Tamar Petroleum to raise $1.8bn, says Delek
Delek Drilling on June 22 announced the launch of a new subsidiary, Tamar Petroleum, and said it intends raise up to $1.8bn in equity and debt from it.
The biggest fundraising ever in the Israeli financial market will be used to buy out Delek Drilling's 9.5% of the Tamar partnership.
Tamar Petroleum, currently a wholly-owned Delek Drilling subsidiary will issue up to 100% of its shares. The Israeli government decided last year that Delek Group must complete the sale of all its 31.25% holdings in the Tamar partnership by end-2021.
The value set for 9.25% Delek Drilling shareholding is $1.11bn, based on Tamar value of $12.3bn, and stems from the price Harel Group paid last year for a 3.5% stake in Tamar from US firm Noble Energy.
Tamar Petroleum, a special purpose vehicle (SPV), is also preparing to issue bonds in the amount of $600mn-$650mn, which will be used indirectly to partially repay Tamar Bonds – a four-bond series with a balance of $1.6bn. Tamar Petroleum will pledge all its rights in Tamar, which will be transferred from Tamar Partnership, after the issuance to the bond holders.
Delek has published the issue prospectus in both Hebrew and English to attract foreign investors. In future, Delek will consider selling more shares of Tamar Partnership on international financial markets or to other investors. But currently, the issue is aimed mainly at the local investment community.
Proceeds received from raising the capital and the debt will be used by the company for the purchase of the 9.5% of Tamar shares from Delek Drilling. If not enough money is raised, then Delek will be able to sell Tamar Partnership shares for up to 40% of Tamar Petroleum shares. That would leave the Delek Drilling with control over the new SPV. The new entity's CEO has yet to be chosen, but its first chairman will be Yossi Abu, the Delek Drilling CEO.
New issue could be over-priced
Despite the high value attached to the new enterprise, Jerusalem Brokerage energy analyst Gal Reiter recently estimated that the value of Tamar Partnership at only $11bn, including the export option to Egypt. Reiter warned of several scenarios that would reduce the value of the reservoir, including competition for Tamar from the Karish-Tanin fields, plus a reduction in the amount of gas that Tamar will sell to the domestic market (down from 9.5bn m3 annually to 8.6 bn m3 and 7.1bn m3 in 2020 and 2028 respectively).
Reiter predicts a gas price drop from 2021 by about 5% to $5.50/mn Btu, following the option of a price re-opener in the sales contract with the Israel Electric Corporation (IEC) and the entry into the market of gas from Karish, but says the price could fall even further to $5/mn Btu.
Following the issue, Tamar Petroleum shares will be traded on the Tel Aviv Stock Exchange (TASE). The company will distribute all its earnings as dividends to its shareholders. Lead bankers for the issue are J.P Morgan and HSBC.
Ya'acov Zalel