The Leviathan gas field located in the Mediterranean Sea off the coast of Israel is among the largest offshore natural gas reservoirs in the world.
When the field was discovered four years ago, Israel’s infrastructure minister called it “the most important energy news since the founding of the state.”
The field holds an estimated 19 trillion cubic feet (tcf) of natural gas, enough to meet Israel’s gas needs for a quarter of a century.
Leviathan is so immense that it’s also turning Israel into a gas exporter.
On Monday, news broke that Leviathan’s lead driller signed a non-binding letter of intent to supply roughly 700 million cubic feet (mcf) of natural gas per day to a gas liquefaction facility in Egypt – for the next 15 years!
It’s a colossal deal estimated to be worth $30 billion.
Since it’s expected that the final agreement will be completed by the end of 2014, now is the perfect time to buy shares of this driller.
Leviathan’s lead driller, with a 39.66% interest, is Houston-based Noble Energy (NBL).
When the deal becomes official, over the next 15 years, Noble will send a total of 3.75 tcf of natural gas to an LNG facility in Idku, Egypt owned and operated by the UK’s BG Group.
Delivery of the natural gas to BG is expected to flow through a new subsea pipeline, according to Noble.
It’s all part of what Noble’s management is referring to as “Phase one” of a massive drilling campaign.
According to Keith Elliott, Noble’s Senior VP for the Eastern Mediterranean…
“Phase one of the Leviathan project is designed to provide significant quantities of natural gas to Israel and regional markets… This transaction, in combination with regional cooperation, will also provide access for Eastern Mediterranean gas into global markets.”
A final gas purchase and sales agreement will be negotiated and subject to regulatory approvals in Israel and Egypt.
I have no reason to believe this deal won’t be final by the end of the year.
Even better, the stock is experiencing some good-natured profit-taking on the news, and the drop in price just created a perfect entry point.
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Expect shares to resume their upward trajectory by lunchtime tomorrow.
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More Storylines Impacting Markets
Spanish 10-Year Bond Yield Lowest Since the French Revolution
In an example of absurd risk pricing, the Spanish 10-year bond was recently yielding its lowest coupon since at least since 1789.
Interestingly, the interest rate offered for Spanish 10-year bonds is just seven basis points higher than equivalent yield in ultra-safe U.S. Treasuries, which has not happened since April 2010. But the low risk assumptions aren’t just limited to Spain…
Several European bond markets hit fresh multi-century all-time lows, while others are flirting with new record lows.
France saw its 10-year bond hit 1.654 intraday recently, which was the all-time low dating back to 1746. Italian 10-year bonds fell to the lowest yield since 1945.
The most curious fact about the record-low bond yield is the reaction of European and American stock markets, which gained despite the bond market action.
Sudden Spike in Subprime Auto Loan Delinquencies
The percentage of loans packaged into securities more than 30 days late rose 1.43 percentage points, to 7.59%, in the 12 months that ended on September 30, according to Standard & Poor’s.
That’s the highest delinquency rate in three years, amid looser underwriting standards as a result of Federal Reserve stimulus.
Subprime lenders found cheap funding in the bond market, with $17.6 billion of asset-backed securities tied to subprime auto loans issued in 2013 – more than twice the $8 billion sold in 2010.
While the Fed-sponsored stimulus brought life to the auto market, the slowing economy, since Q3 2013, has resulted in rising credit losses and a tightened credit market for new car buyers. Expect slower new car sales for automakers through the end of the year.