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How Is Noble Energy Progressing on the Leviathan Project?

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Dec. 5 2016, Updated 9:36 a.m. ET

Noble executes gas sales contract with NEPCO

On September 26, 2016, Noble Energy (NBL) announced that it had executed a gas sales and purchase agreement (or GSPA) with Jordan’s National Electric Power Company (or NEPCO). Under the GSPA, NBL and its partners in the Leviathan field would supply ~1.6 Tcf (trillion cubic feet), or 300 MMcfepd (million cubic feet equivalent per day), of natural gas (UGAZ) from the Leviathan field over a 15-year term.

Noble Energy’s September 26, 2016, press release noted, “Natural gas supplied under this agreement will include industry-typical take-or-pay commitments, with pricing linked to Brent oil and a firm floor price. Gross contract revenues are estimated to be approximately $10 billion.”

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Gas delivery

Noble Energy (NBL) expects to make its first gas delivery after the construction and field development in the three years following the sanctions.

The markets could view this as a significant step toward making a final investment decision (or FID) on Noble Energy’s Leviathan gas project. NBL expects to make a FID on the project by the end of 2016, even as the company continues negotiations with its local and domestic customers.

Noble Energy noted in its November 1, 2016, 3Q16 earnings conference, “Over the coming months we expect to finalize remaining key milestones for sanction. This includes additional sales contracts, both in Israel and for the export market and financing plans, as well as completion of the engineering work and project cost estimates.”

Financing

Noble Energy still needs to secure financing for the project. Delek Group, which includes Delek Drilling and Avner Oil Exploration, has already secured ~$1.8 billion in funding to finance the Leviathan gas project. Ratio Oil Exploration, which owns a 15% stake in the project, has also been raising funds by issuing debt and equity this year.

To help lower costs, Noble Energy has indicated that it is willing to “farm down,” or reduce, about 10% of its share in the Leviathan project.

At the end of 3Q16, Noble Energy had $1.8 billion cash in hand and an undrawn credit facility of $4 billion. This translates into liquidity of $5.8 billion. This means that NBL has considerable financial flexibility and may not need to resort to debt markets.

Other companies that enjoy good financial flexibility include Cabot Oil and Gas (COG), which has total liquidity of $2.2 billion, and Concho Resources (CXO), whose liquidity totals $2.6 billion. Occidental Petroleum (OXY) also enjoys a good liquidity position at $5.2 billion.

Please read Which Would You Bet On: Concho, the Permian—or Both? to learn about the other factors that have caused markets to favor CXO apart from its healthy balance sheet.

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