Delek Group Signs Leviathan Loan

Delek Drilling and Avner, the two entities controlled by Delek Group, signed February 20 loan agreements for up to $2.5bn with a consortium of more than 20 Israeli and international financial institutions. The money is to facilitate the development of the Leviathan gas field offshore Israel. The two entities hold 45% in the project.

A $1.75bn limited recourse loan will be used for phase 1A of the development and a further $750mn will be available if more gas supply agreements (GSA) are signed. This would allow them to move to phase 1B in the development program. Phase 1A development budget is expected at $4.5bn.

The loan agreements were signed on the last day before the expiration of the letter of commitment signed between Delek Group and HSBC and JP Morgan last November. Since then Delek and analysts in Israel expected a positive final investment decision (FID) from Noble Energy, a 39.6% shareholder in Leviathan and the field's operator. However, despite positive pronouncements from its top brass last week when the company released its 2016 annual report, so far it has not issued a positive FID, though the company promised it will do so during this quarter.

Delek Group cannot exercise the loan agreement until certain milestones have been passed. The first tranche of $750mn may be drawn down only at FID and the next three tranches will follow once the partnership can show GSAs with minimum undisclosed quantities of gas sales. The additional $750 tranche is also preconditioned by further GSAs.

So far Leviathan has only one anchor customer: Jordan's National Power Company Nepco, which signed a GSA to purchase 45bn m³ over 15 years, worth $10bn. However, Israel and Jordan are still to sign a bilateral agreement that will enable the consummation of this SGA and will cover security and other risks to contract performance.

The Leviathan partners are also negotiating with Turkish and Egyptian companies for gas supply. However, those initiatives are costly and hindered by geopolitical hurdles. Currently, it seems unlikely that those negotiations will lead to GSAs in the short or medium term.

The loan principal will be repaid in one installment 48 months from signing the agreement that is 20 February 2021, more than a year after the planned first gas. The interest would be paid every quarter indexed to a gradual margin.

Delek confident

Despite signing the loan agreement without Noble's FID, Delek felt confident enough to do it, claiming that Noble will take the FID in the next few weeks and that there are enough GSAs to satisfy the lenders. Delek would not have signed the loan agreement without being sure those terms are met, an executive at Delek who was not allowed to talk publicly, told NGW. If now Delek will not draw the funds, it will be liable to pay millions of dollars.

Ya'acov Zalel