Although the oil majors are not really interested in taking an active role in oil and gas exploration in Israel, foreign financial institutions have jumped on the Tamar natural gas discovery. Demand for the $2 billion bond offering by Delek Group Ltd. (TASE: DLEKG) units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) for a special purpose vehicle for the Tamar field has already exceeded $10 billion.
Most of the demand came from US and European investors, while Israeli institutions have reportedly placed orders for $1 billion, and orders from Asian investors amount to several hundred million dollars. As things are shaping up at the moment, a quarter of the offer will go to Israeli investors, and the rest to foreign investors.
The offering is scheduled to close tonight, Israel time.
The strong demand has already resulted in the interest rate on the bonds being less than the rates set by the underwriters - JPMorgan Chase & Co., Citigroup, and HSBC - when the offering began.
Avner and Delek Drilling each own 15.625% of the rights to the Tamar gas field and 22.67% of the rights to the Leviathan gas field (before the Woodside Petroleum Ltd. (ASX: WPL) deal). The companies will use the proceeds to repay $900 million in existing debt taken from HSBC and Barclays Bank to finance their share of Tamar's development.
Avner and Delek Drilling issued five bond series of $400 million each. The maturity of the shortest bond is December 2016 and the longest is December 2025. The average duration of the bonds is seven years, and their collateral is liens on their rights in Tamar. S&P gives the bonds an international rating of BBB- and an Israeli rating of AA.
Refinancing the debt will reduce Avner and Delek Drilling's financing cost for Tamar's development, compared with the current debt, leaving them with an additional $1.1 billion in cash. They will use this money for further development of Tamar and to finance their share in Leviathan's development, the first stage of which will cost $5 billion.
Avner and Delek Drilling's financial reports state that gas sales from Tamar totaled $1 billion in 2013. 62% of this income is from the gas supply contract with Israel Electric Corporation (IEC) (TASE: ELEC.B22), and the rest from contracts with independent power producers, manufacturers, and gas marketing companies. The average price is $5.80 per million BTU.
Published by Globes [online], Israel business news - www.globes-online.com - on May 8, 2014
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