Efforts to develop some of the 22 trillion cubic feet (Tcf) of recoverable natural gas resources from the Levant Basin have received a $3.75 billion boost from Noble Energy Inc. (NYSE: NBL) and partners.

The Houston-based company said Feb. 23 it has sanctioned the first phase of the large Leviathan development offshore Israel in the Mediterranean Sea. Noble's share is $1.5 billion. Development plans call for four subsea wells, which are each capable of flowing more than 300 million cubic feet per day of gas that will be delivered via two 73-mile flowlines to a fixed platform. From there, Noble said processed gas will travel to the Israel Natural Gas Lines Ltd. onshore transportation grid and to regional markets.

Noble is one of a few companies to sanction major projects in recent months as market conditions rebound from a bleak period of spending cutbacks and activity slowdowns. Sustained commodity prices above $50 per barrel coupled with leaner ways of operating—both in the field and in executive suites—have bolstered industry confidence, including offshore.

“Sanction and development of Leviathan build on recent portfolio milestones and reinforce our focus on high-margin growth. Leviathan will generate robust project economics, have strong investment efficiency, and provide long-term cash flows,” Noble Energy CEO David Stover said in a statement. “With 40 Tcf gross recoverable resources discovered by Noble Energy in the region, we can continue to grow our Eastern Mediterranean business for decades. This includes material additional development beyond Phase One at Leviathan.”

Analysts responded favorably to the news.

“We view the sanctioning as a positive for Noble,” Barclays said in a note.

The analysts pointed out:

  • The project sanction will increase Noble’s proved reserves by about 35%. Initial Leviathan proved reserve bookings will be 3.3 Tcf net (9.54 Tcf gross) and
  • The development will contribute an estimated $650 million of cash flow in 2020.

Barclays values Noble’s interest in the first phase development at between $1.2 billion and $2.4 billion. Analysts put the value of Phase 2, which will include two process trains and a third subsea tieback line, at roughly half that.

Leviathan is Noble’s third major gas development offshore Israel following its 2000 Mari-B discovery, which began production in 2004, and Tamar, which went online in 2013.

Costs associated with Leviathan include $100 million spent in 2016 and about $200 million in pre-investment costs relating to the future platform expansion, Noble said.

With FEED work for Leviathan finished, Noble added it is finalizing major contracts for the projects as procurement for long lead materials continues. Up to two development wells could be drilled at the field this year. Noble also said the company expects to perform completion work on all four producer wells at the field next year.

If all goes as planned, Noble and partners Delek Drilling, Avner Oil Exploration and Ratio Oil will mark first gas by year-end 2019. Noble operates the field, holding a 39.66% interest, while Delek and Avner—whose shareholders have agreed to merge—each hold 22.67%. Ratio Oil owns the remainder.

Targeting sales volumes of 1 Bcf/d gross at startup, Noble projects operating cash flow for the first year after Leviathan’s startup to be at least $650 million.

The sanctioning followed news of funding for another major project.

BHP Billiton Ltd. (NYSE: BHP) said Feb. 9 it agreed to spend $2.2 billion for its share of the BP-operated Mad Dog 2 project in the U.S. Gulf of Mexico’s Green Canyon area. The company holds a 23.9% stake in the field. The deepwater project was sanctioned by BP Plc (NYSE: BP), which holds a 60.5% participating interest in the field, in fourth-quarter 2016. Chevron USA affiliate Union Oil Co. of California, which holds the remaining interest, has not announced sanctioning.

“We have not yet taken FID [final investment decision], but I expect that we will,” Chevron CEO John Watson said Jan. 27 on the company’s fourth-quarter 2016 earnings call.

Earlier this year, Wood Mackenzie forecast FIDs will pick up in 2017 to more than 20. The figure is more than double what the industry saw in 2016, but it does not surpass the 2010-2014 average of 40.

“The industry has selected the best projects to optimize and take forward,” Malcolm Dickson, a principal analyst for upstream oil and gas for Wood Mackenzie, said in January. “In 2017 it will have to turn its attention towards optimizing the next wave of developments to get them sanction-ready.”

The leading indicator of the changing tide for the oil and gas industry will be deepwater FIDs, according to Wood Mackenzie.

“Projects slated for FID in 2017 are largely looking good, but the longer-term deepwater pipeline is more challenged,” the analyst said. “Of the 40 larger pre-FID deepwater projects, around half fail to hit 15% IRR [internal rates of return] at US$60 a barrel.”

Velda Addison can be reached at vaddison@hartenergy.com or via Twitter @VeldaAddison.

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