Global Research 
19 February 2015

Govt proposes anti-trust resolution
Key highlights

According to TheMarker, the Israeli government presented Delek and NBL the following framework: 1. Delek will sell out of Tamar within 3 years, 2. Delek and NBL will sell out of Karish and Tanin within 1 year. 3. No ownership changes in Leviathan. 4. NBL will remain the operator in Tamar and Leviathan. 5. NBL will not engage in the domestic marketing of Tamar. 6. Domestic marketing of Leviathan will be done separately by the partners. 5. Existing supply agreements will not be opened but a 5-year cap will apply to new domestic agreements. The cap will be set according to IEC’s option ($5.35/mmbtu + 30% US CPI). This compares with prevailing prices of ~$6/mmbtu. We believe additional changes are possible and expect any resolution to be signed off by the new government (not before May).
Our thoughts
On one hand, the suggested framework includes intervention across ownership, marketing and pricing which will likely trigger some resistance, in our view. If accepted, however, we see the following advantages: 1. No ownership changes in Leviathan: This could allow the partners to keep MoU talks even if on a back burner. 2. NBL remains the operator in both mega projects: We believe the govt realizes the critical role of NBL as the main player in the basin. 3. Price cap applies to a limited portion of the overall volume. 4. Tamar is mostly de-risked and its monetization could support Leviathan's capex needs. 5. Early compromise may reduce the delay in sanctioning Leviathan.
Some upside to our model but not without risks
Our model assumes domestic price of $5/mmbtu for both projects (In Tamar from 2020) and initial supply from Leviathan in 2019. If the proposal is accepted, we see some upside to our NPVs. That said, additional variables include: 1. Progression of regional MoUs (BG in particular), 2. Export pricing against lower oil and domestic gas benchmarks (some risk to our $6.8/mmbtu estimate), 3. Delek's exit valuation of Tamar.
Valuation: No changes to PTs and ratings
Our PTs are NAV-derived using DCF for Tamar and Leviathan.

Equities

Israel
Oil Companies, Secondary

Roni Biron
Analyst