Leviathan development costs to be covered in three years
US producer Noble Energy said February 24 it would recoup its expected $1.5bn costs of Leviathan development in three years' time, even though sales contracts signed so far account for under half the targeted amount. The total budget is estimated at $3.75bn and Noble is operator with 39.66%.
In the stock exchange filing regarding the final investment decision it said it will develop four subsea wells, each capable of flowing more than 300mn ft³/d of gas which will go 117 km to a 22,000 metric ton fixed platform, 10 km offshore Israel. Processed gas will connect to the Israel Natural Gas Lines onshore transportation grid in the northern part of the country and to regional markets via onshore export pipelines.
This will be Israel's second entry point and will enhance gas supply security. The approved development plan, according to Noble, allows for significant future cost-effective expansion from its initial 1.2bn ft³/d capacity to 2.1bn ft³/d.
Noble's $1.5bn investment includes about $100mn already spent in 2016 and $200mn pre-investment in for future platform expansion.
Noble is now finalising the major project contracts and started on long lead materials procurement. Noble Energy and partners anticipate drilling one to two Leviathan development wells in 2017. Completion activity for all four producer wells, including two previously drilled, is anticipated in 2018. The company expects to complete project installation and initiate commissioning in the fourth quarter of 2019, with delivery of first gas targeted for the end of 2019.
Noble reports that gas supply agreements (GSA) have been confirmed for 525mn ft³/d, which is less than half the targeted 1+bn ft³/d but they are worth over $15bn over their lifetime. The anchor GSA, with Jordan's Nepco is estimated at $10bn in 15 years. Another $2bn contract was signed with Daliot Energy, for a power generation facility whose construction has yet to be approved. Daliot Energy has the option to reduce quantities by 50%.
Noble estimates blended sales price realisation for the domestic and regional markets at $5.50-$6/mn Btu based on current Brent prices. Gas export would be Brent indexed while domestic sales are responsive to the regulatory Natural Gas Framework.
Operating cash flow for the first year following startup is projected to be at least $650mn net.
Noble, which last year enjoyed from a $750mn free cash flow from its Israeli businesses said it can fund Leviathan phase one from its Tamar operating cash flows as well as eastern Mediterranean portfolio proceeds. Regional portfolio proceeds received to-date total about $575mn net. Noble is also securing access to a financing facility for additional funding flexibility.
"Sanction and development of Leviathan build on recent portfolio milestones and reinforce our focus on high-margin growth," CEO David Stover said. "Leviathan will generate robust project economics, have strong investment efficiency, and provide long-term cash flows. With 40 trillion ft³ gross recoverable resources discovered by Noble Energy in the region, we can continue to grow our eastern Mediterranean business for decades. This includes material additional development beyond phase one at Leviathan."
Among the possible destinations for the gas is Egypt, where two liquefaction plants stand idle. The giant Zohr field and other major developments have the potential to turn Egypt into a gas exporter once more.
Ya'acov Zalel