Barclays bullish on Leviathan partner Ratio

August 2, 2011 by · 2 Comments 

Israel's Offshore Gas Fields

Ratio is the investment bank’s stock pick in the energy sector.

2 August 11 12:15, Hillel Koren

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.

Ratio owns 100% of Gal, and 15% of Leviathan; Delek Group Ltd. (TASE:DLEKG) and Noble Energy Inc. (NYSE: NBL) own the rest.