Edited by: Fern Sidman
One of Israel’s biggest energy companies plans to sell its share of a large offshore gas field to a firm based in the United Arab Emirates for an estimated $1.1 billion, the biggest such deal since the two countries normalized ties last year, as was reported by the AP.
Delek Drilling, owned by the Israeli billionaire Yitzhak Tshuva, said Monday that it signed a memorandum of understanding with Mubadala Petroleum, part of a conglomerate owned by the government of Abu Dhabi. Born in Libya in 1948, Tshuva is also the chairman of El-Ad Group, which owned the New York Plaza Hotel. In 2004, El Ad Group purchased the Plaza Hotel for $675 million from the Saudi investor, Al-Waleed bin Talal. Wikipedia reported that El Ad Group sold 182 residential apartments prior to the hotel’s renewed opening in 2008. Apartments were sold for record breaking prices in Manhattan at the time. This transaction was said to have garnered about $1 billion, according to the Wikipedia report. In 2013, El Ad Group sold its share of the hotel and surrounding commercial property. In 2014, Tshuva was listed by Forbes as the seventh wealthiest Israeli. In March 2021, Forbes estimated his net worth at US $2.7 billion.
Delek Drilling, together with Noble Energy, Inc., have led the natural gas revolution in Israel. Following decades of enormous and fruitless investment in financing gas and oil exploration by successive Israeli governments, a government decision was taken to let go of its involvement in oil and natural gas exploration and transfer this activity to the private sector, a move that led to significant discoveries off the coast of Israel.
Today Delek Drilling is partner in several major gas discoveries in the Eastern Mediterranean including, among others, Tamar (306 billion cubic meters–BCM), Leviathan – the largest deep water discovery in the world at that time (621 BCM), Aphrodite in Cyprus (129 BCM), and others.
The AP reported that the proposed deal was detailed in a notification filed with Israeli authorities. Bloomberg News reported that Abu Dhabi’s Mubadala Investment Co., is a fund with $232 billion of assets. Mubadala is carrying out due diligence, according to a person familiar with the matter. Bloomberg reported that the company’s shares rose as much as 9.1% on Monday in Tel Aviv, before paring gains to 2.7%. Delek would use most of the proceeds to pay down debt, according to the same person.
The deal for Delek Drilling LP’s 22% stake in the Tamar gas field is worth $1 billion, with an additional $100 million to be paid if certain terms and goals are met, according to a notification about the agreement sent to the Israeli Stock Exchange on Monday. The companies said in the statement that they aim to finalize the deal by May 31, according to the WSJ report.
The partners in the Tamar project are Delek Drilling (22%), Chevron (25% and operator), Isramco (28.75%), Tamar Petroleum (16.75%), Dor Gas (4%) and Everest (3.5%). 2P reserves in the Tamar lease, after production of more than 69.3 BCM, is approx. 300 BCM of Natural Gas and 14 million barrels of condensate. Under the Gas Framework, outlined by the government of Israel, Delek Drilling is obliged to sell all of its holdings in Tamar by the end of 2021.
The Tamar field was discovered in 2009 and is located 90 kilometers west of Haifa, offshore Israel, at an overall depth of c. 5,000 meters below sea level, and in waters that are 1,700 meters deep. Production began in 2013, where the Natural Gas in Tamar is extracted through five production wells.
The gas flows through two c.140 km pipelines to the primary and main processing facility on the Tamar Platform where most of the gas processing takes place. The Natural Gas is then transmitted from the platform through a pipeline to the onshore terminal in Ashdod, and into the Israeli market through the INGL national gas pipeline with a proportion being exported on to Jordan and Egypt.
Post-sale of Tamar, Delek Drilling will own a 45.3% stake in the giant Leviathan gas field offshore Israel which has 2P reserves of 22.8 tcf (649 bcm) of gas and 41m mmbbl of condensate, production capacity of 1.2 bcf/d and the multi-decade reserve life; and a 30% stake in the Aphrodite field offshore Cyprus with 2C resources of 3.5tcf. The Company has a low risk growth strategy to grow reserves and production from its existing asset base. The Company will also expand its exploration portfolio in the Mediterranean region to grow resources and invest in energy transition technologies.
At the beginning of 2014, the Jewish Voice reported that the first export deal for Israel’s large Leviathan gas reservoir had been finalized in a $1.2 billion sales agreement with the Palestine Power Generation Company.
The drilling agreement was signed at the American Colony Hotel in Jerusalem. At the signing Yitzhak Tshuva, who was described as the controlling shareholder of the Delek Group said, “I believe that a strong and stable economy between the parties will lead to peace and stability in the entire region – and everyone will benefit from economic prosperity and growth. He added that “Peace is a joint venture, economic cooperation, mutual trust and respect. Economic cooperation such as the agreement that was signed today will help to bring the nations closer and will contribute to laying the foundations for peace.”
The Wall Street Journal reported that the current $1.1 billion deal, if completed, would grant the UAE a major stake in an important Israeli strategic asset. It would also add another regional player to an acrimonious tussle over lucrative gas fields in the Eastern Mediterranean, where an alliance of Greece, Israel, Cyprus and Egypt are facing down opposition from Turkey over a proposed pipeline to export gas to Europe. Greece and Turkey barely avoided confrontation last summer as Ankara sought to explore waters near the Greek island of Rhodes.
In 2019, Tazpit Press Service reported that the Leviathan partnership had finished building and testing the Topsides of the rig in Texas, and was being shipped to Israel. The platform consists of five separate parts and they had been in production for approximately 26 months before arriving in Israel in September of 2019. Subsequently, drilling commenced and natural gas was delivered to customers in Israel and abroad by the end of 2019.
TPS also noted that the Leviathan Reservoir is a partnership owned by Delek Drilling (45.33%), Noble Energy (39.67%) and Ratio Oil Exploration (15%) that was established in December 2010. The project displayed great promise for the national and regional energy markets and ultimately served as an economic growth driver for Israel and the region.
Leviathan is one of the world’s largest deep-water natural gas discoveries found in the first decade of the 21st century. An estimated 605 BCM, or 22 trillion cubic feet, of natural gas and close to 40 million barrels of condensate were discovered.
The development of the project has been in contention every step of the way. Since the Reservoir’s discovery, Israel’s Sheshinski Commission to examine the state’s royalties from the gas has significantly raised taxes on the project. The commission imposed a windfall profits levy, which can reach 50% of the producer’s profits once the producer recoups a certain percentage of his exploration and development costs.
Fierce opposition to the project arose in 2016, due to the alleged high price and monopoly of the companies that hold the rights to the Reservoir. In response to various regularly hurdles threatening the project, the government signed an agreement with the companies setting the path to the extraction of the natural gas that was found at The Leviathan Reservoir.
The Israeli government is expected to earn NIS 17 billion in royalties from the gas discoveries. Additionally, the windfall profits levy is expected to reach up to 10 billion a year by 2040.
In a statement to the media on Monday, Mubadala said the proposed deal is in line with the company’s strategy of expanding its gas portfolio, as was reported by the Wall Street Journal. The parent investment company is chaired by Crown Prince Mohammed bin Zayed, the U.A.E.’s de facto ruler and an instrumental figure in establishing diplomatic ties with Israel.
The WSJ also reported that a consortium of American and Israeli companies, including Delek, began pumping natural gas from Israel to Egypt in January 2020. Israeli fields also supply neighboring Jordan. Yossi Abu, the chief executive of Delek Drilling said, “This transaction has the potential to be another major development in our ongoing vision for natural gas commercial strategic alignment in the Middle East, whereby natural gas becomes a source of collaboration in the region.”
He added that “the development is not only a significant endorsement of the quality of the Tamar reservoir and the Levant basin, but also a major support for the East Mediterranean natural gas sector.”
Bloomberg News reported that Chevron Corp. operates Tamar and has a 25% stake. Other owners include Houston-based Isramco Inc. and Tamar Petroleum Ltd., based in Tel Aviv. The Bloomberg report also indicated that Delek has been key to the development of many of Israel’s gas finds along with Noble Energy Inc., which Chevron bought last year. The companies wanted to expand their footprint and explore Block 72, one of Israel’s northern-most offshore concessions but the bid was blocked by Israel’s competition authority, which wanted to limit Delek’s already formidable share in the gas sector.
Israel’s government obliged Delek to sell all of its holdings in Tamar by the end of 2021.
Israel and the United Arab Emirates agreed to normalize relations last year in a U.S.-brokered deal. The AP reported that since then, Israelis have flocked to the UAE, home to the bustling futuristic cities of Dubai and Abu Dhabi, and companies have pursued partnerships in a wide range of sectors.
The normalization agreement, which was followed by similar accords with Bahrain, Sudan and Morocco, eroded the long-standing Arab consensus that recognition of Israel should only be granted in return for advancing the peace process with the Palestinians.
The UAE has come to the realization that Israel has attempted to forge a long standing peace with the Palestinians but that all such gestures have been summarily rebuffed by Palestinian leaders and answered with a string of terror attacks against Israeli citizens.
As such, the UAE was the first Arab nation after Egypt and Jordan to recognize Israel. Bloomberg News reported that Israeli Prime Minister Benjamin Netanyahu promised that the Abraham Accords would lead to billions of dollars of investment in his country. The Bloomberg report also indicated that the UAE, of which Abu Dhabi is the capital, and Israel have agreed to develop anti-drone systems, artificial intelligence and big data analysis together as bi-lateral ties expand. There have also been talks between businesses in the two countries on everything from oil pipelines, to soccer clubs to payments technology.
In terms of the issue of business deals taking place on the purchase of soccer teams, the WSJ reported that the potential sale of a 50% stake of one of Israel’s most famous soccer teams, Beitar Jerusalem, to a member of the Emirati family was suspended earlier this year after questions arose about how much money the royal had.
Speaking to the WSJ Robin Mills, chief executive of Dubai-based consulting firm Qamar Energy, said the proposed gas deal could help open the spigot. “There’s been a lot of keenness to do something…but we have not seen many big deals go through yet.”
(Sources: AP, TPS, Bloomberg, WSJ)