Published June 26, 2011, By Eliot Caroom.

Source: http://www.nj.com/business/index.ssf/2011/06/newarks_idt_looks_to_israel_co.html

Newark-based IDT carved out a niche in the world of telecommunications offering cheap international calls and calling cards, and as its stock awakens from a deep recessionary swoon, the company is looking for another growth opportunity wringing oil from layers of shale rock in Israel and Colorado.

For most of the last decade, the company’s stock traded between $30 and $50, but in late 2008, shares dropped below $1 due to side businesses that didn’t pan out, lawsuits and patent disputes, according to Jay Srivatsa, who follows IDT for Chardan Capital Markets.

In 2008, after IDT founder Howard Jonas took an extended sabbatical in Israel, he told Forbes magazine that he was determined to lead his company back to firm ground.

By 2010, the company had turned around its telecommunications business, according to Srivatsa; that year, the stock rose from around $4 a share back above $20.

These days Srivatsa is bullish on IDT: he currently has a $40 price target for the stock due to its traditional business—and is excited by its foreign foray into the energy business.

“The value if they were to get any meaningful amount of oil out of these fields would be very compelling not only for IDT but also for the investors,” Srivatsa said. “There aren’t too many companies out there that have such high growth opportunities and are also a value play.”

He’s not the only one who believes in the potential upside of IDT’s oil venture, Genie Oil and Gas, which includes Israel Energy Initiatives.

Some very high-profile investors bought multimillion dollar stakes in the oil venture last year, namely Lord Jacob Rothschild and Rupert Murdoch.

The company differentiates its oil shale process from the controversial natural gas technique known as “fracking.”

IEI’s technology aims to slowly heat up shale containing about two thirds oil and one third gas, melting it so it can be pumped out of the ground, unlike fracking.

“They break up the rock in all kinds of ways so that the gas that’s already there breaks out through the cracks,” Relik Shafir, CEO of Israel Energy Initiatives, part of Genie. “Whereas what we do is massage (the fuel).”

Extracting shale oil by heating it in the ground is a technology that several companies are exploring, but it hasn’t yet been used for commercial production.

Shafir said that the Israeli shale oil is separated from the water aquifer by hundreds of meters of solid rock.

Still, many Israelis aren’t convinced of the project’s safety and are protesting it. The company was given a “black award” for potential environmental damage by Israeli environmental groups earlier this year, according to the Jerusalem Post.

The criticism means that in addition to applying for permits and coordinating exploration, Shafir is meeting with the project’s neighbors in towns like Nehusha, a village of about 180 families.

“In Israel, you have very good support at the government level, people very much like what we’re doing,” said Claude Pupkin, CEO of Genie Oil and Gas. “We’re having issues with the villagers near our pilot site.”

An opposition group called the Citizens’ Coalition to Save Adullam has been formed.

“Two of my three children are going to a new school that was built this year in Nehusha,” said Rachel Jacobson, 39, a member of the group who has lived in Israel since 1994 and works at a local hospital. “They’re going to be within a few kilometers of an industrial oil field if this goes forward. I’m concerned on so many levels. I’m concerned about my children, but this is not just ‘Not in my backyard.’”

Jacobson said that environmental risks are critical in Israel because of its small size: it is only a third larger than New Jersey.

But the promise of energy independence from foreign oil is appealing to other Israelis.

“This is a great addition to Israeli security and this is our investors’ main vision,” Shafir said.

IDT officials hope shale oil won’t just help Israel, but also the company, which could see a huge windfall if it perfects the technology need to extract shale oil.

“There are two upsides we’re talking about. One of those is the actual production in Israel and the revenues it could produce,” said Shafir. “Even more than that is the development…the maturity of the technology and patents and engineering experience carries with it a vast worth that I cannot quantify at this time.”

The company plans to maximize that worth by spinning Genie Energy off into a separate company in the fall—current shareholders would get the shares, with no initial plans to dilute it by issuing more equity.

“We believe that splitting the business into the two industry specializations makes sense,” said Pupkin.

Pupkin said that the combination of a telecommunications and energy company confuses analysts, and spinning off Genie would allow for partnerships or equity issues down the road.

The future is far from certain for IDT and Genie: before the company can start pumping oil out of the ground in Israel, villagers must be won over, permits obtained and technology developed.

Opponents like Jacobson say they are optimistic that Israeli officials will still stop the project, and pointedly note that Adullam, near the pilot site, is believed to be where David fought Goliath.

But if Genie’s plans do move forward, Pupkin said he hopes that 50,000 barrels a year could flow out of the ground by 2020 in Israel, and 100,000 barrels a year in Colorado.

Long before that, IDT’s spin-off of Genie will have changed the path of the company. The outcome of that move isn’t entirely certain either: “Over time, we’ll figure out if we’ve created value or destroyed value,” Pupkin said.