Israel's Tamar Field a Model of Transparent Growth
Tamar’s performance last year proved a great one for its partners, according to NGE analysis. A robust growth in production to 8.3 bn m3 (+10.6%) was translated into a good set of financial data. Revenues grew 3.2% to $1.53bn while the operating cost grew by just 0.1% to $148.2mn, operating profit grew by 4.6% to $953mn, 62.2% of revenues, and net income totaled $751mn, (+18.3%) 49% of the revenues.
From an accounting point of view Tamar gas field is unusual as it is the five partners’ only asset in Israel and an isolated operating unit. This makes it easy to identify all its revenues, expenses, financial transaction and future cash flows.
The five partners are US Noble Energy with 36% and operator; Delek Group subsidiaries Delek Drilling and Avner each have 16.325%; Isramco has 28.75% and Alon Gas Exploration the remaining 4%.
The costs of developing Tamar gas field were $3.04 bn and this year, just three years after it started production, the investment should be fully repaid. The benchmark contract in the market is the one between Tamar and Israel Electric Corp (IEC) the biggest electricity producer in the country. The price contract is indexed to the US CPI+1% for the contract's first eight years and US CPI-1% for a further 7 year period. Tamar’s gas is sold at an average $5.50/mn Btu, somewhere above today’s spot LNG prices.
Noble depends on Israel
From the data it is clear that for Noble its production in Israel is of utmost importance to its future. While it suffered heavy losses last year in the US and west Africa, in Israel Noble recorded an operating profit of $234mn and revenues of $497mn were 16% of the company's total.
Looking ahead Noble dependence on the Tamar production, as long as its prices remain stable and going up every year and as long as oil prices remain depressed, will grow and would be critical for its survival. According to its projected future net cash flow, Tamar would contribute $4.7bn which is 41.2% of its expected net cash flow. A year ago the projected percentage was 37.4%.
Noble's overall future cash inflows by the end of 2015 were estimated at $33.9 bn(-42.4%) and Tamar's contribution was calculated at $11.8bn, 35% of the total. The operational advantages of Tamar are in its high gas quality that requires minimum treatment at low cost. Another advantage is the short 150km pipeline from well head to the shore.
Israeli Companies
On the face of it for the Israeli entities Tamar is more important for their survival than for Noble, as it is their only energy asset. However Noble is suffering from losses in other parts of the world while for the Israeli companies Tamar is their only operating energy asset and they are prospering on it.
Delek Group, which controls Delek Drilling and Avner, is suffering in other parts of its business. Last year the group lost more than $100mn from its investment in energy companies like Woodside and Noble Energy.
The combined revenues of Avner and Delek Drilling amounted to $494mn (+7.2%) and their combined net income was $218mn (+60%).
Isramco is the other big partner in Tamar with 28.75% shareholding and as opposed to Delek and Noble has no interests in Leviathan. Israel's finance minister, Moshe Kahalon has exempted himself from dealing with all natural gas issues, arguing that he would be in a conflict of interests because of his close friendship with Kobi Maimon, a mysterious businessman who is claimed by the Israeli media to control Isramco, an argument denied by the company. For 2015 Isramco reported revenues of $473mn (-0.6%) and net income of $266 mn (+18.3%).
Depletion in 2036
All the Israeli companies have published in their reports expected cash flows from Tamar, which is expected to cease production in 2036 with just 2.67 bn m3. The decline in production is expected to start in 2032. From now and up to 2032 Tamar is expected to produce 10-11.5bn m³/yr.
Overall expected revenues from Tamar, based on current prices and the indexation formula, are expected to reach $44bn between 2016 and the end of 2036.
Those calculations are without taking into account Tamar's expansion plan, which if goes ahead would demand heavy investment and would shorten the gas field production period. However, the likelihood of this plan materializing in the near future is quite low.
Ya'acov Zalel