Analysis

Yair Netanyahu Said His Dad Arranged $20b for Gas Tycoon. How Much Will He Really Make?

Based on reports by the Tamar natural gas partnership, it seems Kobi Maimon would only take in hundreds of millions of dollars. Here's why

Tamar
Albatross Aerial Perspective

The Israel Television News Company played a recording Monday in which Prime Minister Benjamin Netanyahus son Yair bragged to the son of natural-gas investor Kobi Maimon that my dad arranged $20 billion for your dad and youre fighting with me about 400 shekels [$115].

So how much might Maimon really have gained from the Netanyahu governments energy policies?

Maimon is a real estate mogul and reputed controlling shareholder in the holding company Equital, which has a stake in the offshore natural-gas production site Tamar through Tamar partner Isramco Negev 2 LP. Yair Netanyahu was apparently referring to the Netanyahu governments controversial plan for regulating Israels natural gas industry, which the government worked out with offshore gas companies in 2015.

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So how much might Tamars owners earn based on that plan?

In general, Tamars owners, which in addition to Maimon include Yitzhak Tshuvas Delek Group, Alon Gas and Houston-based Noble Energy, are expected to earn about $35 billion by 2055. This projection is based on the cash-flow projection released by the Tamar partnership. The profit forecast comes after operating expenses, taxes and royalties paid to the Israeli government.

Of this $35 billion, its hard to separate out the contribution that the Netanyahu governments regulatory policy would provide, but it would likely be about one-third, or at least $10 billion. Were it not for the regulatory plan, it would be expected that, instead of selling the gas at an average $5.90 per million BTUs, in a competitive environment the gas would be sold at $3.50 to $4 or even less. That would have lowered the return on investment in Tamar substantially.

In addition to the huge profits from Tamar, the Delek Group and Noble Energy are expected to earn tens of billions of dollars from the adjacent offshore field Leviathan, which has double the reserves of Tamar. In the coming decades, the sale of gas from Leviathan (on which higher taxes apply) is expected to hand the owners $50 billion to $70 billion. All told, the profits from the two sites in the coming decades could be as high as $80 billion to $100 billion.

Isramco does not have a stake in Leviathan.

So how much of this would Maimon take in? By 2055 he could receive about $400 million from his stake in Tamar. If the companies that control the site pay out all the profits he would receive about $300 million, through his indirect stake in Tamar partner Isramco.

But in addition, he has another source of funds in the form of royalties. Isramco is obligated to pay its controlling shareholder, Nasdaq-traded Isramco Inc., royalties at a rate of as much as 9.5% of the revenues from Isramco Negev 2 LP. That cash, when distributed as dividends to the partnership pyramid, could hand Maimon another $100 million – resulting in the $400 million. These numbers are based on cash projections in the Tamar production sites own reports.

Officially, Maimon is not the controlling shareholder of Equital, which states that it is controlled by Maimon associate Haim Zuf. In the past, for tax-assessment purposes, the Israel Tax Authority launched a probe to figure out who really was behind Equital. Apparently the authority suspected that Zuf wasnt the controlling shareholder.

In 2015, Finance Minister Moshe Kahlon said he would not play a role in gas policy so as to avoid a conflict of interest due to his friendship with Maimon. Kahlon described Maimon as one of the heads of the groups that have holdings in the sector.

On Tuesday, the prime minister mentioned Maimons control of Equital as an established fact. I did not act against Kobi Maimon. That wasnt my goal, but that was the result of my actions, he added. He then referred to the owners of the natural gas fields, Maimon included.