Noble Energy delays $6b Leviathan investment

Leviathan

The final investment decision is now expected only in 2015.

US company Noble Energy Inc. (NYSE: NBL) is delaying its decision on a $6 billion investment in development of the Leviathan natural gas reservoir in light of the security situation, regulatory uncertainty, and a change in the company's global investment priorities. Sources inform "Globes" that the final investment decision, which was scheduled for the fourth quarter of 2014, is now expected only in 2015. Another question mark concerns the commencement date for oil drilling in the reservoir, previously scheduled for early 2015 following an earlier one-year postponement.

The fighting in the Gaza Strip comes on top of two prior developments that dampened the company's enthusiasm about development of Leviathan. First of all, higher priority is being assigned to development of two huge shale gas reservoirs in the US owned by Noble. Noble is also concerned about the uncertainty in the Israeli market on the question of price supervision for natural gas. The Ministry of Finance prices committee, which has been dealing with this issue for over a year, is set to decide in the coming weeks whether to impose supervision, as demanded by opposition MKs, headed by Shelly Yachimovich and Dov Khenin. The imposing of supervision will greatly affect the maximum gas price set by the state.

Noble officials met in recent days with their Israeli partners from Delek Group Ltd. (TASE: DLEKG), who expressed concern about another postponement or delay in the development of Leviathan. "Globes" previously revealed that development of the reservoir had been delayed by a full year due to regulatory uncertainty concerning the government's policy on natural gas exports.

Gas to be supplied within 3 years

As of now, there has not yet been any change in the timetable for development of Leviathan. Commencement of gas supplies from the reservoir is slated for late 2017 or early 2018. This development plan, first revealed in "Globes," is based on a floating production and storage and offloading (FPSO) facility to be anchored above the reservoir, which is located 130 km west of the Israeli seacoast, and which will be connected by a pipeline to the Israeli shore, and perhaps also to Egypt. Sources inform "Globes" that the international group that won the tender to construct the production facility for Leviathan received notice two weeks ago of a delay in the start of work on the venture. This group includes Bechtel, BW Offshore, and South Korean company Hyundai Heavy Industries, in whose shipyards the huge facility is to be constructed. The FPSO facility is due to produce 16 BCM of gas annually from Leviathan, 7 BCM of which is slated for the liquefaction facility of British Gas in Egypt and 9 BCM for the Israeli gas transportation system, including possible customers in Jordan and the Palestinian Authority.

The decision to build a floating production facility was taken in view of the uncertainly about the possibility of constructing a land-based facility. Only in the past few days was the outline plan for construction of land-based reception facilities for natural gas finally approved.

The Israeli partners in the Leviathan reservoir - Delek Group with a 45% share through the Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling Limited Partnership (TASE: DEDR.L) partnerships and Ratio Oil Exploration (1992) LP (TASE:RATI.L) with a 15% share - are particularly sensitive to a possible delay, among other things because they are competing (without Noble) in a tender to supply natural gas to Cyprus, which wants the gas by mid-2017 at the latest. The Leviathan partners are also in advanced negotiations to sell gas to British Gas, which operates a gas liquefaction facility in Idku, Egypt, in a deal whose monetary value is likely to reach $30 billion. British Gas, which signed a letter of intent to purchase the gas, wants to advance the commencement date for gas supplies as much as possible, because the severe shortage of gas in Egypt is causing it huge losses.

Noble Energy said, "We are working strenuously to reach the required conditions that will allow the huge investment in developing Leviathan and hope to reach that point as swiftly as possible. The security situation is not relevant to this process."

Published by Globes [online], Israel business news - www.globes-online.com - on July 30, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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