Leviathan partners Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG) and Ratio Oil Exploration (1992) LP (TASE:RATI.L) have sharply revised downward the potential oil reserves in the structure, but revised the gas reserves upwards. The revised estimates are of 600 million barrels of oil and an additional 4 trillion cubic feet (TCF) of natural gas, a 25% increase on the previous estimate of 16 TCF. The revisions are due to the new reporting rules on reporting oil and gas discoveries instituted by the Israel Securities Authority in early 2011.
The companies also notified the TASE today that the Homer Ferrington rig, owned by Noble Corporation (NYSE: NE) reached the drill site at Leviathan yesterday, and will begin drilling an exploratory well to the deep oil-bearing strata within days. Drilling of the Leviathan 2 and 3 exploratory wells by the Pride North America rig was suspended in February 2010 after several breakdowns in the borehole's casing.
The revised estimate was expected, and does not indicate any disappointment about Leviathan's reserves. Nonetheless, the announcement's details include good news, beginning with the doubling of the probability for finding oil in the upper oi-bearing strata, for the companies' investors.
Delek and Ratio said that Leviathan's deep strata have two prospects have almost the same mean estimates substantial quantities of oil and gas. The upper Lower Oligocene strata could have 285 million barrels of oil and 2 TCF of gas with a geological probability of success of 15-17%. The lower Middle and Lower Cretaceous strata could have 280 million barrels of oil and 2 TCF. The high estimate for the reservoirs are 1.2 billion barrels of oil and 7.5 TCF of gas in the upper strata and 560 million billion barrels of oil and 3.6 TCF of gas in the lower strata.
In August 2010, the Leviathan partners announced discoveries the deep target strata at the Rachel and Amit licenses of Leviathan: 3 billion barrels of oil with a 17% probability of geologic success in strata at a depth of 5,800 meters, and 1.2 billion barrels of oil with an 8% probability of geologic success in strata at a depth of 7,200 meters. These estimates were based on the gross mean of the reservoirs.
Noble Energy owns 39.66% of Leviathan, Delek units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) each own 22.67% and Ratio owns 15%.
The August 2010 announcement, based on the gross mean,. Under the Securities Authority's new rules, notices about gas and oil discoveries must be based on the Petroleum Resources Management System (PRMS), which can result in lower estimates than the gross mean model. The differences can be substantial in cases in which there is a wide range of estimates between the high and low estimates, which are characteristic of unknown geologic structures, such as Leviathan. Another reason for lower estimates is the PRMS model, which requires splitting gas and oil estimates which were combined under the Gross Mean model.
Today, the Leviathan partners said that the oil trap in the 34-million Oligocene strata does not exist. The strata is thin and unlikely to have much oil. However, deeper a previously unknown Cretaceous structure, dated 70-145 million years ago, was found, and the probability of success of finding oil was doubled from 8% to 15-17%.
Drilling the well to the oil-bearing strata should take two months and cost $45 million, and the total cost of Leviathan's exploratory well will reach $215 million, making them it one of the most expensive wells in recent years worldwide.
The Sedco Express rig, which drilled the first exploratory well at Leviathan was transferred to the Tamar reservoir, also owned by Delek and Noble Energy, together with Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) and Alon Natural Gas Exploration Ltd. (TASE: ALGS), in order to meet the tight timetable for developing the reservoir and beginning gas deliveries.
Delek Group's share price fell 3.9% in early trading today to NIS 767.50, giving a market cap of NIS 9.1 billion. Avner's share price share price fell 5.2% to NIS 2.57, giving a market cap of NIS 9 billion, Delek Drilling's share price fell 4.4% to NIS 14.90, giving a market cap of NIS 8.5 billion, and Ratio's share price share price fell 5.3% to NIS 0.39, giving a market cap of NIS 3 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on January 15, 2012
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