The Ministry of National Infrastructure, Energy, and Water Resources today published the tender for oil and gas exploration in Israel's offshore exclusive economic zone (EEZ). The blocks are up to 400 sq.km. each, located at least seven kilometers from the shore. The deadline for submitting bids is April 21, 2017. Assuming there are suitable bids, the winners will be announced three months later.
At a press conference today, Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz and Shaul Meridor, the ministry director general, stated the conditions for participating in the tenders. According to Meridor, owners of existing holdings with more than 200 BCM of gas will be ineligible for the tenders, which disqualifies Delek Group Ltd. (TASE: DLEKG) and Noble Energy. The tender states that one company cannot explore more than eight blocks.
The tender terms include a drill or drop mechanism restricting the license period to three years. A group that has carried out the work plan it submitted in the tender and wishes to conduct additional drilling will receive a three-year license extension. If there are no signs in the first three years justifying additional drilling, the licenses will revert to the state.
In order to encourage bidders to compete for several adjacent licenses, the licenses fees will decrease for every additional adjacent license.
The financial requirements for bidders are $400 million in assets, $100 million in equity, and guarantees set forth in the tender. A professional entity must own at least 25% of a group bidding for licenses, and have proven professional capability in oil and gas exploration.
Point system
"We have tried not to start from scratch. Israel can learn from the rest of the world," Meridor said. "What you will see here is a procedure in which we have learned from what is happening elsewhere in the world. We want to be attractive to companies, and we want them to be familiar with the models we are using."
Meridor added that there will be three considerations in the tender selection: "90% of the points in the selection system will be based on the work plan - what they are planning to do. Of that 90%, 60% will be whether the companies are planning to drill within three years of their entry into the block. The remaining 40% in this category will be assigned according to the seismic surveys." Another consideration mentioned by Meridor is the contract signature bonus, which he called a "sincerity fee," which will account for 5% of the total points assigned. A third consideration is the bidders experience and record in preserving the environment.
Asked about the optimistic scenario for one year from now, Steinitz answered, "An optimistic scenario is that in one year, there will be players here: large, small, or medium-sized companies. What is more important to me than size is the seriousness of the companies and their willingness to give exploration here a high priority. We want to see companies carrying out serious oil and gas exploration plans."
Potential of 2,000 BCM
At the beginning of the press conference, Steinitz promised to "flood" the Israeli economy with natural gas in the coming years. "We'll bring natural gas to electricity. Natural gas will produce 70-80% of electricity, at the expense of coal. After only 15-20 factories were connected to gas over the past decade, we'll connect 500 factories to natural gas in the next 4-5 years, and 100 of them already in 2017. We have obtained the resources to introduce natural gas use in transportation, buses, and trucks.
"Opening the sea to oil and gas exploration is the best investment Israel can make. It's the best opportunity to increase growth. I'm aware that the announcement may draw a counter-campaign by the opponents of gas, who will do everything to make sure it stays under the sea. They have the democratic right to criticize, but it's our duty to act and develop natural resources."
Steinitz's optimism is based on a study commissioned by the Ministry of National Infrastructure, Energy, and Water Resources from Beicip-Franlab , an international oil and gas consultant firm. The company found a potential for 6.6 billion barrels of oil and 2,000 BCM of natural gas in Israel's exclusive economic zone.
Published by Globes [online], Israel business news - www.globes-online.com - on November 15, 2016
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