Today’s new Top Pick for 2014 has significant potential in gasfield opportunities in the Middle East. Here’s the recommendation, from Global Investing Editor Vivian Lewis.
Delek Group (DGRLY)
from Global Investing
Delek Group (DGRLY) tried to hide bad news by reporting on Q3 on Thanksgiving Day. Its quarterly net fell 25% from prior year levels to NIS 70 million ($19.8 million) because of new Israel taxes on repatriated gains, higher financing costs, and marginally lower natural gas sales, plus losses on its southwestern US refinery.
These were not offset by other insurance gains. Delek is an Israeli Berkshire Hathaway investing premium income. Its lead shareholder Yitzhak Tshuva is an Israeli Warren Buffet—but not as up-front.
The bad news was no surprise. We own Delek for its potential when its huge Israeli and Cypriot offshore gasfields begin supplying markets. One field, Tamar, went live 6 months ago supplying the Jewish State. Their payback depends on a political decision from Jerusalem: gasification or pipelines? Distant or regional sales? These will determine the destination of the much larger, rightly-named Leviathan offshore gas field with over 4 trillion cubic feet.
Delek meanwhile is getting Tamar gas to supply its Delek Israel gas stations with compressed natural gas for 7 years. Via two subs, DGRLY owns 31.25% of Tamar while Noble Energy (NBL), the operator, owns 36%.They just found two further gasfields southwest of Tamar with an estimated 700 million cubic feet. This will be brought to shore using an existing platform near Tamar, and help bring up the gas pressure, owned 31.25% and 45.34% by Delek. We like the simple way to invest in Israeli offshore with Delek, which is not just Israeli.
DGRLY owns 15% of Cyprus gasfield Aphrodite, holding over 3 trillion cubic feet. NBL is the operator. The divided island of Cyprus may become the site of a liquefaction plant or share in a floating plant between Israel and Cyprus. This would avoid the environmental impact of bringing gas to Israel’s Mediterranean coast. If linked to Leviathan, the LNG could then be shipped by Australia’s Woodside Petroleum (WPLAX), a stake-holder in Leviathan, pending Israeli government permission.
An alternative is to ship Cyprus and Israeli natural gas to Western Europe. An even more audacious geo-political move, if the Israeli Government agrees, would be reversing the regional pipelines bringing gas from the Egyptian Delta over the Sinai Desert to Israel. It could supply Egypt, Jordan and maybe Turkey, alongside other Muslim countries.
This could bring peace to the region. But even short of that pipe-dream, Delek holds great potential.
Vivian Lewis,Global Investing, www.global-investing.com, 212-758-9480,?December 7, 2013