Delek Drilling Tumbles as Clal Lowers Rating: Tel Aviv Mover

Delek Drilling-LP dropped to the lowest in almost nine months after Clal Finance Brokerage Ltd. lowered the rating on the oil and gas exploration company to market perform from buy on corporate tax-rate concerns.

Delek Drilling dropped 3.8 percent to 10.76 shekels, the lowest level since Oct. 9, at the close in Tel Aviv. The recommendations on Avner Oil Exploration LLP and Isramco Negev 2 LP were also reduced to market perform from buy.

A series of natural gas discoveries off the country’s shores has given Israel the opportunity to become a gas exporter. The Tamar and Dalit gas fields are due to start output next year and are big enough to supply the country with gas for two decades. The larger Leviathan field holds more than the U.K.’s reserves. Israel may need foreign investors to finance the development of its natural-gas fields, Standard & Poor’s Maalot said at a conference yesterday.

“There is uncertainty regarding the tax rate that provident and pension funds will have to pay on gas partnership profits,” Clal analyst Yaron Zer wrote in an e-mailed note today. “As a result we believe it appropriate to value the gas partnerships as if corporation tax is paid on their earnings.”

There are 12 Israeli oil and gas explorers structured as limited partnerships as opposed to corporations, according to data compiled by Bloomberg.

Prices on Review

“The LP structure has made it difficult for the partnerships to raise funds from foreign investors and as a result some have begun work on turning themselves into companies,” Zer wrote, a transition that would also impact corporate tax rates.

Avner fell 4.3 percent to 1.961 shekels, while Isramco decreased 1.8 percent to 0.448 shekel. Ratio Oil Exploration 1992 LP, whose rating was lowered to underperform from market perform, dropped 3.2 percent to 0.269 shekel.

The share-price estimates for the companies are under review, Clal said in an e-mailed statement today.

Delek Group Ltd., which has stakes in Delek Drilling and Avner, dropped 3 percent to 566 shekels.

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