Leviathan Condensate Gifted to Refinery

A struggle between two of Israel's two natural resources tycoons has led to a unique agreement: the Leviathan partnership will deliver about 2,500 barrels/day of condensate to a refinery near Haifa for free under a 15 year contract. That will cost the Leviathan partnership about $3mn/month in lost revenues, Delek Drilling, which holds 45% of Leviathan said in a filing to the Tel Aviv Stock Exchange (TASE) mid-December.

At the root of that unique arrangement there is a long running rivalry between Bazan, a refinery controlled by London billionaire Idan Ofer, and Tamar Partnership controlled by Israeli billionaire Itzhak Tshuva and Noble Energy. A few years ago, when natural gas was in short supply in Israel, Tshuva and Noble Energy sold natural gas to Bazan at above $8/mn Btu, which infuriated Ofer. Now that Ofer is the only possible Israeli offtaker of Leviathan condensate he is repaying Tshuva by refusing to buy the condensate at any price.

However, the actual reason for the arrangement is that Leviathan has no option but to find an offtaker to the condensate since a promised huge reservoir which was planned for the condensate was not built and without an offtaker to the condensate, gas production – which is due to start imminently – will not be possible. Bazan said in a filing to the TASE that it agreed to the new agreement only after government entities, including the energy ministry, intervened and asked to company to take the condensate, since it was vital to Leviathan gas production and to the national interest.

For Bazan, the Leviathan condensate represents only 1%-2% of its daily refining capacity, so getting those 2% free, taking advantage of the problematic situation of Leviathan is a small bonus. Delek Drilling said that the lost revenues were immaterial.

However in the same filing to the TASE, Delek Drilling said that it found a foreign offtaker, an international trade oil company, as an offtaker to the condensate for the first year's production from 1 January to 31 December 2020. The buyer was not identified.

Delek will employ a fleet of tankers that will carry the condensate to an oil tank farm and then it will be loaded on to oil tankers for export. Delek Drilling said the contract was worth $3mn/month.