Israel’s government said last week it had reached a deal with the US-Israeli consortium on the development of Leviathan and two other offshore wells.
After weeks of talks over the government’s initial proposal in June, the controversial deal will allow Texas-based Noble Energy and Israel’s Delek Group to keep ownership of Leviathan. But they are required to sell off other assets, including stakes in Tamar, another large deposit.
“The outline will bring Israel hundreds of billions of shekels in the coming years,” Prime Minister Benjamin Netanyahu told a news conference ahead of the cabinet approval last Sunday.
As the development of Leviathan had been held up for months by the delay in regulatory approval, the announcement of the deal sent Israel’s energy and oil and gas stocks up 5% to 6%.
Lower gas price
One change to the initial plan is that the price of gas in the new agreements will be lower, while the developers will also commit to invest $1.5 billion in developing Leviathan in the next two years.
Netanyahu had been adamant in seeking a deal that would allow Leviathan – one of the world’s largest offshore discoveries of the past decade – to be developed. He had faced a coalition crisis over details of the plan on accusations that the government gave into most of the companies’ demands and would leave Noble and Delek with too much power since they would control most of Israel’s gas reserves.
Israeli government officials argued the current deal was the best they could achieve in ensuring there were no further delays in developing the gas field that sits 80 miles (130km) off Israel’s Mediterranean coast.
However, Netanyahu week won crucial backing from the central bank chief Karnit Flug, who said that while the deal was far from ideal, it was the right move for the economy.
Leviathan, with estimated reserves of 22 trillion cubic feet (tcf) or 622 billion cubic metres, is slated to begin production in 2018 or 2019 and expected to supply billions of dollars of gas to Egypt and Jordan in addition to supplying Israel.
Energy Minister Yuval Steinitz said that years of delays of developing Leviathan, discovered in 2010, has cost Israel tens of billions of shekels.
Cyprus synergies
The deal on Leviathan is seen as being good for the development of Cyprus’ offshore Aphrodite field, since Delek and Noble both hold stakes in Block 12 in which Aphrodite is located.
Leviathan’s development cost is estimated at $6.5 billion while that of Aphrodite is estimated at $3.5bn. Joining forces to sell the gas to Egypt should therefore bring significant synergies and economies of scale for both Delek and Noble.
Delek’s divestment of Tamar will also free up cash for development. The forced divestment explains the Delek Group’s push to increase its stake in Block 12 from 30% at present to 49.9%.
Source: InCyprus
