Leviathan partners need $10b to export gas

Noble Energy and Delek hope to partner with Cyprus and major players from China and Russia to export gas.

$10 billion is the sum that Yitzhak Tshuva and his partners need to raise in the coming years to realize their ambitious plans to export natural gas from the Leviathan field. The partners are setting up a new company in order to raise the capital and conduct talks with world class players in the gas and oil industry from countries like China and India.

Noble Energy Inc. (NYSE: NBL) owns 39.66% of Leviathan, Delek Group Ltd. (TASE: DLEKG) units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) each own 22.67%, and Ratio Oil Exploration (1992) LP (TASE:RATI.L) owns 15%.

A Delek employee told "Globes," "The project is simply too big for Noble Energy and us." Above and beyond costing vast amounts of money, the project needs to cope with financially powerful business rivals and a lot of politics. In coping with this challenge, Delek Group is playing its diplomatic ace in the form of President Shimon Peres.

The Leviathan field is the largest natural gas find anywhere in the world over the past decade. But Noble Energy and Delek's plans extend beyond Leviathan and even Israel's borders. At the center of their plans is the desire to build a liquefied natural gas terminal south of Cyprus. The terminal would take in gas, not only from Leviathan but also Cyprus's Block 12 field, which is just 33 kilometers northwest of Leviathan. Preliminary results of the Block 12 drilling are expected to be published later this week at an analysts' conference and leaks from the survey suggest that they will show that Block 12 is similar in size to Leviathan.

The gas from both these fields is being slated for export and the preferred destination is the Far East where the highest prices can be fetched.

However, setting up such a terminal will require Noble Energy and Delek Group to bring in heavyweight partners. Likely candidates include China's CNOOC and Russia's Gazprom, which already has complex relations with Delek. The Electricity Authority of Cyprus has also expressed interest in joining any venture as a junior partner.

The Israeli authorities including the Ministry of National Infrastructures and other bodies are less enthusiastic about Tshuva's plans, preferring that he would build the terminal in Israel despite the bureaucratic difficulties. One senior Israeli government source told "Globes" "No sensible government is prepared to have its gas export installations in another country, however friendly it may be."

Peres asks that Delek be treated fairly

Ten days ago, President Shimon Peres made a visit to the island designed to promote strategic cooperation between Israel and Cyprus in developing gas fields. As "Globes" has reported, the gas discoveries have warmed up the often chilly relations that have prevailed over the years. On the agenda is cooperation in developing gas fields. Estimates are that the strata of gas at Block 12 runs into neighboring Israeli licenses owned by Beni Steinmetz (42.5%), Teddy Sagi (42.5%) and Roni Helman and Uri Aldoby's Israel Opportunity (10%).

During Peres's meetings with senior Cypriot figures, he repeatedly asked that Israeli companies be given equal and fair opportunities in their operations in the country. Peres did not specify any companies by name but it was clear that he was referring to Delek Group, which has invested enormous efforts to receive 30% of the rights to Block 12. Noble Energy received 30% of the rights in 2008 to Block 12 from the Cypriot government but Delek Drilling and Avner, which each have 15% options on the license are still waiting for approval from the Cypriot government. Sources inform "Globes" that several days ago the professional echelon at Cyprus's Ministry of Energy recommended approving Delek's option. But the story does not end there. Many of the world's large oil companies are looking greedily at Block 12 and are not afraid of putting on political pressure to promote their interests.

Some reports suggest that Gazprom is after the rights to Block 12 and has enormous influence over the Cypriot Communist Party, one of the country's major minority political parties. In one compromise proposal, Gazprom will be given rights to other licenses.

Tshuva's options

Meanwhile, another of Tshuva's plans is to set up a new gas pipeline company. The company would operate from Cyprus and take advantage of the country's relatively low 10% company tax. Reports say that Tshuva recently offered outgoing Delek Energy CEO Gideon Tadmor the job as CEO of the new company, while another candidate is former Supervisor of Banks Rony Hizkiyahu. This company would be a partner in Tshuva's grandiose plans to export gas but the plan arouses the suspicions of other investors in the Avner and Delek Drilling gas exploration limited partnerships.

The investors fear the company, as an agency will buy gas on the cheap and sell it at high prices and that this will pump up the value of the partnerships that Tshuva fully owns. However, concerned investors who have spoken to Tshuva in recent days have received categorical denials and promises that gas will be bought from all partnerships at a fair economic price.

A key question will be if the new company is held by Tshuva through the partnerships or if it will be "above them," that is to say fully owned by Tshuva. A third possibility is that it will be a sister company with the partnership units allowed to hold shares in proportion to their holding in the partnership.

Published by Globes, Israel business news - www.globes-online.com - on November 13, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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