Yesterday's announcement of the agreement for exporting natural gas from Israel to Egypt is putting wind into the sails of the second bond issue by Tamar Petroleum, which own the Tamar natural gas reservoir. The Midroog rating company today announced that it had issued an A1 rating for up to NIS 2.178 billion in the Series B bonds to be issued by Tamar Petroleum. The rating is the same as for Tamar Petroleum's NIS 2.3 billion issue of Series A bonds last year.
Tamar Petroleum intends to use the amount to be raised to buy 7.5% of the rights in the Tamar reservoir from US company Noble Energy. The $800 million deal includes a $560 million cash payment, with the rest consisting of an allocation of shares, which will amount to 43.5% of Tamar Petroleum's share capital.
Midroog said that the bond issue would reach up to $605 million, but that any amount raised in excess of $560 million would be deposited in a special fund for early repayment of or buying back bonds.
The deal reflects a $10.7 billion value for the Tamar reservoir. When the deal is completed, Tamar Petroleum will hold 16.75% of the reservoir, while Noble Energy's holding will fall to 25%. Delek Drilling Limited Partnership (TASE: DEDR.L), controlled by Delek Group Ltd. (TASE: DLEKG), will retain a 22% direct stake in the reservoir, while Isramco Negev 2 LP (TASE: ISRA.L) will become the largest holder of rights in the Tamar reservoir with a 29% share.
The Series B bonds will have the same duration and yield as the Series A bonds issued last summer. Series A bonds, which are linked to the Consumer Price Index, are currently traded at a 5% annual yield, and their duration is 5.84 years. Like Series A, Series B bonds are due for repayment in 2018-2028. 57% of the principal will be repaid in biannual payments, while the remaining principal will be repaid in one payment at the end of the period. In other words, on the final repayment date (August 2028), Tamar Petroleum will have to refinance $240 million in Series A debt and $240 million in Series B debt, while the natural gas reserves in the reservoir are 55-68% of the reservoir's total reserves.
Monopoly status for Tamar until 2020
In order to reduce the risk resulting from the need to refinance a substantial part of the issue, Tamar Petroleum will establish a special fund in which $1.5 billion will be deposited for each 1 BCM of gas in the reservoir sold beyond 130 BCM, according to a calculation to be performed starting on January 1 this year.
According to Midroog, the main considerations in the rating are the gas plan, which sets a clear and transparent regulatory environment, and the energy independence that the reservoir gives Israel. Other considerations include the proven technology on which the reservoir operates, Noble Energy's many years as an operator, the five years during which the reservoir has been operating, the reservoir's substantial size, and the Ministry of National Infrastructure, Energy, and Water Resource's policy of reducing pollutant emissions and closing coal-fired power stations.
Under Midroog's basic scenario, the Tamar reservoir will retain its status as a monopoly until commercial operation of the Leviathan reservoir commences in 2020 and of the Karish and Tanin reservoirs between 2020 and 2022. Midroog believes that the sale price of gas from Tamar for IEC will fall by at least 12.5% in 2021.
The partners in the Tamar reservoir yesterday reported the signing of two binding agreements with Egyptian company Dolphinus for supplying 64 BCM of natural gas from Leviathan and Tamar to Egypt for an estimated $15 billion over 10 years. Calculation of a weighted average of all revenue, divided by the total amount of gas, gives a weighted average price of over $6 per BTU.
The report relieved anxiety about a surplus of natural gas in Israel a few years from now, and the share prices of the partners in the various reservoirs rose sharply in response. Tamar Petroleum's share price zoomed 14% yesterday in response to the announcement, but was down 4% today to a price reflecting a NIS 1.05 billion market cap.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 22, 2018
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