Delek Group Ltd. (TASE: DLEKG) is selling its entire15.3% stake in Faroe Petroleum for NIS 350 million (£70.4 million). Delek Group, controlled by Yitzhak Tshuva and managed by president and CEO Asaf Bartfeld, said it would complete the deal within two days.
The deal is at a 20% premium on the Faroe's share price on the London stock exchange yesterday, while the UK company announced today that it had made a significant “gas-condensate” discovery in the Hades and Iris potential reservoirs in the Norwegian Sea. Delek was unaware of this discovery, because it has no representatives on Faroe's board of directors. Norwegian operations company DNO bought Delek's shares at £1.25 per share, while the current share price following the discovery is £1.18.
The sale marks the end of Delek's investment in Faroe, a company listed on the AIM stock exchange in London, which began in December 2016 when Delek bought 13.2% of the company's shares for NIS 200 million. Delek added to its stake in the second quarter of 2017, paying an additional NIS 33 million. Delek classified its investment in Faroe as a financial investment.
Delek said it would record NIS 43 million of its profit on the deal in its profit and loss statement and as capital reserve before December 2017. The rest of Delek's profit, NIS 73 million, will be recorded in its profit and loss statement during 2018, including NIS 53 million to be recognized in its reports for the second quarter of 2018.
Delek, which has a market cap of NIS 6.9 billion, has been changing its structure in recent years in order to focus on the energy sector in Israel and overseas, while selling most of its other business in Israel. The company is stressing expansion in its foreign business in this framework, and acquiring its holdings in Faroe was part of this expansion.
In its statements about Faroe, Delek recently wrote, “According to Faroe's public statements, its portfolio contains assets that include 60 drilling licenses; assessment, development, and production of oil and gas in the North Sea located in the territorial waters of Norway, the UK, and Ireland. Faroe is using some of these assets... Faroe has no controlling shareholder, and the company (Delek, R.S.) is the largest shareholder in it.”
In its 2017 financial statements, Delek reported that following its NIS 873 million capital gain on the sale of a 9.25% holding in the Tamar natural gas reservoir, its net profit for 2017 was NIS 1.2 billion, 94% more than its 2016 net profit, despite a $35 million (NIS 120 million) write-down of its activity in the North Sea through Ithaca, which Delek Group entered as part of its efforts to expand its international business, while selling off assets that were not part of its core business and were not part of the energy field. In its reports, Delek stated that its oil production activity in the North Sea (the Stella oil reservoir) through Ithaca was disappointing, and lowered its guidance for production from the reservoir.
At the same time, Delek Group also has a securities portfolio that contains shares in foreign energy companies that have proved disappointing in recent years. During the fourth quarter of 2017, Delek sold its remaining shares in Australian company Woodside Petroluem, leaving it with only an insubstantial holding in Noble Energy's shares. Delek's NIS 180 million proceeds on the sale gave it a NIS 13 million capital gain, which was included in the company's financing revenue.
As of the end of 2017, Delek's financial investment portfolio was valued at NIS 115 million, which has since risen to NIS 120 million. Most of Delek Group's portfolio of foreign energy shares, which previously amounted to hundreds of millions of shekels, has been sold, with the company posting a loss on its investments in more than one case.
Published by Globes [online], Israel business news - www.globes-online.com - on April 4, 2018
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