The drilling plans for the Leviathan prospect released this morning by the partners in the license, which included probabilities of finding oil under the area in which there is estimated to be a gas reservoir, added fuel to the already blazing fire of oil exploration in Israel.
Participation units in the Ratio exploration partnership, which holds 15% of the Leviathan rights, soared to new record highs on the highest turnover of the day on the Tel Aviv Stock Exchange, reaching a market cap of NIS 2.5 billion (this before recording even a shekel in revenue). The two more senior partners in the drilling, Delek Drilling and Avner, each of which holds 22.67% of the rights in the license, posted the largest rises on the Tel Aviv 25 list (and even before recorded income of one dollar).
At a partners meeting held on Thursday, Noble Energy, the drilling operator, which holds 39.66% of the rights, presented the exploratory drilling program for the prospect. The program is planned to begin in October, with a budget of $150 million. This is the most expensive drilling ever conducted off the coast of Israel. The cost of drilling the "Tamar" filed came to $140 million.
Besides the cost of the drilling, which will be done using the Sedco Express platform, due to arrive from Africa, the drilling will post another record as the deepest ever off the coast of Israel. The drilling is located 135 kilometers west of Haifa, where the water depth is1,634 meters.
It has not yet been decided how deep to drill.
The main objective of the drilling - the gas prospect identified in three-dimensional seismic surveys identified three conducted in the area - is at an overall depth of 5,095 meters. It will be recalled that in early June, Noble put the geological probability of finding a natural gas reservoir at about 50%, and said that the prospect might contain a natural gas production volume of 453 BCM - more than twice the extent of the proven reserves of the "Tamar" gas drilling, where the estimated probability of finding a natural gas reservoir before carrying out the drilling was 35%.
On reaching the first target layer, electric logs and other tests will be carried out, and then the drilling will be deepened to collect geological and engineering information on what is happening below the layer where the gas structure is expected to be found. Noble estimates that there are two layers of rock below the structure where the gas reservoir could be.
On the basis of the seismic information, Noble estimates that there is a 17% chance of finding recoverable oil reserves amounting to 3 billion barrels. In the deeper layer, at approximately 7,200 meters, Noble estimates that there is an 8% chance of finding recoverable oil reserves amounting to 1.2 billion barrels.
Since this is the first drilling to be done at such depths as these, data on pressure and other conditions prevailing at this depth are lacking, and it could be that, for technical reasons, the deep drilling will be carried out by another platform, Pride North America, when the Sedco Express rig moves east and carries out the development drilling for the Tamar project.
Noble reported that the final decision whether to drill towards the deeper rock layers would be made only during drilling, and after additional data are received on the findings in these layers. In addition, if oil reserves are found at a depth greater than 7,200 meters, it will be impossible to complete the drilling with the two rigs because of technical limitations.
The total cost of the drilling, estimated as mentioned at approximately $150 million, will be financed by the partners according to their shares in the drilling rights. This cost does not include the cost of performing production tests, which is expected to be of a similar order to that of production tests carried out at "Tamar", and estimated at approximately $20 million.
According to the latest financials from Ratio, it had NIS 175 million in cash at the end of June, after losing NIS 4.6 million in the second quarter, primarily on investments in securities. Ratio's share in funding the drilling (15%), is estimated at NIS 85.5 million, so that half of its cash is expected to be invested in it.
Meanwhile, the great potential has catapulted the value of Ratio. As stated, it reached NIS 2.5 billion today, even though even the most optimistic assessment is that it will be several years before it posts revenue from the sale of oil or gas. The rise over the past month gives the veteran but track record-less partnership a value higher than that of leading, profitable real estate companies such as Amot, Alony Hetz, and Bayside, which have high cash flow in the hundreds of millions of shekels each year from routine operations, providing their shareholders with steady dividends. Ratio is now traded at a value similar to that of insurance company Phoenix of the Delek Group, which posted a first half profit of NIS 267 million.
Accordingly, the value of the holdings of the Landau and Rotlevy families, which control the Ratio partnership, and also hold 26.75% of the rights in the limited partner, has crossed the NIS 600 million mark.Eitan Eisenberg, the partnership geologist, who holds 10% of the rights in the general partner in the partnership, bought participation units in Ratio to the tune of NIS 1 million after the release of the seismic survey results. At the end of 2009, he sold his direct holdings in the partnership for tax reasons. Two and a half months since again invested directly in Ratio, Eisenberg is about 66% up on his investment.
Published by Globes [online], Israel business news - www.globes-online.com - on August 29, 2010
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