Egypt, Israel, Cyprus, Noble-Delek and Dolphinus Holidngs

East Med rides the waves

Egypt, Israel and Cyprus all saw progress in their ambitions to develop the prodigious East Med basin in 2018

The one-time backwater that was the East Med continued its transformation into one of the world’s most prospective natural gas areas in 2018, with Egypt pushing the envelope through major projects and Israel also looking to get in on the act with a bold plan to send gas to its neighbour—and one-time supplier—Egypt.

Italy’s Eni, which discovered the giant Zohr field, which contains some 30 tr cf of gas, was reported earlier in the year to be preparing to carry out exploratory drilling at the Noor field, off Sinai, amid speculation that another Zohr-size discovery was in the offing.

Interest in Egypt piqued as a result of the increasingly attractive terms on offer to international firms. This helped smooth the way for a deal that could see gas from Israel’s giant Leviathan (21tr cf of producible gas) and Tamar (10tr cf) offshore fields reaching Egypt. Noble Energy and Israel’s Delek, operators of the two fields, signed an agreement in principle with private buyers in Egypt in 2018 to supply 226bn cf of gas over a 10-year period.

In February, Noble and its partners reached a deal with Egypt’s Dolphinus Holdings, a group of private sector companies, to sell gas from offshore Israel to Egypt. Though politically risky for Egypt, where dealings with Israel have historically been taboo, this has the backing of the Egyptian government and after years of halting progress, this now looks to be a game changer for the region.

Egypt saw some production developments in 2018. In August, SDX Energy announced that a successful production test had been conducted at its SD-3X appraisal well at South Disouq, Egypt. The well flowed at a maximum rate of 16.1mn cf/d during an 8-hr clean-up period.

In September, production capacity at Eni’s Zohr project, developed in conjunction with Russia’s RosneftBP and the UAE’s Mubadala, together with Egyptian companies, was increased more than 25pc to greater than 2bn cf/d. The increase was achieved through the commissioning of the fifth gas train at the site, as well as start-up of the second export pipeline and new wells. The field is expected to reach production capacity of 2.7bn cf/d by the end of 2019. During first-half 2018, 109.5bn cf of gas were produced at the field.

Greece’s Energean was meanwhile developing Israel’s Karish and Tanin fields, where 2.4tr cf of gas had been discovered but not developed. The Greek firm has concluded agreements with private Israeli power producers for the supply of a total of 148bn cf a year for 15 years. First gas is expected in 2021.

The year started on a strong footing when Eni and Total announced yet another gas discovery in the Eastern Mediterranean in February, located off the coast of Cyprus. The “Calypso 1” well suggests an extension of the Zohr like play, according to Eni—which was also active in Lebanon, where it signed deals to explore off the country’s coast.

Lebanon’s involvement is still low key, and it is held back by difficult geopolitics—traditionally the bane of the East Med’s development prospects. Antipathy between governments in the region could deter drilling. Turkish warships reportedly stopped Eni from drilling in Cypriot waters in February due to its non-recognition of the Greek Cypriot government. Lebanon and Israel have yet to reach agreement over the maritime border area, with some of Lebanon’s offshore blocks deemed by Israel to encroach into their maritime zone.

To read the complete article click here.

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An Oily Business… Conflicting Reports in 2010-2013 – Shemen Oil, Yam 3, Shareholder Value, Geopolitical Implications and Politics – Part I

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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 [2011], 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. 

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A Leviathan of a Step for Private Interests – Noble-Delek, Private Interests to Gain Over Public – East Gas

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Egyptian Intel Is Big Gainer From Israeli Gas Deal, Report Says

The Egyptian intelligence service is slated to receive 80 percent of the income from East Gas, the main beneficiary of a massive natural gas deal with Israel

Delek Drilling’s partner in the EMG gas pipeline to Egypt, the Egyptian company East Gas, is owned by Egypt’s intelligence service, Egyptian news site Mada Masr reported.

East Gas, the main beneficiary of plans to export Israeli natural gas to Egypt’s private consortium Dolphinus Holdings via the EMG pipeline, is a private company, most of whose shares are held by Egypt’s intelligence service, says the report.

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“The gas import deal — scheduled to come into effect early next year — found that the repeated claims by Egyptian government officials that the venture is a purely private sector affair wholly outside the ‘government framework’ are misleading at best,” stated Mada Masr in its report.

The intelligence service is slated to receive 80% of East Gas’s income, it states.

Furthermore, Egyptian intelligence also has an interest in Dolphinus, says the Egyptian news outlet.

“Documents and sources reveal that through a complex web of overseas shell corporations and subsidiaries, the intelligence body stands to cash in at all stages of the deal, from the transport of Israeli gas to Egypt to its final sale to the Egyptian government. These profits end up in the coffers of the GIS, and not the public budget,” states Mada Masr.

The news site says the intelligence service worked through shell companies in countries including the Virgin Islands, Luxembourg, Switzerland and the Netherlands, in order to conceal the identity of the Egyptian players, avoid taxes and shield them from accountability.

Israel is supposed to start exporting gas to Egypt’s Dolphinus consortium in March 2019, via the EMG pipeline. The gas, from Israel’s Tamar and Leviathan reserves, is valued at $15 billion. Last month, Delek, Noble and East Gas announced they were buying 39% of EMG’s shares for $518 million.

Meanwhile, Egypt recently discovered its own massive offshore gas reserves. Mada Masr says the Dolphinus deal does not appear to be in Egypt’s best interests, as the Israeli gas costs significantly more than locally produced Egyptian gas.

Noble-Delek and EMG – What if they Voted to Not Supply the Gas as Promised?

THE NOBLE DELEK GAS DEAL –

A NOBLE DEAL BETWEEN DELEK GROUP, NOBLE ENERGY, EGYPTIAN EAST GAS, EMG AND THE COMBINED COMPANY EMED? 

Several  months ago in a set of comments to an article entitled: “The Egypt-Israel Gas Deal: What’s the Chance it will go up in smoke?” someone made the following comment:

By investing into EMG, Delek and Noble would hold the largest voting bloc in the company, allowing them to pass a motion to NOT use the pipeline in the original direction from Egypt to Israel. I.E to block the possibility of exporting gas from Egypt to Israel

We have not named the Commenter but his comments can be found at the bottom of the article republished in part below. We have found that some of the most important points of any article can be found in the comments and we believe that this is no exception.

Moreover, whether inadvertently or otherwise, the commenter used the spelling “voting bloc” which is generally the parlance of a reference to the ultra-Orthodox Jews who tend to vote as a unit, upon the determination of a rabbi, prominent businessman, etc. That too may be no coincidence and in all honesty is speculation.

Also noteworthy, the deal allegedly solves other problems, including ongoing litigation regarding the wells, Leviathan, Tamar and Dolphinus. We note that in Hebrew a Leviatan is a whale (or a navigation system).

Over the course of the next few weeks, we will dissect the deal piece by piece along with the owners of each of the companies and we will try to provide a timeline. We believe, an opinion based upon an analysis of several years worth of articles and numbers, that the deal may not be completely kosher.

For one, it creates a natural gas monopoly, a power keg for price manipulation, supply manipulation and depending upon the flow of gas, power brokering. For another, if the parties decided to build another pipeline, through “Kerem Shalom and the Sinai” they could create a different sort of monopoly, particularly if the second pipeline were owned by the same consortium of owners. Finally, the pipeline has a long and sordid history, one which could repeat itself, particularly if the countries involved, namely Israel and Egypt were to fall into the hands of fundamentalists – whether Jewish, Muslim, or others who could play the religious control card at whim. We leave you to your own conclusions.

For now we start with the following:

  1. EMED is the joint company created for the purpose of the purchase into EMG
  2. EMED = Delek Drilling LP, Noble Energy Inc., and Egyptian East Gas Co.
  3. EMG owns the subsea pipeline (between Ashkelon in Israel and El-Arish in Egypt) that will carry the Gas between Egypt and Israel and is owned in large part by Thai Energy Company PTT (PTT.BK), state owned Egyptian company EGPC and Investment group MGPC, and Egyptian East Gas.
  4. EMG is also held by businessmen Sam Zell and Yosef Maiman
  5. In addition to its stake in EMG and now EMED, Egyptian East Gas also owns pipeline that runs from El-Arish and Aquaba in Jordan (Note, claims are that the Jordanian pipeline would be available free of charge for later supply.)
  6. Yitzchak Tschuva is the “owner of Delek Group”  and Delek Drilling LP, which now owns a stake in EMED.
  7.  East Gas is a little difficult in terms of ownership as their website is not accessible (http://www.eastgas.com.eg/index.html)
  8. Noble Energy Inc.is a Texas based company, with interests to be published in a separate article.
  9. Leviathan and Tamar are the Israeli reservoirs, subject to the gas deal.

Research:

Gas imports from Israel, reducing fines, Egypt’s gas hub plans coming through offshore companies

“EMG is held by, among others, businessmen Sam Zell and Yosef Maiman, people familiar with the matter tell Bloomberg. Delek and Noble are in the process of setting up a Cyprus-based joint venture, which would then partner with a Netherlands-based company set up by East Gas. This new partnership, also based in Holland, would buy the 37% stake in EMG.”

Israel, Egypt Gas Partners Buy Control of Key Export Pipeline

Bloomberg LP

Consummation of the deal with EMG will allow the company to pursue more contracts, Abu said. Among the options is a bigger deal with Royal Dutch Shell Plc, which is considering buying gas from Israeli and Cypriot fields partly owned by Delek and Noble.

 

Delek Drilling Partnership : Leviathan partners near $200m EMG pipeline deal

EMG, owned by Israeli businessman Josef Maiman, Egyptian, US, and Thai investors held sole rights to import Egyptian gas to Israel. The deal was signed in 2005 and gas began to flow in 2009 to supply Israel Electric Corporation (IEC) (TASE: ELEC.B22) at a price 40% higher than originally agreed. But the gas supply was halted in 2012 after it was repeatedly attacked in the Sinai. The gas deal was terminated and EMG and IEC were awarded $1.8 billion compensation by arbitration proceedings in Switzerland.

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(c)2018 the Globes (Tel Aviv, Israel)

Visit the Globes (Tel Aviv, Israel) at http://www.globes.co.il/serveen/globes/nodeview.asp?fid=942

Delek Drilling, Noble Energy acquire 40% of Egypt-Israel gas pipeline

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Companions to the Israeli gas deal: Noble and Delek in talks to acquire East Mediterranean Gas pipeline

“The source, who spoke to Mada Masr on condition of anonymity, says that a decision has been made to begin technical alterations to the pipeline to reverse its flow and allow operators to import gas into Egypt instead of having the country export gas to Israel, which was the previous arrangement according to a deal signed in 2008. ”

“The pipeline was the target of successive militant attacks after 2011. In 2012, the Egyptian Natural Gas Holding Company (EGAS) terminated its contract with Israel. The state-owned company attributed the decision to a breach of contract by EMG for delayed gas payments”

 

“The source close to the deal corroborates information Mada Masr published last year regarding the aims of negotiations to import gas from Israel. By striking a deal to import gas from Israel, Egypt aimed to find a way around the international arbitration fines of $1.7 billion, owed to the Israeli Electricity Company (IEC) and over $200 million, owed to EMG. Egypt also sought to terminate commercial arbitration with the relevant partners of EMG through the deal, thereby avoiding a potential arbitration fine of $8 billion, which would have been owed to Unión Fenosa.”

““Israel hasn’t given up on the debt and the matter did not come up for discussion during talks on the Leviathan export deal to Egypt that was signed [last] week,” Israel’s Energy Ministry told the paper.

A senior Israeli government source, however, told the Israeli business newspaper TheMarker that, while he doesn’t expect Egypt to pay the arbitration settlement, such a move by Egypt will not affect electricity rates in Israel because the Israel Electric Corporation (IEC) has already written off the debt as unrecoverable and incorporated the losses into rates over the last six years.

Near the end of 2015, the International Chamber of Commerce in Geneva ruled that EGAS and EGPC were obligated to pay the aforementioned sums in compensation to EMG and the IEC. The decision served as a penalty for Egypt’s April 2012 decision to halt gas exports to Israel after the pipeline was targeted by several attacks and Egypt came to import natural gas itself as the needs of its national market increased.”

 

 

The Egypt-Israel gas deal: What’s the chance it will go up in smoke?

#MideastGasRush

The rush is on to complete a $15bn deal to export Israeli gas to Egypt. But with nearly enough gas to supply itself, does Egypt even need it?

The deal is but the latest chapter in an East Mediterranean saga that has seen Israeli and Egyptian gas fortunes rise and fall (MEE)

TEL AVIV, Israel – There is selling ice to the eskimos. And sand to the Arabs. Now there’s gas to Egypt.

The rush is on to finalise a deal which would see $15bn worth of Israeli gas supplied to a private Egyptian company during the next decade.

‘At least on paper, there is no necessity for Israeli gas any more’

 Elai Rettig, Institute for National Security Studies and University of Haifa 

The agreement between Israeli company Delek Drilling and Texas-based Noble Energy, who are partners in Israel’s Tamar and Leviathan fields, and the private Egyptian company Dolphinus Holdings was first publicised in February.

As yachts passed by in Israel’s Herzilya marina earlier this month, the deal continued to sail through as Delek shareholders voted to invest in a company controlling the only pipeline between Israel and Egypt.

One of the Delek shareholders who attended the meeting said a company representative told those gathered that, with control of the pipeline, gas could flow as quickly as the end of the year to Egypt – and so would their returns.

“We will see the money in a very short amount of time,” he said they were told.

The same parties announced a similar deal back in March 2015, at a time when Egyptian households and factories had been suffering regular blackouts as a result of energy shortages.

That deal never came to fruition. Three years later, the market in the gas-rich East Mediterranean – and globally – has transformed, leaving one pesky detail for Israeli gas dealers: Egypt is now nearly gas self-sufficient.

As Elai Rettig, a research fellow at the Tel Aviv-based Institute for National Security Studies and lecturer at the University of Haifa, puts it: “At least on paper, there is no necessity for Israeli gas any more.”

But there is every necessity for Israel to sell gas: the longer the gas sits unsold, the more gas will be discovered in the Mediterranean, and the more likely that Israel’s dream of cost-efficient regional sales is postponed indefinitely.

But that is not what is said publicly. Israeli government reports have concentrated instead on arguments based on Israeli national security.

What’s in it for Egypt?

Critically, the gas deal announced in February would allow Delek and Noble, and smaller partners in the field, to continue investing in Israel’s biggest gas field, the aptly named Leviathan, which has yet to produce any gas since it was discovered in 2010.

The companies have already invested $3.75bn in the first phase of Leviathan’s development, which they called the largest energy project in Israel’s history. Industry observers expect the field to start producing next year.

The logic for Cairo is much less clear: once Egypt can satisfy its domestic needs – which could happen as early as 2019 – then Israeli gas, say analysts, will likely cost more than Egyptian gas simply because of the added costs of importing it.

The gas could still potentially be re-exported from two largely idle liquefaction plants in the Egyptian towns of Idku and Damietta, the only such facilities in the Eastern Mediterranean.

That’s the vision Egyptian President Abdel Fattah el-Sisi has for the country. When the deal was announced, he said Egypt had “scored a goal”.

“I’ve been dreaming of it for four years – that we become a regional hub for energy,” Sisi said. “All the gas coming from around the region will come to us.”

If this were to happen, then Egypt would profit from tolls and transit fees.

But there is also a widespread belief among industry observers that it won’t be long before Egypt discovers even more gas, and will want to use the limited capacity of the LNG plants to export its own.

Given that the commercial basis of the current deal is unknown, it is unclear from which Egypt would profit more: exporting its own gas or re-exporting Israeli gas.

None of these details, however, has stopped the deal from moving forward. If anything, the clock is ticking as the companies selling Israeli gas attempt to push into one of the last viable local markets.

‘The deal does not serve Egypt, nor its national security in any way. Does Egypt need natural gas? No, it doesn’t’

– Khaled Foad, Egyptian Institute for Studies

Meanwhile some Egyptians, such as political analyst and former geophysicist Khaled Foad, have been left shaking their heads.

“The deal does not serve Egypt, nor its national security in any way,” said Foad, who is currently based at the Egyptian Institute for Studies in Istanbul. “Does Egypt need natural gas? No, it doesn’t.”

The deal may be a private one, Foad said, but politicians continue to refer to the deal as one struck between the Egyptian and Israeli governments.

He underlined how Israeli Prime Minister Benjamin Netanyahu has said that the money from the deal will be invested to improve health and education for Israelis.

“We need the same for Egypt,” said Foad. “We have lots of sectors that need development, but we are giving Israel a gift in exchange for minor gains.”

The murky history of Israeli-Egyptian gas deal

The deal is but the latest chapter in an East Mediterranean saga that has seen Israeli and Egyptian gas fortunes rise and fall, their fates murky and seemingly intertwined. It is also a saga which has, at various points, left both Israelis and Egyptians in the dark.

A decade ago, Egypt was a net exporter of gas, providing 40 percent of Israel’s natural gas at some of the lowest prices in the world.

The sweetheart deal was made between two state-run Egyptian companies and the Egyptian-based company East Mediterranean Gas (EMG), which formed in 2000 to build a pipeline between Egypt and Israel, and whose partners include former Israeli intelligence agent and energy tycoon Yossi Maiman. It drew criticism from Egyptians and fed into the uprisings which overthrew then-president Hosni Mubarak in 2011.

The EMG pipeline after an attack in July 2012 in the northern Egyptian town of El-Arish (AFP)

In 2012, two Egyptians considered to be the original deal’s architects – former oil minister Sameh Fahmy and businessman Hussein Salem – were convicted and sentenced to 15 years in prison, but were later acquitted.

By 2013, Egypt had suffered years of political instability and energy sector mismanagement, including other questionable deals which MEE has investigated, as well as repeated attacks in the Sinai on the gas pipeline.

Egypt was unable to meet its domestic demand and honour its export contracts. Instead it began importing expensive liquid natural gas (LNG) for a rising population which was suffering from regular blackouts.

Israeli gas: Who will buy it?

Egypt fell into an energy-dependent slump – but the future for Israel, which had long imported its gas, was looking bright.

In 2009, Noble and Delek discovered the Tamar field, quickly followed in 2010 by Leviathan, one of the largest global discoveries this century.

Then minister of infrastructure, Uzi Landau, said the discovery was “the most important energy news since the founding of the state” and there was talk of Israel becoming the regional gas hub.

But in the years that have passed, companies have struggled to untangle a Gordian knot of political and economic problems relating to one issue: how to sell it.

In 2015, after energy companies had invested billions to discover the fields and waited years to produce gas, the Israeli government approved regulations to make the sector more competitive, a move that many believe frightened off foreign investors unsure what the government might do next.

Almost a decade after it was found, only Tamar has produced gas for commercial consumption. It currently supplies nearly all of Israel’s gas, but its only non-domestic customers are Jordan’s state-owned Arab Potash Company and its affiliate Jordan Bromine.

Thousands gathered in Amman in 2016 to protest against the gas deal (Reuters)

The Tamar deal, and a much larger agreement signed in 2016 which would see gas from Leviathan supplied to Jordan’s state-owned National Electric Power Company (NEPCO), have been met with street protests and criticism from Jordanian parliamentarians.

As time has passed, the list of potential customers has shortened. Cyprus has discovered offshore gas. Lebanon has serious prospects of finding its own. The political tensions between Israel and Turkey, which would have made an ideal market for Israeli gas, have so far precluded sales there.

There has also been a dream of selling gas through the EastMed, a proposed 1,900km $7bn underwater pipeline running from Israel through Cyprus to Greece and Italy.

But cost and major logistic challenges have crushed that idea, leaving Israel with only one possible customer for a quick sale: Egypt.

Does Egypt need Israeli gas?

Egypt’s need for Israeli gas, however, is questionable. In July 2015, Italian energy company Eni discovered the Zohr “superfield” – the largest gas field ever found in the Mediterranean – then began producing gas last December. Egypt is now expected to have a gas surplus as early as next year.

So when the Delek/Noble-Dolphinus deal was announced this February, many were left shaking their heads. Why did Egypt need this gas? Even if it is going to be re-exported, did it make economic sense?

…….

Shareholders wait for money pipeline

But earlier this month, as Delek shareholders voted overwhelmingly to invest $200m into EMG, the company which carried the cheap Egyptian gas to Israel a decade ago and still controls the pipeline running between Israel and Egypt, the deal continued to move forward.

By investing into EMG, Delek and Noble would hold the largest voting bloc in the company, allowing them to pass a motion to reverse the pipeline’s direction.

However, hurdles remain. There are still billions of dollars in settlements hanging over the deal after the state-run Egyptian Natural Gas Holding Company (EGAS) terminated its contracts with EMG to export gas to Israel in 2012.

In 2015, the International Chamber of Commerce in Geneva ordered EGAS and Egypt’s General Petroleum Corporation (EGPC) to pay a $1.76bn fine to the Israeli Electric Company and $288m to EMG for halting the gas supplies.

Egyptian Energy Minister Tarek el-Molla reportedly said earlier this year that the deal hinges on the settlements. Egyptian news site Mada Masr has also reported that the Israeli government had agreed in principle to reduce the amount of the fines owed if the Egyptian government would allow its private sector to import Israeli gas.

 

Delek, Noble, Tamar, Leviathan, Dolphinus – Who’s Gas is this Anyway?

Delek, Noble sign accords for $15b in sales of Israeli natural gas to Egypt

Partners in the offshore Tamar and Leviathan fields ink deals with Egypt’s Dolphinus Holdings Ltd. for the sale of some 64 billion cubic meters over coming decade

 

Illustrative photo of a natural gas field in the Mediterranean Sea (Moshe Shai/FLASH90)

 

The partners in Israel’s Tamar and Leviathan natural gas fields, including a unit of US Noble Energy Inc and Delek Drilling LP, have signed $15 billion in deals to export natural gas to Egypt over 10 years.

In a filing to the Tel Aviv Stock Exchange on Monday, Delek Drilling LP, a partner in the Tamar and Leviathan fields offshore Israel, said Noble Energy Mediterranean and its partners in the fields have signed accords with Egypt’s Dolphinus Holdings Ltd. for the sale of some 64 billion cubic meters of natural gas from the two fields.

One accord calls for the sale of 3.5 BCM of natural gas annually from the Leviathan field, for a total of 32 BCM, the filing said, with the partners estimating the total revenues from the sale from the Leviathan field to reach $7.5 billion.

In addition, the partners said they signed an additional accord for the sale of natural gas from the Tamar field, for a total of 32 BCM and some $7.5 billion.

Delek said the partners were considering various options for the supply of the gas to Egypt, including via a Jordanian-Israeli pipeline that is currently being built or the use of the existing East Mediterranean Gas pipeline. Delek Drilling and Noble plan to start negotiations with EMG for the use of the pipeline to Egypt, the companies said in a separate, emailed statement.

Another option is to transport the gas to Egypt by connecting the Israeli transmission system to its Egyptian counterpart, the statement said.

Supply from Tamar will start as soon as the infrastructure for its transport is in place, the companies said, while that from Leviathan will start as soon as production starts from the well. Supply will continue until the amounts agreed upon are supplied or until December 2030, whichever comes first, the companies said.

…..

“We are at an important milestone on the road to realizing our collective vision and dream of making Israel a significant exporter of gas to countries in the region,” said Yitzhak Tshuva, the controlling shareholder of Delek Group, which controls Delek Drilling. “The agreement will strengthen the relationships between Israel and its neighbors and increase economic cooperation between them.”

Dolphinus is a natural gas trade company which is planning to supply gas to large industrial and commercial consumers in Egypt.

Noble Energy holds 39.66 percent of Leviathan and a 32.5% stake in Tamar. Delek Drilling holds 45.34% stake in Leviathan and 22% stake in Tamar. Ratio Oil Exploration (1992) Ltd. Partnership holds a 15% stake in Leviathan. Isramco Negev 2 LP holds a 28.75% stake in Tamar.

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Delek-Noble Energy – Israel, A Leviathan of a Profiteering Venture…

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Delek-Noble Energy announces $500m deal to allow Israeli gas exports to Egypt

US-Israeli consortium and Egyptian gas company buy 39% of disused underwater gas pipeline connecting Ashkelon to northern Sinai

 

A US-Israeli consortium leading the development of Israel’s offshore gas reserves announced Thursday a deal that would enable the export of natural gas to Egypt.

Noble Energy and its Israeli partner Delek, along with Egyptian East Gas Company, bought 39 percent of a disused pipeline connecting the Israeli coastal city of Ashkelon with the north Sinai.

The consortium paid $518 million for the interest in the East Mediterranean Gas Company pipeline.

The mainly undersea pipeline will be used to transport natural gas from the Tamar and Leviathan reservoirs to Egypt from as early as 2019, allowing a 10-year $15 billion deal signed in February with Egypt’s Dolphinus to move forward, Delek said in a statement.

It will be the first time Egypt, which in 1979 became the first Arab country to sign a peace treaty with Israel, imports gas from its neighbor.

Israel had bought gas from Egypt but land sections of the pipeline were repeatedly targeted by Sinai jihadists in 2011 and 2012, and soaring demand meant Egypt could use the gas domestically.

Israel had bought gas from Egypt but land sections of the pipeline were repeatedly targeted by Sinai jihadists in 2011 and 2012, and soaring demand meant Egypt could use the gas domestically.

Delek CEO Yossi Abu called the pipeline purchase “the most significant milestone for the Israeli gas market since the discoveries” of the reservoirs.

“The Leviathan reservoir is becoming the Mediterranean basin’s primary energy anchor, with customers in Israel, Egypt and Jordan,” he said.

In September 2016, Jordan struck a deal to buy 300 million cubic feet (8.5 million cubic meters) of Israeli gas per day over 15 years, an agreement estimated to be worth $10 billion.

Israel has limited natural resources but in the past few years it has discovered major gas fields off its coast and is building the infrastructure needed to tap them.

Tamar, which began production in 2013, has estimated reserves of up to 238 billion cubic meters (8.4 trillion cubic feet).

Leviathan, discovered in 2010 and set to begin production in 2019, is estimated to hold 535 billion cubic meters (18.9 trillion cubic feet) of natural gas, along with 34.1 million barrels of condensate.

Israel hopes its gas reserves will give the country energy independence and the prospect of becoming a supplier for Europe as well as forging strategic ties within the region.

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