Tshuva Proposes Leviathan Partners Compete With Each Other in Selling Natural Gas

Plan comes as energy shares plummet amid uncertainty over antitrust about-face on gas monopoly.

Tomer Appelbaum

Yitzhak Tshuva, the controlling shareholder of Delek Group, proposed in a meeting with antitrust officials late on Monday that the partners in the Leviathan natural-gas field sell the gas separately and in competition with one another, TheMarker has learned.

The surprise proposal came hours before Antitrust Commissioner David Gilo confirmed he was withdrawing a compromise reached with Delek and its partner, Texas-based Noble Energy, that would allow them to retain a near-monopoly on Israeli natural-gas production.

“In recent months a picture has emerged showing that the benefit to the public from the comprise agreement was less than the alternatives,” the authority said in a statement. “Among other things, the authority was getting significant indications that the compromise agreement wasn’t yielding a truly competitive outcome that solved the problem on the monopoly in the [gas] market.”

Gilo, who had signaled a probable about-face a day earlier, is likely to hold an official hearing on the matter in about two weeks, after which he will make a final decision on how to proceed. Among the options he has is to order Delek and Noble to sell one of the fields or for them to dilute their stakes in Leviathan.

In the meantime, both the market and the companies involved reacted strongly to the news.

The Prime Minister’s Office said on Tuesday that it had instructed Eugene Kandel, the head of the National Economic Council, to conduct “staff work” on the Gilo decision but that the prime mister would not intervene in the matter.

Energy shares pushed the entire Tel Aviv Stock Exchange lower for a second day on Tuesday, with the Oil and Gas index down 9.5% for the day. Delek Group, which owns more than 45% of Leviathan and 31% of Tamar, lost 16.5% to end at 910 shekels ($232.38), while its Avner and Delek Drilling units lost 11.8% and 12.7%, respectively, to end at 2.62 and 14.40 shekels.

Ratio, which has a 15% stake in Leviathan but no interest in Tamar, was the biggest loser, tumbling 16.9% to 31 agorot. Isramco, which holds a 29% stake in the Tamar field only, suffered a drop of just 7.4% to 70 agorot.

Eran Yunger, an analyst at the investment house Meitav Dash, lowered his valuations for the two gas fields because of the increased uncertainty about their future and delays in developing them. He now values the Tamar field at $12.5 billion, down from a previous $16.5 billion. For Leviathan, a much bigger field but unlike Tamar not yet in production, he cut his valuation to just $5.4 billion from $10.5 billion before the Gilo announcement.

Yunger said revising the antitrust terms for the two fields would force the partners to withhold signing export agreements reached with customers in Egypt, Jordan, Cyprus and the Palestinian Authority. It would also delay the schedule for developing the Leviathan field, which was slated to begin production in 2018, by another two years —– one year for a new regulatory framework to be developed and another to sell stakes in it or Leviathan, he said.

It will also complicate financing for Leviathan’s development and, ironically, deprive the government of tax and royalty revenues for several years, Yunger said.

“It sends a very bad message for investors in Israel,” Noam Pincu, an analyst at the Psagot investment house told Reuters, adding it also may delay Leviathan’s development significantly. “Instead of creating competition, it will delay competition.”

In a statement, Binyamin Zomer, Noble’s head of Israel operations, said Gilo’s decision “will cast a shadow over the future of the oil and gas industry in Israel and will impact Noble Energy’s continued investment there.”

Zomer said Noble, which along with its partners has invested $6 billion in Israel’s oil and gas sector, remained committed to developing Leviathan, as soon as regulatory, commercial and financial conditions allow.

In public, Tshuva, however, took a more defensive posture. “I look with pain at what’s happening. Do I really need to become a victim after I risked so much money? Five years I’ve wasted,” he told Army Radio. “If they decide I have to sell Leviathan, it will lead to a downgrade in Israel’s credit rating and problems with international agreement Israel has signed with other countries.”

Nevertheless, the Tshuva proposal made on Monday signaled that the tycoon had accepted inevitably of a new antitrust policy. The extent of the turnaround by Tshuva was evidenced by the fact that Delek had firmly rejected the so-called separate seller proposal when the company was negotiating with the government over the antitrust compromise.