Petroleum Commissioner Okays Delek Group’s HSBC Loans

Israel’s Petroleum Commissioner has approved the arrangement between Delek Group subsidiaries and HSBC for $500mn in loans, Israeli financial newspaper Globes reported on 28 February. Commissioner Michael Gardosh had in January rejected Delek’s application to use its partnership rights in Leviathan as collateral for loans to finance its share in development of the offshore Tamar gas field (MEES, 30 January). Delek Drilling and Avner Oil & Gas, partners with US company Noble Energy in the offshore Tamar and Leviathan gas fields, were allowed to place a lien on their rights in the Leviathan field as collateral for loans, worth $250mn for each company. The approval follows a 15-year gas supply agreement between Israel Electric Corporation (IEC) and the Tamar partners worth $8bn (MEES, 27 February).

The HSBC loan will be issued at Libor plus 3.5-4.5% annual interest and be extended in two tranches. Delek Drilling and Avner will make quarterly installments on the interest and repay the loan by 14 June. It will work as a bridge loan until the companies can arrange long term financing for developing their offshore Israel holdings. The money will go towards developing the Tamar field and the Noa gas field near Mari-B in the Yam Tethys license and will not be used for exploration, Globes said. The companies are now financing Delek’s $950mn share of Tamar development with a $380mn bridge loan from HSBC and Barclays Bank plc that was arranged in June 2010 and which must be repaid by June this year.

Globes pointed out that the $8bn contract with IEC still requires regulatory permits that are weeks away. It will be only after that deal is finalized that Delek Drilling and Avner will be able to obtain $800mn in long term financing. The two firms have recently received permission from their shareholders to raise $125mn each in rights issues.

The Tamar gas field, discovered in 2009 and with gas reserves now estimated at 9.1 trillion cu ft, is under development and due to come on stream in mid-2013 at a time when Israel will be facing a serious shortage of natural gas. In the meantime, operator Noble, partner in the Yam Tethys license with Delek, is working to develop the small Noa reservoir as a stop-gap measure to supplement Mari-B output. Mari-B is Israel’s only source of domestic gas and production there has been ramped up since supplies from Egypt have fallen away due to explosions on the Sinai export pipeline. Mari-B is expected to expire by the end of this year, leaving Israel reliant on diesel and fuel oil for power generation, as supplies from Egypt remain problematic.

© Copyright MEES 2012.