Drilling fuel – what is the direction of the stock after an 80% jump? – Capital Market

A lukewarm stock recommendation

Delek Drilling Yahsh
-3.48%

Base:502.2

opening:502.4

High:507

low:481.2

change:9,957,241

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Upside of only 11%. Ella Fried of Leumi Capital Markets believes that after an 80% rise in the share price, Delek Drilling’s upside, managed by Yossi Abu, is quite modest.

The first year of production from Whale
“The numbers in the report reflected the completion of a complex business and geopolitical vision in the Middle East. Although the Whale Reservoir began operating in unprecedented macroeconomic conditions, in its first year it sold 7.2 natural gas (100%) against our expectation of 7.1 BCM, “Fried writes” Whale and only about 6% of the production of the Tamar reservoir.

“It should be noted that despite the level of leverage reflected in the partnership’s balance sheet, the Whale Project was set up under rigid budgetary discipline.

2020: In the first year of full commercial production from Whale, the two Israeli reservoirs produced about 15.5 BCM of gas with 8.2 BCM from Tamar and 7.2 BCM from Whale. Total gas exports from Israel to Egypt and Jordan were about 4.3 BCM and were divided almost equally between neighboring countries. .

“The revenues of the Tamar reservoir in 2020 were 1.51 billion d and the revenues of the Leviathan reservoir were about $ 1.3 billion. This phenomenon is expected to be reversed this year. In 2020, it is about $ 5.13 per unit of heat, while the price of a unit of gas from Whale was about $ 5.08. In 2021, gas prices according to the flows of the two reservoirs are expected to be close to 4.7 d. Of a shark.

“The partners’ revenues less royalties increased by 113% to 765 m in 2020. As expected, Delek Drilling’s sales reflected sales beyond the ‘TAKE OR PAY’ agreements to Egypt from the Leviathan reservoir and demand that matched the TOP agreement (50%) from Tamar. Gas prices and the forecast for the coming year were negatively affected by a slump in oil prices, which lowered export prices to floor prices during the year, and the partnership’s operating profit rose by about 30% on an annual basis.

“Net profit and projected cash flow: The partnership’s annual net profit increased by 63% and stood at c. 365 m (after hedging c. 340). The cash flow for 2021 less interest and investments is expected to be c. 400 m. The sale of the holding in Tamar in the second half of the year.

“The triggers may be rejected: The partnership announced in a conference call that it is expected to decide in a short period of time on two important issues: the sale of the holding in Tamar in the face of a division in London and the IPO in London. The partnership before the year 2022, although the initiative came from the tax authority.

“Net financial debt was about $ 2.95 billion or about $ 2.55 billion, including the value of the royalty + loan to Energian and tax refunds.

“The year 2021 is full of events: Energan is probably expected to launch the FPSO in Shark towards the end of the year. Joining it will boost local production capacity to about 30 BCM. The HHI contract with Tamar is expected to be updated in June and the question is whether after rising oil and gas prices. The price will be less than $ 4.7 in exchange for an increase in quantity. Naturally, we expect HHI to minimize contract purchases from Tamar in the first half of the year, waiting for an improved price. The Tamar reservoir began paying the natural resources tax (Sheshinsky) as early as the end of last year and the advances for the year were set at 21% by the tax authority.

Whale Expansion: No R-Factor Ceiling. This is what the partnership clearly said in the conference call. Plans to expand exports are still turning to the Idco or FLNG drainage terminal but the reservoir will only expand after long-term contracts close, and the decision will not be made in the coming year.

“Bottom line: given the moderation of the probability of short-term triggers and our cautious approach to export flows, we are currently seeing an upside of 11% in the share price. After an 80% increase in the last 6 months, pricing is approaching a balanced value “Many whose timing is unclear.”