The Israel Electric Corporation announced on Sunday that it has signed a letter of intent to start negotiations for the purchase of natural gas worth up to $750 million a year from the Tamar gas field.
On Sunday, the IEC's board of directors approved the letter of intent according to which the company plans to but at least 2.7 billion cubic meters of gas a year worth between $400m. and $750m. from the Tamar gas consortium for a period of 15 years. The two sides expect to finalize and approve an agreement within six months.
"An agreement will secure the longterm supply of natural gas from a number of points and help the company's policy to reach a volume of at least 40 percent in electricity generation from natural gas," said IEC's chairman Moti Friedman and the company's CEO Amos Lasker. "The company will be able to reduce its dependence on fuel and cut its annual expenditure, while also lowering the level of emissions in the production of electricity and better protect the environment."
In July of this year the IEC approved an agreement to purchase 5b. cubic meters of natural gas over the next five years from the Yam Thetis consortium for an estimated price of $1b.
The IEC said Sunday that the natural gas from Tamar will replace gas from the Mari B field opposite the coast of Ashkelon in southern Israel.
The partners in the US-Israel consortium led by US oil operator Noble Energy, which owns 36% of the Tamar prospect said estimated revenue from the sale of the entire amount to IEC was expected to reach $9.5b., based on its estimates for the amount to be sold and the expected prices of the gas during the period of the agreement. Other members in the consortium drilling at the Tamar natural gas field 90 km. offshore from Haifa, are Isramco Negev with a 28.75% share, Delek Drilling and Avner Oil & Gas Exploration each have a 15.62% share and Dor Alon Energy Exploration owns 4%. Delek and Avner are both subsidiaries of Delek Group conglomerate.
Isramco Negev stocks surged Sunday to the highest level in at least 14 years, climbing 11% to NIS 0.542. Delek Drilling increased 0.9% to NIS 8.976. Avner Oil & Gas added 2.1% to NIS 1.44 and Delek Energy Systems Ltd. jumped 4% to NIS 956.
Furthermore, the IEC announced on Sunday that in addition to the negotiations for the purchase of natural gas from the Tamar prospect, the board of directors has asked the management to start negotiations with the Yam Thetis Group, which is jointly owned by Yitzhak Tshuva's Delek Group and Noble Energy, for its reserve opposite the coast of Ashkelon, which will be used as storage for gas reserves.
Separately, the IEC on Sunday reported a net loss of NIS 52m. in the first half of the year to June 30, 2009 compared with a net profit of NIS 463m. during the same period last year mainly due to a decline in the consumption of electricity, higher financing costs because of exchange rate fluctuations and more expensive credit in foreign currency. Financing costs increased by 72.2% in the six months to the end of June compared with the same period in 2008.
"Electricity consumption dropped by 6% in the first half of the year as a result of the lower business activity in the economy and relatively warm weather during the winter months," said Lasker.
Revenues from electricity sales in the first six months of the year fell by 16.2% to NIS 9.3b. from NIS 11b. in the first half of 2008.
Bloomberg contributed to this report