Israeli, U.A.E. Firms Set Up Biggest Deal Since Diplomatic Agreement

The $1.1 billion deal, if completed, would grant the U.A.E. a major stake in an important Israeli strategic asset. It would also add another regional player to an acrimonious tussle over lucrative gas fields in the Eastern Mediterranean, where an alliance of Greece, Israel, Cyprus and Egypt are facing down opposition from Turkey over a proposed pipeline to export gas to Europe. Greece and Turkey barely avoided confrontation last summer as Ankara sought to explore waters near the Greek island of Rhodes.

The deal for Delek Drilling LP’s 22% stake in the Tamar gas field is worth $1 billion, with an additional $100 million to be paid if certain terms and goals are met, according to a notification about the agreement sent to the Israeli Stock Exchange on Monday. The companies said in the statement that they aim to finalize the deal by May 31.

“This transaction has the potential to be another major development in our ongoing vision for natural gas commercial strategic alignment in the Middle East, whereby natural gas becomes a source of collaboration in the region,” said Yossi Abu, the chief executive of Delek Drilling.

A consortium of American and Israeli companies, including Delek, began pumping natural gas from Israel to Egypt in January 2020. Israeli fields also supply neighboring Jordan.

Until last year, Egypt and Jordan were the only Arab countries that held official ties with Israel.

But after Israel signed agreements to establish diplomatic relations with the U.A.E. and Bahrain last September, a broader realignment began in the Middle East as historic enemies found common cause against Iran. Israel has also reached agreements with Morocco and Sudan.

Israel’s Delek Drilling must sell its 22% share of the offshore Tamar field by the end of the year as part of a 2015 gas framework deal meant to introduce more competition to Israel’s gas sector. Chevron Corp. and Israeli-American Isramco Inc. each own about one-quarter of the project and smaller firms hold the rest. Tamar was discovered in 2009 and production began in 2013. It is believed to hold about 300 billion cubic meters of natural gas.

Mubadala Petroleum, a wholly owned subsidiary of state-backed Mubadala Investment Co., in a statement said the proposed deal is in line with the company’s strategy of expanding its gas portfolio. The parent investment company is chaired by Crown Prince Mohammed bin Zayed, the U.A.E.’s de facto ruler and an instrumental figure in establishing diplomatic ties with Israel.

Other indications of the growing commercial relationship between the two countries include a rise in the number of Israelis visiting Dubai last year, until a surge in Covid-19 infections slowed the traffic, and Israeli and Emirati companies signing agreements to develop technology and defense ties.

Concrete investment agreements have proved elusive, however. One potential deal, the sale of a 50% stake of one of Israel’s most famous soccer teams, Beitar Jerusalem, to a member of the Emirati family was suspended earlier this year after questions arose about how much money the royal had.

Robin Mills, chief executive of Dubai-based consulting firm Qamar Energy, said the proposed gas deal could help open the spigot. “There’s been a lot of keenness to do something…but we have not seen many big deals go through yet,” Mr. Mills said.

Mubadala also could help facilitate further exports of Israeli gas to Egypt, given the investment firm’s deep pockets and strong diplomatic ties between Cairo and Abu Dhabi, Mr. Mills said. Israel and Egypt are in talks about building an additional pipeline from Israeli fields.

Write to Rory Jones at [email protected]