Noble Energy Downgraded on Debt Woes
Rating agency Moody's downgraded Noble Energy last week by one notch to Baa3, which is one notch above Ba1, or junk. The company is one of the main players in the eastern Mediterranean's gas market.
The downgrade follows Noble’s plan to fund Leviathan development by taking on more debt. It also said that it might divest some of its holding in Tamar or in Leviathan. Earlier this year it sold 50% of its holding in Aphrodite gas field off shore Cyprus to BG – now owned by Anglo-Dutch major Shell – for $165mn and its 47.5% holdings in Karish-Tanin off shore Israel to Delek Group for some $70mn.
The debt will be necessary as Noble revealed in its report that it repatriated $858mn of earnings from its foreign subsidiaries, in Equatorial Guinea and Israel, to the US. American companies keep money earned out of the US in tax havens in accordance with an accounting rule that allows them to state that their overseas earnings in a jurisdiction will be indefinitely reinvested. But Noble has decided to forgo this option in order to increase its financial flexibility, even if those sums would be taxed and while the company says it is ready to invest in Leviathan gas field.
Noble operates in four geographical zones and in three of them reported operating losses. In the US it lost $891mn; in Equatorial Guinea it lost $173mn and in International operations the operating loss stood at $332mn on revenues of just $5mn.
The only profitable zone was Israel with operating income of $318mn. The average gas price last year was $5.34/’000 ft³ (about $5.30/mn Btu), down 6% from 2014 while in the US natural gas prices and oil prices plummeted by 46% and 51% respectively to $2.10/’000 ft3 and $43.46/barrel. In Israel Noble also increased its sales to 2.77bn m3/year from 2.4bn m3/year in 2014.
Overall revenues from mainly Tamar were $479mn while the cost of production was $67mn, just 13.5%. In the US that proportion stood at 41% and in Equatorial Guinea at 25%.
Ya'acov Zalel