Israel has long sought to lure one of the world’s top energy companies and it may now get one through the back door: Chevron, the world’s sixth largest oil company, announced on Monday that it has reached an agreement to buy Texas-based Noble Energy, which is the lead partner in Israel’s Leviathan and Tamar gas fields.
Chevron said it had agreed to buy Noble in an all-stock deal, valuing the Houston-based oil and gas producer at $5 billion. The offer values Noble at $10.38 a share or 0.1191 Chevron share, a 7.5% premium over Noble’s Friday close.
The deal would value Noble at roughly $13 billion including debt, making it the biggest energy deal since the coronavirus pandemic struck and wreaked havoc across the global energy industry. Like virtually all energy companies, Noble has been contending with low oil and natural gas prices, a situation made worse by the coronavirus’ cutting deeply into global economic growth and energy demand. Noble’s shares this year alone have dropped 60%, cutting its market capitalization on the Nasdaq to just $4.5 billion from $20 billion in 2015.
The news sent Noble’s stock 5.6% higher mid-afternoon New York time to $10.19, while energy shares traded on the Tel Aviv Stock Exchange also soared. Delek Drilling, Noble’s chief partner in Leviathan and Tamar, closed up 23.1% to 3.65 shekels ($1.06). Ratio Petroleum, another Leviathan partner, gained 24.7% to 1.09 shekels and Tamar Petroleum 6.1% to 2.42 shekels. Delek Group, Delek Drilling’s parent, rose 15.4% to 82.
"Chevron’s entry into Israel is a game-changer. It’s fantastic news for the local gas industry," said one industry source who asked not to be named. "Chevron is a global company that can undertake giant projects with ease. The main question is how the Arab world will react to the deal and if Chevron will have to see the Israeli assets later... It could be that today there’s no fear of a boycott by Arab investors because they’re involved with Israel."
Leumi Capital Markets senior gas and energy analyst Ella Fried thought otherwise. "The odds are that the Israeli operations will be sold. If so, it will be very difficult to find a replacement for Noble,” she said.
However, in citing the advantages of the deal, Chevron made special reference to Noble’s Israel holdings. “Noble Energy brings low-capital, cash-generating offshore assets in Israel, strengthening Chevron’s position in the Eastern Mediterranean,” it said, adding, “Noble Energy also enhances Chevron’s leading U.S. unconventional position with de-risked acreage in [Colorado’s] DJ Basin and 92,000 largely contiguous and adjacent acres in the Permian Basin [in Texas and New Mexico].”
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Nobel also has concessions in Cyprus and last month was awarded concessions on two exploration blocks offshore from Egypt’s Western Desert.
Chevron would bring to the Israeli energy industry financial and technical resources far beyond what the other players, both local and foreign, can offer. It’s annual revenues last year were close to $140 billion and its market cap on the New York Stock Exchange is more than $160 billion. Chevron’s operations extend the gamut of the industry from exploration to refining to retail sales and petrochemicals.
It operates in more than 180 countries, including the so-called Partition Zone between Saudi Arabia and Kuwait as well as in Iraqi Kurdistan.
Chevron was spun out of John D. Rockefeller’s Standard Oil monopoly in 1911. It’s ranked by industry monitor Platt’s as the world’s sixth-largest energy company but also the world’s second-largest polluter by the British newspaper The Guardian.
Chevron has also felt the impact of low energy prices and the coronavirus. Its market cap had dropped 55% in the first three months of this year, although it has since recovered from its lows.
The takeover would provide important relief to Noble, which is a much smaller company and has been hit much harder by market developments, especially in its shale oil operations. Shale producers have been hit hard as oil prices collapsed in April due to the pandemic and a brief price war between Saudi Arabia and Russia, leading many companies to seek bankruptcy protection.
Noble reported a first-quarter net loss attributable to shareholders of $4 billion, bringing its cumulative losses since 2015 to $10 billion. Its shareholders equity has been reduced as a result to $4.4 billion at the end of March from $8.4 billion a year earlier.
Due to the grim market conditions, Noble said it was reducing its capital spending budget for this year by more than half to between $750 million and $850 million. It cut its dividend, reduced the pay of top executives by up to 20% and undertook cost-cutting measures. In April, it furloughed 30% of its U.S. workforce.
Chevron said the takeover could yield potential annual cost savings of $300 million.