SHEMEN OIL AND GAS EXPLORATIONS, LTD. HISTORY AND MAJOR EVENTS 2010-2013
Shemen Oil and Gas Explorations, Ltd. (SOG) was established in 2010 for the purpose of oil and gas exploration and drilling. What makes this company so interesting is its current interests in the Noble-Delek Gas deal and its history with the Yam 3 well. Yam 3 was in September of 2013 a billion-dollar producer, a unicorn laying wait off the coast of Ashdod, and only a month later, a desert, an abandoned hole barren of any possibility of production.
But what happened between 2010 and 2013? And, did the current holders of Shemen know then that they would be getting a deeply discounted piece of a far greater deal now? We are of the opinion based upon significant research, that the history of Shemen and the Yam 3 well is a story of prior knowledge, inside information, stock manipulation, price pumping and dumping, bartering property interests for money and clout, bargaining favors in exchange for patronage with Israeli top government officials, tax schemes, money laundering, and geopolitical maneuvering.
We make no outright accusations; but place the burden of clarity upon certain obvious principles in front of you; and we ask that you follow our connections. As more information comes in, we will update accordingly. This is Part I.
For the purposes of reading and analysis, dear readers, we have provided you with all of the research (well, almost all). In the interest of prudence, we are leaving out the connections to Russia, Azerbaijan and players in the Middle East, each of which is a chapter within the greater story. We are also leaving out a separate story regarding related indictments, which is relevant given the nature of those indictments.
The story begins not with the incorporation of Shemen in 2010, but with Gabi Ashkenazi who was brought on board with Jackie Ben Zaken and his partners in 2011 to act as a face for negotiation for the rights to drill for natural gas in a well referred to as Yam 3. It sits off the coast of Ashkelon. Ben-Zaken had money, a company Financial Levers, Inc. “Levers”, stature and Ashkenazi, was a political and military powerhouse, a former IDF official with connections and credibility, each characteristic necessary to negotiate for drilling permits and licenses.
Some articles at the time hint that the public offering would not have been possible were it not to have been for his face or one of equal value and stature as the front man for the company.
We are guessing that, even as early as 2011, the people with the pitchbooks knew that Yam 3 was going to be deserted of any oil or gas; and they led shareholders and public investors to believe that they had found a goldmine (sorry, an oil and gas well) when they knew otherwise. Alternatively, we believe that there was significant market manipulation at the time, with respect to Shemen Oil and Yam 3.
The shareholders would buy and sell shares with the ebbs and flow of the oil announcement tide, quite literally. A careful review of share prices, the influx and outflow of money was carefully timed. Haim Leibovitz so much as sold his stake in the company at the behest of his Rabbi, but that is a story for another day. One must wonder if that sale, closing on a deep discount was clearly understood for its magnitude. It involved his own company, a tax free entity in Burkina Faso.
However, in the background of this entire picture was a another set of deals being negotiated, the deals involved the Leviathan and Tamar wells, a monster of a lucrative prospect, now known as Noble-Delek. Whatever happened with Yam 3 was, in our view, largely irrelevant so long as the parties involved could find their way into Noble-Delek deal which it had always been assumed (and rightfully so) would yield billions.
Returning to the Yam 3 foreground, what a financial analysis in a vacuum does not consider is the geopolitical aspects of oil and gas as it applied to Israel and its place in Middle East politics. Premature announcements regarding gas and oil which were made, in our view were timed to provide Israel with the appearance of financial strength to Hamas and other organizations trying to claim disenfranchisement. They were also well timed to stabilize or destabilize the Israeli Knesset, at will. Whether there was political intervention in the timing of the decisions is a question we do not address. We leave that one open for journalists and investigators to examine.
It is important to understand that each announcement to the public both in Israel and abroad changed the tide of the political landscape in Israel and for Israel. The ramifications in September of 2013 of oil and gas certainty and then the follow-up announcements only weeks later of a dry well were not only felt on the stock market but within the political stratosphere of Israeli/Palestinian politics.
And then there’s the timing of changes within the religious landscape that cannot be overlooked or understated. The ultra-Orthodox connection to the Noble-Delek deal lies with Haim Leibovitz (a/k/a Chaim Leibovitz, a/k/a Chaim Lebovitz) whose Rabbi had the power to influence his financial stake to the extent of many millions simply by insisting that he sell out because the company drills on Shabbat. We believe that to have been a ruse, very cleverly initiated both for his community and for his pocket. We do not claim there was anything illegal in the sale, only that there are some aspects that seem somewhat eyebrow-raising.
It was quoted in the papers that he was blessed, for if he had not sold he would have lost millions. That is an absurdity beyond all reason. Leibovitz is a savvy businessman as were his partners in all areas of investing. They are not fools and many of the projects these men hold interests in are living, breathing and working on Shabbat. Whether or not he sold knowing that the wells were dry is a question that remains open. That he sold within companies in which or to which he had interests is public knowledge.
He was an insider (as was likely his rabbi and confidant). Any knowledge of the status of the Yam 3 well beyond what was publicly known, and any move made to divest himself of his shares as a result of or a reaction to that knowledge is not a blessing, and in our view raises questions. In addition, the accounting, net operating losses, sales between companies, share price, are all things interesting enough to demand a deeper dive, in our opinion.
Then there were other parties, controlling stakeholders, who were also ultra-Orthodox. These parties got into the deal so Shemen could diversify the investor pool in the eyes of the Israeli government. They were strategic partners, but investor information lists them as controlling shareholders. This is interesting given the size of their holdings, the rate at which they took an interest, the timing as it coincided with changes to Haim Leibovitz’s holdings and the exchange of property interests which seemed also to coincide with the diversification.
While that piece will not be covered here directly, we will revert back to this article when we publish that later.
For the purposes of this article, we are focusing on the company, the oil and the share price of Shemen between 2010 and late 2013.
Suffice it to say, those who bought on the cheap when Yam 3 abandoned as nothing more than a giant hole in the sea; and who held onto those shares in advance of the Noble-Delek deal (which has been negotiated since some time in 2012) have made a killing.
We have highlighted key points below in red.
HISTORY, INFUSION OF CAPITAL AND SHARE PRICES:
“In November , the company hired former IDF chief of staff Lt.-Gen. Gabi Ashkenazi as its chairman. A month later, it raised NIS 120 million in its IPO“ . Gabi Ashkenazi’s involvement was key, it would seem to strategically convincing the appropriate government officials to permit the drilling rights, which were being heavily negotiated.
In February of 2012, Shemen Oil announced that it had hired a rig from Atwood Oceanics Worldwide Ltd. and was in negotiations to obtain the necessary licenses to drill the Yam 3 well. The announcement of the rig pre-empted, it would seem, the reality of whether or not drilling rights were going to be given. Regardless, at the heals of that announcement the share price went up about .5% to a market cap of about NIS 631 Million.
In July of 2012, Shemen Oil, Inc. announced that it had been given the licenses necessary to begin drilling the Yam 3 well, at an estimated cost of $98M USD, raising its share price about 17% on trading. This announcement at the heals of the previous February accouncement set the stage for excitement; but also created what would have been a public relations nightmare if the government had found reason to deny the drilling permits.
In May of 2013 the Israeli newspapers ran articles of a new oil find, coincidentally – or not so, Yam 3, a well we knew from previous announcements off the coast of Ashdod in Israel. If proven correct, by all estimates, Yam 3 had the potential to tip the balance of power in the middle east and present challenges for an already fragile quasi peace between Hamas and the Palestinian Authority and Israel. The estimates, depending upon the depth of the well and the thickness and type of the surrounding rock, predicted a well that could generate potentially 128 million barrels of oil.
According to reports, the rights to the well were purchased from Shemen by an Azerbaini company, Caspian Drilling, Ltd.. Under the terms of the agreement, there was an exchange of the responsibility of the drilling costs for a percentage of whatever oil was found. Further, under the terms of the exchange, Caspian paid Shemen $2,000,000.
THE CRITICAL ANNOUNCEMENTS, MANIPULATION OF MARKETS, GOVERNMENT STABILITY AND GEOPOLITICAL FACTORS:
There were 4 major announcements regarding the Yam 3 well that were critical in regards to share prices, investor money, geopolitical changes and strategic alliances which were being created as the rest was happening:
The first was the introduction of Gabi Ashkenzi into the picture for “strategic purposes.” While we think this was not-so-subtle code for knowing whose palms to grease, we make no accusations. It was most certainly an unveiled announcement that he was the right person for the job. At the time of that announcement, Shemen had been controlled by Jackie Ben-Zaken, both individually and through a company call Levers, Haim Leibovich (a/k/a Chaim Leibovitz, a/k/a Chaim Lebovitz) and Avrahan Nanikashvili.
In Israel it is not always what you know but who you know and Gabi Ashkenazi was a key player in the Department of Defense and the other ministries whose approvals were required to obtain unfettered access (a/k/a drilling rights) to Yam3. In our Opinion, it also gave him and the company’s principals access to the people in power whose ears would be required to make them a lot of money later, regardless of the success or failure of Yam 3 (think Noble Delek).
The Gabi Ashkenazi announcement also paved the way for a Shemen IPO which brought public money into the deal: “includ[ing] Migdal Insurance and Financial Holdings Ltd.(TASE: MGDL), The Phoenix Holdings Ltd.(TASE: PHOE1;PHOE5), Menorah Mivtachim Holdings Ltd. (TASE: MORA), Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS), and IBI Investment House Ltd. (TASE:IBI)”.
The second major announcement was a three-stage set: first, the hiring of a rig, the second was then solidification of the drilling rights and the third was another announcement regarding hiring of another rig. These three public statements were made between July and September of 2012 and with them the shares of Shemen soared, increasing market cap and interest in the company.
In addition, the geopolitical landscape at the time (which will not be looked at in depth for these purposes) began to change as Israel’s stature in the Middle East was guaranteed to change significantly if it became a natural gas powerhouse and/or a natural gas and oil hub.
The third major announcement was made in and around September 8, 2013, when it was announced in GLOBES that Oil was found at Yam 3. To be clear, this was in addition to the natural gas that had been previously announced in 2012 and had been the basis for the initial drilling rights.
While Globes also published caveats in the articles announcing Shemen’s find, which included the possibility that an announcement of the magnitude of Shemen’s estimates was a bit premature because it did not include the depth and type of rock surrounding the well (which could have made drilling impossible), the shares of Shemen Oil on the Tel Aviv stock exchange soared about 28% on the news closing around 15% higher from the open that day.
A key comment in that Globes article was the following statement: “Hamas and its rival Fatah movement likely would be at each other’s throats, literally, to claim that Israel is “stealing” the reserves from them.”
The final set of announcements occurred in October of 2013, to be clear only a month later, when it was announced that the Yam 3 well was dry, bone dry. It was wholly and completely devoid of oil. What made this announcement so significant is the need to suspend rationality if you are to believe that the numbers being described in the surveys surrounding each announcement were staggering (and drove the markets upward) and suddenly, nothing. It is simply illogical.
The shares tanked when reports starting coming out in a flurry that Yam 3 was a desert, losing somewhere between 60 and 80% of the market value by the end of trading. Ben Zaken, in what appeared to be an act of altruism bought back many of the shares at what was then deemed to be a significant loss. But really? If Ben Zaken had any knowledge that Nobel-Delek was going to be actualized, he had just made a killing, capitalizing on losses that he must have seen were coming long beforehand. Falling on his sword in an act of altruism and scooping up shares of a company that would be far more valuable, was a clever play, in our view.
The ultra-Orthodox who came into the deal at about the same time that Haim Leibovitz’s rabbi was giving him sage advice, came in on a minority position with a controlling interest, at a discount. They were needed to diversify the shareholders thereby meeting requirements set forth by the government before it would provide the licenses and certifications necessary to drill.
We believe that behind closed doors, many of the parties – the closely held insiders – who on their face lost money, gained something more valuable, rights to Nobel-Delek.
The people who were most hurt by the events that transpired between 2011 and 2013/2014 were public shareholders who relied on the promises of the corporate announcements and their legitimacy. They were duped. The shareholders who have since held on, thus gaining a share albeit – fairly small in Nobel, were lucky. The ones who still own a significant stake in Shemen have a very lucrative, if on not somewhat oily future ahead.
We intend for this to be an ongoing investigation. We will make corrections as necessary. This should not be deemed in any way, shape or form to be advice to any investors in Nobel as they are currently traded or any private shareholders who may own other equity or interests. This is purely an opinion article, based upon our analysis of facts as laid out in the news articles, shareholder filings and other information, our analysis of due diligence.