Aug. 19--Shares in Delek Energy Systems Ltd. (TASE: DLEN) are worth 70% more than their market price, according to a valuation prepared by economist and former Ministry of Finance budget director David Boaz. Boaz's report was solicited by private minority shareholders in Delek Energy in response to the repeated efforts by Delek Group Ltd. (TASE: DLEKG), controlled by Yitzhak Tshuva, to purchase the public's shares in the company in order to delist it.
Delek Energy is a subsidiary of Delek Group, which owns 86.7% of the former's shares through Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling Limited Partnership (TASE: DEDR.L), and is responsible for Delek Group's natural gas exploration and production business. Avner and Delek Drilling have holdings in several substantial off-shore gas discoveries made in recent years, including Tamar and Leviathan.
Delek Group has tried to delist Delek Energy four times over the past decade by making various offers to purchase for the public's shares. These offers have been repeatedly rebuffed.
Boaz's valuation, based on Delek Energy's financial reports for the first quarter of 2014, cites NIS 4,063 as the real value of a Delek Energy share, a price that would make the company's market cap NIS 20.9 billion (instead of NIS 12.1 billion at present).
The minority shareholders have consistently asserted in recent months that anonymous parties took measures to push down the Delek Energy share price in advance of past offers to purchase. They cite the fact that as of August 10, the Delek Energy share had fallen 1% this year, while the partnerships it controls, Avner and Delek Drilling, have jumped 12% each.
The investors also initiated an inquiry with the regulators, but so far without any results. Delek Group responded in the past to such allegations by saying they were futile, and that any attempt to hint at a connection between the Group and share price manipulation was unfounded and imaginary.
Delek Energy's value is derived from its holdings in two oil and gas partnerships: Avner (47.49%) and Delek Drilling (62.64%). Boaz values these partnerships at NIS 17.6 billion and NIS 16.3 billion, respectively, reflecting values of their partnership units 50% higher than their current market prices.
In addition, Boaz assesses the capitalized value of the super royalties the partnerships are due to pay during the years of gas production from the reservoirs at NIS 2.65 billion. In pricing the gas reserves, Boaz estimates that the gas will be sold in the domestic market at $5.86 per thermal unit, and will be exported at $7.87. At these prices, proceeds from the sale of 1 BCM of gas will be $207 million on the domestic market and $277 million for exports.
Boaz assumes that Tamar will sell 71.4 BCM per production year to Jordan and other countries, and that Leviathan will sell 310 BCM to private and governmental customers in the region and around the world. In his view, the pace of production from Tamar will rise from 10 BCM at present to 15.5 BCM starting in 2017. He assumes the construction of two production platforms for Leviathan that will produce 24.8 BCM a year starting in 2018 (one platform that will produce 16.54 BCM a year is planned at present), and predicts that starting in 2019, gas exports will rise from 10 BCM a year, reaching 15.61 BCM a year in the middle of the following decade.
In accordance with the principle of conservative accounting, Boaz refrained from including a series of future events likely to significantly boost Delek Energy's value, because these events are not certain.
For example, the valuation does not price future transactions for the sale of gas from the Tamar and Leviathan reservoirs. Two such deals with foreign companies active in Egypt, Union Fenosa and British Gas, are involved, and the value of the deals is likely to reach $30 billion. Non-binding letters of intent (LOIs) have been signed for these deals in recent months, and negotiations are underway for the signing of a gas sale agreement. In addition, Boaz chose not to take into account the possibility, estimated at 25%, of finding an underground oil field with billions of barrels of oil beneath the Leviathan gas reservoir, or the scenario of new oil and gas discoveries in the license areas of Delek Group partnerships in Israel and Cyprus.
(c)2014 the Globes (Tel Aviv, Israel)
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