IEC signs largest energy deal in Israel's history

The electric utility will buy about NIS 10 billion of natural gas from the Tamar consortium.

Israel Electric Corporation (IEC) (TASE: ELEC.B22) has signed a letter of intent with the Tamar gas drilling consortium to buy natural gas. The mammoth deal is valued at over NIS 10 billion.

The gas to be acquired is worth NIS 9.5 billion, and in addition to the cost of the gas, the IEC will pay hundreds of millions of shekels for the use and maintenance of the Yam Tethys reserve, which will be used as storage for reserves. The Yam Tethys field is owned by Delek Group Ltd. (TASE: DLEKG) (53%) and Noble Energy Inc. (NYSE: NBL) (47%), both of whom are partners in the Tamar concession as well.

Sources inform "Globes" that details of the deal were agreed upon two weeks ago, and that estimates are that the price of the gas will be over $5.50 per BTU.

Notices to the Tel Aviv Stock Exchange by the publicly-traded companies in the consortium said that the IEC will buy not less than 2.7 billion cubic meters of gas per year, for 15 years.

The IEC board agreed to the terms at its meeting last Thursday.

The deal paves the way for the companies to get bank funding which will allow them to develop the gas drilling, and to begin getting the gas out. The total cost involved is about $2.5 billion.

Delek Energy CEO Gideon Tadmor told "Globes" today, "This is a huge deal, and a very important agreement for Tamar, which significantly boosts the level of certainty for development of the project. It enables us to meet our targets, specifically - to begin gas deliveries in 2012."

IEC chairman Motti Friedman and CEO Amos Lasker said that the deal would ensure reliable long-term natural gas deliveries from several sources, and that it would enable the company to meet its policy target of natural gas powering at least 40% of electricity production.

Friedman and Lasker added that the deal would cut the company's fuel costs by hundreds of millions of shekels a year, and that it would also reduce emissions in electricity generation, helping improve air quality.

The letter of intent is the second gas delivery agreement reached by the Tamar partners in the past two weeks. It follows the agreement with private power producer Dalia Power Energies Ltd. for 5.6 billion cubic meters of gas over 17 years, beginning in the second half of 2013. The Dalia Power deal is worth about $1 billion, and the company has an option to increase purchases 3.5-fold.

The Tamar partners are also in talks with Israel Corporation (TASE: ILCO) for the delivery of 2.2 billion cubic meters of gas for its private power plant subsidiary OPC Ltd., as well as to meet the power needs of subsidiaries Oil Refineries Ltd. (TASE:ORL), and Israel Chemicals Ltd. (TASE: ICL).

Noble Energy owns 36% of the Tamar prospect, Delek Group subsidiaries Delek Drilling LP (TASE: DEDR.L) and Avner Oil and Gas LP (TASE: AVNR.L) each own 15.625%%, Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) owns 28.75% and Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL) unit Dor Alon Energy Exploration Ltd. owns 4%.

By early afternoon, Isramco shares were up 11% (they had earlier been up 16%). Delek Drilling rose 3.5%, and Avner Oil rose 4.2%. The parent of Delek Drilling and Avner Oil, Delek Energy, rose 4.2%, and its parent, Delek Group, rose 3.4%. Dor Alon rose 1.1%.

Published by Globes [online], Israel business news - www.globes-online.com - on December 27, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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