Yaakov Tzalel
Noble Energy's first quarter loss would have been far worse without the Israeli offshore gas field, Yaakov Tzalel observes.
The Tamar natural gas reservoir is among the world's most attractive energy sites, according to Noble Energy president and CEO David Stover. Noble Energy yesterday published its first quarter financial statements. Despite the quality of the Tamar site, the company posted a $422 million operating loss, an increase of 220%, compared with its loss in the first quarter of 2015, and a $287 million net loss, more than a 10-fold increase. Had oil prices, which recently jumped 50% been just $10 a barrel higher, Noble Energy's quarterly revenue would have been $835 million, $130 million more than they actually were. That might not have turned its loss into a profit, but it would have made the company's struggle to survive much easier.
With excessive gas prices in comparison with both the global market and the costs of production, the Tamar reservoir generated $84 million in operating profit on $126 million in operating revenue, an impressive 65% in pre-tax profit, compared with an increase in revenue of only 5% and an impressive 65% operating profit margin.
The impressive increase is a result of Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz's order to increase the use of natural gas at the expense of coal. It seems that Steinitz prefers cleaner gas to more polluting coal (although clean gas to replace polluting coal could be obtained more cheaply through price controls).
Noble Energy marketed 266 mmcf of gas a day to the Israeli market, up 8.5% compared with last year, at an average price of $5.19 per unit of heat, a fall of 5% in the average price. From the private consumer's point of view, this average is misleading, because Israel Electric Corporation (IEC) (TASE: ELEC.B22) pays a price of nearly $6 per unit of heat, while private electricity producers enjoy a lower price (which is also excessive), and supply electricity to large private consumers at a lower price than IEC. In this way, millions of small consumers are subsidizing both the gas monopoly and the private electricity producers and consumers.
Despite the attractiveness of Tamar, Noble Energy is considering monetizing the reservoir, both because of its commitment to the natural gas plan and due to its financial straits. "Many parties want in on Tamar. We may cut down on our holdings this year, but it is difficult to say," Stover told analysts in a conference call after the financial statements were published.
Minimal production costs
Noble Energy's gas production costs totaled $10 million in the first quarter, $2 million less than in the corresponding quarter last year. The total cost of production dropped 25% to $2.46 per BOE ($0.41 per heat unit, which also includes the cost of transporting the gas to the shore, where it is sold at an average price of $5.19).
In good times, when oil prices were high, Noble Energy's operating profit margin was not unusual. In 2014, for example, Noble Energy's operating profit margin was 71.8% in Israel, 60.6% in Equatorial Guinea, and 16% in the US. Its profit margin after taxes that year was 52.2% in Israel, 45.5% in Equatorial Guinea, and 10.4% in the US.
In 2013, before the oil price crash in mid-2014, Noble Energy's profit margin was 47.7% in Israel, 68.6% in Equatorial Guinea, and 35.5% in the US. What these figures clearly show is that Noble Energy was able to maintain a profit margin of over 50% in developing countries like Israel and Equatorial Guinea. In the US, where there is competition, its profit margins are substantially lower than in Israel.
The rise in oil prices in recent weeks did not include natural gas, whose Henry Hub price stabilized at $2-2.10 per unit of heat. The prices at the European hubs recently stabilized at $4 per unit of heat, and the price of Russian gas in Europe fell to $4.50 per unit of heat, making Tamar extremely attractive, according to Stover.
Distortions can also be found in Noble Energy's financial statements, however. The $6 per unit of heat gas price paid by IEC, which is the real price for the general public in Israel, stands out as excessive. Private electricity producers, on the other hand, pay 20% less, and supply cheap electricity to large private consumers. This is probably also the reason why various industrialists, who could have earned billions of shekels from lower natural gas prices and electricity costs, are taking almost no action against the natural gas monopoly, thereby colluding in the destruction of democracy in Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2016
© Copyright of Globes Publisher Itonut (1983) Ltd. 2016
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