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.
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