Delek Faces $100mn Book Loss on Tanin-Karish Sale - Report
Delek Group, the senior Israeli partner in the natural gas monopoly in Israel, is looking to sell off its holdings in Karish and Tanin, two small gas fields offshore Israel for $40mn according to The Marker, a business daily. Delek is obliged by the natural gas regulatory framework to sell off those two gas fields within 14 months of the frameworks' approval. Delek Group holds those two gas assets through two subsidiaries, Delek Drilling and Avner.
However because of the ongoing legal and regulatory disputes, it is not clear when the 14 month period starts. Originally it should have started over four months ago, at the end of last December, when Prime Minister Benjamin Netanyahu signed on the monopoly's exemption from the antitrust law.
The price quoted in the report is quite low, although Delek representative neither confirmed nor denied the figure when asked by NGE. Previously in a filing to the Tel Aviv Stock Exchange (TASE) Delek said it will sell those assets for $150mn to recover its full investment. However due to the crisis in Israel's gas industry, it is hard to see how Delek will now get its wish. In contrast Noble Energy fully recovered its investment in Karish and Tanin by selling its stake to Delek Group subsidiaries.
A few months ago Delek bought Noble Energy's 47.5% stake in Karish and Tanin for about $70mn saying that it will facilitate an easier transaction in selling the assets by just one partner. The valuation of the two 70bn m3 gas fields at $150mn equals the reported investment in their development and is about 10% of their valuation just 18 months ago. So if Delek would sell the assets for the reported $40mn it will incur a book loss of at least $100mn, excluding potential royalties. According to the framework, after selling the gas fields Delek will be entitled for royalties once production begins. Royalties are 9% if a transaction takes place in up to eight months from the framework approval, or just 7% if longer than eight months.
Delek is conducting talks with various groups; among those mentioned to buy Karish and Tanin are Italy's Edison (part of French group EDF), Fosun of China, Hutchinson Whampoa of Hong Kong, Eni of Italy and BSGR owned by Israeli billionaire Beni Steinmitz.
A representative of one bidder told NGE that the price his company will be willing to pay is dependent upon gas prices in 2020 when those assets are supposed to come online and other aspects such as gas transportation. According to the framework gas from Karish and Tanin is intended to be sold solely in the Israeli market, however currently there is not enough demand that will justify its development.
A few months ago the Israeli Energy Minister, Yuval Steintiz visited the US and tried to lure energy companies there to invest in Israel. So far his efforts have not yielded positive results.
Ya'acov Zalel