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UBS: Leviathan Partners Must Decide How Woodside Fits In

The most likely alternatives, in our view, are LNG in Cyprus, pipelines to neighboring countries (Turkey, Egypt, Jordan), or a combination, ” says Roni Biran.


/ By Adi Ben-Israel /
“The Israeli Supreme Court rejected yesterday the appeals against the government decision on gas exports. While new legislation attempts are possible, we think these are unlikely to materialize. We believe the court decision marks an important milestone as it removes a key regulatory overhang and clears the way for the commercial progression of Leviathan, ” says UBS analyst Roni Biron about Monday’s decision by the High Court of Justice that the government has the authority to decide natural gas exports.”Following the court decision, Leviathan partners will need to decide on the export solution and how Woodside Petroleum Ltd. (ASX: WPL) fits in (and under what terms). The more likely alternatives, in our view, are LNG in Cyprus, pipelines to neighboring countries (Turkey, Egypt, Jordan), or a combination. To decide and sanction the export project, the partners will run FEED and negotiate supply agreements for the different options, ” says Biron, and gives Leviathan a value of $6.7 billion.

The share prices of Leviathan’s partners rose strongly in morning trading today: Delek Group Ltd. (TASE: DLEKG) and its gas exploration units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) all rose 2.4. Ratio Oil Exploration (1992) LP (TASE:RATI.L) rose 7.2%.

“We believe the Supreme Court decision improves Leviathan’s risk profile and should gradually lead to multiples-expansion. Despite the re-rating in the sector, we estimate current levels imply $2.00/barrel of oil equivalent (boe) for Leviathan, leaving ample upside on commercial de-risking. For comparison, we estimate Tamar (fully de-risked) to trade at $6.80/boe. Other areas of upside include oil prospects and untapped gas potential, ” adds Biron.

Biron says that Ratio, as a pure play company at Leviathan, has the best upside potential. He gives Ratio, Avner, and Delek Drilling “Buy” recommendations. Delek Group is unrated.

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