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Middle East Energy Deals In Question Over Israel

  • BP assured investors that its $2B deal with ADNOC to jointly buy a 50% stake in Israeli gas producer NewMed Energy remains on track.
  • The NewMed takeover is not the only energy project likely to be disrupted by the Israel-Hamas war, energy projects in Lebanon are also at risk of disruption.
  • The war is very likely to make cooperation between the two countries almost impossible, with Lebanon being home to Israel’s arch-enemy, Hezbollah.
Leviathan

On Wednesday, BP Inc. (NYSE:BP) reassured investors that its $2B deal with Abu Dhabi National Oil Co. (Adnoc) to jointly buy a 50% stake in Israeli gas producer NewMed Energy (OTCPK:DKDRF) remains on track, despite Israel’s ongoing war with Hamas in Gaza. According to Reuters, BP's head of gas and low-carbon energy Anja-Isabel Dotzenrath told shareholders at the company’s investor day in Denver that they remain "very optimistic" about the deal. The two companies are reportedly weighing on whether to improve their initial offer. NewMed Energy (OTCPK:DKDRF) is the majority shareholder and main operator of the giant Leviathan Natural Gas Field with a 45.3% working interest, while Chevron Corp.(NYSE:CVX) and Ratio Oil Corp. have a 39.7% and 15% stake, respectively.

But that reassurance does not necessarily mean the deal is close to being consummated. 

The deal was thrown into question last week after an independent panel appointed by NewMed recommended raising the asking price by 10%-12%, or as much as ~$250M, which might seem like a stretch considering the company currently has a market cap of $2.9B and $87 million in cash but $1.73B in debt. Meanwhile, reports have emerged that executives at BP and Adnoc are anticipating further delays on the deal until the political situation improves. Experts are worried that a surge in civilian casualties could make it politically untenable for the companies to proceed, with the death toll in Gaza already approaching 2,000, mostly civilians, and more than 7,000 wounded in just the first week of the conflict. Israeli Prime Minister Benjamin Netanyahu forged an emergency government on Wednesday to direct war against Hamas, and his defense minister vowed to wipe the militant group "off the face of the earth" in what is shaping up as one of the bloodiest conflicts in the region in recent times. Related: France Mulls Extending Windfall Tax On Oil And Power Giants

NewMed and its two partners discovered the Leviathan Natural Gas Field in the Levant Basin Province in 2010. The gas field straddles the sea borders of Israel, Lebanon, Palestine, the Republic of Cyprus and the Turkish Republic of Northern Cyprus. With 22.9 trillion cubic feet of recoverable gas, Leviathan is the largest natural gas reservoir in the Mediterranean, and one of the largest producing assets in the region.

Lebanon’s Gas Quest Could Go Bust

But the NewMed takeover is not the only energy project likely to be disrupted by the Israel-Hamas war. Back in August, French energy group TotalEnergies (NYSE:TTE) set the first drilling rig at its location in the Mediterranean Sea off Lebanon’s coast near Israel’s border with the country looking to commence operations in search for gas. The cash-strapped nation hopes that future gas sales could help the country pull out of its deep financial crisis that has seen the local currency lose more than 98% of its value.

"The arrival of the equipment marks an important step in the preparation of the drilling of the exploration well in Block 9, which will begin towards the end of August 2023," TotalEnergies said in a statement. TotalEnergies leads a consortium of energy companies working on the offshore project, which includes Italian oil and gas giant Eni S.p.A. (NYSE:E) as well as state-owned QatarEnergy.

The drilling operations came after a landmark U.S.-brokered agreement last year that saw Lebanon and Israel establish a maritime border for the first time ever. Back in May, Lebanon’s Energy Minister Walid Fayad said they hope to determine whether the exploratory block has recoverable gas reserves by the end of the current year. 

Unfortunately, the war is very likely to make cooperation between the two countries almost impossible, with Lebanon being home to Israel’s arch-enemy, Hezbollah. Two days ago, Israeli shelling hit southern Lebanese towns on Wednesday in response to a fresh rocket attack by Hezbollah, as cross-border violence extended into a fourth day. The Israeli military also revealed it had hit a Hezbollah position with an air strike and also attacked Lebanon after a military post near the Israeli town of Arab al-Ahram She was targeted with anti-tank fire. The United States has moved one of the largest aircraft carriers in the world and an accompanying strike group to the Eastern Mediterranean aiming to deter Hezbollah and Iran from taking advantage of the situation.

Meanwhile, recent allegations that Iran helped Hamas plan the Israel attack is very likely to seriously strain relations between Washington and Tehran. Standard Chartered has opined that the U.S. has three broad policy options in relation to Iran’s oil output: (1) the status quo, with output at 3mb/d or higher, (2) the pre-2023 plateau of close to 2.5mb/d, or (3) near-zero exports with output below 2mb/d as reached at the end of the Trump administration. 

The analysts note that option #1 was the most expedient policy for the U.S. in terms of both market influence and geopolitics just a week ago. However, the latest developments in the Middle East have brought options #2 and #3 into focus as potential policy targets. Iran’s oil output and exports have increased sharply under the Biden administration, with production hitting  3mb/d, including 500,000 b/d in the current year, while exports sit just under 2mb/d.

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By Alex Kimani for Oilprice.com

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  • Mamdouh Salameh on October 16 2023 said:
    The oil and gas wealth of the Middle East which should have become (and did become) a source of prosperity to countries of the wider region has become a curse for its people.

    With 60% of the global oil reserves and 48% of the gas reserves, the Middle East has become a geopolitical hotspot of infighting between major powers wanting a piece of the cake and a cause for wars.

    As long as oil and gas continues to occupy a central place in the global economy and the strategies of major powers, countries of the region will continue to suffer from this curse.

    The Hamas-Israel conflict has reawakened fears of conflicts and instability and are starting to cast dark clouds on investments in the region.

    Cases in point are the proposed joint purchase by Abu Dhabi National Company Adnoc and BP of a 50% stake in Israel’s giant Leviathan gasfield which might be put on the back burner and a disruption of TotalEnergies’ drilling of Lebanon’s Block 9 for gas near the maritime borders with Israel.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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