Deutsche Bank bullish on Leviathan partners

The bank initiated coverage of Ratio and gives "Buy" recommendations for Delek Group and its subsidiaries, but downgrades Tamar partner Isramco.

Deutsche Bank has initiated coverage of Leviathan partner Ratio Oil Exploration (1992) LP (TASE:RATI.L) with a "Buy" recommendation and target price of NIS 0.58. It also reiterates its "Buy" recommendations for Delek Group Ltd. (TASE: DLEKG) and its subsidiaries, Delek Energy Systems Ltd. (TASE: DEOL), Delek Drilling LP (TASE: DEDR.L), and Avner Oil and Gas LP (TASE: AVNR.L).

The target prices are NIS 1,080 for Delek Group, NIS 1,700 for Delek Energy, NIS 16.70 for Delek Drilling, and NIS 3 for Avner. The bank says that the Leviathan companies "have higher potential return if oil is discovered, but more downside risk if not."

The share prices of Delek Group and its subsidiaries reflect only the value of natural gas, and sees triple-digit upside potential if oil is found at Leviathan. Deutsche Bank cautions, however, that the likelihood is not high, based on the seismic surveys of the structure. "With the exception of Ratio, we believe the market has not significantly priced in an oil discovery. That said, we believe a failure to discover oil would drive share prices lower on sentiment, creating buying opportunities."

Deutsche Bank, however, downgraded Delek's partner in Tamar, Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) to "Hold", with a target price of NIS 0.42, because of limited upside following its share performance.

Deutsche Bank adds that disruptions in gas supplies from Egypt - Israel's only other source of natural gas - "has materially increased the pricing power of the Israeli gas partnerships, which now have the ability to raise prices that could offset at least part of the impact from the Sheshinski tax measures." The value of Israeli natural gas assets, particularly Tamar, has increased. While the bank believes that Egyptian gas will continue to flow, a significant reduction or complete cut-off of deliveries could further boost the bank's valuations of Delek Group and the other companies.

Finally, new discoveries would add to the upside potential. Deutsche Bank cites the US Geological Survey estimate of 122 trillion cubic feet of natural gas in the Levant basin, much of which is in Israel's exclusive economic zone. Ratio is due to announce the results of the 3D seismic survey of its wholly-owed Gal prospect in July, which if positive, will add to its upside potential. Delek Group owns additional licenses and Isramco is exploring the Shimshon prospect.

Oil and gas exploration shares fell in morning trading as part of the general trend on the TASE. Delek Group fell 1.5% by midday to NIS 801, Delek Energy fell 1.2% to NIS 1,151, Delek Drilling fell 1.6% to NIS 11.86, Avner fell 1.9% to NIS 2.10, Ratio fell 2.3% to NIS 0.39, and Isramco fell 2.6% to NIS 0.41.

Published by Globes [online], Israel business news - - on May 25, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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