Nafta in the First Quarter: The Dividend Makes Some Value Accessible, Tamar Export Still Lags

Nafta opened 2026 with a quarter that explains why the stock is not only a Tamar reservoir story, but also a question of how much cash can actually reach shareholders. Profit attributable to shareholders fell to NIS 26 million, revenue fell 21%, and Tamar export weakened just when the market is waiting to see the expansion project turn into sales. Still, after years in which most value had to move through layers of minorities, distribution limits and export infrastructure investments, the quarter brings one important change: the board approved a dividend of about NIS 200 million, the company received about NIS 53 million after the balance sheet date from profit distributions at former partnerships, and its expected share of the Isramco Negev 2 distribution is about NIS 37 million. That does not erase the export decline, the delay in additional Blue Ocean volumes or the fact that the compressor upgrade has not yet been completed. But it changes the starting point: some value is beginning to reach the public-company layer, while the main operating asset still has to prove that new capacity can become sales and recurring cash. The next few quarters will therefore be judged on two tracks at once, how much cash remains accessible after the distribution and how quickly Tamar returns to higher export volumes without another delay, cost increase or regulatory constraint.

A Weak Quarter, But Not for the Obvious Reason

Nafta is an energy holding company with one clear core engine: exposure to Tamar through Isramco Negev 2, in which the group holds about 18.4% on a chained basis but consolidates its results. It also has U.S. oil and gas activity, oil marketing and related services, as well as real estate and hotel assets. This is not a simple production company where every shekel of reservoir profit belongs to the shareholder. Value moves through the partnership layer, minority interests, royalties, taxes, covenants and distributions before it reaches the parent company.

The consolidated numbers look weak: revenue was NIS 502 million versus NIS 635 million in the comparable quarter, gross profit fell to NIS 289 million from NIS 336 million, and profit attributable to shareholders fell to NIS 26 million from NIS 36 million. But the split matters more than the headline. Tamar sold 2.76 BCM of natural gas on a 100% basis in the quarter, up about 6% from 2.61 BCM in the comparable quarter. The issue was not a lack of sales, but a sharp change in sales quality: the domestic market grew, export fell, and the weaker dollar reduced shekel revenue.

Natural gas sales to the domestic market rose to NIS 307 million from NIS 278 million, up about 10%, and domestic volume rose to 2.07 BCM from 1.67 BCM. By contrast, export sales fell to NIS 108 million from NIS 204 million, down about 47%, and export volume fell to 0.69 BCM from 0.94 BCM. That decline came together with a lower average export price following the fall in Brent until the start of Operation Roaring Lion, and with a change in gas allocations during the emergency period. The quarter does not disprove Tamar demand strength, but it does remind investors that export is still the more volatile and less mature part of the earnings machine.

The Dividend Moves Cash Closer to Shareholders

The most important event after the balance sheet date is not another Tamar operating line, but the decision to distribute an approximately NIS 200 million dividend on June 9, 2026. Against a market cap of about NIS 2.4 billion at the end of trading on May 27, 2026, this distribution brings the discussion back to the question raised in the previous annual analysis: how much of the value can actually move from the core asset to Nafta shareholders.

At the company and wholly-owned private-company level, Nafta held about NIS 505 million of financial assets as of March 31, 2026. That number matters because it sits closer to the shareholder layer than Tamar profit on a 100% basis. After the balance sheet date, two additional cash movements sharpened the gap between consolidated value and accessible value: the company received about NIS 53 million from profit distributions at the former Nafta Exploration and Hanal Dead Sea partnerships, and it is expected to receive about USD 13 million, or about NIS 37 million, from the Isramco Negev 2 distribution.

A simple combination of these events is not a full cash forecast, but it is more useful than looking only at consolidated profit. Before the dividend, the company had about NIS 505 million of financial assets close to the parent layer. After the dividend, assuming the two post-period distributions arrive at the reported amounts, a liquidity base of several hundred million shekels still remains. That explains why the dividend does not look like a distribution that empties the company. At the same time, it also highlights the value filter: Isramco Negev 2 is distributing about USD 70 million, but non-controlling interests are expected to receive about USD 57 million, or about NIS 167 million. Nafta shareholders receive only what moves up through the chain.

During the reporting period itself, operating cash flow was NIS 151 million, or NIS 144 million after interest paid. On an all-in cash-flexibility basis after the quarter's actual cash uses, the group invested NIS 50 million in oil and gas assets, invested NIS 130 million in trading securities, paid NIS 7 million of interest, and still increased cash and equivalents by NIS 83 million. This is a quarter in which cash did not disappear behind investments. But it still does not prove that distributions can expand without conditions: recurring cash improvement depends on Isramco Negev 2 distributions, Tamar export pace and the ability to keep liquidity at the parent level after the dividend.

Tamar Expansion Is Advancing, Export Is Not Yet Synchronized

The issue at Tamar is not that the asset is stuck. The first stage of the expansion project was completed on February 9, 2026 at a cumulative cost of about USD 640 million on a 100% Tamar-partner basis, with Isramco Negev 2's share at about USD 184 million. This is an important operating milestone, and it closes one of the checkpoints from the previous analyses. But the compressor upgrade, which together with the first stage is expected to increase Tamar's maximum daily production capacity to up to about 1.6 BCF per day, had not yet been completed as of report approval. Completion is expected within the coming weeks, but the security situation may delay it.

That gap matters because the first quarter already showed what happens when export is not fully working. The domestic market absorbed more gas, but export sales were almost cut in half. In parallel, in April 2026 the Tamar partners notified Blue Ocean Energy that, due to force majeure caused by equipment and contractor availability issues, the start date for additional quantities was postponed to a date to be announced later. This is not only a timetable note. It is a delay in the exact layer that is supposed to turn the expansion and export infrastructure investments into additional sales.

The export infrastructure also still requires patience. By March 31, 2026, investments in upgrading the transmission system outside Israel totaled about USD 144 million on a 100% Tamar-partner basis, with Isramco Negev 2's share at about USD 41 million. In the Nitzana project, investments totaled about USD 127 million on a 100% basis, with Isramco Negev 2's share at about USD 37 million, after a refund from the operator mainly related to payments for long lead items. In the Ashdod-Ashkelon offshore segment, expected completion moved to the third quarter of 2026, although the company says that as of the report date the delay has no material effect on it.

In addition, the draft emergency regulations for Israel's natural gas market propose a mechanism that gives the Israeli market absolute priority, with export permitted only if additional quantities remain after domestic allocation. The regulations are not yet binding, and Chevron submitted comments on behalf of the Tamar rights holders, but the regulatory direction fits what the quarter already showed: in an emergency scenario, export may absorb most of the operational flexibility.

The U.S. Cleanup Continues

The U.S. activity still complicates the analysis, but the first quarter does not add a new risk with the same intensity as 2025. Revenue in the U.S. oil and gas segment fell to NIS 116.5 million from NIS 185.0 million, down about 37%. Oil marketing fell because one customer contract ended and the dollar weakened, related services fell after one subsidiary's service activity was discontinued in the third quarter of 2025, and U.S. gas and oil sales also declined.

The segment loss narrowed to NIS 5.7 million from NIS 10.2 million, but that is not proof of a material operating improvement. In both quarters, litigation drove other expenses, NIS 12.1 million this quarter versus NIS 17.1 million in the comparable quarter. Before that line, the U.S. activity remains around only a small segment profit. That is better than deterioration, but not enough to offset Tamar volatility.

After the balance sheet date, one USD 25 million claim against a consolidated U.S. company was dismissed, though the plaintiffs appealed. In another USD 30 million proceeding, the consolidated company signed a settlement under which it will pay about USD 9 million, leading to an additional NIS 12 million expense in the first quarter. The cleanup is progressing, but it still costs money and is not fully over.

What Will Decide the Next Quarters

The rest of 2026 for Nafta looks like a short proof year, not a smooth growth year. The shareholder dividend and post-period distributions improve parent-level cash access, but a quarter in which total Tamar volume rises while export revenue is almost cut in half is not enough to support a clean export ramp story. The next report needs compressor completion, a clearer timetable for the additional Blue Ocean quantities, and evidence that the dividend did not damage visible parent-level liquidity.

There are also two smaller yellow flags. After March 31, 2026, the dollar fell about 10% against the shekel through close to report approval, and the company says that if the trend does not change, finance expenses are expected to increase. The hedge executed by Isramco Negev 2 in April covers only NIS 22 million. Regulation is the second flag: domestic priority during an emergency can protect Israeli supply, but it also sharpens the risk that export is delayed first.

The strongest counter-thesis is that the market may focus too much on one quarter of export weakness and not enough on cash returning to shareholders. Tamar still sold more gas on a 100% basis, the current ratio improved to 222%, working capital rose to about NIS 786 million, and short interest was negligible at 0.06% of float in the May 20, 2026 data. That argument will hold only if accessible cash is not a one-off event and Tamar's new capacity starts reaching export sales in practice. Until then, Nafta looks better as a cash-return equity with a strong core asset, and less like an operating acceleration story that has already been proven.