Noble Executives Arrive in Israel Amid Leviathan Gas Doubts

Despite Sunday's announcement of $1.3-billion deal to sell gas, U.S. company faces financial crunch.

Offshore Leviathan natural gas drilling site.
Albatross

A team of Noble Energy executives arrived in Israel Monday to meet with Energy Minister Yuval Steinitz and other officials, amid growing concerns about the ability of the Texas-based company to meet deadlines for developing the Leviathan natural gas field.

On Sunday, Noble’s Israel country manager, Bini Zomer, said the Leviathan partners should reach a final investment decision by the end of 2016 if government and regulatory approvals are granted. This would enable the first natural gas to reach markets by the last quarter of 2019.

But TheMarker reported last month that Noble was talking with the Energy Ministry about amending the investment timetable, which would reduce the size of the first stage of investments and take into account the possibility that gas exports to Egypt wouldn’t happen.

The Leviathan partners, which include Israel’s Delek Group and others, announced Sunday they had reached a preliminary agreement to sell $1.3-billion worth of Leviathan gas to the Edeltech Group and its Turkish partner, Zorlu Enerji, for domestic power plants. Last week, Israel, Cyprus and Greece said they would explore building a gas pipeline to Europe, tapping the reserves discovered in the eastern Mediterranean.

Nonetheless, the Leviathan project has been clouded by doubts.

Egypt, which is supposed to be a major export customer, discovered a giant offshore gas field of its own last year, which may mean it won’t take Israeli gas. Meanwhile, plunging world oil prices have slashed into Noble’s revenue by half in the last nine months and an operating loss at a time when its debt has grown. Noble’s bonds trade at yields of 7.5%, which would make the cost of raising capital for Leviathan costly.

Noble’s share of the cost of developing Leviathan is about $1.5 billion by the end of next year and it has an even bigger tab to develop Cyprus’ Aphrodite field.

In addition, Israel’s High Court of Justice is to begin considering a petition seeking to block the so-called gas framework that sets in place the final elements of Israel’s regulatory regime for the industry.

In a surprise development, meanwhile, the Manufacturers Association has decided to form a team to negotiate a single contract for natural gas between the gas cartel and small- and medium-sized manufacturing companies, TheMarker has learned.

The move comes a year after Israel’s Antitrust Authority gave the association – which groups Israel industrialists – an unusual waiver to represent small- and medium-sized member companies in talks. Enabling smaller businesses to negotiate as a single bloc will enhance the industrialists’ bargaining power over the price and other terms, but the trade group delayed a decision.

Shraga Brosh, the association’s president, formed a company six months ago to deliver gas to factories. The negotiating bloc will thus be in competition with him.

The association has appealed one condition that antitrust officials put in the waiver – namely, that the negotiating team could not include any industrialists, since that might create conflicts of interest. But sources said Monday that even if the authority does back down, the team will probably not include any industrialists.