The Tamar gas platform, looming almost as tall as the Eiffel tower offshore Israel, is leading the country to energy independence and helping billionaire Isaac Tshuva repay the gusher of debt he took on to develop it.
A decade-long effort to scrape the bottom of the Mediterranean for energy yielded the 10 trillion cubic feet Tamar find in 2009, then the world’s largest deep-water natural gas discovery. Production will help Tshuva’s Delek Group Ltd. (DLEKG) meet 4.42 billion shekels ($1.2 billion) in debt payments in 2014. Shares of the Netanya-based company rallied 64 percent in the last 12 months and will jump another 11 percent in a year, assuming no major setbacks on export regulation, UBS AG (UBSN) said.
With gas finds at Tamar and the larger offshore Leviathan field in 2010, Libyan-born Tshuva, now worth at least $2 billion according to data compiled by Bloomberg, is helping Israel reduce its reliance on imports for about 95 percent of gas consumption and position itself to start exporting. UBS forecasts Tamar will generate more than $1 billion in sales in 2013, translating into revenue of $180 million this year for Delek, whose units own 31.2 percent of the project.
“The Israeli economy will be able to exploit the advantages of natural gas environmentally, geopolitically, socially and economically,” Tshuva, who started working in agriculture and construction in Israel at the age of 12 and is now 65, said in a May 22 interview at Delek Group’s offices in Netanya, Israel. It will “turn Israel into an important international player,” he said.
Discovering gas marks a turnaround for Tshuva. He made his fortune building low-income housing in Israel in the 1970s, before some international real estate transactions went sour and led him to negotiate a 3 billion-shekel debt settlement with bondholders and banks last year. In addition to Tamar, Delek units have stakes in the Leviathan field, estimated by Netherland Sewell and Associates Inc., a petroleum consulting firm, to hold 19 trillion cubic feet of natural gas.
Yields on Delek Group’s 1.06 billion shekels of 6.1 percent bonds due October 2022 sank to a record 2.02 percent on May 22 from as high as 8.1 percent in August 2011. The bonds yielded 2.44 percent at the close in Tel Aviv. Shares will rise to 1,130 shekels in the next 12 months from 1,020 shekels today, according to Roni Biron, an analyst at UBS in Tel Aviv who has a buy recommendation on the stock.
The gas flow from Tamar and Delek Group’s gas assets will enable the group to refinance debt due next year, David Shrem, an energy analyst at Sphera Funds Management Ltd. which manages $550 million, said in an April 8 interview at the hedge fund’s offices in Tel Aviv. The company must make 4.42 billion shekels in payments by the end of 2014, Standard & Poor’s Maalot Ltd. said in a Jan. 20 report.
“Finding the gas came right on time,” Shrem said. “Tshuva is in a much better situation today because of the gas.”
The company has also been selling non-energy assets to focus on its oil and gas business and reduce debt, according to Asaf Bartfeld, the group’s chief executive officer, in a May 2 interview at Delek Group’s offices.
The group raised about 155 million shekels this year from the sale of a 4.73 percent stake in Delek Automotive Systems Ltd. and approximately 2.4 billion shekels by selling portions of Delek US Holdings Inc. (DK:US) over the last 12 months, according to the company.
Tshuva’s business structure provides a window into the Israeli conglomerates that government regulators are seeking to dismantle to help reduce debt and increase transparency for shareholders. He controls 63.4 percent of the main holding company, Delek Group, listed on the Tel-Aviv Stock Exchange, according to data compiled by Bloomberg.
The group owns 6.1 percent of Delek Drilling-LP, an oil explorer, and 8.45 percent of Avner Oil Exploration LLP. (AVNRL) It also holds a 51.8 percent stake in Delek Energy Systems Ltd., which in turn owns 50.1 percent of Delek Drilling and 46.6 percent of Avner, according to the group’s 2012 annual report.
Delek Group owns 86.7 percent of Cohen Development and Industrial Buildings Ltd., which has a 50 percent stake in Avner’s holding company, Avner Oil and Gas Ltd. (General Partner). Delek Drilling and Avner each own about 23 percent of the Leviathan field, according to Delek Group data. Regulators are considering whether to break up the group of companies exploiting the field.
“High exposure” to the energy sector poses risks for Delek Group, S&P Maalot said in the Jan. 20 report. Its dependence on asset sales or refinancing to meet its “heavy repayment schedule in 2014” weigh on its ilA rating, the sixth-highest long-term bond grade, according to the report.
Delek and its partners require investments of as much as $15 billion in the Leviathan field, including the construction of a liquefied natural gas facility for exports, Bartfeld said.
Israel will cap gas exports at 40 percent of output, Prime Minister Benjamin Netanyahu said today, scaling back by about a fifth the amount a government-appointed panel recommended last August. The Tel Aviv Oil and Gas Index today jumped to the highest since April 2.
Investors expected the decision in light of public and political pressure to retain fuel for domestic use, Guil Bashan, an analyst at IBI-Israel Brokerage & Investments Ltd., said by phone today. The announcement “reduces uncertainty about the country’s export policy and will benefit the gas explorers who can now progress toward exports,” Bashan said.
Tshuva came to Israel after the nation’s independence in 1948. Following three years in the army, he began as a contractor for the Defense Ministry. Later he developed low-income neighborhoods across Israel, benefiting from a construction boom in the 1970s. He built concrete apartment blocks for Russian immigrants before buying assets overseas including New York’s Plaza Hotel.
In 1998, he joined the country’s business elite after wresting control of Delek from the Recanati family’s IDB Holding (IDBH) Corp., which had interests including telecommunications and investment banking.
His closely held real estate company, El-Ad US Holding Inc., named after his son, bought the Plaza Hotel in New York for $675 million in 2004. It converted part of the building on Fifth Avenue and Central Park South into 182 apartments, which were sold for about $1.5 billion to individuals. The hotel was sold to Sahara India Pariwar in November 2012 for $575 million, generating a return of about $900 million over eight years.
In 2007, El-Ad acquired the New Frontier Hotel in Las Vegas for $1.2 billion and planned to develop the property into a Plaza hotel and casino with Israeli businessman Nochi Dankner. The project was put on hold in 2008 as the financial crisis deepened and the value of the land fell below the $625 million in loans taken to acquire the plot, El-Ad’s Chief Executive Officer Udi Erez said in a phone interview on May 13. Today the site is an empty lot.
Delek Real Estate Ltd. was taken private in December 2012 as part of a settlement reached with banks and bondholders. Tshuva, who owned about 50 percent of the company, agreed to pay bondholders 850 million shekels, of the 2.1 billion shekels owed by the real estate firm, and to pay 750 million shekels to banks to settle about 900 million shekels in loans, according to data published by Delek Real Estate.
Tshuva, who starts his workday at 7 a.m., and drives himself in a beige-colored 2008 Cadillac, pushed to expand Delek’s gas exploration efforts even after onshore and offshore drills in Israel yielded about 500 dry wells, Bartfeld said in a May 2 interview at the company’s headquarters
“When you grow up like I did, having to start work at the age of 12 to help my family make a living, you learn to persist and survive,” Tshuva, dressed in a black polo shirt and matching trousers, said while sitting crossed-legged on a brown leather couch in his office in Netanya. “There were many dry wells, but I believed that if we will persist we will find gas, and that is what happened.”
Israel started production of natural gas from Tamar on March 30. The output will boost Delek Group’s revenues in the second half of 2013, UBS said, given the company’s ownership of 17 percent of the field through subsidiaries. Houston-based Noble Energy (NBL:US) Inc. has a 36 percent stake in the field.
Tamar may contribute about 1 percentage point to the nation’s gross domestic product, the Bank of Israel said in a March 24 report, helping the economy grow 3.8 percent in 2013.
Partners in the Tamar field, including Delek Drilling and Avner each with a 15.6 percent stake, have agreements to sell about $39 billion of gas over 15 years to companies including Israel Electric Corp., Paz Oil Ltd. and Oil Refineries Ltd. (ORL), according to data provided by Delek.
“For Tamar, we had to have vision, faith and determination and Tshuva gave that to us,” Avner Chief Executive Officer Gideon Tadmor said in an interview from the rig on May 21, where Noble Energy employees supervise gas being separated from liquids in white pipes and transferred to the Israeli shore. “This project was still a dream just a few years ago.”
Tshuva is now pushing to drill for oil at Leviathan and the “Valley of Peace” project, a $3 billion canal connecting the Red Sea and Dead Sea and linking Israelis, Jordanians and Palestinians.
The Tamar project “was a gamble that paid off big time,” Yaniv Pagot, chief strategist at Ramat Gan, Israel-based Ayalon Group Ltd., an institutional investor, said by phone on May 26. “An entrepreneur has to be a little bit crazy. Sometimes you get hurt, other times you touch the sky.”
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