Are Israel-Egypt-Focused Firms Closing in on Signing a Leviathan Export Agreement?
If last week all the excitement surrounding natural gas in the Eastern Mediterranean focused on Israel-Turkey, then this week, at least in Israel, Egypt is at the epicentre, despite a freeze on negotiations imposed by Egypt.
On Sunday, following the approval of the natural gas regulatory framework in Israel, Delek Group presented its plans for next year in a presentation to analysts in Tel Aviv, Israel. The presentation was attended by Yitzhak Tshuva, the controlling shareholder in Delek Group.
Also on Sunday, in the afternoon, Globes business daily claimed that the Leviathan Partnership and BG are holding final talks before signing a 15-year, 105-billion cubic metre, $30-billion agreement to export from the Leviathan gas field to the Idku LNG facility in Egypt. (Note: the report put prices at $8 MMbtu, likely much higher than experts' estimates of the current real prices.) However despite the claim, no official statement or concrete proof was presented; the report quoted few arguments from "senior officials" in unidentified energy companies.
Delek also hasn’t commented on the "small Leviathan" development program, which Noble Energy representatives have shown to energy ministry officials in the last few weeks. The Leviathan development program includes also the development of Aphrodite, the Cypriot offshore gas field that would be linked by a pipeline to Leviathan. The distance from Leviathan to Idku is 420 kilometres and the pipeline will have a capacity of 16 billion cubic metres.
According to the anonymous sources, the contract is to be signed during the first quarter of next year, though the two sides are interested in signing it even before Shell's BG takeover is approved, by the end of next month.
The unnamed Israeli executives said the Egyptian prime minister, Sherif Ismail, would approve the deal. That assertion comes despite the PM's remarks last week that his government won't approve the import of Israeli gas by Egyptian companies. However, BG is not an Egyptian entity and the gas isn't supposed to be sold into the local Egyptian market.
In yesterday's presentation, Delek defined itself as a E&P company, which aims to list its shares on the London Stock Exchange, in order to become an international player in the global energy market with a specialisation in deep-water operations.
For that purpose, two months ago Delek bought 19.9% of Ithaca Energy, a small Canadian E&P company, which operates in the North Sea. Delek paid a total of $66 million for the shares at a cost of C$1.05 per share. It was a hefty 19% premium over the share price on the Toronto Stock Exchange at the time. By the end of last week Delek lost about 50% of its investment, when trading closed on the Toronto Stock Exchange and the share price was C$0.55. However, in its presentation yesterday, Delek Group said that it is interested in increasing its holdings in Ithaca Energy.
Delek Group is standing out among energy companies worldwide as the lion's share of its energy revenues are based on the disconnected-from-reality high prices of natural gas in Israel, which are currently $5.5 MMbtu. Because of those high prices, its revenues and its cash flow were not hurt during the last 18 months; in fact, they improved. That's likely the reason why the group is presenting a very optimistic outlook: It claimed in its presentation to Israeli analysts (titled "Opportunities in the Global Energy Market") that now "is the chance" to invest in the energy sector.
Ya'acov Zalel