Deutsche Bank today initiated coverage of Israeli energy stocks, calling it the "Birth of a Sector".
Analysts Dan Harverd and Richard Gussow note that, before 1999, there was effectively no energy sector Israel. Now, however, "With enough gas to supply domestic needs for decades, any further discoveries will likely be used for export in the form of liquid natural gas." They add that if the potential of the Leviathan prospect materializes, its partners could become global players in the liquid natural gas market.
Deutsche Bank already covers Delek Group Ltd. (TASE: DLEKG). It initiated coverage on subsidiaries Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L), with "Hold" recommendations, and on their direct parent company, Delek Energy Systems Ltd. (TASE: DEOL), with a "Buy" recommendation. It also initiated coverage on Avner and Delek Drilling's partner in Tamar, Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), also with a"Buy" recommendation.
Deutsche Bank says that, based on seismic scans, the Leviathan prospect could have as much as 16 trillion cubic feet, with a geological chance of success of 50%. Leviathan has not been priced into the project's partners. Avner is traded at a discount of 21%, Delek Drilling and Delek Energy at a discount of 22% each, and Delek Group at a discount of 13%. Conversely, a failure at Leviathan could cause the shares to fall by similar amounts.
Harverd and Gussow also note the possibility that the government will raise royalties on natural gas, the battle waged by environmental groups against construction of an LNG terminal, and technical problems in retrieving the deepwater gas reserves. Another factor is volatile global energy prices.
Harverd and Gussow estimate the value of the Yam Tethys field at $2.4 billion, Tamar at $7 billion, and, despite its potential, Leviathan at just $3.4 billion (without risk) and $1.7 billion (with risk).
Leviathan partner Noble Energy Inc. (NYSE: NBL), Delek Drilling, Avner, and Ratio Oil Exploration (1992) LP (TASE:RATI.L) will reportedly drill to a depth of 7,000-8,000 meters to look for oil in the Leviathan structure.
Deutsche Bank gives Isramco a target price of NIS 0.67, compared with its opening price of NIS 0.55; a target price of NIS 1,425 for Delek Energy, compared with its opening price of NIS 1,074; ; a target price of NIS 1,040 for Delek Group, compared with its opening price of NIS 856; a target price of NIS 2.10 for Avner and NIS 12.10 for Delek Drilling.
Published by Globes [online], Israel business news - www.globes-online.com - on June 24, 2010
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