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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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