Tshuva: Chevron deal to go ahead with or without partners

Yitzhak Tshuva Photo: Tamar Matsafi

Delek controlling shareholder:  Ithaca will produce and market 82,000 barrels of oil at $65 a barrel. This means that 50% of the amount is protected, regardless of the price of oil.

Following concern by investors about the Chevron deal, and following yesterday's report of negotiations for bringing a partner into the deal, Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva today issued another soothing statement to investors, saying that the Chevron deal would go ahead with or without partners.

"We feel that the market is in a state of uncertainty concerning the Chevron deal, and we therefore want to make things clear the way we see them. The company is preparing to close the deal with or without partners," Tshuva said in a conference call with investors. "We believe that once the Chevron deal is completed, according to the information given us, Ithaca will produce and market 82,000 barrels of oil at $65 a barrel. This means that 50% of the amount is protected, regardless of the price of oil. If the price of oil rises above $65 a barrel, we will receive the higher price.

"Up until the date for closing the deal, we are considering increasing the defined quantity to 75% of the produced quantity, thereby ensuring $3.2 billion in revenue. In addition, Ithaca has a $2.2 billion tax asset. The expected EBITDA will therefore be $1 billion a year, and the strong cash flow will enable Ithaca to repay the reserve based loan (RBL) that it received, and to repay 40% of the bonds within three years," Tshuva said.

"The value of the deal is unrelated to the price of oil and gas"

Delek Group CEO Asi Bartfeld said during the conference call, "The Chevron deal is a strategic deal, a strong and stable deal. These are not new assets that create uncertainty; they are producing assets generating regular cash flow, with very limited room for surprises. We're working hard on bringing in a strategic partner by issuing capital for Ithaca, probably through an offering of preferred shares or a similar capital instrument."

In response to a question about payment of tax on Chevron's assets, Bartfeld said, "Delek will receive an asset free of tax, after payment of the tax by Chevron. They will also pay the tax on the money accumulated in the company's treasury up to the closing of the deal. The tax burden applying to Chevron up until the closing of the deal is not related to us; our estimates of the value of the assets are after tax."

"The value of the deal is unrelated to the price of oil and gas," Bartfeld said in response to a question during the conference call. "At the same time, we have protected 32 million barrels of oil at $65 a barrel. We're working increasing the hedge to 75%. The price of oil can rise sky-high, and our price in the deal will not increase. We paid a lot of money in order to protect 50% of our barrels of oil, and we won't take risks in these matters."

"We were asked what we're doing to protect the bondholders, and whether we're doing the deal at any price," Barfeld continued. "It's like this: we expect to close the deal in the fourth quarter this year, even if the Phoenix deal is closed after the Ithaca deal. I don't think that we're damaging the bondholders. Both the short and long-term bondholders will be paid. We have resources for servicing the debt. Delek Group has made a strategic deal that will guarantee additional cash flow besides Leviathan. We decided to focus on upstream, and went for producing assets, without exploration. Chevron's assets are like Tamar - a producing asset with demand."

Published by Globes, Israel business news - en.globes.co.il - on August 13, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Yitzhak Tshuva Photo: Tamar Matsafi
Yitzhak Tshuva Photo: Tamar Matsafi
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