Why Is Nobel, A Cyprus Gas Partner, Facing Debt Problems?

Why Is Nobel, A Cyprus Gas Partner, Facing Debt Problems?Back in October 2008, Nobel Energy received the concession in South Cyprus to explore the Aphrodites Field in Block 12 off the Cyprus Coast. By 2011 this had resulted in exploratory drilling with claims of vast stores of gas but with no clear idea how this could be transported commercially. [Wikipedia]

Then the price of oil dropped, in response to a decrease in the demand for fuel and a glut in production. Currently, there is a minor move upwards in price because of the cold snap in the USA but with warmer weather likely in the near future this increase in price is expected to be temporary.

So, with fuel prices dropping, profits of oil companies followed. This situation was made even worse for these companies because of the loans that many had taken out. Since 2015, 42 North American oil companies have filed for bankrupcy and many have now become bankrupt. This had led to, for example, Wells Fargo with $17bn of loans to the oil and energy sector setting side $1.2bn to cover expected losses. [CNN Money]

Which brings us to the Nobel Group. Standard and Poor became the latest credit agency to cut its rating to junk and although it insists it is not in trouble the company is being force to sell off its assets, one of which is its stake in the Aphrodites Field. [The Telegraph]

This 35% share of the Aphrodites Field has been sold to the British company, BG Group, which is in a much better financial position to develop the project despite being involved in an attempted takeover by Royal Dutch Shell. If the sale goes through then Nobel, now with just a 35% stake, will still be the operator of the project and another two companies, Delek and Avner Oil and Gas, each with a 15% stake will make up the consortium. [Offshore Technology]

A recent statement by the south’s Government spokesperson, Nikos Christodoulides, indicated that there would be significant developments to the gas project in the near future. These developments include new plans for the field from the BG Group, and the results of negotiations with Egypt for the sale of the natural gas.

All this at a time when fuel prices are falling. Now, call me cynical, but wouldn’t there be more money in buying a cheap stake in the oil field, sitting on it, and then waiting for prices to rise. Producing gas at the time of a glut does not make sense so there will be no income for the south for many years to come, in my opinion.

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