Investor group to place $10 billion bet on East Med gas

By Yaacov Benmeleh on 5/23/2019
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BP operated Central Azeri platform in the Azerbaijan sector of the Caspian Sea. Photo: KCA Deutag.

TEL AVIV (Bloomberg) -- A little-known investor group is planning a major shakeup of the Eastern Mediterranean natural gas industry in a bid to unlock hundreds of billions of dollars of sales stymied by the political and industrial complexities of the region.

Cynergy Group, an investment firm based in Cyprus, is looking to spend between $5 billion and $10 billion in the coming years buying under-utilized natural gas assets in the region, according to Chief Executive Officer Mike Germanos. The company is in talks with “some of the most respected global family offices, private equity firms and sovereign funds” about raising the cash, he said.

Germanos declined to give the names of his associates or the assets he’s targeting, citing the sensitive nature of the period before Cynergy provides a formal offer. He said the firm is in the final stages of putting its bid together, which it will reveal by mid-June.

Significant quantities of natural gas have been found off the coasts of Egypt, Israel and Cyprus over the past decade, which has united regional governments in the hope of developing an energy hub in the East Med. Still, companies have struggled to overcome longstanding political and legal hurdles and find viable export markets, leaving many investors to question whether these firms can realize the region’s full potential.

To overcome these hurdles, Germanos assembled a team of veteran oil, gas and finance industry executives and political operatives. Lou Montilla, for example, leads Cynergy’s energy projects after almost two decades of experience in liquefied natural gas with BP, Glencore and Morgan Stanley. Joshua Hantman, a former adviser at Israel’s defense and foreign ministries, manages corporate affairs for the firm.

Consolidation

While countries are pushing for collaboration, friction between the various firms involved in the East Med, which sometimes have competing interests, has bogged down the industry, Germanos said. Consolidating the disparate assets under a single owner would help, he said.

The major gas firms “don’t work across the whole region,” Germanos said. They seek to maximize their own investments, whereas Cynergy “is the only one that put the team, the backers and the plan needed to create the vehicle that could launch a series of transaction and see this through,” he said.

Among the underused or idle assets in the region that Germanos may be targeting:

The Idku LNG plants in Egypt, whose majority shareholders are Royal Dutch Shell Plc and Petronas Gas Berhad The Damietta LNG plant in Egypt, held by Union Fenosa Gas and state-run Egyptian energy firms The Leviathan reservoir in Israel, owned Delek Drilling LP, Noble Energy Inc. and Ratio Oil Exploration 1992 LP The Aphrodite and Glaucus-1 fields in Cyprus, held by groups led by Shell and Noble, and Exxon Mobil Corp., respectively

Cynergy has “approached and is further approaching” companies with “major stakes across the East Med,” Germanos said, adding that it’s in discussions to retain one of the active firms to operate the assets.

The structure of his offer will “not be so different” from Woodside Petroleum Ltd.’s aborted bid to be a major shareholder in the Leviathan field, or how Greece’s Energean Oil & Gas Plc financed its acquisition of Israeli gas fields, he said. In 2014, the Australian energy firm agreed to buy 25% of the gas pool for as much as $2.6 billion, before backing away from the deal a few months later. Energean raised about $1.8 billion through an initial public offering and bank loans to develop the Karish and Tanin reservoirs.

Lowball Offer

Representatives for Shell, Exxon, Noble, UFG, Delek and Ratio declined to comment.

Cynergy’s plan may face hurdles because the companies could balk at the sums it will offer. Leviathan alone is valued at $11 billion, according to Noam Pincu, an analyst who covers Israel’s gas industry at the country’s largest investment house.

“I don’t see any scenario in which Delek and Noble sell the whole thing,” he said. “It’s a great asset that gives them international recognition, they spent years developing it, and now they want to see the fruits of that labor.”

Rejecting Cynergy would risk hundreds of billions of dollars in sales currently buried in the ocean, Germanos said. For example, the companies developing Leviathan have inked $25 billion in contracts since the field was discovered in 2010, but still have more than 80% of the reservoir untied to any buyers.

“The region needs a maverick approach,” Germanos said. The companies invested in the East Med should “at least treat it as an option."

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