After more than twenty years of oil and gas exploration, Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) CEO Yossi Levy is excited. After much drilling, it appears that the Tamar-1 well, in which Isramco owns 28.7%, has succeeded, and could yield revenue of billions of dollars.
The Tamar-1 well, in which Isramco is partnered with two Delek Group Ltd. (TASE: DLEKG) units: (Delek Drilling Limited Partnership (TASE: DEDR.L) and Avner Oil and Gas LP (TASE: AVNR.L)), showed the biggest discovery of natural gas in the history of the State of Israel. The drill operator, Noble Energy (NYSE: NBL), reported that tests confirmed preliminary estimates of a natural gas reserve of at least 88 billion cubic meters.
“It’s a wonderful feeling,” the 56-year old Levy told “Globes”. “I’ve been involved in oil and gas exploration for 21 years, there were a lot of disappointments, drilling on top of drilling, but we did not give up. They said that Israel was a land flowing with milk and honey, and that while all the countries around us found oil and gas, just here there was nothing. Well, now we have it too, and I am happy not only as the CEO of the company, but as a citizen of Israel.”
Globes: What are the next stages planned for the Tamar prospect?
Levy: "The next stage is a production test. That can last about three weeks. It seems that we will drill another well in the reserve, in order to verify the indications that we received in another place, and we will also use that well for future production. After these stages, the operator and the partners will be able to say with more precision how much gas is in the reserve, and then an announcement can be made about whether the well is commercial or not. At that point, we will also know the rate at which the gas can be pumped, we will build a development plan, and then there can also be a precise estimate of future revenue and expected expenses. "
Has natural gas definitely been found?
“We are very cautious at this stage, so we haven’t announced it to be a commercial reserve. Noble Energy is a very professional company. It has experience with these types of reserves, and it feels that there is a good chance that the field will be commercial. We want to believe that we are not simply investing $20 million now in production testing. At the same time, we want to verify all the parameters, and we will carry out another drilling to verify that there are the same parameters in another location in the reserve.”
According to Levy, the importance of the gas discovery is large in international terms as well. “Noble Energy reported that it was its largest discovery, and Noble is not a small company. From the drilling, we saw three high quality reservoirs, which include layers of sand 140 meters deep which contain natural gas. It is much more than we expected, and has implications for the size of the reserve. If at the beginning, expectations were for 88 billion cubic meters, Noble, the operator, expects that, subject to collecting several further details, the estimated reserve could be greater, and that the reservoirs can be even larger."
Does the current find open the area to more discoveries?
"There is no question that this is a breakthrough that was not thought of previously, but in the world of oil exploration you have to advance step by step. In the past, they thought that in the Nile sands there were gas reserves that in a best case scenario would reach to Ashkelon, where the Yam Tethys reserves are found. Currently, sands in the Tamar drill site are very high quality, and we will probably also drill in the Dalit area an area belonging to the partners, which is closer to the coast, and in shallower water."
The continued drilling is expected to cost $1.5 billion. Can you meet the development costs of the project?
"The Israeli partners and Noble can get the project going, we have enough financial power to carry out all the development stages. At Isramco, part of the funding will be from internal sources, and part will be financed either through a rights offering or a debt offering. We see this project as a national project, and believe it will get the backing and maybe even guarantees of the State of Israel."
Have you been approached by the government or the Israel Electric Corporation (IEC)?
"At this point it is too early to meet with the government."
“When you drill a lot, you succeed”
Isramco, controlled by president Jackob Maimon, was established in 1988 in order to carry out oil and gas exploration in Israel. In the past, it also competed together with British Gas (BG) in a giant tender to supply natural gas to the IEC --- a tender they lost to Yam Tethys and Egypt. Its drilling efforts in the 1990s were essentially fruitless.
In recent years, Isramco did not carry out any drilling, and the cash holdings left over from previous financing efforts were invested in the capital markets. Levy, who has been with Isramco since 1996, describes the investment policy as mutual fund investing. Essentially, Isramco profited in good years for the stock market, whereas in the past eighteen month of stock market upheaval the firm has recorded heavy losses.
In 2000, Isramco and BG won the Michal and Matan concessions, in which the Tamar prospect is found, with BG owning 40% of the rights. Four years ago, BG left, and Isramco proposed to Delek and Noble Energy that they should join in its place.
Why did you bring in Delek?
"Every project has risk, and we decided to bring in Yam Tethys, as we realized that we could split the costs, which are very high."
Over the years, Isramco has invested $200 million in exploration, with only the Tamar well, in which $40 million was invested, showing success. But Isramco did not give up. “You only find success after much drilling”, says Levy, adding, “Its important to mention Isramco chairman and CEO Haim Tsuff, who is also the CEO of JOEL Jerusalem Oil Exploration Ltd. (TASE: JOEL) and Isramco controlling shareholder Jackob Maimon, who continued to believe after so many disappointments, and did not give up."
What is the potential of the drilling site, and how will it impact Isramco?
"On the basis of the current statistics of 88 billion cubic meters, the potential revenue is $20 billion. It still needs further investment of $1.5 billion in developing a production facility. Assuming that we pump 5 billion cubic meters per year, the estimated revenue to the partners is about $800 million per year. Our share in Tamar is 28.75%, so if it is a commercially viable reserve, our expected revenue is $230 million per year, assuming it operates for 20 years. After production costs and royalties, the expected profit left for Isramco is 65% of revenue, which is $150 million."
Published by Globes [online], Israel business news - www.globes-online.com - on January 19, 2009
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