In a review on the global oil and gas industry, Barclays Capital gives a "positive" outlook on Israel's energy exploration and production industry, citing the scheduled start of commercial production from the Tamar gas field in the second quarter of 2013, and the finalizing of supply contracts with Israel Electric Corporation (IEC) (TASE: ELEC.B22), which secured financing for the field's development. Barclays adds that a farm-in partner for Leviathan may raise the profile of Israeli gas industry. Tamar partner Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) and Leviathan partner Ratio Oil Exploration (1992) LP (TASE:RATI.L) are its top picks.
"Leviathan is one of the largest natural gas discoveries globally in the past decade, and commercializing the resource will require the introduction of strategic partners. In its most recent presentation from May, US operator Noble Energy Inc. (NYSE: NBL) said on its second quarter 2012 earnings call it was pleased with the interest shown in its Leviathan marketing effort and continues to move toward a new partner announcement by year-end."
Barclays notes, "In early May, drilling operations of the deepest oil targets at Leviathan 1 well were suspended before the primary targeting layers were reached (middle and lower cretaceous). This was caused by high pressure at the layers that were drilled, and by the mechanical limits of the wellbore. The partners have said they are considering carrying out an additional drill to the deeper layers, via a new rig. However, this might not happen until next year, we believe."
Barclays adds, "In addition to the major gas fields, Israel also has several minor fields that are currently under exploration and are altogether estimated to have over 15 TCF of gas, with some fields also targeting for oil. We believe that significant discoveries could be an additional catalyst for the industry."
Barclays gives Ratio an "Overweight" recommendation with a target price of NIS 0.45 (a 73% premium on today's opening price of NIS 0.27), as it is set to benefit from the potential farm-in of a strategic partner. It also notes that Ratio wholly owns the Gal license, south of Leviathan, which Barclays sees as a potential long-term opportunity, because it is one of the few fields that is not part of the Delek Group Ltd. (TASE: DLEKG)-Noble Energy consortium.
Barclays has raised its recommendation for Isramco from "Underweight" to "Overweight", with a target price of NIS 0.69 (a 53% premium on today's opening price of NIS 0.47), citing concrete Tamar off-take agreements.
Barclays gives Tamar and Leviathan partner Noble Energy an "Overweight" recommendation with a target price of $119, compared with its current price of $87.26, saying, "Noble Energy has uniquely positioned itself for years to come through its highly successful exploration program. The company has discovered nearly 2 billion barrels of oil equivalent over the 2006-10 period, securing 85% of its modeled 2020 production." Barclays notes Tamar, Leviathan, and Block 12 fields, among the company's numerous projects.
Barclays believes that the gas discoveries and geopolitical changes in the Middle East will change the oil majors' attitude toward Israel. "Historically, super-majors have been reluctant to look at Israel for many reasons, including limited potential resources, limited domestic market opportunity, a natural gas focus and a challenging geopolitical situation. We believe all of this has changed: the Levant basin is world class, with over 30 TCF of gas discovered so far and a full exploration calendar; not only has the domestic opportunity grown but there are also export opportunities; beyond the natural gas discovered, deeper structures are targeting oil; and new governments in North Africa and Iraq have changed the geopolitical paradigm. We believe Israel offers a more stable business environment than do its neighbors and that companies that were reluctant to invest may view the 30-40 TCF in the Eastern Mediterranean as a possible addition to a larger asset portfolio."
Published by Globes [online], Israel business news - www.globes-online.com - on August 30, 2012
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