Page 10 - NorthAmOil Week 29

NorthAmOil COMMENTARY NorthAmOil

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

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