Noble Energy Inc. (NYSE: NBL) has signed a non-binding memorandum of understanding (MoU) regarding the sale of interest in the Leviathan licenses, offshore Israel, to Woodside Petroleum. Each of the existing Leviathan partners – Noble Energy, Delek Drilling, Avner Oil Exploration, and Ratio Oil Exploration – are participating as sellers of a 25% interest in the licenses to Woodside. Noble Energy will convey a 9.66% working interest and will continue as upstream operator with a 30% working interest. Following completion of the transaction, Woodside will become the operator of any LNG development of the field.
Total compensation to Noble Energy is anticipated to include $525 million in cash payments plus $502 million in shared future revenues. The initial cash payment of $390 million is payable at closing of the transaction, which is expected in 2014. The remaining cash amount of $135 million is due when a final investment decision is made in relation to an LNG or FLNG development or as regional export contracts are executed in excess of a threshold volume amount, whichever occurs earlier. The shared future revenue represents 5.75% of export revenue attributable to Woodside's net export sales, commencing once the gross exported volume from the Leviathan field exceeds 2.0 trillion cubic feet (Tcf) of natural gas.
An additional payment of $19 million, net to Noble Energy, will be made should ultimate recoverable Leviathan resources be determined to be in excess of 20 Tcf gross of natural gas. The determination and payment will occur no earlier than when cumulative field production reaches 4 Tcf. In addition, the sellers will receive a royalty of 2.5% of Woodside's future oil revenues associated with the deep Mesozoic, should a commercial discovery and development result on the licenses. The royalty would go into effect following net payout of investment.
The MoU includes the agreed-upon commercial terms of the farm-out transaction and sets the time frame for execution of definitive agreements. The Leviathan project is located on the Rachel and Amit licenses offshore Israel in 5,550 feet of water. It has an estimated 19 Tcf of discovered natural gas resources.
Following completion of the transaction, working interests in the Leviathan project will be Noble Energy (30%), Delek Drilling (16.94%), Avner Oil Exploration (16.94%), Woodside Petroleum (25%), and Ratio Oil Exploration (11.12%).
The deal is viewed as positive by Global Hunter Securities analyst Mike Kelly who says that Noble “fetches > $1B (vs. $802 MM previously expected) and gains a world-class partner on the LNG development front, bringing the Leviathan project closer to sanction.”
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