JP Morgan, HSBC to lead Leviathan financing for Delek Group
Israeli firms Delek Drilling and Avner Oil Exploration announced November 27 they had signed commitment letters with UK bank HSBC and US bank J.P. Morgan for financing the development of the Leviathan gas field offshore Israel.
The two companies will be able to borrow $1.5bn-$1.75bn from a consortium led by the two banks on a 50-50 basis. The two banks will also serve as the underwriters. The partnerships have to sign financing agreements with the banks before February 20, 2017. That leaves Delek Group, the controlling shareholder in Delek Drilling and Avner, less than three months to reach a final investment decision (FID), which is also dependent on US operator Noble Energy.
The financing will be of a limited recourse kind against a lien of the partnerships' share in the Leviathan field. The debt will carry a variable-rate interest, which will be due every three months indexed to the LIBOR (London Interbank Offered Rate) plus an undisclosed margin. The principal will be repaid in fours years' time from the loan agreement signings.
In order to repay the loan, the two partnerships said they will raise money through a bond issue like they did with the Tamar gas field, when the Tamar bond replaced project financing after the gas field became operational.
The financing is intended for phase A-1 of the project, in which gas will be supplied to the Israeli domestic market, to Jordan, to the Palestinian Authority, and through other regional agreements in case those are signed. The annual production plan for phase A-1 is for 12 bn m3, however so far contracts for the sale of only 3.5-4 bn m3/yr have been signed.
Delek Drilling and Avner said the loan is part of a long-term financing strategy aimed at reducing the partnerships' development costs and will finance most of their investments in the development until Leviathan gas production is started.
Leviathan FID should be announced either by the end of this year or early next year, according to Noble Energy, the operator.
Delek Group's partnerships hold 45.34% of the project while Noble Energy, which has yet to raise its own financing, holds 39.6%. Raising the money is dependent on the completion of the sale of a 3% stake in the Tamar gas field to Harel Group. Ratio, the third partner in Leviathan with a 15% stake, has so far raised about $200mn for the development phase, out of the $600 mn it needs.
Ya'acov Zalel