The sale of the Tanin and Karish natural gas reservoirs was one of the main elements of the gas plan. The Ministry of Finance asserted that the sale of the reservoirs would make it possible to introduce a third player into the gas market, who would be strong enough to compete with the owners of Tamar and Leviathan, despite the clear advantage in size enjoyed by the two older reservoirs. For this reason, the biggest achievement in the sales of the Tanin and Karish reservoirs is the deal itself, which proves that the two small reservoirs are economically and commercially worthwhile. There are not many other reasons for optimism in the deal.
Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva is projected to receive $150 million for his partnerships' rights in the reservoirs. This is far from a bonanza for Tshuva; it is not even a successful exit he is merely making back his investment to date in the project, having invested $148.5 million in the drilling in equal shares with Noble Energy, his partner in the exploratory drilling, plus another $67 million paid to Noble Energy for its 47% holding in 2015.
Despite the prolonged negotiations that preceded the deal, it can be assumed that the timing of its closure was not incidental, because according to the gas plan, the rate of royalties to which Delek Group is entitled (in addition to the price paid for the shares) drops from 9% to 7% tomorrow. Will Tshuva actually get any royalties from the deal? That is actually the main question. The state must approve the deal, and its approval appears far from automatic.
Cypriot company Energean is a far from large veteran oil and gas exploration company that has hitherto been active mainly in shallow-water drilling in the area of Greece. In the past, the Antitrust Authority director general disqualified Energean from serving as a drilling operator, due to its lack of experience in deep-water drilling. The Cypriot company's financial capabilities are also questionable. In this context, it should be noted that Energean recently obtained financing for a different project from the European Bank for Reconstruction and Development (EBRD), considered a highly selective and professional entity.
In the bottom line, it appears that the sale of Tanin and Karish to Energean, if approved, will leave the government no choice other than to intervene in some way in order to ensure a market for the gas from the small reservoirs. The fact that the company involved is a speculative one is liable to make the final price more expensive.
Published by Globes [online], Israel business news - www.globes-online.com - on August 17, 2016
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