HOUSTON – The CEO of Noble Energy says the company’s disputes with Israel’s antitrust regulators has forced it to stall virtually all of its investments this year in two massive offshore natural gas fields in the Mediterranean Sea.
Israel’s Antitrust Authority in December had refused to finalize a deal reached earlier last year with Houston-based Noble and its partner Delek Group that would expand the Tamar gas field and green-light development of the Leviathan gas field – a giant prospect that could produce 1.6 billion cubic feet of gas a day – if they sold off two other fields with 3 trillion cubic feet in reserves.
In a quarterly conference call with investors on Thursday, Noble CEO David Stover called the antitrust decision an example of the uncertain regulatory environment in Israel and said the two parties would have to come to an agreement on the matter before Noble could invest significantly in Israel’s energy sector. Talks with the government are ongoing, he said, but the company is prepared to “defend its rights” to the assets.
“There’s a huge incentive for (Israel) to get these projects on when you think they actually capture over half the value that comes from any volume of gas sold in country or sold in export,” Stover said.
Their concern is about competition over there,” he said. “I think a lot of people were surprised with the reversal on that decision.”
Noble executives cited a Wood Mackenzie study that showed the Leviathan could provide $230 billion in gross domestic product to Israel over the life of its exports and more than 20 years of domestic supply.
The two offshore gas fields, the Leviathan and the Tamar, hold the vast majority of Israel’s gas reserves, with more than enough to feed domestic demand, bring down electricity costs in the nation and have more gas for exports, they said. Delek and Noble own the majority of both fields.
Stover said Noble has inked a letter of intent with a customer in Egypt to supply up to 250 million cubic feet of gas per day from the Tamar field, but it hasn’t booked any of the sales because of the impasse with Israel’s government.
It’s an opportunity that can have near-term impact, requires very little capital and would provide relief from gas shortages in Egypt,” Stover said, adding the company is “hopeful for exports this year pending government approval.”
When asked if it is possible to pipe Leviathan gas exports from nearby Cyprus, Stover said “we believe Cyprus can play a role” in the Mediterranean energy picture, and he noted Cyprus has begun moving away from liquefied natural gas projects and toward “more of a regional piece.”
He noted as Noble was marketing Leviathan exports, “we were seeing market that was potentially double the size of what we were having in (letters of intent for exports), so I’d say there’s definitely a role to be played for additional gas there.”
Citing an unnamed Israeli government official, Bloomberg reported this week antitrust authorities are proposing Noble and Delek sell off part of their interests in the Tamar gas field, along with the two smaller fields – the Karish and the Tanin – and that they market the gas separately, to increase competition. The authorities also want the price of the natural gas to be capped in Israel, the news service reported.
On the conference call, Stover said the company believed that original terms of a deal reached in March – selling off the Karish and the Tanin fields – was fair.
We thought that was a pretty good solution at the time, so what now has entered into the equation is a discussion of how do we move forward on this,” he said. “The good part of it is it has brought the ministries together to even better understand the situation and the importance of resolving this.”
Noble said Thursday it’s cutting capital expenditures this year by 40 percent to $2.9 billion as it copes with low oil prices, focusing mainly on U.S. shale plays and sanctioned projects in the Gulf of Mexico.
The Houston producer said it would suspend investments in its Tamar and Leviathan projects in Israel until regulatory issues are resolved and that it would focus its exploration efforts — about 5 percent of its budget — on prospects in Cameroon and the Falkland Islands. It plans to spend about $600 million in the Gulf. The company said it estimated production may increase about 5 percent this year.
Around 60 percent of Noble’s investments are planned for its core U.S. onshore assets, split between the DJ Basin in eastern Colorado and the Marcellus in Pennsylvania.
“In a highly uncertain commodity environment, this program retains substantial operating and financial flexibility to adjust our plans while allowing us to take advantage of value-creating opportunities that may arise,” Stover said.
Noble reported its profits tripled in the fourth quarter, though revenues slid as it grew its output in the DJ Basin and the Marcellus Shale.
Noble banked a profit of $402 million, or $1.11 a share, during the October-December period, compared to $134 million, or 38 cents a share, in the same period the year before. Revenues declined from from $1.3 billion to $1.1 billion.
Noble said it boosted total sales volumes 8 percent to a record 315,000 barrels of oil equivalent a day, largely because of its growth in the DJ Basin and the gas-rich Marcellus. Natural gas made up 56 percent of its volumes, while crude oil was 35 percent and natural gas liquids was 9 percent.
“Despite the dramatic commodity price volatility over the last several months, Noble Energy exited 2014 with a substantially increased operational capacity and a solid liquidity position,” Stover said.
He pointed to the company’s operations in the two U.S. horizontal shale plays, which saw volumes rise more than 50 percent, but noted the challenges that come with falling oil prices.
“We are responding swiftly and materially to the current environment, focused on maintaining our financial and operational flexibility, while also preserving the long-term value of our business,” he said.