From: Reva Bhalla
Date: Thu, 15 Sep 2011 21:35:49 -0500 (CDT)
To: George Friedman
Subject: noble energy
As I’m sure you are aware, Noble energy is trying to drill in Greek Cyprus
waters, and Turkey is raising hell over it. Basically, because they can
since Greece is a mess right now anyway. The move to deploy frigates
seems to be part of this.
I was just talking to David , whose best friend’s dad is the head
of Noble Energy. They were all having dinner in houston and the dad was
talking about how the Turks are creating a nightmare for them with this
whole warships thing. David was telling him about what I do, and how we do
a lot of work with Turkey, and the dad wants to talk to me about this.
Might turn into a business opportunity, you never know. But this family
has houses all over the world, the dad speaks 10 languages, living in
Cyprus right now, used to be in Quito and before that, Vietnam, has all
kinds of crazy connections and crazy dealings with shady people. I might
be able to learn some interesting things from him. And maybe we could help
them understand what the Turks are actually going to do…
Background on the issue that Emre wrote up earlier-
This is more of a summary of the current situation and questions that
arise from it. Please feel free to add your comments/questions before I
Below is the area where American Noble Energy is supposed to start
exploratory oil and natural gas drillings in early October according to
the right granted by Greek Cyprus in 2008. (Attention: Leviathan and Tamar
are Israeli wells, not Cyprus)
As far as energy matters are concerned, there is not much to say. Since no
exploration took place yet, there is no estimation of reserves that would
tells us how far Cyprus would be willing to push the deal. However, given
the gigantic reserves found in Israeli offshore fields, ita**s very
possible that the same would be the case for Cyprus. At least this is the
hope of Greek Cyprus.
As you know, Turkish Cyprus is only recognized by Turkey, whereas Greek
Cyprus is the official government of the entire island and a member of the
EU, which is not recognized by Turkey. So, this is an issue of national
sovereignty more than energy production, though Turkey does not want to
lose energy reserves as well.
What has happened so far;
Greek Cyprus side:
– Greek Cyprus FM sought political support in Israel. They keep saying
that Israel supports them, but I really doubt that Israel would get
involved in this controversy for Greek Cyprus while it is having its a)
own offshore reserves dispute with Lebanon b) troubles with Turkey.
– Greece is mostly quiet, for a good reason. Athens gives support to
Cyprus, though only rhetorical. I also have not seen any important
statement from the EU.
– Greek Cyprus says it will block energy chapter of Turkey/EU membership
negotiations. Greek Cyprus has already blocked eight chapters anyway and
membership talks are in coma. So, this threat does not mean anything for
Turkey. Even if it did, EU members have their own individual energy
dealings with Turkey.
– No statement from Noble Energy yet, neither from the US government.
Overall, Greek Cyprus has nothing that can stop Turkey.
– Turkey says TPAO will start drillings there as well. I am not sure if
TPAO is able to do that on its own. Fourth well in the Black Sea oil
exploration project is operated by TPAO, but the platform is owned by
Petrobras. (to be replaced by ExxonMobil). So, this does not look very
credible to me.
– Most significant tool is, though, Turkeya**s decision to put military
options on the table to be used in eastern Med, seemingly against Israel.
Turkey never said it would use it against Cyprus, but if Turkey considers
eastern Med as its turf that it is ready to defend militarily, there is
not so much that Greek Cyprus can do to prevent it. This also increases
risks for Noble Energy when it comes to investment decisions.
– Turkish MFA also said today that Turkey and Turkish Cyprus agreed to
conclude a continental shelf delimitation agreement should the Greek
Cypriot administration proceed with offshore drilling activities in the
south of the island. Meaningless political/legal move.
Questions moving forward:
Noble Energy: What are the plans of Noble Energy? Are they planning to
move on with the deal? If so, how and when? Is there Noble Energy’s
platform off Cyprus?
Turkey: Is Turkey floating the idea of using the military threat against
Cyprus? Can TPAO drill in southern Cyprus?
Cyprus: What are the options of Greek Cyprus? What can they do to move on?
Long-term investors, buying stock in Noble Energy (NBL) is a great investment move. Looking at the short term, I expect Noble Energy stock to drop in price, so an investor looking for a short-term gain should wait until the stock price bottoms out. Noble Energy has seen its net income trend upwards each of the past three years, going from -$131 million to $453 million in that time frame. I believe this is a great sign for potential investors. Noble Energy’s stock price is near $84, which is pretty much right in the middle of its 52-week range. Given the trend in Noble Energy’s net income, and the company’s huge success in expanding its natural gas production, I expect the company to gain value and increase stock price.
Noble Energy is one of the foremost companies in exploration and production within the integrated oil and gas sector. Noble holds licensing rights to very profitable blocks of the Mediterranean region. The company has recently discovered natural gas reserves that will quickly increase Noble’s natural gas production in the near future.
Noble recently announced the discovery of a 991 billion cubic meter natural gas reservoir off the coast of Greek Cyprus and Israel. This amount of natural gas exceeds the needs of both Greek Cyprus and Israel combined, which will allow for Noble to export natural gas, possibly as much as 50% of the reservoir, to surrounding countries. This ramped up production of natural gas should lead to increased revenues for Noble, as the price of natural gas is expected to rise from now through 2014.
Unlike most integrated oil and gas companies, like Occidental Petroleum (OXY) for example, Noble does not rely on liquid instead of gas, with about 40% of its sales volumes coming from liquids and nearly 60% coming from natural gas. Noble Energy’s focus on natural gas production is what makes this discovery in the Aphrodite field so important and potentially profitable. The recent discovery and importance of natural gas production is also why I expect Noble Energy to expand its Mediterranean exploration and reserves by bidding on the blocks of land up for auction by Greek Cyprus.
Noble Energy made two similar discoveries near the Mediterranean, one in the Leviathan field and one in the Tamar field. However, Noble will face a setback with each of these discoveries. Each of the fields, in which the natural gas deposits were found, exists in a territory that is contested by several sovereign nations. The two major issues include the dispute between Turkey and Greece over the island of Cyprus. The other major problem is the tense relationship between Israel and Lebanon. Some of the natural gas discoveries made largely in Israeli territory may rightfully belong to Lebanese maritime territories, and the lack of clear-cut maritime borders only sparks the complications between the two countries. Furthermore, Northern Cyprus, owned by Turkey, will also try to claim its right to some of the newly discovered natural gas reservoirs.
These territorial claims will damage Israel’s ability to monetize the new discoveries, and it could even lead to military confrontation. Noble has thus far played a central role in negotiations and treaties, successfully leading negotiations between Israel and Greek Cyprus. Noble will need to continue to do so if it wants to capitalize on these discoveries by exporting the natural gas and thus becoming more profitable.
Taking a look at the competition, we find Noble Energy is not the only company that is dealing with Mediterranean negotiations. Exxon Mobil (XOM) is in talks with the Turkish government about recovering 15 trillion cubic feet of shale gas. Furthermore, BP (BP) announced a project to bring natural gas from the Azerbaijan fields to the Turkey-Europe border. This pipeline will connect Europe and Asia, allowing for the easy transport of natural gas from the reserves in Asia. While this sounds like a potentially profitable project, and possible reason to invest, one must also realize the vast number of unstable countries included in a pipeline situation. Any of these deals that include untrustworthy governments and the struggling economy of Greece should not be blindly invested in.
While these natural gas deals in the Mediterranean are not surefire — given the instability of the governments — the discoveries by Noble are still very likely to turn a profit no matter who it sells the natural gas to. It appears as if Noble is confident in its Mediterranean production, as it recently announced its plan to sell a chunk of its assets in the United Kingdom’s North Sea for $127 million. Noble noted that its North Sea assets were no longer part of the company’s core working strategy.
Through its Mediterranean discoveries and its other reserves, Noble Energy intends to ramp up total natural gas production, which I expect to increase the company’s profitability. While I have focused on the recent discoveries, Noble actually expects its largest growth in production to come from the Marcellus Shale, which is located in eastern North America. The company expects growth near 126% annually, and will be entering a $3.4 billion partnership with Consol Energy (CNX) to obtain higher production yields. Noble Energy is expecting to begin production at the Marcellus field later this year and into 2013.
TEL AVIV, Israel, March 15 (UPI) — The discovery of potential oil reserves of 232 million barrels, plus another natural gas field off Israel’s coast couldn’t have come at a better time for the Jewish state as Egypt’s Islamist-dominated parliament calls for cutting off gas exports to its eastern neighbor.
But the strikes announced Tuesday also up the stakes in a simmering energy conflict in the volatile eastern Mediterranean involving Israel, Cyprus, Egypt, Greece and Turkey and their feuds.
Israel’s Modlin Energy Partnership and Canada’s Adira Energy say they found the fields, named Gabriella and Yitzhak, in shallow water 15 miles off Tel Aviv. Seismic surveys indicated the fields could yield up to 232.3 million barrels of oil, 128.4 million from Gabriella alone, the Globes business daily reported.
The fields also contain some 1.8 trillion cubic feet of natural gas.
These discoveries are relatively small compared to the 2009-10 strikes made by Noble Energy Corp. of Houston, and its partner, the Delek Group headed by Israeli tycoon Yitzhak Tshuva.
Leviathan, the biggest, which lies off Haifa, contains an estimated 20 tcf and nearby Tamar 9 tcf.
Noble Energy’s also been drilling in Block 12, known the Aphrodite field, the southernmost of Cyprus’ 12 exploration zones and which adjoins Leviathan. Noble estimated in late 2011 that Block 12 contained 7 tcf, but has revised that to 5.1 tcf, with a probability of 50 percent, after further investigation of its complex geological structure.
Even so, that still makes it the third largest field found in the Levant Basin after Leviathan and Tamar. Nobel estimates Leviathan also holds 1.7 billion barrels of oil.
The Delek-Noble partnership wants to raise $250 million on Israel’s capital markets over the next few months to pay for developing its gas fields even though the Israel Electric Corp. agreed in January to buy gas from Tamar for an estimated $8 billion over 15 years to fuel electricity generation.
Israel and the Greek Cypriot government in Nicosia plan to pool their resources and export gas, either through underwater pipelines to the energy-hungry European Union, which desperately wants to end its reliance on Russian gas, or as tanker-borne liquefied natural gas.
This infuriates Turkey, particularly since its Islamist government broke a long-standing strategic alliance with Israel in May 2010, evoking its historical rivalry with the Greeks.
The energy bonanza in the eastern Mediterranean is swelling against the backdrop of that smoldering feud, as well as the more explosive Arab-Israeli conflict that could well escalate anew.
Neighboring Egypt’s newly empowered Islamists have called for cutting off vital exports of Egyptian gas to the Jewish state.
They could go further and threaten to abrogate the landmark 1979 peace treaty Egypt signed with Israel in March 1979, the first between the Jewish state and its Arab foes.
That’s been the linchpin of Israeli, Egyptian and U.S. strategic policy in the region and scrapping the treaty would further isolate Israel at a time when it’s locked in confrontation with Iran over its alleged plans to acquire nuclear weapons.
Lebanon, Israel’s northern neighbor also plans to develop offshore fields and claims Leviathan encroaches into its waters. Both sides mutter darkly about using force.
Lebanon and Israel are technically in a state of war and fought a 34-day conflict in 2006.
Cyprus was divided in 1974 when Turkey invaded after a short-lived coup by supporters of uniting the Greek-majority island northwest of Israel with mainland Greece.
The Turks conquered the northern one-third of the island and proclaimed it the Turkish Republic of Northern Cyprus. But only Ankara recognizes it.
The Nicosia government, which controls the southern part of the island, is internationally recognized and is part of the European Union.
Turkey bitterly opposes Greek Cypriot plans for the gas fields Nicosia expects to find offshore and their burgeoning economic, political and — more worrisome — military links with Israel.
Ankara warns it will use its considerable military force if it feels threatened and insists that no exploration around Cyprus can take place until the Turkish minority is reconciled with its old enemies in the south — a prospect that right now seems extremely remote.
The stakes are already high. The U.S. Geological Survey reported in 2011 that the eastern Mediterranean contains 123 tcf of gas and 2 billion barrels of oil.