Sanctioning of Tamar, Leviathan projects expected by end of 2016

The US's Noble Energy said yesterday, that it expects to sanction projects to develop the Israeli Tamar and Leviathan gas fields by the end of 2016 and starting production 3-4 years later. At a Wells Fargo conference Energy Symposium, Noble's executive Vice President & CFO, Ken Fisher, said the company [and its partners] has 40 trillion cubic feet (tcf) of very high quality gas in the Eastern Mediterranean (East Med), and only 25% of that gas, from Tamar, a 9.5 tcf gas field, is already online. "This is a very strong cash generating asset that has a 30-year life with essentially no follow-on capital in terms of continuing to produce up to 1.2 billion cubic feet a day," said Mr. Fisher. "So a very nice asset and a bit of a hedge against oil price [volatility]."

Noble will have to sell down 11% from its 36% shareholding in Tamar within 6 years from the approval of the natural gas regulatory framework in Israel.

Mr. Fisher said that Leviathan is flow tested and development ready and Noble wasn’t very pleased with the Israeli antitrust commissioner's U-turn late last year, when he overturned his earlier ruling and decided not to exempt natural gas companies from the antitrust law. However now, with the support of the Prime Minister and the Energy Minister, he said, the framework is in place and "we expect that to be signed by the PM very shortly. That really will set up the ability to move forward."

As is usual in Noble's presentations over the last few years, Mr. Fisher commended Noble's operations in the Middle East, i.e. Israel, as a kind of a natural hedge against the volatility of oil prices. Natural gas prices in Israel have not changed in the last 18 months since oil prices began their continuous decline and remained at an average of $5.5/ one million British Thermal Units.

As a backup plan to the original $7 billion Leviathan project, Mr. Fisher said that Noble may consider a smaller project that can later be expanded. "Tamar [is] supplying up to 1.2 Bcf a day with five producing wells. So the quality of the reservoir is such that it makes it a very economic program and the Leviathan reservoir is an analogue. So we have a lot of flexibility on what's the design size and then we will do a project finance so that will allow us, essentially we call it a ring fence and we won't need new equity essentially in the Eastern Med, between the cash flows that exist there and a project financing we can fund the development."

Mr. Fisher also said that in the future Noble might look to sell some of its holdings in Leviathan. He mentioned positively the latest two divestments Noble is about to complete, selling the Tanin and Karish gas fields to Delek Group's subsidiaries and selling 50% of its shareholding in Aphrodite, the Cypriot gas field to BG Group, two transactions that will contribute about $240 million in proceeds to the company.

Mr. Fisher estimated that latent demand for gas in the East Med is still huge. "The existing latent demand is about 3 bcf a day, that's currently unsatisfied and that demand being as much as 6 bcf a day by a 2020 timeframe," he said. "Since the gas framework [in Israel] has been made public this summer, [we have seen] a big drive to continue from customers to contract gas." Mr. Fisher said Egyptian industrial customers are in need of gas, hence Delek's note about a new letter of intent to supply 4 bcm annually of gas from Leviathan to Dolphinus Holdings' customers through the EMG pipeline in a 10-15 year contract. 

Work with BG and Union Fenosa Gas (UFG) to supply gas to their liquefaction facilities in Egypt is ongoing, he explained, as well as negotiations with the Jordanian National Electric Power Company (NEPCO). When those negotiations are concluded, Noble will start to "finalize the development scenario in terms of the facilities, do a re-bidding on the facilities and then also close up project financing." Mr. Fisher estimated sanctioning the project is expected by the end of 2016 (no final investment decision was mentioned) and a timeframe from 3-4 years from sanctioning to production start.

Earlier Wednesday, Noble Energy raised its expected production guidance for the rest of 2015 to 405K-415 barrels of oil equivalent (Boe)/day an increase of 15,000 Boe/day over its previous 395K Boe/day. Noble will end the year with a production rate about 30% higher than in 2014, mainly thanks to the purchase of Rosetta Resources in the first half of the year. The purchase will contribute substantially to Noble's cash flow from hedging that is expected to reach $1 billion in 2015 and about $500 million next year, if oil prices will remain at their current levels, Mr. Fisher estimated.

Ya'acov Zalel