$20 Billion or Nothing

Israeli energy sector

We have reported many times about the Israeli energy sector. As we said, until two years ago there were only dreams and speculations and now Tamar is a proven reservoir of natural gas in the Mediterranean Sea. After the taxing and benefits issue is resolved and an appropriate pipe connects the reservoir to Israel, Tamar will supply the country's energy needs for decade.

Enthusiasm and anxiety

The initial results from Leviathan are expected very soon, maybe even before the end of November. As we said before, the prospects of finding natural gas in Leviathan are 50 per cent. If the findings are positive then a dream of finding a natural treasure 16 trillion cubic feet (TCF) worth $5 billion will become true. In addition, if the natural gas findings are positive there is also a 17 per cent prospect to find oil in a deeper layer (5,800 metres) and an 8 per cent prospect to find oil in another layer (7,200 metres). The maximum potential of Leviathan, natural gas and oil, is no less than $20 billion.

High standard deviation

Nothing is new about Leviathan. All the data is on the table and nevertheless the shares of the exploration partnership (Ratio, Avner, Delek) acted this week as if they were in Disneyland on the scariest rollercoaster. Shares lost 10 per cent in one day. The next day the shares surged by 8-12 per cent and during yesterday's trading the negative sentiment was back to the sector.

There is no rational explanation, excluding the fact that the private investors in the sector are very nervous and act emotionally rather than rationally.

Dreams come true?

There are so many speculations about what, when, and if. People are speaking about making the money of their lives and are expecting to earn over 1,000 per cent on their investments. Others are afraid of disappointments. The trading volume in those shares is one of the highest ever in TASE.

The figures

The four investors in Leviathan will spend a total of $150 million in the exploration phase only. In order to reduce the risks the partners split up the responsibility between themselves and also issued shares to the public, which holds over two thirds of some of the shares.

When looking at the figures the possible earnings are amazing. It's not bad at all to invest $150 million and have a 50 per cent chance of getting 35 times more.

The big question is: "Are the shares traded at a reasonable value, or are they too high at the moment?"

The Noble Energy CEO, who owns 40 per cent of the partnership, said not long ago that the investors are considering Leviathan as a 100 per cent success. He reminded all of us that there are still 50 per cent chances of a failure.

But, as we all know, statistics is one thing and human dreams and emotion are another.

Personally, I do not invest in the energy sector at all. I hope that finally Leviathan will be a giant whale and not a disappointing sardine.