Roni Biron
17/07/2014
Israeli Oil & Gas Sector
Wheels are turning
BG LOI underscores regional case for Leviathan
As a recap, the Israeli partners in Leviathan announced an LOI for ~7 BCM/yr supply to BG's LNG facility in North Egypt over a 15-yr period (more details in page 2). While subject to final negotiations and the approvals of the Israeli and Egyptian governments, we see a positive backdrop for the agreement to materialize and a possible upside to its size. We believe this agreement, coupled with expected supply to Jordan and Israel, could allow the sanctioning of Phase-1 development this year based on a 1.6 BCF/d FPSO with gas flow by early 2018. We believe a phase-2 development could support a potential pipeline to Turkey as well as FLNG.
Leviathan Best Estimate (NSAI) raised to 21.9 Tcf
The Israeli partners in Leviathan have published revised reserves estimates from NSAI, pointing to best estimate of 21.94 Tcf, a 3 Tcf or 16% increase from the previous estimate (range of 16.6 - 26.5 Tcf). The estimated amount of condensate was also raised to 39.4 MMboe from 34.1 MMboe. We believe the higher gas estimates could translate into higher export volumes, given up to 75% export allowance (including swaps) and regional appetite for Israeli gas.
Delek's Phoenix sale an important milestone towards a pure E&P vehicle
We believe Delek Group's agreement to sell 47% of its Israeli insurance holding Phoenix ticks perhaps the most important box in repositioning the company as a pure E&P vehicle. The agreement follows recent announcements regarding the sale of Republic, Delek Europe, Delek US and Barak Capital, highlighting a rapid execution of the company's E&P centric strategy. Based on the latest deals, E&P accounts for 76% of our asset valuation, with most of the balance coming from energy and infrastructure. In parallel, LSE listing of the E&P operations remains under consideration.
Valuation: Raising NAV-derived PTs
We raise our PTs by ~2.5% for the Delek companies and 6% for Ratio based on NPV of $14bn for Tamar and $9.6bn for Leviathan. We believe Ratio offers most upside on Leviathan's de-risking but see Delek Group as most investable to international investors.
Roni Biron, Analyst
