Leviathan partners ratify $3.75-billion gas-development plan

By Yaacov Benmeleh on 2/23/2017

TEL AVIV (Bloomberg) -- The companies that own the rights to Leviathan, Israel’s largest natural gas reservoir, approved a plan to allocate $3.75 billion to develop the offshore site. Israel’s main gas equity index rose the most in almost five months.

The partners, led by Delek Group Ltd. and Houston-based Noble Energy, have agreed on a final investment decision, which lays out how the companies intend to spend the funds to develop Leviathan over the next three years, according to a Tel Aviv Stock Exchange filing Thursday.

The decision allows the partners to “launch the largest energy project in the history of Israel, that will also serve as one of the region’s energy anchors,” Yossi Abu, chief executive officer of Delek Drilling, said in an e-mailed statement. Delek Drilling holds a 22.7% stake in Leviathan and is a unit of Delek Group. “We will continue our activity to develop and expand our oil and gas assets in Israel and Cyprus,” Abu said.

Leviathan, Israel’s biggest gas find, has the potential to generate billions of dollars in domestic and export contracts, including a $10-billion deal the partners signed in September with Natural Electric Power of Jordan. The field is to start producing in 2019, both for the Israeli market and regional sales. Leviathan’s partners are in negotiations to sell gas to Turkey or to Royal Dutch Shell liquefied natural gas plant in Egypt.

First stage

The Tel Aviv Oil & Gas Index climbed as much 2.4%, the most since Sept. 26, before paring gains to 0.4% to 1,111.83 at 2:31 p.m. local time. The investment decision covers the first stage of Leviathan’s development, allowing for a maximum annual production of 12 Bcm of gas. Later, the partners plan to extract an additional 9 Bcm per year, earmarking it for export.

"Leviathan will generate robust project economics, have strong investment efficiency," Noble CEO David L. Stover said in a separate  statement Thursday. "We can continue to grow our Eastern Mediterranean business for decades. This includes material additional development beyond phase one at Leviathan."

Most of the $3.75 billion has been raised, after Delek agreed to a $1.75-billion loan this week from banks led by JPMorgan Chase and HSBC Holdings. Minority partner Ratio Oil Exploration 1992 LP has already raised its share of the funds through a mix of equity, debt sales and bank loans.

Cash flow

Noble will finance its end of the project through proceeds from its other assets in the Mediterranean, including the Israeli reservoir Tamar, and is seeking additional resources. The company will spend about $500 million this year developing Leviathan, according to a presentation last week.

Noble expects “at least $650 million” in operating cash flow in the first year of the project, and to recoup its investment after three years of operations, according to the statement.

Israel’s Energy Minister Yuval Steinitz said developing the field represents a boon to state coffers. "If we continue on a responsible and determined path, we’ll find other fields and turn Israel into an important energy player in the region and Europe," Steinitz said.

Through its units Delek Drilling and Avner Oil Exploration, Israeli billionaire Yitzchak Teshuva’s Delek Group holds a 45.3% stake in Leviathan. Avner is in the final stages of merging into Delek Drilling. Noble owns 39.7% of the field, and Ratio has the remaining 15%.

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