Delek Mulls $3.6 Billion Energy Spinoff

Israeli conglomerate Delek Group is examining a spinoff of its oil and gas activities, saying it could help maximize value for shareholders by separately listing a bunch of assets which one analyst valued at some $3.6 billion.

Delek, which is 63 percent held by billionaire Yitzhak Tshuva, has major shares in a number of newly discovered gas fields off Israel’s coast including Tamar and Leviathan.

The Tamar field, which Delek developed together with Texas-based Noble Energy, has estimated reserves of 10 trillion cubic feet (tcf). Production began in March.

Nearby Leviathan, with an estimated 19 tcf of gas reserves, is set to come online in 2016 or 2017. Israel’s High Court has upheld a decision to allow exports of 40 percent of offshore reserves.

UBS analyst Roni Biron estimates Delek’s exploration and production (E&P) activities account for 77 percent of group net asset value (NAV), which he put at 16.39 billion shekels ($4.7 billion). The rest consists of downstream operations in Israel, Europe and the United States, as well as insurance and water desalination.

Shares in Delek Group, which has a market value of $4.3 billion, were up 4 percent to 1333 shekels in afternoon trading in Tel Aviv on Tuesday.

Biron said Delek is the only Israeli E&P vehicle not structured as a limited partnership, and its holding structure had made it less popular among international investors.

“Consequently, Delek had already adopted a strategy of streamlining its structure around E&P, a process which could now be expedited,” said Biron, who rates Delek shares “neutral.”

“We therefore believe that this strategic move, if implemented, could boost Delek’s E&P profile.”

A senior Israeli fund manager invested in Delek said the split would not increase value as Delek does not trade at a discount to its NAV. “What it will do is make it easier for foreigners to invest in the company,” he said.

The fund manager added this will not likely be the final step in Delek’s restructuring, as he believes the company would eventually seek to merge all the energy units together.

Shares in the new energy company, which would be incorporated outside Israel, would be registered to trade on a foreign bourse, either alongside or in addition to the TASE, Delek said. Delek’s management said the company’s preference is to list the new company in London.

Shares in the new company would be given to existing group shareholders of Delek in proportion to their respective holdings. Delek Group shares and bonds will continue to trade in Tel Aviv.

Delek would transfer to the new company its holdings in Delek Energy Systems, Delek Drilling, Avner Oil Exploration, Cohen Development & Industrial Buildings and Navitas Petroleum, as well as its rights in the Ashkelon and Noa leases and its right to receive royalties from the energy sector.

The split will enable Delek and the new company “to act as independent companies … thus contributing to the exposure of the respective assets of each company to a larger and more targeted investor market,” Delek said.

Avner and Delek Drilling each have a 22.67 percent stake in Leviathan, the world’s largest offshore gas find of the past decade. Noble has a 39.66 percent stake and Israel’s Ratio Oil Exploration holds the remaining 15 percent.

Noble has a 36 percent stake in Tamar while Avner and Delek Drilling together hold 31.25 percent and Isramco Negev has a 28.75 percent stake.

Delek Drilling was up 0.8 percent; Avner rose 1.3 percent.

This article appeared in print on page 28 of the January 1st, 2014 edition of Hamodia.