Delek Drilling LP (TASE: DEDR.L) is acquiring additional oil and gas exploration licenses in preparation for implementation of its plan for splitting off its subsidiary, which will hold the Leviathan and Aphrodite natural gas reservoirs, and which will hold an offering on the London Stock Exchange.
The partnership, controlled by Delek Group Ltd. (TASE: DLEKG), whose controlling shareholder is Yitzhak Tshuva, today announced its entry into three new Israeli licenses: the Roei marine gas exploration license and the Yahel Hadash and Ofek Hadash land exploration licenses.
The Roei deal is based on exercising an option for 20% of the rights that Delek Drilling received in 2012 in lieu of its fee for its mediation role in the deal between the Ratio Oil Exploration (1992) LP (TASE:RATI.L) license holder (it was the Gal exploration permit at the time) and Italian company Edison, the operator for the license. Delek Drilling is now exercising its option to buy 5% more of the rights from Ratio in order to reach a 24.99% share of the rights in the license. Delek Drilling will not pay a substantial amount for the deal, beyond reimbursement for its proportional share of the partners' past expenses.
The holdings of the other partners following the deal will be Ratio - 45.01%, Edison - 20%, and Israel Opportunity - 10%. Edison, now owned by EDF, France's national electric company, is very active in gas exploration in Egypt. It holds the North Theka license, which borders Roei on the north on the Egyptian side of the border. Ratio recently announced an agreement to acquire 15% of Edison's rights in the Egyptian license. Delek Group says that the partnership with a company like Edison was no less a consideration in entering the Roei license than the potential of the discoveries in the license.
Splitting off the holdings in Leviathan and Aphrodite is being considered
The Roei license, located southwest of Leviathan near the marine border with Egypt, has one structure likely to contain almost 100 BCM of natural gas, according to a resources report by the NSAI company. The chances of success, however, are estimated at only 36%, fairly low for a drilling that will cost $60-80 million. The drilling plans for Roei have been delayed for several years. Drilling is now scheduled for late 2019 or early 2020, following drilling planned by Edison in the North Theka license.
The logic behind Delek Drilling's decision to enter the Yahel Hadash and Ofek Hadash land licenses as a partner is much less clear. These licenses are in the Judean foothills (Ofek) and the Akko area (Yahel). The operator for both licenses is the Glob Exploration limited partnership (TASE: GLEX.L), whose market value on the Tel Aviv Stock Exchange (TASE) is negligible. The main partner is SOA, a company owned by Israeli Arab businessperson Said Sansour, who holds 70% of the rights in the two licenses.
As part of the deal, Delek Drilling will pay SOA $1 million for 25% of the rights in each license, and will undertake to fund the production tests up to $6.5 million. Oil was discovered at Ofek in 2013, but it was not declared a discovery due to production problems. No significant signs of oil have been discovered at Yahel so far. Sources involved with the partnership claimed that the entry into the partnerships was designed to help the Ministry of National Infrastructure, Energy, and Water Resources "get the wagon out of the mud" and in order to enable Delek Drilling "to participate in oil drilling" in preparation for the planned future oil drilling beneath the Leviathan natural gas reservoir.
At the beginning of the week, Delek Drilling reported that it was considering splitting off two of its main assets: its 45% holding in the Leviathan reservoir and its 30% holding in the Aphrodite reservoir into a subsidiary, whose shares are to be offered on the London Stock Exchange. The plan under consideration involved a distribution of shares in the new subsidiary proportionate to holdings in participation units of Delek Drilling. Delek Drilling CEO Yossi Abu is promoting the plan. Following the offering, the subsidiary's shares will also be listed for trading on the TASE.
The partnership believes that exposing the principal gas assets to overseas marketing will increase investment in them by foreign investors, and will create value. Transferring rights to Leviathan to a foreign company is also designed to provide it with greater flexibility in cooperative export efforts with countries in the region.
Published by Globes, Israel business news - en.globes.co.il - on March 20, 2019
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