Analysts at UBS and Citi have been soothing Leviathan investors after Noble Energy Inc. (NYSE: NBL) reported last night that drilling had failed to reach the target strata and has been suspended due to mechanical problems and high pressure but data indicate a greater chance of finding oil. However, Noble did talk of the chances of oil being found having been enhanced by the data received so far from the drilling.
UBS analyst Roni Biron said, "We believe market prices had not factored in oil, thus a negative reaction would compound the upside, while removing a short-term source of volatility. We also note that the announcement does not imply a lower probability of an oil system. We remain positive on the gas proposition of the basin and see ample room for upside from commercial de-risking and exploration. We believe a strategic partner in Leviathan could be a key catalyst in the second half of 2012."
UBS thus maintain its "Buy" recommendation and target prices for the Leviathan partners.
Citi analyst Michael Klahr expressed similar sentiments over the Leviathan setback. He concludes, "So no oil this time around and further delays and perhaps disappointment for some. It doesn’t look like they will get back down there in 2012 and the timeline for oil, if there is, remains uncertain. But there are some encouraging signs for further gas and oil in the basin. Risked oil makes up c9% of our base case NAVs for Avner and Delek Drilling, 0% for Isramco, and 23% for Ratio. Stocks have been weak in recent sessions and they may come off more on these oil disappointments, but in our view this is an opportunity to pick up our top-pick Isramco, and Leviathan plays Avner and Delek Drilling."
The Leviathan partners are Noble Energy (39.66%), Delek Group Ltd. (TASE: DLEKG) units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) 22.67% each, and Ratio Oil Exploration (1992) LP (TASE:RATI.L) (15%).
In trading this morning on the TASE, Avner's share price was unchanged at NIS 2.40, Delek Drilling's share price fell 0.23% to to NIS 13.19, and Ratio's share price rose 3.87% to NIS 0.32.
Published by Globes, Israel business news - www.globes-online.com - on May 3, 2012
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