Clal Finance analyst Yaron Zar says that the 3d seismic survey of the Leviathan formation published by Noble Energy Inc. (NYSE: NBL) "exceeded our expectations. We are still optimistic about gas shares, but note that they are high risk."
Zar said that demand for natural gas in Israel will be greater than the Ministry of National Infrastructures forecast. "The capacity to generate electricity from natural gas recently rose to 45%, and will reach 55% by the end of the year. We also believe that progress in distribution tenders will drive energy consumers to switch to natural gas in the future."
Share prices for the Israeli partners in the Leviathan licenses continued to rise today. Delek Group Ltd. (TASE: DLEKG) subsidiaries Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) rose 3.5% to NIS 1.90 and 2.1% to NIS 11.57, respectively, and Ratio Oil Exploration (1992) LP (TASE:RATI.L) rose 0.4% to NIS 0.23. Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), Delek's partner in the Tamar license, rose 1.3% to NIS 0.46.
Zar raised his target prices for Avner to NIS 2.40 and Delek Drilling to NIS 13.70. He reiterated his "Buy" recommendation for Isramco and target price of NIS 0.68, and initiated coverage of Ratio with a "Market perform" recommendation with a target price of NIS 0.28.
On the basis of the preliminary model of the Leviathan structure, Zar estimates its value at $3.5 billion, a value that incorporates a 50% change of finding natural gas. "We have not taken into account the potential of other structures," he cautions.
Zar estimates the cost of extracting gas from Tamar at about $3 billion, the same estimate provided by the license's partners.
Published by Globes [online], Israel business news - www.globes-online.com - on June 8, 2010
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