UBS today raised its valuations for the Tamar and Leviathan natural gas fields, and raised its target prices for the projects' Israeli partners as the companies get ready to start production, and in view of the reduced uncertainty for both projects.
UBS analyst Roni Biron says, "Tamar's production platform reached its destination last week and is on track to commence supply in April. Phase-1 capacity is over-subscribed with the latest domestic contracts and phase-2 will be needed to accommodate future demand. We therefore see limited development and commercial risks alongside attractive cash flow in the coming decades and raise our project valuation to $10.4 billion."
As for Leviathan, Biron says that the farm-in agreement with Australia's Woodside Petroleum Ltd. (ASX:WPL) agreement is a key milestone, which reduces the project's commercial uncertainty. He therefore raised the valuation to $6 billion. "Additional milestones to follow include the approval of the export recommendations and clarity on the LNG location, which should lay the ground for the development phase. Given its critical mass and geographical location we see a strong case for Leviathan, as Asian and European off-takers look to diversify and secure supply."
On the gas export side, Biron says, "Disappointing results in latest exploration outside the Noble Energy/Delek consortiums have created some concerns over the final export quotas but we do not expect major changes to the Tzemach recommendations which cannot be overcome by swapping. With that in mind, we continue to see a strong case for Israeli gas both domestically and as a new export origin, and expect the de-risking cycle to continue in 2013. The key challenge in our view is securing acreage and permits for an LNG facility, a potentially cumbersome process."
Biron has therefore raised his target prices for Israel's Tamar and Leviathan partners, although he reiterated his recommendations. "At current levels we see the highest upside potential at Ratio Oil Exploration (1992) LP (TASE:RATI.L) but also highlight Delek Group Ltd. (TASE: DLEKG) as a non-LP vehicle."
Biron gives Delek Group and its subsidiaries Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) "Buy" recommendations. He raised his target price for Delek Group from NIS 945 to NIS 1,050, the target price for Avner from NIS 3.13 to NIS 3.29, and the target price for Delek Drilling from NIS 17.30 to NIS 18.50. He give Delek's Tamar partner Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) a "Neutral" rating, and raised its target price from NIS 0.56 to NIS 0.66, and he gave Delek's Leviathan partner Ratio a "Buy" recommendation and raised its target price from NIS 0.50 to NIS 0.51.
Biron lists the following milestones to watch out for: Completion of the Leviathan 4 appraisal and production well in late March, and the publication of the results in late May; initial gas production at Tamar in April; first appraisal of the Block 12 well in Cypriot waters in mid-year to provide more information about the current estimate of 5-7 trillion cubic feet of gas; closing the Woodside deal in mid-year, after signing the agreement in February; approval of the Tzemach export recommendations by May; spudding of Leviathan deep strata well, where Noble Energy estimates a 25% probability for $1.3 billion barrel of oil equivalents in gas, in the fourth quarter, and which could be potential game changer for Leviathan and the Levant basin; and LNG and FLNG decisions for Tamar and Leviathan.
Published by Globes [online], Israel business news - www.globes-online.com - on January 10, 2013
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