Ratio is the investment bank’s stock pick in the energy sector.
Leviathan partner Ratio Oil Exploration (1992) LP (TASE:RATI.L) is Barclays Capital’s top pick in Israel’s energy sector. The bank reiterates it “Overweight” recommendation but lowered its target price from NIS 0.74 to NIS 0.71, still a 69% upside on today’s opening price of NIS 0.41.After a four-day road show with Ratio CEO Yigal Landau and Geologist Josh Steinberg, Barclays analyst David Kaplan says that the company compares favorably with its European peers. “Even in our worst-case scenario where we drop the oil targets from our valuation entirely we still see 13% upside from the current share price,” he says. Under the most optimistic scenario, which include the oil prospects and the LNG facility, Barclay’s valuation is NIS 2.27 per share – 441% above the current share price
Kaplan says that Israel current offshore discoveries at Mari-B, Tamar, and Leviathan, are only the first in the Levant basin. While it is clear that there will be disappointing drills, he believes that current best estimate of 25 trillion cubic feet of natural gas “is still the tip of the iceberg,” citing a 2010 US Geological Survey report, which estimates 122 trillion cubic feet of gas and 1.6 billion barrels of oil in the Levant basin.
Kaplan says that Ratio, with $100 million in cash and no debt, is properly capitalized for its 2011-12 capital expenditure plan, which includes bringing in a marine operator for its Gal license (south of Leviathan), and the upcoming Leviathan 3 exploratory well and the resumption of the Leviathan 1 well to oil targets in deeper strata.
The Jerusalem Post reported this week on an assessment from the Swiss based financial services giant UBS, that a significant oil find could have a greater impact to Israel’s economy than the recent massive natural gas discoveries offshore.
UBS analysts, Roni Biron, Ziv Tal and Reinhard Cluse wrote in a report on the Israeli gas and oil sector that: “Our calculations suggest that, in the event of success, oil could potentially deliver a boost to GDP growth, the budget and the external balance that might potentially be even bigger than the impact from natural gas.
“This would also imply a larger appreciation potential for the shekel and an even greater requirement to manage the resulting macroeconomic challenges through a carefully managed sovereign-wealth fund.”
Simply put, UBS analysts are saying that discovering oil could mean more to Israel’s economy, trade balance, domestic budget, value of the shekel and long term national wealth than the recent gargantuan offshore natural gas finds that will make Israel both import independent and a major exporter. Not to mention (they didn’t) that being oil and gas independent would add significantly to Israel’s national security.
The UBS analysts reminded readers that the Leviathan and Tamar fields were the world’s largest gas discoveries in the past decade, that Tamar would be sufficient for all of Israel’s domestic needs, making Leviathan available for 100% export. They reported, “natural- gas exports from the Leviathan field will begin in 2017 at almost $3 billion per year, before rising to almost $6 billion in 2020.”
$6 billion per year from natural gas exports – that’s significant! What’s more significant is that the UBS report was about how a oil could have a greater impact.
In a March 11, 2011 Jerusalem Post article Dore Gold, president of the Jerusalem Center for Public Affairs and former Israeli ambassador to the UN stated that Israel’s newly discovered fossil fuel reserves could ‘revolutionize the global energy sector’.
Dor stated in the article, “Libyan oil accounts for less than 2 percent of world oil production, yet the revolt against Muammar Gaddafi has managed to shoot up the price of oil to more than $100 per barrel in the last month.”
The article goes on to report that, at the same time Israel holds the world’s third largest oil shale deposits and, because Israel’s Tamar gas field is capable of supplying the country’s domestic natural gas fields for the next twenty years, 100% of the gas harvested from the Leviathan field (estimate at twice the volume as Tamar) could go to export markets.
What does this mean? As Middle East oil supply from Arab countries becomes more expensive and more politically contentious, Israel’s energy exports from existing and pending discoveries should be coming online.
Bottom line: Israel energy exports in the near future could very well change the political and economic landscape in the Middle East. With Arab political regimes falling apart at the seams and oil prices spiking with the evening news, the fact that the only stable democratic government in the region and America’s best friend (yes, it’s still true) in the Middle East may very soon be one of the world’s energy exporters is a comforting thought. Go Israel!
Since its massive natural gas discovery in the Leviathan field offshore of Israel, Noble Energy has suspected that commercial oil reserves may lie beneath the gas find. Plans to begin oil drilling in Leviathan’s two lowest strata have been delayed for a month due to technical concerns.
In a March 11 interview with Israeli news agency Haaretz, Epsilon Investment House energy analyst Ron Alkon stated, “A month’s postponement of the results isn’t, in itself, a sign that there is no oil. Since it is almost without precedent to be drilling for oil at these depths, and to avoid environmental problems and other possible malfunctions, they are taking their time to be prudent. It shows that there is still a considerable chance of finding oil. Just the fact that they intend to invest an additional $40 million in advance shows that the possibility is there.”
The Haaretz article continues:
“Drilling from the Sedco Express platform at Leviathan 1 has reached a depth of 5,100 meters – to the first layer of sand where advanced geological testing was performed in discovering natural gas.
“The next stage is drilling 700 meters further, to the layer geologically referred to as the Lower Oligocene Age, where Noble estimates an average economic potential for usable oil reserves of about 3 billion barrels at a geological probability of 17%.
“After this stage the partners intend to drill deeper still to test another prospect at a depth of 7,200 meters. Here Noble estimated the economic potential at equivalent to 1.2 billion barrels of oil, but at a mere 8% probability.”
Noble’s oil exploration drilling into these strata is expected to commence in early May.
WASHINGTON, Dec. 29, 2010 /PRNewswire/ – David Wurmser, Ph.D., founder and executive member of the Delphi Global Analysis Group, LLC (Delphi), today issued the following statement regarding confimation of the Leviathan field offshore Israel as a major natural gas discovery with 16 Tcf of reserves. Delphi specializes in geopolitical risk analysis and mitigation, with a focus on energy development in Israel and throughout the Levant Basin.
“The Leviathan discovery opens a new era of natural gas development offshore Israel. Production of so large a quantity of gas relative to Israel will trigger major political changes. A resource of this magnitude will allow Israel to implement an energy policy that advances security, economic growth, and the environment. From power generation to desalination to transportation, the benefits of significant Israeli natural gas production promise to be profound,” said Dr. Wurmser.
“Israel is now positioned to become an exporter of natural gas. If encouraged by effective public policy, the fiscal, macroeconomic, and geo-strategic implications of developing offshore natural gas promise to rank among the most important advances in the history of the modern State of Israel.
“Accompanying a myriad of positive outcomes attached to Leviathan will be a series of serious political challenges. The temptation of excessive taxation and the internal battles over allocation of government revenue will intensify. Israel lacks energy-sector expertise and financing for large energy projects. Government officials have expressed concerns about concentrations of wealth and power in the hands of a few, as well as the impact of a stronger shekel on Israel’s export-driven economy. Policy makers, energy companies, and the financial community confront a complex and volatile political landscape,” concluded Dr. Wurmser.
Leviathan will apparently be one of the largest natural gas discoveries in Israel.
After the tough times he has recently gone through, Ratio Oil Exploration (1992) LP (TASE:RATI.L) CEO Yigal Landau had a more gentle moment this morning. After an extended period of quiet, Landau issued a notice to the press in response the discovery of signs of gas at Leviathan, and it began with “We were not surprised by the positive indications.”
Landau, as is often the case, expressed in words what many others were thinking.
We have gotten used to gas discoveries. They are already fully priced in at the stock exchange, as in the financial press.
And still, it must not be forgotten that Leviathan will apparently be one of the largest natural gas discoveries in Israel, and in its giant belly about $80 billion worth of gas has accumulated. This astronomical sum would have evaporated in an instant if a second scenario would have occurred last night, and signs of gas were not discovered. The chances of that were even, and throughout the dramatic night last night the negative scenario seemed the more likely, until almost the last minute.
Beyond that, it is important to remember the potential for a large oil discovery at Leviathan, even if the chances six to one against. A discovery like that would have far-reaching economic, strategic, and geo-political consequences for Israel and the entire region.
Published by Globes [online], Israel business news – www.globes-online.com – on November 29, 2010
Will Israel become a major exporter of natural gas in the near future? Most likely. How about an oil exporter? Maybe. Is there any chance of Israel joining OPEC (Organization of Petroleum Exporting Countries)? With Iraq, Iran, Saudi Arabia, Kuwait and Venezuela on the membership committee, probably not.
But the reality is that Israel has already made the largest natural gas discovery – ever – in the Mediterranean and the largest discovery worldwide in 2009. Of course those figures were based on the initial Tamar gas field reserve estimates of 5 trillion (that’s ‘trillion’) cubic feet. Since then the Tamar estimates have jumped to 8.7 trillion cubic feet. But wait, there’s more! The Leviathan field, discovered after Tamar, is estimated to hold an astonishing 16 trillion cubic feet of natural gas. The piece of news offshore operator Noble Energy isn’t ready to make too public yet is that they believe that underneath the natural gas fields, there could be oil. That’s the story offshore.
Onshore, Givot Olam claims the field below their Meged #5 well may hold 1.5 billion barrels of oil (we’ll find out how real that estimate is next month). By the way, the Meged #5 has been pumping oil in the midst of the latest arguments over how big the field may or may not be. Zion Oil & Gas, just yesterday, spudded (began drilling) their Ma’anit-Joseph #3 well. This is Zion’s third attempt to discover commercial quantities of oil in the Ma’anit structure. The first two wells were frustratingly close; they actually extracted oil from the Ma’anit-Rehoboth #2 test well. Zion isn’t going into the Ma’anit-Joseph #3 blind; based on results from the first two wells and their best science, this well will be at the location and depth they need to be to hit commercial oil.
Bottom Line: Israel is not waiting for a major hydrocarbon discovery – it’s already happened – the largest natural gas discovery worldwide in 2009 (of course that was when they believed they only had 5 trillion cubic feet in the Tamar field and before the Leviathan discovery). The Tamar field is 90 kilometers (56 miles) offshore and Leviathan is 130 kilometers (81 miles) out to sea. Producing the offshore gas (bringing to market by building pipelines to onshore facilities) will take a few years (up to five). But it will happen. It’s a pretty good bet that all of Israel’s domestic natural gas needs (that includes electricity) will be fully supplied and that more than a few European and the Japanese households (at least) will be heating their morning tea with Israeli natural gas in the next decade. Up until 2009 nobody imagined that Israel could supply her own needs, let alone become a world exporter of natural gas. In 2019 it will be a major Israeli export.
Is oil far behind? I don’t think so. If oil and gas is discovered onshore in the near future, it will most likely beat the offshore gas to market. If a lot of oil is discovered – beyond Israel’s domestic needs – oil is much easier (and quicker) to export than natural gas.
Little old Israel, a major energy exporter – imagine that! Of course Israel has accomplished a lot of things in the last sixty-plus years the world never imagined. That may be because the world doesn’t know it’s Bible as well as it should. About 2,700 years ago Israel (the northern kingdom) was decimated by her enemies (ancestors of some of the same enemies Israel has today) and many in Israel were taken as captives back to conquering Assyria. Later the Babylonians conquered Assyria, but Israel remained captives in exile, away from their home land. In this dark time an Israeli living in exile, his name was Yechezk’el, saw a vision of his people’s future. He saw dry bones coming together to form a nation of people, he saw a wasteland spring to life and become a garden. Yechezk’el’s (we westerners use the name Ezekiel) vision of dry bones became reality on May 14, 1948 when Israel, after 1,900 years of exile, became a nation. In 1948, the Land of Israel wasn’t too different from the ‘wasteland’ Ezekiel saw in his vision. Today the ‘wasteland’ has become a garden. In Ezekiel’s vision G-d made a promise to the Land of Israel: “I will settle people on you as in the past and will make you prosper more before.” (Ezekiel 36:11)
A nation of people from dry bones … wasteland springing into gardens … a nation in exile for 1,900 years returning to its homeland and prospering today more than in any time in history … imagine that!
Investors should be cautious and differentiate between concepts and reality, says chairman of gas explorer.
By Eytan Avriel Haaretz
The probability that natural gas will be found in the deepwater prospects being explored by Noble Energy and Delek Group – the Leviathan prospect – is 10% to 15%. That is a probability, which by definition does not mean “sure thing.” However, says Charles Davidson, CEO of Noble Energy, he hesitates to talk about the prospect because some people in Israel relate to announcements of potential as though they were announcements of actual discoveries.
“That worries me,” he said on a panel on oil and gas exploration at a conference of the Tel Aviv Stock Exchange in London on Thursday: Oil exploration is a high-risk business.
What Noble does, Davidson said, is manage risk in a portfolio of opportunities. Investors should be cautious and differentiate between concepts and reality. Reality is the gas discovered at Tamar.
At the lowest part of the areas the partners looked at, there is the potential of oil, but – Davidson stressed – that doesn’t mean there is oil there. It has never been tested.
Systems of the type down there can produce oil, Davidson said, but one has to check whether a reservoir of trapped liquids of the type is actually there.
Gideon Tadmor, CEO of Delek Energy, fielded a question about the difference between investment in fossil-fuel exploration for the long-term, and as a speculative investment. In his view the difference lies in the company’s diversification: picking a company involved in one project is speculative. The more projects the company has, the better it is, Tadmor said.
One also has to check the company’s ability to actually do the job, Davidson added. For instance, to drill at Tamar, the partners had to bring in a rig from Africa. By the time the exploration was done, the cost had reached $300 million. Not every company could pull off a job like that.
On the geopolitical risk of drilling in Israeli territorial waters, given claims by Lebanese and Cypriot elements that they own a share, Davidson said Noble employs companies that analyze risks unrelated to the actual drilling, and in their opinion, Israel ranks well. Noble has been working in Israel for 12 years, Davidson said; obviously it feels comfortable about it.
“There are areas more problematic than Israel,” Tadmor added; Israel is relatively safe. “I see no geopolitical risk in our explorations.”
Israeli Natural Gas Find Keeps On Getting Bigger But Could Ignite Trouble
Vosizneias Tel Aviv – Israel’s natural gas bonanza in the eastern Mediterranean just keep getting bigger, with reserves currently pegged at around 25 trillion cubic feet.
That’s enough to guarantee the Jewish state, dependent on imported energy since it was founded in 1948, energy security for at least two decades.
The strikes at three fields, dubbed Tamar, Dalat and Leviathan, could even turn Israel into a gas exporter and transform its economy. There are indications that there’s oil down there as well.
But the offshore finds may become a casus belli (case for war) as Lebanon, Israel’s northern neighbor and longtime battleground, lays claim to the gas fields as well.
Lebanon’s As-Safir newspaper reported June 8 that the biggest field found off Israel, Leviathan, extends north into Lebanese waters and could well aggravate tensions between the countries.
Under the headline “Israel prepares to steal gas fields in Lebanon’s waters,” the leftist daily said if Israel tried to siphon gas from Lebanese territory, Beirut would be forced to defend its resources.
One of Hezbollah’s top leaders, Hashem Safieddine, head of the Iranian-backed movement’s executive council, has declared it won’t allow Israel to “loot” Lebanese gas resources.
Israel’s military chiefs say Hezbollah currently possesses around 45,000 missiles and rockets, which could be fired at Israel’s emerging energy infrastructure centered on the port of Haifa.
The city was repeatedly hit by Hezbollah rockets during the 34-day war with Israel in July and August 2006.
These days, Hezbollah purportedly has long-range weapons that have greater accuracy and carry more destructive warheads than those used in 2006. These are capable of hitting just about anywhere in Israel.
In the event of renewed hostilities, and both sides are talking tough again, Israel’s energy installations would be prime targets.
Lebanon’s parliament speaker, Hezbollah ally Nabih Berri, has urged the Beirut government to move swiftly to start its own offshore exploration or risk Israel claiming whatever resources there are.
“Israel is racing to make the case a fait accompli and was quick to present itself as an oil emirate, ignoring the fact that, according to the maps, the deposits extend into Lebanese waters,” said Berri.
The speaker, who has submitted a parliamentary bill to launch exploration of Lebanon’s potential offshore reserves, declared: “Lebanon must take immediate action to defend its financial, political, economic and sovereign rights.”
Israeli officials insist that the gas fields lie within Israeli territorial waters.
However, the liberal Haaretz daily noted Tuesday, “Israel has yet to declare its exclusive economic zone, though this usually applies to what in the sea, such as fish, and not what lies under the continental shelf.”
It quoted Professor Moshe Hirsch of Jerusalem’s Hebrew University, an expert in international law, as saying that problem could arise when the continental shelf is shared by more than one country.
But he maintained the gas lies squarely in Israel’s sector of the continental shelf and so there was no need top declare an exclusive economic zone.
The first strikes were made early this year at the Dalit field off Hadera, south of Haifa by a consortium headed by Noble Energy, a U.S. company with headquarters in Houston, which is working with three Israeli firms.
Tamar, 50 miles east of Haifa, was found in April. Last week Nobel raised its original estimate of the field’s size by 33 percent to 8.4 trillion cubic feet of gas.
But then came the discovery of Leviathan, double the size of Tamar at an estimated 16 trillion cubic feet of gas, further off the coast.
Nobel said that total offshore reserves could top 30 trillion cubic feet, double Britain’s giant gas fields in the North Sea, with a conservative value of some $300 billion. Nobel is moving a drilling platform from the Gulf of Mexico to step up exploration.
Gas production is to begin in 2012. Israel is planning to build a liquefied natural gas plant near Haifa but it probably won’t go online until 2015.
The gas finds, particularly Leviathan, which may turn out to be even bigger, are “nothing short of a geopolitical gamechanger,” Gal Luft, executive director of the U.S.-based Institute for the Analysis of Global Security, wrote in Haaretz Sunday.
“Altogether the basin the eastern Mediterranean … could contain an amount of gas equivalent to one-fifth of U.S. natural gas reserves.”
Noble Energy chairman and CEO Charles Davidson expressed optimism that there will be more gas fields discovered at a press conference in Tel Aviv today.
He said, “We conducted a 3D seismic survey, which will provide very sophisticated information enabling us to know whether there are more reservoirs. We believe that there are other reserves adjacent to the Tamar and Dalit reservoirs. We’re now analyzing the results of the seismic survey. I hope that we’ll continue to find natural gas in this country. I’m optimistic about more reservoirs, whether at Leviathan or elsewhere.”
Davidson added, “Israel was the land of milk and honey in Biblical times, but in the modern era, its milk and honey and natural gas. In Israel’s deep waters, in virgin territory, a monster natural gas discovery has been made.”
Noble Energy Inc. (NYSE: NBL) is a partner in the Tamar and Dalit offshore gas fields, together with Delek Group Ltd. (TASE: DLEKG) subsidiaries Delek Drilling LP (TASE: DEDR.L) and Avner Oil and Gas LP (TASE: AVNR.L), Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), and Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL) subsidiary Dor Alon Energy Exploration Ltd. It is also a partner with Delek Group in the Yam Tethys partnership, which owns a natural gas field offshore from Ashkelon, and in the Leviathan prospect, west of Tamar, with Delek Group Ratio Oil Exploration (1992) LP (TASE:RATI.L).
Noble Energy convened the press conference at the Tel Aviv Hilton not only to wax poetic about biblical Israel, but to outline its program to develop its natural gas reserves in Israel. Investors are eager for any scrap of information about the Leviathan lease, where 3D seismic survey is underway, whose results are due later this month. If gas is found, the prospect’s partners will begin drilling toward the end of the year, at an estimated cost of $100 million.
Davidson said, “The company expects to drill into another large structure during the second half of the year, and to drill in the two discoveries already made during 2011.”
The statement reiterates what Noble Energy said in the conference call following the publication of its financial report for 2009 last month, without explicitly mentioning “Leviathan”. “As for Tamar, the immediate challenge is to reach an agreement with the government on how to bring the gas to shore, since seafront real estate in Israel is very expensive. One possibility is to build a new terminal, another is to use Yam Tethys’ existing infrastructure,” Davidson said.
Davidson promised that the company would meet its timetable for the Tamar well. The well’s partners are due to publish their development plan for the reservoir in the second half of the year. The plan will reportedly cost more than $2.6 billion, with gas production beginning in early 2012.
“We’ve been here for over ten years already,” said Davidson. “Noble Energy won’t be here for years, but for decades. I can’t imagine a better place to be than here.”
Noble Energy will invest $140 million in gas exploration in Israel in 2010, almost 10% of its budget.
Shares of Israeli gas and oil exploration partnerships on the Tel Aviv Stock Exchange (TASE) have skyrocketed by hundreds and even thousands of percent in the past year, as investors seek the next Isramco. Davidson, however, sends a clear message to investors: Be careful. “Oil and gas exploration shares were hyped last year, and I urge caution,” he said. “There is no sure thing in the energy industry, and in the end, only a few companies will succeed. There’s an upside potential in the shares of Noble Energy. I’m a long-distance runner, and I don’t comment about the market’s response over the next week or two. We’re managing projects that will last us decades. In this business, you don’t plan for days, but for the long haul.”
Published by Globes [online], Israel business news – www.globes-online.com