Tomer Energy and the Tamar SW dispute: who really owns the override
This continuation isolates the sharpest point of friction in the Tomer Energy thesis: whether its royalty right in Tamar also covers the Tamar SW layer tied to the expired Eran license. The August 2025 agreement with the state removed a production cap, but at the same time reopened the boundary of the right itself.
The Issue to Isolate
The main 2025 article argued that Tomer's net income improved faster than the cash actually left for shareholders. This follow-up isolates the sharpest point inside that same thesis: not how much gas sits in Tamar SW, but who actually owns the overriding royalty on that layer.
First finding: the August 2025 agreement with the state solved one problem and created another. It removed Tamar SW's production cap, subject to conditions precedent, but from that same point some royalty payors told Tomer that, in their view, the company is not entitled to an override on 22% of their rights in the reservoir.
Second finding: the annual report holds two statements that can look inconsistent on a quick read. On one hand, it still describes Tomer's royalty right as 4.875% after payout on 22% of Mubadala Energy and Tamar 2's rights and on 9.25% of Tamar Petroleum's rights, plus 6.25% on Dor Gas's 4% slice. On the other hand, that same report says that some royalty payors now want to carve Tamar SW out of that framework, arguing that the disputed rights originate in the expired Eran license.
Third finding: this is a dispute over the boundary of the right, not only over the size of a payment. The filing does not describe it as a dispute over all of Tamar, and it does not frame it as a question of reservoir quality or production performance. It is narrower than that. Precisely for that reason, it is dangerous: it cuts into the place where the market may intuitively assume that any Tamar SW upside flows automatically into Tomer.
Fourth finding: the company itself is taking a relatively hard line. It does not merely say that there is uncertainty. It says the unilateral notice from some royalty payors is a material breach of their obligations, and that it is more likely than not that their position will be rejected. That is strong language, but it is still not a resolution.
Where the Boundary Actually Sits
Tamar SW was discovered in 2013 within the Tamar lease area, but part of it spills into the area that had been covered by the expired Eran license. That is not a geological footnote. It is the center of the dispute.
Under the mediation arrangement that received court approval in April 2019, Tamar SW was divided between the Tamar lease area at 78% and the Eran license area at 22%. Inside that 22% layer, rights were split again: 76% to the state and 24% to the holders of rights in the expired Eran license.
That is what makes Tamar SW slightly different from a plain reading of Tamar. In the core Tamar framework, Tomer looks at a defined royalty right: 4.875% after payout on 22% of Mubadala Energy and Tamar 2's rights, 4.875% on Tamar Petroleum's 9.25%, and 6.25% on Dor Gas's 4% slice. In the 2025 royalty-revenue table, that structure translates into a weighted royalty right of 5.031% on 35.25% of the royalty-bearing base, and into an annual effective interest of 1.481% in the petroleum asset.
The problem is that Tamar SW did not remain just another well inside the same envelope. The August 2025 agreement with the state effectively forced a redefinition of the economic rights in the layer that sits outside the Tamar lease area. Once that layer was regularized with the state, some royalty payors argued that Tomer could no longer continue receiving an override on it as if it were exactly the same pre-existing right.
Put more simply: the dispute is not about whether Tamar SW exists. It is about whether all of that expansion still sits inside the same royalty pipe from which Tomer has been paid until now.
What the August 2025 Agreement Really Changed
Before August 2025, Tamar SW sat under a production cap. A government decision had limited the field's approved development to gas production generating no more than $575 million of revenue until the state and the Tamar partners reached agreement on how to realize the rights in the reservoir. August 2025 changed that.
The agreement signed then between the Tamar partners and the state provided that the Tamar partners would pay the state an overriding royalty of 5.9% on revenue from gas produced from Tamar SW, based on wellhead market value, starting in July 2025. Following that agreement, the Petroleum Commissioner notified the partners that the production cap was removed, but only until the conditions precedent are fulfilled. Those conditions include, among other things, corporate approvals, state approvals, changing the Tamar lease boundaries so they cover the full Tamar SW area, tax approvals, approval to grant the state royalty, and a permanent approval removing the production cap.
The filing places a hard date on the table: if those conditions are not fulfilled by April 16, 2026, or by a later date agreed by the parties, the parties will try for 90 days to reach alternative arrangements. If that also fails, either side may terminate the agreement, the production cap returns, and royalty payments already made to the state are not refunded.
This matters because it shows that the agreement with the state is not only a regulatory endpoint. It is also a gate. On one side it opens Tamar SW. On the other, it resets the economic framework from which the Tomer dispute was born.
There is another detail that is easy to miss: in the reserves disclosure, the company already includes within the Tamar project 76% of the reserves that spill into the Eran area and are attributed to the State of Israel under this arrangement. In other words, at the project level the agreement with the state has already entered the reserves frame. At the Tomer level, at that very same moment, the boundary of the override remains open.
What the Two Sides Are Actually Saying
At the end of September 2025, some royalty payors told Tomer two separate but related things. First, that from the next payment date the company is not entitled to overriding royalty payments on 22% of their rights in Tamar SW, because in their view those rights originate in the Eran license. Second, that once all the conditions precedent under the state agreement are fulfilled, they intend to offset on an ongoing basis any amounts they believe have been overpaid so far in relation to those rights.
So the dispute is not only about future payments. It also carries a backward-looking threat through future offsets. That already changes how Tamar SW should be read. Not just as upside, but as upside that may come bundled with a clawback channel.
Tomer, by contrast, does not present this as a technical caveat. It says that the unilateral notice reducing the scope of the royalty right is a material breach of the royalty payors' obligations and that the company is examining its legal steps. Beyond that, it adds the most important wording in the whole note: it is more likely than not that their position will be rejected.
The gap between the sides looks like this:
| Layer | Some royalty payors' position | Tomer's position | Economic reading |
|---|---|---|---|
| Source of the right | 22% of their Tamar SW rights come from Eran and therefore do not bear an override for Tomer | The right cannot be reduced unilaterally | This is a dispute over asset perimeter, not a technical clause |
| Timing | No entitlement from the next payment date, with past offsets to start once the conditions precedent are fulfilled | The company is considering legal action | Tamar SW upside depends on legal status, not only on production |
| Degree of certainty | No judgment or settlement is disclosed | The company says it is more likely than not that its position will prevail | The market has positions, not a resolution |
What is missing from that table, and from the filing more broadly, is quantification. The company does not disclose which royalty payors sent the notice, does not say how much money has already been paid that they consider overpaid, and does not provide an estimate of the possible revenue impact. That does not mean the risk is small. It means the risk is described in principle, but cannot yet be fully modeled from the report itself.
What the Filing Says, and What It Still Does Not Say
This is one of the most important points in the continuation. The filing provides enough to understand where the dispute sits, but not enough to price it all the way through.
| What is known | What is still not disclosed | Why it matters |
|---|---|---|
| Tamar SW is split between 78% Tamar lease area and 22% expired Eran area | The filing does not disclose how much of Tomer's 2025 royalty revenue actually came from Tamar SW | Without that, it is hard to translate the legal-regulatory issue into dollars |
| The state will receive 5.9% of Tamar SW revenue from July 2025, subject to the conditions precedent | The filing does not disclose how much some royalty payors intend to offset if the conditions are completed | The concern is not only future flow but also a backward-looking recovery mechanism |
| Some royalty payors dispute Tomer's entitlement over 22% of their rights in the reservoir | The filing does not disclose which royalty payors are behind the notice | Without that, it is hard to tell how broad or narrow the dispute really is |
| Tomer believes it is more likely than not that the opposing position will be rejected | The filing gives no legal timetable, no initiated proceeding, and no milestone for resolution | Investors are left with a legal view, not a resolution path |
That is exactly why this continuation is justified. If the company had provided a clear monetary estimate, this could have remained a side note in the main article. But when the dispute touches the core perimeter of the right, and the economic disclosure is still thin, it already changes how the entire Tamar SW layer should be framed.
Why This Matters to the Thesis Now
In the main article, Tamar SW appeared as one of the triggers that could reshape 2026. This continuation sharpens the point that the trigger is not one-directional.
If Tomer's position is upheld, the agreement with the state could prove to be a move that widens Tamar SW's production framework without erasing Tomer's share of the override. In that case, the market would get both a more open reservoir and a royalty stream that still belongs to the company.
If the position of some royalty payors is upheld, part of the value that investors may instinctively assign to Tamar SW's expansion will not flow to Tomer at all. Worse, some of it may come back against the company through offsets. That is no longer a growth-rate question. It is a question of economic ownership.
The right reading is therefore neither overly optimistic nor overly dramatic. The message is one of discipline: Tamar SW should not be priced into Tomer as if the state agreement had already settled Tomer's own entitlement question. It did not. It only made that question sharper.
That also explains why management chose such strong legal wording. If the dispute were marginal, there would be no reason to write that the notice is a material breach and that the opposing position is more likely than not to be rejected. The language itself signals that the company sees this as a real pressure point.
Conclusion
Tamar SW adds potential to Tamar, but for Tomer it first tests the boundary of the right. The August 2025 agreement with the state lifted the production cap and opened a broader economic path for the reservoir, but at the same time it reopened the question of whether that whole path still runs through Tomer's royalty pipe.
The bottom line of this continuation is simple: anyone reading Tamar SW as clean upside for Tomer is reading too fast. Based on the filing, there are still two gates that need to close. The first is completion of the conditions precedent under the state agreement. The second is a determination of whether 22% of Tamar SW rights still carry an override for Tomer, or whether some royalty payors can push those rights outside the perimeter of the company's royalty right.
Until there is better clarity on that point, Tamar SW is not only a possible growth engine. It is also a legal and economic test of how the asset itself should be defined.
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