Tomer Energy in 2025: Earnings improved, but the cash that actually remains still depends on Tamar

Getting To Know the Company

At first glance, Tomer Energy looks like a very simple vehicle: it holds royalty rights over Tamar and Dalit, collects cash, distributes dividends and occasionally updates investors on the gas field. That is only a partial reading. In 2025, the company cannot be understood just by asking how much gas Tamar sold. Its economics sit on three layers that work together: the sale terms achieved by the Tamar partners, the tax and levy mechanisms that sit above the royalty stream, and the margin left for shareholders after principal, interest and dividends.

What is working now? Tamar itself remains a strong asset. At the report-approval date, Tamar's maximum gas production capacity after completion of the first expansion stage stood at about 1.15 BCF per day, the system was operating at roughly 99% uptime, and the first stage of the expansion project was completed in February 2026. In parallel, the gas transmission capacity available through Natgaz stood at about 1.1 BCF per day at the report-approval date. On top of that, during the June 2025 military operation and again at the beginning of the February 2026 campaign, Tamar kept flowing while Leviathan and Karish were shut in. That means the underlying asset did not weaken. If anything, its system importance increased.

Where is the friction? At the shareholder layer. Tomer is not the operator, it does not control the pace of development, maintenance schedules, commercial terms or export-infrastructure timelines. It is a relatively narrow royalty vehicle, with $65.6 million of bond debt on the books, only $3.0 million of cash and cash equivalents, and another $4.5 million of short-term deposits. When net income looks strong, the real question is how much of it reflects recurring economics and how much comes from tax, levy or foreign-exchange effects.

That is the core of the 2025 story. Royalty revenue fell to $26.2 million, yet profit from ordinary operations rose to $8.3 million and net income more than doubled to $5.4 million. A reader who stops at the bottom line could conclude that the company had a strong year. That would be a mistake. A meaningful part of the improvement came from a lower levy charge and positive deferred-tax effects, while the all-in cash picture after debt service and dividends remained tight.

There is also a practical actionability constraint here. Short interest is negligible, only 0.01% of float at the end of March 2026, but the most recent daily trading turnover in the stock was just ILS 12,822. The screen issue here is not short pressure but poor liquidity. This is a stock where the reading can improve faster than a large investor can act on it.

Another easy point to miss is that Tomer is not only narrow, it is also very lean. At the report date the company had a CEO, CFO, legal counsel, controller, internal auditor and directors, while only the legal counsel and controller were salaried employees and the rest relied heavily on the management and information-transfer agreement with Alon Gas. That is part of the advantage and part of the weakness. The advantage is a relatively low G&A base, only $1.274 million in 2025. The weakness is very high dependence on the controlling shareholder and on information flowing from it.

Ownership structure matters as well. Alon Gas holds 57.10% of Tomer's issued share capital, and the company paid it $461 thousand in management fees in 2025. That is not necessarily a red flag on its own, but it is a reminder that Tomer is not a fully independent operating company. It is a public royalty vehicle sitting inside a control, management-services and external-information wrapper. The right way to read the company is therefore not only "what shape is Tamar in," but also "how much of Tamar actually reaches common shareholders."

The Economic Map in Brief

This chart clarifies something basic: 2025 was not a volume-breakout year. Total Tamar sales barely moved, from 10.09 BCM in 2024 to 10.05 BCM in 2025. Anyone looking for the explanation behind higher net income in volumes or in a demand spike is looking in the wrong place.

Events and Triggers

The first trigger: Tamar's expansion project moved from promise to execution. The first stage of the expansion, which includes a third pipeline from the wells to the platform and investments in offshore infrastructure, the platform and the Ashdod receiving terminal, was completed on February 9, 2026. The operator's cost connected with completion of that first stage stood at about $640 million on a 100% project basis. This matters because Tomer's return depends not only on gas prices but also on Tamar's ability to supply more gas when demand is there.

The second trigger: the picture is still not clean because the compressor upgrade at the Ashdod receiving terminal was not yet complete at the report-approval date. That stage, with a total cost of about $24 million on a 100% project basis, is expected together with the first stage to lift daily production capacity to as much as 1.6 BCF per day. That matters because without the compressors the expansion does not yet deliver its full economic effect. The company also says explicitly that the security situation could delay completion.

The third trigger: the Kesem agreement moved from potential to an effective contract. On April 10, 2025 the Tamar partners signed a gas-supply agreement with Kesem Energy for a combined-cycle power plant planned near the Kesem interchange, and on February 22, 2026 all conditions precedent were satisfied. The agreement includes firm supply of up to about 0.8 BCM per year, a take-or-pay mechanism, and a term of five years or until January 1, 2035, whichever is later. That is good news, but it should not be read too early as full revenue already in hand. The money only starts to matter once commercial supply begins.

The fourth trigger: the Tamar SW agreement with the state opened the field but also opened a new dispute over who benefits from it. In August 2025 the Tamar partners signed an agreement with the state under which the state will receive an overriding royalty of 5.9% on revenue from Tamar SW starting in July 2025, and the reservoir's production cap was removed subject to satisfaction of conditions precedent. But at the end of September 2025 some royalty payors notified Tomer that, in their view, the company is not entitled to an overriding royalty on 22% of their rights in Tamar SW, and that once the conditions are satisfied they intend to offset amounts they believe were overpaid. Tomer argues that this position is a material breach and that it is more likely than not that its own position will prevail. This is a very material trigger because it goes directly to the quality and boundaries of the royalty stream itself.

The fifth trigger: the levy layer is not fully closed either. On February 22, 2026 an agreement was signed between the Tax Authority and the Tamar venture regarding the 2013 to 2022 tax years, together with agreement to amend the 2023 and 2024 filings. The company estimates the additional payment arising from these arrangements at about $2.1 million. In other words, the agreement helped clean up part of the uncertainty, but it did not only support earnings. It also creates an additional cash payment.

The sixth trigger: the regional demand backdrop remained constructive, but not smooth. While Leviathan and Karish were shut in during the June 2025 operation and at the start of the February 2026 campaign, Tamar continued to supply gas and also delivered gas to some of their domestic-market customers. That strengthened the reservoir's strategic standing, but it also temporarily reduced export supply, especially to Egypt. Tamar's strategic advantage can therefore come together with short-term commercial pressure in customer mix.

Efficiency, Profitability and Competition

The main story of 2025 is a gap between what looked good in the income statement and what actually improved in the business. Royalty revenue fell 4.1% to $26.152 million, down from $27.264 million in 2024. In the fourth quarter, revenue was down an even steeper 20% to $5.539 million, versus $6.926 million in the comparable quarter. The revenue base did not expand.

Price, not volume, is what moved the story

At the full-year level, Tamar sales volume barely changed. But inside the year the picture was less smooth. Tamar sold 2.61 BCM in the first quarter of 2025, 2.59 in the second, 2.70 in the third and only 2.15 in the fourth. In 2024, the fourth quarter stood at 2.47 BCM. That is exactly why the year-end weakness mattered more than the annual headline. Planned maintenance in the fourth quarter cut volume, and from that point the annual total could no longer hide it.

What matters here is not only the fourth-quarter decline, but also what the chart does not show: there was no clear acceleration through the year. In other words, 2025 did not build a new internal growth rhythm. It rested on a relatively stable asset, with a weaker fourth quarter and existing contracts that prevented a sharper deterioration.

The second important point is that this is a business with layered pricing mechanics, not a single spot price. In Israel Electric, part of the volumes is linked to U.S. CPI less 1% under a revised and capped mechanism, while the operational volume is priced at a fixed price slightly below $4 per MMBTU. In BOE, pricing is linked to Brent and includes a floor price, and during 2025 the parties agreed not to perform a price adjustment on the first adjustment date. There is therefore no simple correlation here between "gas price" and Tomer's results. Part of the 2025 hit came from contract-specific terms, not only from the broader market.

The company itself lays out the reasons for the decline. First, about a 3% drop in average natural-gas prices. Second, the price adjustment in the Israel Electric contract. Third, the Tamar SW dispute. Partially offsetting those headwinds were the acquisition of the additional royalty right from Dor Gas and an update to effective royalty rates for 2019 to 2024 following understandings with the state. That is an important point: part of the protection of 2025 revenue came from an additional royalty layer and accounting updates, not from clean organic growth.

This chart shows why 2025 was not a simple growth year. Revenue declined, operating profit partially recovered from the 2024 level, and net income jumped above 2023. Put all three numbers on the same line and the picture looks too smooth. They moved for different reasons.

What actually drove profit from ordinary operations? Not an unusual competitive improvement, but mainly a decline in the petroleum and gas profits levy to $11.048 million, versus $13.375 million in 2024. That decline came, among other things, from an update to the provision for 2020 to 2024 after the assessment agreement reduced the levy rate. In other words, part of Tomer's 2025 operating improvement was really an improvement in the sector's dedicated tax-and-levy layer.

That also explains why the fourth quarter looked much better operationally despite weaker revenue. In the fourth quarter of 2025, profit from ordinary operations rose to $2.617 million, versus only $367 thousand in the comparable quarter, even though revenue fell sharply. Again, this was not a commercial breakthrough. It was mainly the levy layer moving.

The bottom line looks even better, but here too caution is needed. Net finance expense rose to $4.530 million from $3.608 million in 2024, mainly because of interest and linkage tied to the levy assessment agreement, lower interest income on deposits and higher foreign-exchange expenses. So even when the levy layer helps, part of the benefit comes back against the company through finance costs.

Above that sits the tax line. In 2025 the company recorded income taxes of positive $1.686 million, versus a tax expense of $1.006 million in 2024. Most of that income came from a deferred-tax asset after the U.S. dollar weakened against the shekel by roughly 13% during 2025, reducing the gap between the tax basis, which is measured in shekels, and the reporting basis, which is measured in dollars. This is a key point because it means 2025 net income does not reflect only better business conditions. It also reflects a currency and accounting tailwind that could reverse direction later.

Customer concentration still sits at the center of the thesis

Tomer does not compete directly in the gas market, but it depends entirely on the quality of the Tamar partners' contracts. In that sense, 2025 did not diversify the risk. Israel Electric and BOE remained the two largest customers of the Tamar partners. Revenue from gas sales to Israel Electric made up about 42% of Tamar partners' revenue in 2025, and BOE added another 34%. All other customers combined made up the rest.

That means the competitive question is not whether Tomer knows how to sell better, but whether Tamar can preserve price, volume and contract quality with a small number of anchor customers. That is why the pricing adjustment in the Israel Electric contract and the arbitration process launched in December 2025 are not side issues. They are part of the core thesis.

Core Activity

How the royalty right actually turns into revenue

The confusing part of Tomer is that the contract looks simpler than the economics behind it. The company is entitled to a weighted royalty of 5.031% of the royalty payors' share, but in practice its economic exposure to the petroleum asset in 2025 stood at only 1.481% after well-factor adjustment. That means even a small change in calculation method, state-royalty advances or the interpretation of recognized expenses can move revenue without any dramatic change in volumes.

The report shows this clearly. The effective royalty rate on which the company based its accounting fell from 4.214% in 2024 to 4.202% in 2025, while the effective royalty rate used by the royalty payors fell from 10.47% to 10.44%. These are small shifts, but they are a reminder that royalty revenue is not only a function of volume and price. It is a function of an entire calculation mechanism.

What underpins demand, and what still remains only an option

The Tamar partners still have a relatively deep contractual base. Israel Electric is committed to a minimum billable quantity of about 3 BCM per year through the end of June 2028, plus a minimum operational commitment totaling about 16 BCM over the relevant period of the agreement. BOE has a take-or-pay mechanism and a price floor. That does not eliminate pricing risk, but it does explain why Tamar does not look like a reservoir that has to rediscover its market every month.

On the other side, Dalit still does not belong in this demand layer. There is no commercial production, there is still no settled practical royalty calculation to the state if and when production begins, and the contingent resources are classified as Development On Hold. The right analytical approach is therefore to treat Dalit as an option on a more distant future, not as a cash-flow base for the coming year.

Cash Flow, Debt and Capital Structure

The most important section in Tomer's 2025 report is not net income but the all-in cash picture. This is exactly where the right frame is all-in cash flexibility, because the central question is how much money actually remains after the year's real cash uses.

Cash flow from operating activities fell to $13.745 million, down from $16.325 million in 2024. The company explains that the decline came mainly from tax payments for prior years, an update to current installments, and higher levy payments. This matters because even if the Tamar asset itself is stable, the tax and levy layers can absorb a meaningful part of the cash on its way up.

On the other hand, investing activity was almost negligible in 2025, with only $769 thousand of cash outflow after 2024 carried the acquisition of the additional royalty right. The problem was not heavy investment. The problem was the combination of debt and dividends. During the year the company repaid $9.357 million of bond principal, paid $4.004 million of interest, and distributed $7.0 million of dividends.

This is the number that should not be missed. Even after a year in which net income rose 108%, Tomer ended 2025 with negative all-in cash flexibility of about $7.4 million. The business generated operating cash, but not enough to cover debt, interest and distribution at the same time.

It is important to separate this from normalized cash generation. Tomer does generate recurring cash from an active gas asset, so one could build a more positive normalized reading of the asset's cash-generating power. But that is not the relevant frame for the main 2025 question. Here the issue is funding flexibility and distribution capacity, which is why the all-in cash picture matters more than the normalized one.

This still does not mean the company faces an immediate liquidity event. At the end of 2025 the company had $3.014 million of cash and cash equivalents plus $4.462 million of short-term deposits, roughly $7.5 million that was not classified as restricted. In addition, it held $6.689 million of restricted cash and deposits designated to secure bond principal and interest payments. The board also states explicitly that the working-capital deficit of $10.759 million does not indicate a liquidity problem, among other things because it also reflects the dividend and higher current liabilities, together with expected future royalty receipts.

It is also important to look at how equity is being consumed. Equity fell to $92.501 million from $94.078 million in 2024. That did not happen because the company lost money. It happened because it earned $5.423 million and distributed $7.0 million. So even in a year with improved net income, part of the equity picture was still dictated by a distribution policy that was more generous than actual cash generation.

What really matters is that the report points to two different kinds of safety margin. On one hand, the debt cushion itself is still reasonable. The expected debt-service coverage ratio for the test period starting on April 1, 2026 stands at 1:1.30 against a minimum of 1:1.05, and economic equity stands at about $173.8 million against a threshold of $51 million. On the other hand, the distribution cushion is much less comfortable. The historical debt-service coverage ratio stood at 1:1.25 at the end of 2025, against a dividend threshold of 1:1.20. It is still above the line, but by a much narrower gap.

That distinction matters. Tomer is not facing an immediate debt wall today, but it is operating in a structure where every dollar distributed reduces the cushion quickly. Anyone reading the policy of distributing 90% of profits available for distribution without opening the cash-flow statement is missing the center of the story.

The maturity chart also shows that the amortization schedule is not flat. 2026 and 2027 still look manageable, but 2028 already carries a much heavier repayment, $45.468 million. That is not a wall that needs refinancing tomorrow morning, but it does mean the company needs to arrive at 2028 with a stronger Tamar, not with a thinner cushion.

There is also an interesting technical detail. The assets pledged for the bonds include the original royalty rights acquired from Delek Energy and the designated accounts, but the rights acquired from Dor Gas are not pledged for the benefit of bondholders. That gives the company a certain additional layer of flexibility, but it does not solve the main problem: even an unpledged asset needs to generate real free cash in order to change the picture.

Outlook and What Comes Next

The right way to read 2026 is as a proof year, not a cosmetic year. The 2025 report leaves four core conclusions about what the market needs to measure over the next 2 to 4 quarters.

1. Capacity has already improved, now it has to show up in the numbers

The first stage of the expansion project has already been completed, and the compressor upgrade is expected to lift daily production capacity to as much as 1.6 BCF per day. That is a real capacity improvement, but the market will not price it off construction milestones. It will price it off whether this capacity turns into supply volume, price realization and royalties.

There is also an encouraging sign here. The royalty payors' order backlog for 2025, as measured at the end of 2024, was estimated at about $486 million, but actual royalty payor revenue in 2025 reached about $631 million. The gap mainly reflected the fact that actual volumes sold were above the minimum contracted volumes. In other words, the contractual floor was not the performance ceiling. If the expansion creates more delivery flexibility, there is a base here for real growth. If not, the headline that "the expansion was completed" will remain larger than its actual effect on Tomer.

The company already provides a project-level forecast for royalty payor revenue in 2026: about $141 million in the first quarter, $147 million in the second, $152 million in the third and $145 million in the fourth. These are 100%-basis figures for the royalty payors, not Tomer-level numbers, but they still give the reader an important anchor: the existing contracts continue to provide a demand floor. The more interesting question is whether Tamar keeps selling above that floor, as it did in 2025.

2. The Kesem agreement is positive, but it does not remove the commercial bottleneck

The Kesem agreement adds another meaningful customer, with firm supply, a maximum annual volume of 0.8 BCM and take-or-pay protection. That is a higher-quality contract than a generic promise of "future demand." But the revenue depends on the date when commercial supply to the power plant actually starts, so it is still not immediate cash.

At the same time, exports still depend on transportation infrastructure that has not yet been completed. The company states explicitly that construction work on the offshore Ashdod-Ashkelon transportation segment was again suspended with the opening of the February 2026 campaign, and at the report-approval date it could not estimate when work would resume or when the project would be completed. The Nitzana project also still carries an estimated completion date in the second half of 2028. So 2026 is not only a customer year. It is also an infrastructure year.

The economic implication is that the market needs to distinguish between two kinds of upside. One is contractual upside, which already exists on paper through Kesem, Israel Electric and BOE. The other is capacity upside, which still depends on the compressors, transportation links and renewed construction progress. Until the second layer comes together, the first layer will not fully reach shareholders either.

3. Part of the 2025 improvement is not a recurring base

This may be the most important forward-looking point. The lower levy charge and deferred-tax income improved the 2025 outcome, but they do not build 2026 by themselves. What has to replace them is real economic improvement: more volume, reasonable pricing terms, fewer regulatory surprises and less noise around Tamar SW.

The pricing dispute with Israel Electric also remains open. The memorandum of understanding signed in July 2025 between some Tamar partners and Israel Electric expired in October 2025, and in December 2025 Israel Electric initiated arbitration in London and asked to determine that, starting January 1, 2025, the gas price for the minimum billable quantity should be reduced by the maximum 10%. The Tamar partners rejected those claims in January 2026. This is not a footnote. It is an event that can directly affect the pricing of one of Tamar's two most important customer hubs.

4. Dalit is still an option, not the answer

Dalit keeps showing up in the discussion around the company, for understandable reasons. According to the March 2026 resources report, Dalit's contingent resources stand at roughly 6.1 to 9.5 BCM, and another table also shows 216.9 BCF to 334.8 BCF across the 1C to 3C categories. But the company states explicitly that there is still no commercial production from Dalit, and those resources remain contingent on project approval, an approved development plan and a reasonable expectation of gas sales. Anyone loading Dalit into the 2026 case is pulling forward value that is still not cash.

In investment-story terms, 2026 is a transition year between an existing royalty base and a potentially wider one. For that transition to become convincing, the market first needs to see real improvement in the Tamar layer before assigning full cash-flow value to Dalit.

Risks

The company depends on one asset and a small number of outside factors

The clearest risk is concentration. Tomer has one line of business, the right to receive royalties from Tamar and Dalit. It has no control over operations, drilling, maintenance, timelines, export infrastructure or commercial contracts. At the customer level, Tamar's two anchor hubs, Israel Electric and BOE, together account for about 76% of Tamar partners' revenue.

This is not only a commercial risk. The company states explicitly that there are currently no contractors in Israel capable of performing the type of offshore drilling, seismic surveys, development work and infrastructure work carried out by the Tamar partners, so the operator depends on foreign contractors and international equipment availability. That means security-related delays, supplier disruptions and input-cost pressure can delay not only distant-future projects, but also projects that have already received investment approval.

The management-and-control layer is also a soft risk

Tomer relies on the management and information-transfer agreement with Alon Gas, and its own management structure is very lean. That is efficient in a royalty-vehicle structure, but it also means the company depends on the quality of information flow, on the controlling shareholder's incentives, and on the ability of that wrapper to keep working smoothly if disputes or changes in interests emerge. It is not the first risk to look at, but it is clearly part of the company's dependency map.

The Tamar SW dispute could delay or shrink part of the upside

Tamar SW is not only a story of potential. It is also a story about the boundary of the right itself. Some royalty payors have already said they do not recognize Tomer's overriding royalty entitlement over 22% of their rights in the reservoir and intend to offset amounts in the future once the conditions precedent are completed. Even if the company's position ultimately prevails, the very existence of the dispute adds a layer of uncertainty to part of the value the market may be too quick to assign to Tamar's broader expansion.

The tax and currency layer can also move in the opposite direction

The report makes clear that the company does not use derivative financial instruments to hedge exposures. In 2025, dollar weakness versus the shekel created a deferred-tax asset and reduced the tax line. If the direction reverses, the same math can work against the bottom line. A strong 2025 net income figure is therefore not necessarily a normal earnings base.

There is also a legal risk that remains open around the calculation mechanism itself. The company states explicitly that given the complexity of the petroleum and gas profits levy law, there is no certainty that its interpretation for 2023 onward will match the interpretation of the tax authorities or the courts. So even after the assessment agreement, the levy layer is not a closed science.

Liquidity risk here is not a single event, but erosion

The company is in compliance with its financial covenants, and the bonds are rated AA3.il with a stable outlook. That is an important external confirming signal. But the liquidity risk here does not look like sudden collapse. It looks like erosion if the company keeps distributing at a high pace while all-in cash flow remains narrow. Put simply, what could hurt Tomer now is not necessarily the debt itself, but the risk of continued distribution on accounting profit before cash has actually expanded.

Conclusions

Tomer Energy exits 2025 with a better underlying asset than the revenue and earnings lines alone suggest, but also with a tighter shareholder-layer picture than net income alone suggests. What supports the thesis now is Tamar itself: high operating reliability, completion of the first expansion stage, a new contract with Kesem, and regional demand that continues to highlight the reservoir's importance. What blocks a cleaner reading is the fact that the cash actually left after debt, interest and dividends is still limited, and that part of the upside remains wrapped in commercial and regulatory disputes.

The current thesis in one line: Tomer today is mainly a test of whether improvement at Tamar can be translated into cash accessible to shareholders, not a test of accounting-profit growth.

What changed versus 2024? The company enters 2026 with a broader contractual and infrastructure base, but 2025 also showed that net income can improve while revenue declines and all-in cash weakens. In other words, the story has shifted from "how much profit is there" to "how much of that profit is actually available."

The strongest counter-thesis is that 2025 was too much of a one-off transition year: the assessment agreement cleaned up old noise, the compressor upgrade had not yet shown up in the numbers, Kesem had not yet started flowing, and Tamar continued to prove resilient while other reservoirs were shut in. If that is right, 2026 could suddenly look like a year when both profit and cash move higher together.

What could change the market reading in the near to medium term? Completion of the compressor upgrade, a clear update on the start of commercial supply to Kesem, progress or resolution in the Tamar SW dispute, and a cleaner picture in the process with Israel Electric. On the other hand, further export-infrastructure delays, additional deterioration in pricing terms, or continued aggressive distributions against thin cash flow would weigh quickly.

Why does this matter? Because Tomer does not have many layers that can hide the truth. It does not operate a field, it does not hold a broad portfolio, and it cannot produce a large alternative story if Tamar disappoints. The distance between accounting profit and accessible cash is therefore not a technical detail. It is the core of business quality for shareholders.