Noble Energy sells 3% Tamar Stake

July 05, 2016 | Globes

Harel Insurance Investments and Financial Services Ltd. (TASE: HARL), whose investments are managed by deputy CEO Amir Hessel, and Israel Infrastructure Fund (IIF), managed by founder and managing partner Yaron Kestenbaum and partly owned by Harel, have signed an agreement to acquire 3% of the rights in the Tamar natural gas reservoir from US company Noble Energy. The deal signed by the parties reflects a $12.3 billion value for Tamar.

Harel, whose stake in the deal will be 62%, and IIF, with a 38% share of it, will pay Noble Energy $369 million: $229 million by Harel and $140 million by IIF. The partnership was also granted an option, “exercisable until the date on which the deal is completed,” at the same value for Tamar, “to buy an additional 1% for $123 million.”

The amount is subject to adjustments reductions according to a number of circumstances, including “if Noble Energy sells rights in the holding at a lower price within a given period.” Completion of the deal is contingent on various suspending conditions established in the agreement, which have “not yet been fulfilled‚Ķ and actual completion of the agreement is therefore not certain.”

Among other things, the agreement between the parties stipulates that Noble Energy will receive a share of the revenue from the reservoir for the stake it sells if the Tamar reservoir exports natural gas to Egypt. “Insofar as agreements to export gas to or through Egypt during the period stipulated in the agreement, Noble Energy shall be entitled to a certain percentage of the proceeds received by the purchasers for these export agreements,” Harel noted.

There is little likelihood of such exports, however. Although the Tamar partners signed a letter of intent in May 2014 with Spanish company Union Fenosa, which owns a gas liquefaction facility in Egypt, for the exporting of 70 BCM of gas over 15 years, the subsequent dive in gas prices has made gas exports not worthwhile. Egypt imports liquefied natural gas (LNG), and Italian company Eni, Union Fenosa’s partner in the Egyptian gas liquefaction facility, has found two large gas reservoirs in the country.

In any case, since the impending deal became known, voices from the political system and social activists have been heard calling on Harel not to buy shares in Tamar, even though the deal provides a return in the long term, which fulfills needs of long-term savings concerns, and regardless of the price in the deal. Harel today explained, “This deal is part of Harel’s policy of diversifying its investment portfolio risks and maximizing the return for its clients.”

Also taking part in the deal were teams from the KPMG Somekh Chaikin accounting firm and Advocates Shiri Shaham and Noam Meir from the Yigal Arnon & Co. law firm.

Up to 38% of the Tamar rights up for sale

On the other side of the deal signed is Noble Energy, which is beginning its measures towards compliance with the provisions of the gas agreement concerning the reduction of its stake in Tamar from 36% to 25% at most, due to the stake it also holds in the Leviathan natural gas reservoir. According to the gas plan approved by the cabinet, Noble Energy was required to dilute its stake in Tamar by selling 11% of the shares in Tamar within six years. Noble Energy has now sold 3%, which may grow to 4%.

The reason why the government did not force Noble Energy to sell all of its holdings in Tamar is that Noble Energy is the only professional concern among the holders of rights in the reservoir that actually conducts exploration, drilling, and gas production, making its total exclusion impractical. During the same time period, Delek Group Ltd. (TASE: DLEKG), controlled by Yitzhak Tshuva, is obligated to sell all its holdings in Tamar (in which it holds 31.25% of the rights through the Delek Drilling Limited Partnership (TASE:DEDR.L) and Avner Oil and Gas LP (TASE:AVNR.L) partnerships) to a third party.

Noble Energy, which also owns 39.7% of the Leviathan project, must sell 7% more of the Tamar shares. As far as is known, it is negotiating the sale of more of its holdings in Tamar to other large institutions, which, like Harel, manage tens of billions of shekels in assets from members and policyholders in the long-term savings instruments they own. Similarly, as far as is known, Delek Group is not yet in advanced proceedings to sell these holdings. It is likely, however, that if and when it is required to sell all of its holdings in Tamar, it will also approach international concerns, which will be able to conclude a large-scale deal. In the future, therefore, 38% of the Tamar shares will go on the market, at least some of which will end up in the hands of other institutions in the local market.

In contrast, no structural change will take place in the Leviathan reservoir, because the state feared that a structural change in Leviathan would cause a delay in its development, already subject to prolonged delays caused by the discussions of the gas plan. The gas plan also states that 10 years after development of Leviathan commences, the state can force the partners to compete against each other in selling gas to the domestic economy in what is called “separate selling.” This demand for separate selling was inserted into the gas agreement presented to the gas companies in February last year, but was removed at the gas companies’ demand. After the Supreme Court struck down the gas plan and it was renegotiated, the clause was put back in.

Located at a depth of 1,678 meters, 90 kilometers off Israel’s northern coast, Tamar contains 283 BCM (10 TCF) of natural gas. The gas is piped southward from Tamar to a production platform off the coast of Ashdod.

The local Tamar gas partnerships finished 2015 with enormous profits. Delek Drilling and Avner Oil and Gas (which own 31.25% of the reservoir in equal shares), posted an aggregate $218 million profit, while the Isramco Negev 2 LP (TASE: ISRA.L) partnership, led by Haim Tsuff and Koby Maimon (28.75%), posted a $267 million net profit, and Alon Natural Gas Exploration Ltd. (TASE: ALGS) (4%) posted an NIS 86 million profit.

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