Tamar, Leviathan Partners Lay Out Plans for Gas Fields' Development

Meeting with market analysts comes days after Netanyahu approved final piece of gas framework, but plans still face a court challenge.

Tamar
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Days after Prime Minister Benjamin Netanyahu put into place the last piece of the rules governing the natural gas industry, the partners in the Tamar and Leviathan fields outlined ambitious plans for expansion and development, and held out the prospect of even more gas yet to be discovered offshore Israel.

In his first public statement since Netanyahu acted, Yitzhak Tshuva, whose Delek Group is the major Israeli partner in the two fields, called 2016 a “turning point” year for the Israeli energy industry and vowed to turn his company into “an important player also in the global energy industry.”

Tshuva laid out a vision of a major energy industry encompassing Israel and its neighbors and a source of regional cooperation. The East Mediterranean basin “has huge potential to supply energy to places all over the world,” Tshuva told a closed meeting of financial market analysts.

“I believe that additional reserves of oil and gas exist that have yet to be discovered throughout the area – in Israel, Cyprus, Egypt and other places This will enhance their welfare and create an important bridge for joint production and peace between us and our neighbors,” he said.

Gas shares were sharply higher on Sunday in Tel Aviv Stock Exchange trading, with Delek units Avner gaining 3.1% to 2.33 shekels (60 cents) and Delek Drilling up 1.9% to 11.87. Ratio, a partner in Leviathan, ended the day up 3% at 28 agorot.

But even as Delek began its courting of the financial markets on Sunday, it got an unwelcome reminder that the gas framework approved by the government still faces a challenge in the High Court of Justice.

Three nongovernmental organizations – The Movement for the Quality of Government, Israel Union of Environmental Defense (Adam, Teva v’Din) and the Israel Energy Forum filed the fourth petition to date challenging the gas framework. The court will begin hearing arguments in February.

Like the other petitions, the motion filed on Sunday takes issue with the “national security” claim that Netanyahu used as the basis for signing a waiver overriding any further antitrust scrutiny of the gas industry. Critics say the waiver, which was the final element in the framework, gives too much control of Israeli gas to Delek and its Texas-based partner Noble Energy.

“The power of the [gas] monopoly is fated, a historic inheritance,” the petition reads. “It is the direct result of unlawful conduct by the gas companies in recent years and the government’s weakness to enforce the law.”

The Tamar and Leviathan partners face other obstacles on the way to developing and expanding the fields, but in Sunday’s investor presentation executives expressed optimism that they could all be overcome.

Vis-á-vis plunging global oil prices – which affect gas prices, which are typically linked to them – Delek Drilling told investors that prices would stay at $50-70 a barrel through 2019, but cited a host of bankers, as well as the Organization of Petroleum Exporting Countries, who see oil prices rising to $100 by 2020 as today’s low prices deter investment in finding more oil.

Delek Drilling CEO Yossi Abu also expressed optimism about signing export contracts for the two fields – with Spain’s Union Fenosa and BG Group, both of whom operate liquefied natural gas plants in Egypt as well as smaller customers like Jordanian and Palestinian utilities.

Abu said the second segment of the fields’ development would involve increasing Tamar’s capacity, laying an additional pipeline to the processing platform, developing a satellite field and laying a pipeline to Egypt. Capacity could grow from 12 billion cubic meters now to 20.5 BCM in coming years. At Leviathan, capacity could reach 18 BCM if VG, its biggest potential customer, wants it.

The cost of the Tamar expansion, executives said, would $1.5 billion to $2 billion, with as much as $620 million of that coming from the sale of bonds. Leviathan will be initially financed by banks, which are in talks with Delek Drilling and Avner about a $2 billion loan package.