Sale of Israel's Smaller Gas Fields Has Drawn Only Two Bidders

Deadline is next February, but buyers are put off by sale conditions and market doldrums.

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Energy Minister Silvan Shalom, right, and Yitzhak Tshuva, the controlling shareholder of Delek Group, on a drilling rig, March 27, 2013.
Energy Minister Silvan Shalom, right, and Yitzhak Tshuva, the controlling shareholder of Delek Group, on a drilling rig, March 27, 2013.Credit: Moshe Binyamin
Avi Bar-Eli

The government’s hopes for seeing the tiny Karish and Tanin gas fields sold by Delek Group in a bid to introduce more competition into the Israeli gas market seem unlikely to be met now that there are only two suitors, both of whom can expect opposition from regulators.

The potential buyers are Coleridge Group, which is controlled by the American-Jewish investor Larry Mizel, and the Greek company Energean, which is believed to be behind a group of investors that includes Israelis.

A third, more promising candidate, the Italian company Edison, expressed interest several times in the past two years but has dropped out the race because it won’t accept Delek’s sale conditions.

Sale of the two fields are part of the controversial agreement between the government and a natural-gas cartel whose main partners are Delek and the Texas-based Noble Energy.

The forced sale of the field is part of a wider government strategy to break the cartel’s stranglehold on the Israeli market through its joint control of the Tamar and Leviathan offshore fields.

On Monday, Nobel sold 3 percent of Tamar to Harel Insurance & Finance as part of its commitment to reduce its stake in the field to 25 percent from 36 percent.

In May, TheMarker revealed that Delek wanted $40 million in cash for the two fields, which have yet to be developed, as well as a 9 percent share in future royalties from gas sales. The offer generated little interest.

Coleridge previously expressed interest in buying Israel Channel 10 television and the state-owned Israel Military Industries. It has a 73 percent stake in drilling rights at the offshore Arie site and a 12 percent stake in the Oz license.

Coleridge this week submitted preliminary documents aimed at demonstrating its fitness to hold rights to and develop a gas reserve. It will be required to show it has on board a recognized and experienced international operating company capable of carrying out deep-sea drilling.

Sources say the most likely candidate is the U.S. company Seadrill, one of the biggest in the field although not on the National Infrastructure, Energy and Water Ministry’s list of approved drilling operators.

Under the framework agreement with the gas cartel potential buyers of the rights to Karish and Tanin must first demonstrate to the Energy Ministry’s petroleum commissioner its ability to hold and operate the fields. The commissioner has 14 days to respond.

The timing of the applications suggest that Coleridge is negotiating to purchase the two fields but noting has been agreed on.

A cloud of uncertainty also hangs over the Energean group. Two years ago the company tried to enter the Israeli market as an operating partner in the Sara and Myra licenses, but it never won approval from the petroleum commissioner on the grounds it lacked experience in deep-sea drilling.

The reason for the lack of interest is connected with the severe downturn in the world energy exploration sector as well as the refusal of the biggest energy companies to do business in Israel.

But another reason is that Karish and Tanin’s business prospects look poor. The two fields have an estimated 58 billion cubic meters of gas combined, but 75 percent of the export rights they have been transferred to the Leviathan field, which means the buyer will be principally limited to selling to the Israeli domestic market. However, as much as 80 percent of the domestic market’s need are locked up by Tamar, which is production, and the fields’ owners will have to keep with Leviathan for the rest.

In fact, Karish and Tanin are 47 percent-owned by Noble, but in November the Texas company sold Delek rights to its stake for $67.1 million, which values them as $143 million. Delek has until February 2017 to complete a sale or turn over control to a trustee.

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