Cohen Development in the First Quarter: Cash Supports the Dividend While Royalties Need to Recover

Cohen Development opened 2026 with a quarter that explains both the attraction and the limitation of the company. Royalty revenue fell 23% to $5.5 million after Leviathan and Karish were shut down at the beginning of the February 2026 military operation, and net profit fell to $4.5 million. Against that, the company ended March with $40.9 million of cash and short-term deposits, and approved an $11 million dividend after the balance-sheet date. This is not a dividend that immediately strains the balance sheet, but it is much larger than one quarter of operating cash flow and therefore leans mainly on the cash balance. The positive change is that Shenandoah has started to contribute actual cash, with $591 thousand of royalties in the quarter, but that contribution is still small compared with the decline in Leviathan and Karish. The quarter does not break the thesis, but it also does not close it: 2026 still needs to show recurring royalty recovery, a larger U.S. layer, and more cash from Avner.

Company Map

The company is a direct and indirect exposure to gas and oil reservoirs, not an operating producer. Most revenue comes from overriding royalties paid by others: Leviathan through NewMed Energy's 45.34% stake, Tamar through several right holders, Karish and Tanin through Energean, and Shenandoah and Buckskin through Navitas Petroleum and BOE. Above that sits a 50% holding in Avner, whose main asset is an approximately 0.96% holding in NewMed Energy participation units.

The economic machine is a mix of royalties, liquidity, and dividends. This is not a company building its own production capacity, and it is not an exploration company funding drilling directly from its own balance sheet. Value reaches it through third-party gas and oil sales, through Avner's earnings, and through the board's decision on how quickly to return cash to shareholders.

The March annual analysis, Profit Jumped, but Free Cash Still Relied on an Issuance, left open whether 2026 would show a recovery in direct royalties and cash flow that covers distributions without leaning again on new equity. The first quarter answers only part of that question: the company did not need financing, liquidity rose, but direct royalties were still hit by the Leviathan and Karish shutdowns and the post-quarter dividend is much larger than one quarter of operating cash flow.

The Weak Quarter Clarified the Dependence on Leviathan and Karish

The profit decline was not only accounting noise. Royalty revenue fell to $5.476 million from $7.111 million in the comparable quarter, and net profit fell to $4.492 million from $6.262 million. The damage was concentrated in the two assets that are supposed to support the direct royalty layer: Leviathan fell from $3.555 million to $1.939 million, and Karish fell from $1.706 million to $1.220 million.

The practical cause was the production shutdown at Leviathan and Karish with the start of the February 2026 military operation. Leviathan resumed regular production on April 2, 2026, and Karish resumed on April 10. That makes the first quarter a disrupted quarter, not necessarily a new earnings base. Still, because this is a royalty company, a shutdown in one major asset flows very quickly into revenue. Total gas sales across the projects fell from 6.7 BCM to 5.6 BCM, but royalty revenue fell more sharply, also because average prices declined in Leviathan and Tamar.

Tamar was the relative stabilizer: Tamar royalties fell only 6.4% to $1.704 million, while project gas sales rose from 2.6 BCM to 2.7 BCM. The newer component is the U.S. layer. Shenandoah royalties totaled $591 thousand, and together with Buckskin, U.S. royalty revenue reached $613 thousand, or about 11.2% of total royalty revenue in the quarter. In all of 2025, the U.S. contribution was only $876 thousand, or about 3.2% of annual royalties.

That is a real mix shift, but it needs proportion. The combined decline in Leviathan and Karish versus the comparable quarter was $2.102 million, and Shenandoah offset about 28% of it. Shenandoah itself is still being tuned: the operator is preparing to accelerate phase-two drilling in 2027, and in April one producing layer in one of the wells was shut. The U.S. contribution is now visible, but it still does not release the company from its Israeli concentration.

The Dividend Is Funded by the Cash Balance, Not by One Quarter

Cash flow looked better than profit, but that does not close the payout question. Operating cash flow totaled $5.495 million, up 12% from $4.905 million in the comparable quarter. Cash and short-term deposits also rose from $35.146 million at the end of 2025 to $40.886 million at the end of March 2026.

The relevant frame here is all-in cash flexibility after actual cash uses. In the quarter itself there was no dividend and no financing cash flow, so operating cash flow was enough to fund $2.336 million of investment cash outflow, mainly short-term deposits, and still increase the cash balance. But after the balance-sheet date, the board approved an $11 million dividend to be paid in June 2026. That payout is roughly twice first-quarter operating cash flow and about 27% of cash and deposits at the end of March.

This does not mean the dividend is immediately strained. The company has no material financial debt in the report, and the cash balance after such a distribution would still be large relative to quarterly corporate expenses. But it does confirm the issue raised in the earlier cash-access follow-up: the current payout is supported by a cash balance that was also built through a private issuance at the end of 2025, not only by one quarter of recurring royalties. Avner has not closed that gap yet. The company's share in Avner's profit fell to $476 thousand, and in April Avner distributed a dividend of which the company's share was only $335 thousand, about 3% of the dividend the company approved for its own shareholders.

Conclusion

The first quarter of 2026 leaves the company in a strong balance-sheet position, but with a less clean operating read. The decline in royalties and profit is mainly the result of a temporary disruption at Leviathan and Karish, not proof of structural erosion across the asset base. Still, the temporary nature of the disruption highlights the sensitivity of a royalty stock to a small number of assets, and the fact that the dividend is currently supported by a large cash balance rather than by one quarter of recurring cash flow.

The rest of the year will be decided in three places. First, Leviathan and Karish need to return to higher royalties, including a possible contribution from higher Karish liquids production after the second treatment facility is commissioned. Second, the Leviathan triggers need to mature: proven capacity of about 15.8 BCM per year, the future agreement with Dalia Energy, and the integrated Egypt export segment expected to begin flow in the third quarter of 2026. Third, regulation remains a real constraint: the draft emergency gas-market regulations propose absolute priority for Israeli consumers before exports, which could affect export value in emergency periods. If royalties recover and the cash balance remains strong after the June dividend, 2026 can look like a recovery year with a high distribution. If royalties do not return, the dividend will look more like an acceleration of existing cash and less like proof of recurring payout power.