Chevron expands gas portfolio with Noble purchase

• DOI: http://doi.org/10.1111/oet.12815
• Published date: 01 September 2020
• Date: 01 September 2020

GAS AND POWER

Chevron expands gas portfolio with Noble purchase

In late July, Chevron paid $5 bn for Noble Energy, which

has most of its assets in the East Mediterranean gas sector

and the US' Denver-Julesburg (DJ) shale Basin. Chevron

secured a high cash flow business, but also takes on debt

of $8 bn. The deal is the largest in the oil and gas sector

since the industry was hit by the collapse in demand

related to COVID-19.

Chevron is relatively cash-rich compared to its peers,

with low levels of debt, leaving it well-placed to take

advantage of current adverse conditions through M&A.

The US super-major has been looking for an alternative

target since its failed bid for Anadarko Petroleum in

2019, which rival Occidental Petroleum eventually won

for $57 bn (Chevron bid $33 bn). The price it paid for

Noble, at just $5 bn, provides far better value per bbl/Btu,

although Noble's debt pushes the overall value of the deal

up to $13 bn. The $5 bn price tag was about a 12% pre-

mium to market value, which was lower than most ana-

lyst expectations. The deal expands Chevron's US shale

(oil and gas) footprint, while adding substantial, well-

placed conventional gas assets in the eastern Mediterra-

nean (see Table 1).

Noble's US production is roughly half gas and half liq-

uids. Noble has acreage in the Permian, which is high

quality and largely contiguous with Chevron's, and the

buyer expects to achieve synergies of $300 mn in this

area. Noble's Permian position is relatively small, but it is

considered core Delaware Basin acreage and is located on

private lands, which could insulate it from Democrat

plans to limit drilling on federal lands. However, most of

its US onshore assets are in the DJ Basin (where Noble is

the second largest producer), which will be a new area of

operation for Chevron.

Outside the United States, Noble's large gas-fields in

the Eastern Mediterranean help diversify Chevron's oil-

weighted production profile and compliment a gas port-

folio that is heavily weighted toward the Asia-Pacific

region, as well as providing immediate cash flow from

existing Israeli production. Noble is operator and 39.66%

stakeholder in Israel's 22 tcf Leviathan field, which began

domestic sales in December 2019. It then started

exporting gas to Egypt and Jordan in January, in a deal

that broke new ground for the Middle East energy sector,

with Israeli energy being exported for the first time.

Noble is currently completing work on a compressor

station in Israel that would enable increased exports.

Leviathan's first phase has a capacity of 1.2 bn ft

3

/day

and given estimates that the field could hold around

22 tn ft

3

of recoverable gas, there is considerable scope

for expansion. Noble and the other partners in the field—

Delek Drilling and Ratio Oil Exploration—are consider-

ing a floating liquefied natural gas (FLNG) development

for subsequent phases of the project, once market condi-

tions improve.

Noble's other notable assets in the region include a

25% stake in Israel's Tamar field, which has been online

since 2013, and a 35% interest in the 4.1 tcf Aphrodite dis-

covery (Shell 35%) in neighboring Cyprus’waters, which

still awaits a final investment decision. Super-majors

have traditionally avoided Israel in an effort not to strain

relations with the Arab countries in which they operate,

but Arab-Israeli relations are improving, and Chevron's

moves in Israel are part of a wider strategy in the eastern

Mediterranean, with Egypt also a potential exporter of its

East Mediterranean gas in the form of LNG. Chevron also

gains 27% of Shell-operated Egyptian exploration Blocks

6 and 7 from Noble.

There is potential for more piped gas exports from

Noble's East Mediterranean fields not only to Egypt,

but also to Europe via pipeline, although the developers

have the problem of how to compete with cheap

Russian and Norwegian piped gas in a market that

looks unlikely to grow much over coming years. Cur-

rent ample production and multiple promising discover-

ies means development of the Aphrodite field appears

to be on hold, with Noble saying in late June that it

was adjusting its activity schedule in Cyprus in

response to the Covid-19 pandemic and lower commod-

ity prices. Aphrodite is likely to be developed once unit-

ization with Israel is agreed and Egypt, Israel and

Cyprus agree export options, according to MEES.

1|CASH GENERATOR

Although gas markets are currently weak, Noble is

somewhat protected by a high proportion of take-or-pay

arrangements. The company's operations will produce

ample cash flow in the coming years, helping Chevron

keep its commitment to its sizable dividend. Noble is

8