IBI Investment House Ltd. says that the Sheshinski committee's final recommendations cut the value of Israel's oil and natural gas reserves by 30-40%, compared with the current situation.
IBI analyst Gil Bashan says, "Although the committee revised some of its interim recommendations, I would say that the final recommendations reflect 70-75% if the interim recommendations. The few candies to Tamar and Yam Tethys are remote from amounting to a significant exception for them. Bottom line, the final recommendations were ameliorated less than our and the market's prior assessments."
Bashan goes on to say that the developers of the oil and gas fields and their investors are the parties affected, as the proposed government's take is being increased at their expense, and the result is lower values of the partnerships that own the reserves. Yet he believes that the effect of pricing of the partnerships' shares is not as much as it should be, given the Sheshinski committee's final recommendations, which he attributes to the possibility of a further softening of recommendations by the government and the Knesset.
In addition, there is also the possibility of more oil and gas discoveries, especially of oil, which would completely change the value of the partnerships. "Dreams are sometimes stronger than reality," Bashan concludes.
Bashan concludes, "It should be remembered, when all is said and done, that we're talking about recommendations that might not necessarily be approved. The companies worked hard and succeeded in improving positions ahead of the decisive battle of the campaign - the political arena." Bashan added that "the main weapon in their arsenal" is the minority opinion by the representatives of Minister of National Infrastructures Uzi Landau on the committee.
"The picture emerging about the shares' prices is that they are priced on the basis of a quite optimistic scenario. Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) and Delek Drilling LP (TASE: DEDR.L) are traded at a serious premium, and ought to be sold. Delek Group Ltd. (TASE: DLEKG) is the most worthwhile exposure. If there is no oil, then all the partnerships are simply expensive, so their risk/reward ratio appears not to be worthwhile."
Published by Globes [online], Israel business news - www.globes-online.com - on January 6, 2011
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