Long-time readers of mine know that I am not a short-term trader of energy ideas. I like companies that have strong trends in their favor, which will be in their favor for years at a time, not months and certainly not weeks.
Last week, two news items continued to show that kind of positive tailwind for Noble Energy (NBL) and I am continuing my Hold recommendation with them.
We've had some stunning results with some American exploration and production companies in the past two years and by no means am I abandoning the thesis of stellar growth in the various shale oil plays around the U.S. that has inspired their big moves. But if there is a thesis that has widespread recognition and support, it is the leadership of U.S. E+P's in developing shale assets. To me, while there may be more to capture from this megatrend, it is not in any way new and likely to have seen much of its potential profit.
But with Noble Energy and Delek Holdings (DK) in the fast-moving off-shore natural gas Levant basin projects in the Mediterranean, it seems clear that very few still understand the truly game-changing effects this find is going to have.
There is a story that Israeli Prime Minister Golda Meir used to tell in the 1960s. She would say that the only thing that the Jews have against Moses is that he brought them to the one spot in the Middle East that has no oil. But the Tamar and Leviathan finds in the Mediterranean are quickly making that story false. With a total recoverable estimate of close to 200 trillion cubic feet of gas, it is possible that Israel will become one of the richest fossil fuel producers in the entire Middle East.
And it is not just the amount of recoverable gas that this represents, it is clearly also who is controlling it that matters. Two events over the last week have the market speaking about the strength of who is developing this asset and the confidence the market has in its ultimate success. First, there was a new non-binding agreement between the Egyptian LNG company UFG for up to 2.5Tcf of Israeli gas from the Levant, a deal that has as much geopolitical power as it does for finding a ready customer for newly-drilled wells. And second, a new $2 billion bond offering from Delek and Avner oil, partners with Noble in the Leviathan, was received with incredible enthusiasm. More than $13.5 billion was offered, an oversubscription of 650%.
What this says is important and clear. Not only is the market convinced of the ultimate success of the development of the Leviathan, but it is also extremely confident of the companies and the countries that are running it and their ability to see their obligations through. With the fast-changing politics in oil-rich countries that investors need to dance through, whether that is in the Middle East or even in Brazil or Russia, there is an overwhelming contrasting confidence in Noble, Delek and the Israelis.
The bottom line is that Leviathan and Tamar are really too big for Noble to completely develop. One should expect a big -- no, mammoth -- partner to come over the horizon once the production ramps in 2015 and 2016 and make a heckuva bid for the asset. Look for someone like French giant Total (TOT) or perhaps BP. The Russians will certainly want it, but it's unlikely the Israelis will be happy with a Gazprom partnership. In any event, that will be the big payoff for shareholders to look forward to, but for now is just another long-term reason to hold onto this terrific stock.