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Oil giant makes aliyah: Noble or ignoble?


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Oil giant makes aliyah: Noble or ignoble?

One of the world’s biggest oil companies, Chevron, is acquiring Noble Energy for $5 billion. How will that affect Israel’s natural gas finds? By SHLOMO MAITAL  AUGUST 12, 2020 14:59 Noble Energy’s Leviathan gas field, not far from Caesaria (photo credit: MARC ISRAEL SELLEM) In his inscrutable wisdom, the lord of the universe placed much…

One of the world’s biggest oil companies, Chevron, is acquiring Noble Energy for $5 billion. How will that affect Israel’s natural gas finds?

By SHLOMO MAITAL
 

AUGUST 12, 2020 14: 59

Noble Energy’s Leviathan gas field, not far from Caesaria (photo credit: MARC ISRAEL SELLEM)

Noble Energy’s Leviathan gas field, not far from Caesaria

(photo credit: MARC ISRAEL SELLEM)

In his inscrutable wisdom, the lord of the universe placed much of the world’s oil and gas under the seas and sands belonging to Arab and Muslim nations. For decades, they used oil and gas as an effective strategic weapon against Israel. They still do, or at least try to.

And Israel? For years, Israel bought expensive oil from Angola, Colombia, Mexico, Egypt and Norway, and used cheap polluting coal to make our electricity.

More than a decade ago, in January 2009, everything changed. Huge fields of natural gas were discovered beneath Israel’s offshore waters and were developed by Noble Energy, with Israeli partners Delek, Isramco, Alon and Ratio.

Fast forward. On July 20, the Wall Street Journal first reported on another potential game-changer. One of the world’s biggest oil companies, Chevron, announced it was acquiring Noble Energy for $5 billion.

Is this great news for the people of Israel, as Energy Minister Yuval Steinitz claims? “The acquisition of Noble Energy by the energy giant Chevron is a tremendous expression of confidence in the Israeli energy economy, and in the continued development and export of natural gas from the State of Israel,” Steinitz said.

Or did the wily Americans simply take the Israelis for suckers, as Avi Bar-Eli argued in Haaretz: “Israelis did not have the cognitive flexibility and business daring to exploit 1 or 2 percent of the Bank of Israel’s foreign currency reserves [actually, 4% of $126 b. as of December 31] to buy out Noble Energy’s share of the Tamar and Leviathan strategic natural gas reservoirs. By doing so, we could have lowered the price of the gas and increased the Israeli public’s disposable income by 3 to 4 billion shekels a year.” Bar Eli continues: “As opposed to Israel, Chevron, which recently began a reorganization of its portfolio, went for the deal. Chevron bought Noble for half the price at which Noble sold its assets in the North Sea to Yitzhak Tshuva, controlling shareholder of the Delek Group, a year ago… This is how it is when the suckers in Zion buy their natural gas at $6.30 per thermal unit compared to the selling price of $1.70 in the United States – years after the costs of exploration and development of the owners have been covered thrice over.” Bar-Eli refers to the deal that has government-owned Israel Electric contractually buying natural gas at a price several times its current market price.

Chevron paid no cash for Noble, only its shares, and shelled out only a small premium over Noble shares’ market price.

Let’s try to figure out what Chevron’s arrival means for the people of Israel. But first – who is Yossi Langotsky and why is he a rather forgotten hero?

Geologist Dr. Yossi Langotsky is a war hero. He was awarded the Medal of Distinguished Service, the IDF’s third-highest honor, after interrupting his Hebrew University studies to command an elite unit in the battle for Jerusalem in the Six Day War. Langotsky led his soldiers in fierce trench warfare against Jordanian soldiers in the Armon Hanatziv section of Jerusalem.

It is widely accepted that Langotsky was the driving force behind gas exploration off Israel’s Mediterranean shore. For many years, he insisted that there were vast natural gas fields offshore. Few believed him, even though it made no sense that Israel almost alone in the Middle East should be bare of hydrocarbons.

In 1998, after being turned down by nearly a hundred exploration companies, Langotsky finally persuaded giant British Gas to invest in eight offshore exploratory wells, between June 1999 and September 2000. All eight produced gas!

But in 2005 British Gas bailed out of Israel. Why? Because 15% of BG Group’s natural gas field offshore from Gaza was due to be marketed in Israel and to the power station in Gaza. Israel, British Gas claimed, refused to guarantee uninterrupted gas supply to Hamas-controlled Gaza.

Langotsky then enlisted Delek and Noble Energy to replace British Gas. In January 2009, the Tamar natural gas field was discovered, 85 km. offshore from Haifa; it was named after Langotsky’s granddaughter. Tamar was the largest find of gas or oil in the Eastern Mediterranean Sea. Later, the Leviathan gas field was discovered. By some estimates, Leviathan holds enough gas to meet Israel’s domestic needs for 40 years. The field began commercial production of gas at the end of 2019.

Langotsky got into a tangle with billionaire diamond tycoon Beny Steinmetz. They were partners in exploring the Tamar gas field, through Steinmetz’s company, Scorpio. As costs for exploring the gas field soared, in 2008, Scorpio announced that it was abandoning the project. Langotsky failed to find a new investor and hence lost control of the rights to the Tamar gas. Shortly afterwards, in January 2009, the Tamar gas discovery, worth an estimated $8 billion, was announced. Langotsky sued Steinmetz for $100m.; the courts awarded him NIS 50m. ($14.5m.).

Langotsky is a millionaire – but has reaped relatively small rewards compared with the vast gas riches he is responsible for finding.

Have the people of Israel profited hugely from these gas discoveries?

Not exactly. Fees and royalties from Israel’s natural gas, oil, and minerals totaled NIS 864m. ($250m.) in 2019, down from NIS 878m. ($255m.) in 2018. Since the Tamar gas field came on stream in 2013, the government’s take has totaled NIS 5.18b. ($1.5b.).

Why so little, relatively? Sweetheart deals that heavily favored Noble Energy and Delek. Noble Energy is a small Texas-based oil company, founded in the 1930’s. Lately it has suffered huge losses as oil and gas prices crashed. Its share price fell from $25 last December 20th to only $4.19 on March 17, before recovering to $10.89 on July 24, after Chevron’s announcement. Noble has played a key role as a pioneer in discovering and developing Israel’s mammoth offshore natural gas fields; give it credit. But Noble also profited.

Just how big is Chevron, a Big Oil company?

Huge. Chevron is one of the American Big Oil companies formed when John D. Rockefeller’s Standard Oil monopoly was broken up and sold, after a Supreme Court decision on May 15, 1911.

Based in California, Chevron operates in more than 180 countries. Chevron is one of the world’s largest oil companies and as of 2019, it ranked eleventh in the Fortune 500 list of the top US closely held and public corporations and 28th on the Fortune Global 500 list of the top 500 corporations worldwide. It has yearly revenues of $147b. and net income of $2.9b. The market value of its shares has fluctuated wildly, together with the price of oil, from $250b. in January 2018 to today’s $170b.

Why did Chevron acquire Noble Energy, at a time when oil and gas prices are plummeting? And why did Noble Energy agree to sell itself to Chevron?

To keep it simple: With the collapse of oil and gas prices, in the wake of the pandemic and global recession, Noble was in trouble, as it was highly leveraged, i.e. borrowed tons of money, to develop its gas and oil reserves. Cash-rich Chevron saw an opportunity, as a big whale, to swallow a minnow with attractive assets, for a pandemic-battered song.

Why is there great uncertainty about Chevron’s intentions regarding Israel’s gas fields?

Simple. Chevron has major profitable operations in Arab countries and it has a significant number of Arab shareholders. Chevron’s website proudly asserts: “Chevron is the only large international energy company to have a continuous upstream presence in the Kingdom of Saudi Arabia for more than seven decades. Through our subsidiary Saudi Arabian Chevron Inc., we are engaged in a wide range of petroleum-related interests in the kingdom, and we work closely with Saudi Aramco, the national oil company, as well as with various government partners in the region.” So it is possible that Chevron will dump its Israeli gas holdings and retain the rest of the non-Israeli Noble Energy assets it acquired, under pressure. So far, Chevron denies it will do so.

“Noble’s large-scale, producing Eastern Mediterranean position is expected to generate strong returns and cash flow with low capital requirements,” Chevron said in its statement. Here is a rough translation. Noble spent the big bucks developing the gas field, fueled by a phenomenally generous price for the gas bought by Israel. We, Chevron, now get to sell the gas at a profit without capital investment. Hey, why not?

The most likely customer, if Chevron sells its Israeli gas reserves, is the Israeli government. Some experts strongly believe Israel should have owned and operated its own gas fields – as Norway chose to do for its oil fields – and this could be an opportunity to correct its past mistake, if Chevron bails out.

However, there are undoubted advantages to having a huge American Big Oil player on our team. Especially when Turkey’s autocrat Erdogan is flexing his muscles and greedily eyeing the Mediterranean gas fields. 

The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion and blogs at www.timnovate.wordpress.com





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