21 June, 2015
Joint Press Release
A joint initiative of the Tel Aviv Stock Exchange (TASE) and the Israel Securities Authority (ISA) will allow gas and oil exploration limited partnerships, for the first time, to raise capital for gas and oil exploration projects located abroad. This change will apply to both partnerships already listed on the TASE and new partnerships.
The ability to invest in projects abroad will enable gas and oil partnerships to take advantage of the vast experience and knowledge gained by the general partner over the years of operation. In addition, it will enable such partnerships to spread the risks in a sector characterized by an extremely high level of uncertainty. Investors will be able to diversify their investments in the sector and invest in assets located overseas. Furthermore, partnerships operating several projects will benefit from the distribution of fixed current costs.
In the past, the ability to raise capital from the public in the framework of a limited partnership rather than through a company, had been restricted by the TASE Rules to limited partnerships operating in the gas and oil exploration sector in Israel and to partnerships operating in the film production and marketing sector. This restriction derived from the Government's decision to encourage these sectors by way of granting tax benefits to participation unit holders. The TASE had set regulations for the listing of limited partnerships in the aforesaid sectors in order to facilitate the receipt of tax benefits by their participation unit holders.
In February 2015 the Knesset approved an amendment to the Partnerships Ordinance initiated by the Ministry of Justice and the ISA. The amendment is intended to expand and update corporate governance mechanisms in public limited partnerships, in order to ensure the proper protection of investors. Following this amendment, the sector restriction no longer applies and raising capital by way of public offering may be opened for other business sectors.
Allowing the listing of limited partnerships that invest in the exploration and development of overseas projects (in addition to projects in Israel), is based on the unique characteristics of the gas and oil exploration sector, which are mainly:
- Capital intensive investments, for which debt financing is practically impossible.
- Extremely long time period from investment to income-production.
- Extremely high risk due to inherent uncertainty and low success rates.
- The need for a unique and qualitative specialization and technological expertise, both at the stage of the examination of feasibility and at the exploration and development stages.
- Commercial risks during development deriving from unexpected delays.
- A profitability model which is highly sensitive to changes in oil prices.
Hani Shitrit-Bach, Senior VP and Head of the Economics Department at TASE said: "Expanding the operation of gas and oil partnerships to include overseas projects will allow existing partnerships to grow and spread the risks inherent to this sector. We also hope that this change will lead to new listings of gas and oil partnerships on the TASE".
CPA Aviva Ben Moshe, Head of the Gas & Oil Sector at the ISA said: "The ISA places great importance on the development of the capital market and the diversification of products for investors. In this context, and upon the amendment of the Partnerships Ordinance, which now provides better protection for the investor public, the ISA has decided to allow existing or new public partnerships to also invest in oil and gas assets outside of Israel".