31/08/2015, 15:23
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Analysts fear that share prices of the Tamar and Leviathan partners could fall further.

Share prices on the Tel Aviv Stock Exchange (TASE) of the Tamar and Leviathan partners were down sharply in afternoon trading, after yesterday's announcement by Italian energy giant Eni that it had found the largest-ever natural gas field in the Mediterranean off the coast of Egypt.

Delek Group Ltd. (TASE: ) is down 11% and its energy exploration and production units Avner Oil and Gas LP (TASE: ) and Delek Drilling Limited Partnership (TASE: ) are down 8.9% and 9.75% respectively. Their partner in Leviathan, Ratio Oil Exploration (1992) LP (TASE:) is down 18.26% and their partner in Tamar, Isramco Ltd. (Nasdaq: ; TASE: ) is down 6.73%.

Leumi Capital Market energy market senior analyst Ella Fried warned that the shares could fall further. She said, 'We are estimating the minimum price in a negative scenario, that is to say losing the BG terminal as follows: Avner NIS 2.40, Delek Drilling NIS 12.84 and Ratio NIS 0.22. This is based on a value of about NIS 3 billion for Leviathan less royalties."

However, according to Fried a more likely scenario with a 60% probability of being realized, reflects an upside of about 15% for the Delek Group partnerships.

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She said, "We recommend underweight for Ratio because of the risk of its pure exposure to Leviathan. Isramco is the only company in the gas sector that will not be harmed because the chances of the UFG (Union Fenosa Group) contract for the short term will virtually not be hit."

Fried added that the problem with the Egyptian find is that it increases uncertainty about the future development of Leviathan. The Egyptian Zohr field contains an estimated 30 trillion cubic feet (TCF) and it joins a range of Egyptian gas reserves, some of which are held by foreign companies - including BG that meanwhile are not developing them because of the country's failed gas policies and low prices.

In the wake of the comments by the Eni CEO who promised that the Egyptian gas field's development will only take a couple of years and that "it's possible to rapidly get it to market" (because of its proximity to the BG LNG terminal in the region), Fried said that , "A potential customer for Leviathan is the LNG terminal owned by BG, which is a candidate to buy 7.5 BCM of natural gas annually from Leviathan. At the start of the year BG was acquired by the oil giant Shell and we estimated that probability of the deal going ahead at 60%-65% before the new Egyptian discovery."

"Most of the risk falls on the Leviathan field at this stage despite the huge potential that it contains. In our estimation, despite the expected improvements in the gas agreement being formulated, a delay in developing Leviathan in relation to the original development plan is almost unavoidable due to the difficulty in financing projects based on transportation in the business environment.

Meitav DS senior energy analyst Eran Unger fears that Tamar may also be hit by the Egyptian gas discovery. He said, "Exports from Tamar are at risk because it will require an investment of over $1 billion by UFG and it may well be that in the short period of time required to develop the Egyptian field, they will prefer to wait with the investment and the imports. By the way, Eni is a partner in the installation so that an export contract with UFG will be the clearest indicator of the situation of the Egyptian field."

Unger believes that no contract will be signed with Egypt and Leviathan will be left with two "small customers" Israel and Jordan. "In such a situation the development will be smaller, cheaper and the amounts sold will be smaller and at a lower price. Because of this and more, the development might be delayed one year at least, following work on new development plans for the field."


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