JERUSALEM - A consortium drilling for natural gas off Israel's Mediterranean coast said on Tuesday it signed a non-binding, $1 billion deal to supply Dalia Power Energies Ltd with 200 billion cubic feet of gas over 17 years.

Delek Drilling told the Tel Aviv Stock exchange in a statement that the group drilling at the Tamar field off Haifa would sign a binding deal with Dalia in the next two months after Dalia secures statutory permits and funding.

Shares of Delek were up 2.9 percent at 0953 GMT, trading at 8.79 shekels, compared with a drop of 0.1 percent on the broader Tel Aviv bourse.

Privately owned Dalia has been formed to build and operate natural gas-fueled power stations. The deal will secure natural gas supplies to a plant it is building in central Israel, which will generate 870 megawatts of power when completed in 2013.

Delek is part of a consortium led by Nobel Energy that has been drilling at three offshore sites. The Tamar-1 and Tamar-2 sites are about 90 km (60 miles) off the northern port of Haifa. Dalit is further to the south, off Ashdod.

Revenues from the sale of gas to the tune of 200 billion cubic feet (5.6 billion cubic metres) have a value of at least $1 billion according to estimates of partners in the Tamar project, Delek said in the statement.

Noble owns 36 percent of Tamar while Isramco Negev (ISRAp.TA) owns 28.75 percent, and Delek Group has 31 percent through two units with equal shares: Avner Oil Exploration and Delek Drilling. Dor Gas Exploration owns 4 percent.

Isramco's shares surged 5.7 percent to 0.41 shekels.

The consortium plans to bring the first phase of production to Israeli shores by 2012. In August it said the total volume of deposits found at its three sites was 7.3 trillion cubic feet. (Reporting by Joseph Nasr, Editing by Alastair Macdonald and Mike Nesbit)

Israel Energy