UBS says that the Tzemach Committee recommendations, if substantiated, are positive news for the oil and gas sector, as they would provide a solid framework for an export model and pave the way for an international LNG partner to enter the sector before the end of the year. Analyst Roni Biron's report, written before the Ministry of Energy and Water Resources published the recommendations, is based on media reports.
Biron says that the recommendations are particularly good news for 17-trillion cubic foot Leviathan, which is more geared to the export market. He estimates that the current levels imply a valuation of around $1/barrel oil equivalent for Leviathan’s gas, ignoring its oil prospects. Leviathan's Israeli owners, Delek Group Ltd. (TASE: DLEKG) units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L), and Ratio Oil Exploration (1992) LP (TASE:RATI.L), are the beneficiaries.
Biron gives all four companies a "Buy" recommendation, and he gives Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), Delek's partner in the Tamar gas field, a "Neutral" recommendation. He gives Delek Group a target price of NIS 900, a 60% upside, Avner a target price of NIS 3.13, a 72% upside, Delek Drilling a target price of NIS 17.30, a 67% upside, and he gives Ratio a target price of NIS 0.46, an 85% upside. His target price for Isramco is NIS 0.55, a 25% upside.
Biron cites several risks about Leviathan: uncertainty over the outcome of Leviathan 1 exploration well; the reliance of its commercial viability on its ability to secure long-term contracts; regulatory and geopolitical risks in Israel, including a potential border dispute; and that exploration and development activities may require debt and equity financing. He also notes that the LNG alternative will require heavy investment and specific know-how, which require a strategic partner, which may be deterred by Israel's geopolitical risks, while a pipeline may involve geopolitical and operating risks.
Delek Group's share price rose 3.6% by mid-afternoon to NIS 582.90, Avner's share price rose 3.4% to NIS 1.88, Delek Drilling's share price rose 3.7% to NIS 10.73, Ratio's share price rose 8.1% to NIS 0.81, and Isramco's share price rose 0.9% to NIS 0.45
Published by Globes [online], Israel business news - www.globes-online.com - on August 22, 2012
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