This story has been updated with a statement from Noble Energy and revised to remove comments from the Nomura analyst in order to reflect the company's assertion that its Plan of Development does not require approval from Israel's Supreme Court.
The signing of a landmark agreement between Turkey and Israel was lost amid Tuesday's terrorist attack at the Istanbul Airport, where at least 41 people died and more than 200 others were injured in a series of suicide bombings. While the tragedy serves as a jarring reminder of the instability in the region, the rapprochement agreement promises to restore a degree of stability between the two nations, which had seen relations deteriorate following the Gaza War in 2008.
The focal points of the deal were security and humanitarian issues in the Gaza Strip, protection for Israel Defense Forces and a commitment to prevent all terrorist activity against Israel from Turkish soil. While Israeli Prime Minister Benjamin Netanyahu outlined these elements during a speech Monday in Rome, what he said at the end of his speech will more likely pique the interest of energy investors.
"This agreement opens the way to cooperation on economic and energy matters, including the gas issue," said Netanyahu, "Gas is so important and contains the possibility of strengthening the Israeli economy and state coffers with vast capital." The prime minister elaborated, saying that 60% of every shekel from extracted natural gas goes to the state treasury.
Currently, Noble Energy (NBL) has two sites in Eastern Mediterranean that would be the major provider of natural gas: Tamar and Leviathan.
Nomura analyst Lloyd Byrne told Real Money in a phone interview Tuesday that he believes the agreement between Turkey and Israel is "clearly beneficial" for Noble Energy because it wants to produce its resource, and "they have lots of gas and selling it at a reasonable price earns them a good return."
In 2010, Noble Energy discovered the Leviathan field, its largest natural gas discovery to date. According to the company's most recent annual report, as of the end of Dec. 2015, it had invested $2.1 billion in Israel, of which $400 million was related to the Leviathan natural gas discovery and suspended deep oil test.
Noble Energy plans to drill four wells -- two of which have already been drilled -- to gather and treat the gas, which would then be piped into the national pipeline operated by Israel National Gas Lines, according to a June 22 research note by Mitsubishi UFJ Securities analysts. The company's Plan of Development for the Leviathan Project was approved in the beginning of June. Noble Energy's fixed platform's initial capacity is anticipated to start at 1.2 billion cubic feet of natural gas per day and is expandable to 2.1 billion cubic feet of natural gas per day. The Israeli Supreme Court can still hear challenges to this plan.
Utilizing this field is a slow and expensive process, as Noble Energy states in the annual filing that development of Leviathan Phase 1 will require a multi-billion-dollar investment and require a number of years to complete. Mitsubishi analysts said that the company estimates the initial stage will cost $3.5 billion to $4 billion, of which it is responsible for $1.5 billion.
But Noble Energy believes that due to the size of Leviathan, several development phases will be necessary for full field development to serve both domestic demand and exports markets.
The oil and natural gas exploration and production company has already lined up one of those export markets: Egypt. The company already has a signed letter of intent with Dolphinus Holdings for up to 4 billion cubic meters (BCM) annually from Leviathan for the Egyptian market. That is in addition to its sale and purchase agreement for natural gas from the current Tamar capacity.
Furthermore, Mitsubishi analysts noted that there is a 15-year, non-binding letter of intent in place with National Electric Power Co., which owns and operates the electric grid for the Kingdom of Jordan.
And, at the beginning of June, the company announced a gas sales and purchase agreement to supply natural gas from the Leviathan field to IPM Beer Tuvia power plant, which is located in southern Israel, over an 18-year term.
But the deal with Turkey is what greatly expands Noble Energy's export market. It provides access to continental Europe, the second-largest natural gas market. While Turkey only produces a small amount of natural gas itself, it is an "important consumer of natural gas and is becoming an important transit state for natural gas," according to the U.S. Energy Information Administration.
In 2014, Turkey imported 1.7 trillion cubic feet of natural gas, accounting for 99% of total natural gas supply. The EIA says Turkey's largest supplier is Russia's Gazprom, which accounted for 57% of Turkey's total natural gas supply in 2013.
But in Netanyahu's speech Monday, he said Leviathan "could supply both the Egyptian market that we intend to work with and also the Turkish market as well as the supply of gas through Turkey to Europe." This means that the agreement between the two nations could obviate Turkey's dependency on Gazprom, which supplied Europe with 161.5 billion cubic meters of gas in 2013 -- accounting for approximately one-third of the total supply volume.
"Our natural gas projects offshore Israel are well positioned to meet the growing demand in both Israel and the undersupplied regional markets, including Jordan, Egypt and Turkey," said Paula Beasley, a senior advisor for Noble Energy's Communications and Media.
While there appears to be upside potential for the stock, Real Money contributor Daniel Dicker said Wednesday that there are a few reasons why he is no longer bullish on Noble Energy. The company has been slow to replace one of its partners for the Leviathan project, Woodside Energy (WOPEY, WOPEF), which had agreed to buy a 25% stake in the field before backing out in 2014. Then Noble CEO Chuck Davidson stepped down in 2015 and was replaced by David Stover. These reasons coupled with the recent anti-trust dispute, which questioned whether Noble Energy and its Israeli partners held too much control over the gas fields off the coast, has Dicker "merely sanguine" on Noble Energy.
Meanwhile, Mitsubishi analysts said once Noble Energy is able to secure the Jordan deal and other local agreements, "we believe that NBL's stock will begin to reflect the full value of Leviathan."
-- This story was updated to reflect that Dicker is not bearish on Noble Energy.