NewMed Energy in Q1: Profit almost disappeared, but Leviathan moved into a proof year

NewMed Energy's first quarter looks broken at first read: net profit almost disappeared, net revenue fell 42.6%, and the Krum well in Bulgaria was written off through a $74.4 million expense. That is not the whole company picture. Leviathan absorbed a 33-day production halt and resumed regular production only on April 2, while the partnership now presents two forward-looking data points that pull 2026 in the opposite direction: maximum production capacity proven at about 15.8 BCM per year, and an updated Leviathan revenue calculation that adds about $330 million versus the original calculation under Brent around $90 through year-end. The current read, therefore, is not that a weak quarter broke the story, but that the quarter made NewMed Energy a more immediate proof-year company. It must now show that production continuity, export transmission and higher oil-linked pricing are enough to absorb the write-off, the investments and the cash distributions. The main bottleneck remains cash access: operating cash flow is still strong, but the quarter's cash increase also relied on bank debt, while the partnership distributed $70 million, bought back bonds, and approved another $60 million distribution after the balance-sheet date. Stable production, gas flow through the combined segment in Q3 and contractual progress in Aphrodite would turn Q1 into an unusual event inside a stronger year. Further security disruption, transmission limits or more regular funding use would leave the market with a high-quality asset but less free cash reaching unitholders.

Leviathan Is The Business, The Quarter Is A Pace Test

NewMed Energy is no longer a classic exploration company, even though it still holds exploration and development options outside Israel. Its economic machine is Leviathan, where it holds 45.34%, alongside a cash-return policy for unitholders. Leviathan sells gas to Israel, Egypt and Jordan, and the disclosed key customers include Blue Ocean Energy in Egypt and Jordan's national electric utility. Around that asset sit three layers that determine how much value actually reaches a unit holder: gas and Brent pricing, production and transmission availability, and expansion funding.

This continues the thread from the prior annual Deep TASE analysis of NewMed in 2025, where the key point was that the partnership was moving from harvesting existing value into a new investment cycle. Q1 sharpens that transition. Operationally, Leviathan progressed. In accounting terms, profit almost disappeared. In cash terms, there is still power, but it is now competing with more uses of cash.

The headline numbers are difficult: net revenue fell to $141.0 million, from $245.6 million in the parallel quarter, mainly because Leviathan gas volumes sold fell from about 2.95 BCM to about 1.89 BCM on a 100% basis. The average price per heat unit also fell from $5.85 to $5.19. The result was operating profit of only $4.3 million, versus $178.2 million in the parallel quarter, and net profit of $0.1 million.

This decline is not just weaker demand. Leviathan was shut down at the start of Operation Sha'agat Ha'ari and resumed regular production on April 2, after 33 days without production. The partnership approached the state for compensation, but there is no certainty that compensation will be received or what its amount would be. This kind of quarter can reverse faster than one weakened by customer loss or contract deterioration, provided production and exports return to a stable pace.

The more interesting number sits ahead. After completion of the third pipeline and platform upgrades, Leviathan's maximum production capacity was proven at about 1,530 MMSCF per day, or about 15.8 BCM per year. That updated capacity was not included in the January discounted cash-flow report. In addition, the original 2026 Leviathan revenue calculation was based on an average Brent price of $63 per barrel and produced a revenue forecast of about $2.55 billion on a 100% basis. After actual January to April sales and assuming Brent around $90 through year-end, the same calculation rises to about $2.88 billion, an addition of about $330 million. Quantity, transmission and regulation still decide the outcome, but higher production continuity could turn Q1 into a timing distortion rather than deterioration in asset quality.

Aphrodite Moved Forward, Bulgaria Was Written Off

Krum closed the near-term Bulgaria chapter negatively. Non-significant gas indications were found in the target layers, and the well was classified as dry. In the prior Bulgaria analysis, the proof point was whether Krum could leave NewMed with depth outside Leviathan after Vinekh. The current answer is negative: the Han Asparuh block investment fell to zero on the balance sheet, from $22.4 million at the end of 2025, and the partnership recorded a $74.4 million impairment for the entire license cost, including drilling, plugging and abandonment.

That does not change Leviathan, but it changes the quality of diversification. After two dry wells, Bulgaria can no longer serve in the near term as a persuasive argument that NewMed Energy has another engine balancing Leviathan's investment cycle. It remains possible exposure only with new information on license continuation, extensions or a different economic structure. In this quarter, it mainly explains why accounting profit disappeared.

Aphrodite, by contrast, moved forward, but not to the point where value is locked in. The memorandum of understanding with EGAS and the HGA with Egypt provide a clearer commercial and transmission framework: after signature, the binding agreement would cover all recoverable gas quantities, run for up to 15 years from commercial supply with a 5-year extension option, and in the central period the daily contractual quantity is expected to stand at 700 MMSCF per day. Pricing will be linked to Brent with a floor and a ceiling, and the buyer is expected to operate under a take-or-pay mechanism.

Still, the April Aphrodite analysis remains relevant. The HGA created a timeline, not FID. The parties need to sign additional agreements within 12 months, including the binding sales agreement, transmission agreement, connection agreements, land arrangements and operating agreements. A final investment decision is then required within another 12 months. In addition, the Egyptian fiscal-regime agreement must be signed and approved by parliament within 6 months from HGA signing, otherwise the right holders and the transmission company will have a right to cancel the HGA. Aphrodite is less remote than it used to be, but it is still not an immediate substitute for Leviathan cash.

Cash Is Still Strong, But Less Free

The gap between net profit and cash flow is one of the quarter's most important data points. Net profit was only $0.1 million, but operating cash flow was $158.7 million, only below $172.3 million in the parallel quarter. The reason is that much of the profit damage came from the Krum accounting write-off, while Leviathan's collection and ongoing activity still generated cash.

But on an all-in cash flexibility view, meaning cash after actual period cash uses, the picture is less comfortable. Investing activity used $182.0 million, mainly oil and gas investments and deposits into long-term bank deposits. At the same time, the partnership distributed $70 million and bought back Leviathan Bond bonds for $42.2 million in cash. The cash balance increased to $147.2 million partly because the partnership received $175 million in long-term bank debt.

This is not an immediate liquidity stress picture. The financial covenants are far from the edge: the ratio between partnership asset value and net financial debt stood at 4.75 versus a required 1.5 as long as net financial debt is below $2.5 billion. Solo liquidity stood at about $747 million versus a $20 million requirement, and total financial debt was about $1.5 billion versus a $3.0 billion cap. As of report approval, NewMed had about $600 million in undrawn credit lines.

The yellow flag is not liquidity. It is capital-allocation freedom. A $70 million distribution was already paid in the quarter, and another $60 million distribution was approved on May 18. At the same time, bank debt rose to $450 million, from $275 million at the end of 2025, even though bonds declined to $1.076 billion thanks to buybacks. This is exactly where Leviathan's value needs to become real surplus cash, not only funding capacity that allows distributions while the investment cycle grows.

The security risk is not only production stoppage. It can also change emergency rules. The draft emergency natural-gas regulations propose a mechanism under which a gas supplier that can actually supply gas will be required to offer gas to consumers without a binding agreement, up to its full production capacity. The draft also gives absolute priority to Israeli domestic consumers, so exports would be allowed only for volumes left after domestic allocation, and it proposes price constraints under the emergency mechanism. The regulations have not yet been published in binding form, and Chevron submitted comments on behalf of the Leviathan right holders. Still, the draft itself is a reminder that export upside is not detached from local regulation.

The debt market has already signaled that the risk is not theoretical. After the conflict began, Maalot S&P and S&P Global Ratings changed the outlook on Leviathan Bond debt to negative, while Fitch and Moody's remained stable. That does not change the fact that the covenants are far from stress, but as funding becomes a larger part of the story, production and export continuity affect not only revenue, but also cost of capital.

At management level, Yossi Abu announced that he will step down as CEO on November 3, 2026, and the board approved Niv Sarna's appointment as full-time active chairman from June 1, 2026. In a business where 2026 to 2029 will be execution years for Leviathan expansion, Aphrodite and credit facilities, leadership transition raises the importance of timelines and operating discipline in the next reports.

Conclusions

Q1 does not decide NewMed Energy negatively, but it prevents an overly comfortable reading of the company. Leviathan remains a strong asset, operating cash flow is still significant, and the updated capacity together with the Brent scenario can make 2026 better than the profit line suggests. On the other hand, Krum erased the near-term Bulgarian option, and the distributions, bond buybacks and investments show that Leviathan cash is already required for more uses at the same time.

The data point that will decide the next few quarters is not Q1 net profit, but the quality of the return to pace. The market will need to see production continuity after April 2, progress toward gas flow through the combined segment in Q3, continued comfortable funding lines, and progress on Aphrodite signatures without slippage in the HGA windows. Progress on all four would make Q1 look like accounting and operating noise inside a proof year. A block in one of them would keep the discount between Leviathan's asset value and the cash left for unitholders at the center.