UBS analyst Roni Biron says that a forced sale of the rights in the Leviathan natural gas reserve is not necessarily the most likely outcome of the Israeli antitrust commissioner's decision that the ownership by Delek Group and Noble Energy of Israel's two major gas reserves, Leviathan and Tamar, constitutes a cartel.
"In a surprise move, the Israeli anti-trust commissioner has announced that the commission has decided not to go through with its agreement with Delek Group (Delek) and Noble Energy (NBL) from March this year relating to their cross holdings in Tamar and Leviathan," Biron writes. "Under the previous agreement, Delek and NBL have agreed to sell their stakes in the Karish and Tanin discoveries in exchange for anti-trust clearance. The commissioner has decided not to go through with this agreement and has yet to specify alternative courses of action. We expect more clarity in the coming weeks followed by a hearing process in mid-late January.
"The recent turn of events has more than one potential end-game, in our view. We do not see a forced sale of Leviathan as a likely scenario given the geopolitical importance of pending regional agreements and the need for a second source of gas into Israel. Should Delek and NBL are forced to choose between Leviathan and Tamar, we believe the latter appears more likely and less dilutive. Other potential avenues may include price control or forcing the partners in Leviathan to separately negotiate domestic supply agreements. One way or another, we think the main risks are potential delays in the sanctioning and development of Leviathan and lower domestic prices. We note that anti-trust clearance is a pre-requisite for Leviathan's FID which had been targeted for 1Q15. NBL has already stated it would 'vigorously defend its rights', which may have unclear implications on timeline and pending deals."
UBS says it has placed its rating and NAV-derived price targets for Avner Oil, Delek Group, Delek Drilling, Isramco and Ratio Oil under review pending more clarity.
Published by Globes [online], Israel business news - www.globes-online.com - on December 24, 2014
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