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MEOG COMMENTARY MEOG
Traditionally, the largest international oil com- Rystad believes that the US portion of Noble’s
panies (IOCs) have tended to avoid Israel in portfolio offers “the most significant upside in
order not to strain relations with Arab countries terms of economically recoverable resources”,
in which they also operate. For example, Total’s assuming the consultancy’s base case scenario,
CEO, Patrick Pouyanne, said last year that Israel which puts long-term Brent crude prices at $60
was too “complex” a market to invest in, citing per barrel.
his company’s assets elsewhere in the region. “Chevron’s portfolio will be expanded with
In this instance, however, the attractiveness Noble’s low-cost, cash cow assets in the DJ Basin
of Noble’s Israeli assets appears to have trumped and, more notably, via complementary acreage
such concerns. positions in [Texas’] Southern Reeves County
“Noble’s assets in Israel are set to generate sta- along with some overlap in Andrews County in
ble cash flow in the years to come,” commented the Permian Basin,” Rystad said.
Rystad Energy’s head of shale research, Artem According to the consultancy, Chevron
Abramov. He noted that the transaction would will now become the second-largest tight oil
“establish Chevron as a key player in the Eastern producer on a net basis, trailing only EOG
Mediterranean region”. Resources, though it still lags other major Per-
Others have echoed the assessment of Noble’s mian players on a gross operated basis. Rystad
Eastern Mediterranean portfolio. estimates that Noble’s operated production
“Noble’s position in Israel is the company’s of about 60,000 barrels per day (bpd) will give
crown jewel,” said a Wood Mackenzie upstream Chevron full operated oil production poten-
analyst, Jean-Baptiste Bouzard. “Israel will pro- tial of around 260,000 bpd, net of curtailments
vide Chevron with a new core international implemented in the second quarter of this year.
geography that will rebalance the portfolio
towards gas and provide a springboard to cap- What next?
ture further upside potential in the region,” he Speculation is now rife over whether more oil
continued. “Much of Noble’s upstream value and gas M&As will follow, with views mixed so
comes from its positions in Israel and Cyprus.” far.
Chevron itself has signalled that it is not on
Going for gas the lookout for further acquisitions for now. In
As mentioned by Bouzard, the transaction will comments to Bloomberg, Wirth said his com-
shift Chevron’s portfolio more towards natural pany had a “high bar” for deals and would not be
gas. As well as the Eastern Mediterranean assets, in the market again at least until Noble has been
Noble’s operations in Equatorial Guinea – where integrated into Chevron and an internal restruc-
it is planning to begin diverting reinjected gas turing is completed.
from the Alen field to backfill the third-party EG “The low premium gives us the impression
LNG plant in 2021 – have a role to play in this. that this deal was more about opportunity than
This comes as a growing number of producers appetite,” Johnson Rice & Company analysts said
are talking up the role gas will play in the energy in a note. “For all those hoping to ride off to glory
transition. It is more of a long-term bet on gas, in the M&A sunset, there is now one less horse
given how the coronavirus (COVID-19) pan- to ride.”
demic has hit demand for the fuel in the short On the other hand, struggling independents
term. that have been hit hard by the market conditions
“Demand for gas in the Eastern Med contin- of recent months could find being taken over
ues to grow,” Chevron’s CEO, Mike Wirth, said by deep-pocketed majors an attractive option
on the company’s webcast to discuss the Noble as they consider how to survive the downturn,
acquisition. “It’s widely acknowledged that it’s a if they can agree on valuations with would-be
fuel that will continue to displace coal for power buyers.
generation and as economies grow in that region For now, the sentiment among buyers appears
and beyond, we think that the demand will con- to be that already low valuations of smaller com-
tinue to support further development.” panies could sink further still, and taking on
Despite the shift towards gas, though, ana- more debt could prove to be a deterrent to more
lysts have noted that Noble’s liquids-weighted deals. Larger companies may yet jump at oppor-
shale assets should not be discounted as a signif- tunities as they arise, but they do not appear to
icant attraction of the deal for Chevron. Indeed, be actively seeking them out.
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