We believe that potential demand for natural gas is significantly larger than predicted by the Ministry of National Infrastructures. The ministry predicts demand of just 9 billion cubic meters in 2014, compared with its previous forecast of 9.5-11.5 billion cubic meters.
We estimate potential natural gas demand at 12-14 billion cubic meters in 2014, well above the Ministry of National Infrastructures' estimate.
After digging through the financial reports of Israel Electric Corporation (IEC) (TASE: ELEC.B22), we concluded that it will double its demand for natural gas from 4 billion cubic meters in 2009 to 7-8 billion cubic meters in 2014. We are aware of possibility of the construction of another coal-fired power station, which may meet the growing demand for electricity. Nonetheless, we believe that this unit will not be available before 2015, and it will therefore not affect demand for natural gas in the first half of the decade.
On the basis of the abovementioned statements, we believe that the rate of production from the Tamar natural gas field will develop faster and will reach 8 billion cubic meters by 2015. We believe that the development plan of the Tamar gas field will, from the outset, be based on meeting the higher demand forecast, and that the infrastructures will support production of at least 10 billion cubic meters a year.
On the basis of the revised demand forecast, and cost adjustments in the development plan, we have revised upward our estimates of the value of the Tamar reservoir from $5 billion to $5.5-6 billion. On the basis of this revision, we also revised upwards our target prices for the shares of Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), Delek Drilling LP (TASE: DEDR.L), and Avner Oil and Gas LP (TASE: AVNR.L).
We give Avner a "Market perform" recommendation with a target price of NIS 1.66. We also give Delek Drilling a "Market perform" recommendation with a target price of NIS 9.80, and we give Isramco an "Outperform" recommendation with a target price of NIS 0.75.
In conclusion, we recommend overweighting the oil and gas exploration sector, with Isramco as the preferred stock.
(Delek Group Ltd. (TASE: DLEKG) subsidiaries Delek Drilling and Avner each own 15.625% of the Tamar and Dalit offshore prospects, Isramco owns 28.75%, Noble Energy Inc. (NYSE: NBL) owns 36%, and Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL) unit Dor Gas Exploration LP owns 4%.)
Yuval Ben-Zeev is head of the research department at Clal Finance Brokerage Ltd.
Published by Globes [online], Israel business news - www.globes-online.com - on January 6, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010