Italy are a wonderful idea that could be realistic in a world of higher prices. The Israeli market is already saturated, and new gas agreements are liable to come at the expense of Noble Energy's Tamar cash cow.

Jordan is therefore the only option left. From the beginning, the assumption that a business gas contract with the Jordanians could be closed without a political umbrella agreement in which the Israeli government assumes risks appeared naive. The last people to realize this were probably Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz and Shaul Meridor, the director general of the ministry, who would rather swallow snakes than ask the Ministry of Finance and the government for guarantees for Noble Energy and Yitzhak Tshuva.

In this situation, it is obvious why Noble Energy is unwilling to take an investment decision. Tshuva, its partner, was always the first to make the leap. In the development of Tamar, he managed to persuade Noble Energy to make a commitment before the gas agreements with Israel Electric Corporation (IEC) (TASE: ELEC.B22) were closed. It was clear that the agreements would eventually be signed, because IEC had no alternative to gas from Tamar. Noble Energy kept its mouth shut, muttered "never again" to itself, and jumped in. This trick will not work again.

Published by Globes [online], Israel Business News - - on February 22, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018