Israel Gas Stocks Sink as Traders Ignore Delek's Reassurances

  • Delek Group shares decline most in a month after court ruling
  • CEO Bartfeld sees Leviathan development plan on track

Israeli gas shares declined even after partners in Israel’s largest offshore gas field said a court ruling that blocked a proposal to regulate the natural gas industry won’t derail their development plans.

Delek Drilling and Avner Oil Exploration LLP, partners in the Leviathan field, dropped 6.3 percent and 7.3 percent respectively at the close of trading in Tel Aviv. Delek Group Ltd., which holds stakes in Delek Drilling and Avner, fell 3.9 percent, the most in a month. The TA-Oil & Gas Index slipped most since August.

The partners will work hard to find the solutions necessary to come to an agreement that can be approved by all sides, Delek Group Chief Executive Officer Assi Bartfeld said on a conference call on Monday. Israel’s High Court said late on Sunday that it objected to the so-called stability clause in the proposed gas framework that would have prevented major regulatory changes for 10 years. It gave the government a year to revise the plan.

Barclays Plc’s Tel Aviv-based analyst Tavy Rosner described Bartfeld’s comments as “overly optimistic.” “The partners are unlikely to manage to secure export contracts without a stability clause in place,” he said in an e-mailed note. “Working around that clause could take several months.”

Another partner, Ratio Oil Exploration 1992 LP, slumped 12 percent, the most in more nearly eight months, on 19 times the three-month average daily volume. Noam Pincu, an analyst at Psagot Investment House Ltd., lowered his recommendation for Leviathan partners Delek, Avner, Delek Drilling, and Ratio to hold from outperform “given the increased uncertainty” around the development of the gas field, according to an e-mailed note. Meanwhile, Bank Leumi raised its recommendation for Avner. “We see opportunity in the Israeli gas industry following declines due to global gas prices and domestic regulatory court ruling,” Ella Fried, a senior analyst at Bank Leumi, said by phone.

Stability Clause

“The stability clause is crucial for investment,” David Tadmor, co-chairman of Tadmor & Co. Yuval Levy & Co., the law firm which represents Ratio, said by phone. “Companies need to know there will be safeguards and guarantees before putting their money here.” The government will have to enact new legislation or try “to fix the framework with changes to the stability provision in order to satisfy court demands,” he said.

The natural gas first discovered off Israel’s Mediterranean coast six years ago is sufficient to meet the country’s energy needs for decades, with surplus for export, developers say. The Tamar field holds about 10.8 trillion cubic feet of gas and Leviathan about twice that amount. The fields are held by a number of companies headed by Texas-based Noble Energy Inc. and Delek Group.

The TA-Oil & Gas Index has fallen 9.5 percent this year compared with a 3.5 percent decline in the benchmark TA-25 Index as the government struggles to craft an approved regulatory framework for the industry. The failure has held up development of Leviathan, while complicating export deals and antagonizing investors.

Disappointing Ruling

Earlier, Noble Energy Chairman David L. Stover said the court ruling was “disappointing and represents another risk to Leviathan timing.”

The developers have signed deals to export fuel to neighboring Jordan, and have been in negotiations to ship fuel to Egyptian plants where it would be converted to liquid natural gas for possible export to Europe. The partners have also been negotiating to export about 10 billion cubic meters a year to Turkey, which would be worth about $2 billion a year, people familiar with the matter told Bloomberg earlier this month.

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