Noble Energy Inc. (NYSE: NBL) is seeking an alternative deep water rig for Leviathan, after repeated breakdowns by the Pride North America rig, which is drilling the verification well. Sources inform ''Globes'' that there is a crisis of confidence between Noble Energy, Delek Group Ltd. (TASE: DLEKG) and Ratio Oil Exploration (1992) LP (TASE:RATI.L) and the rig owner, Pride International Inc. following the breakdowns in the drilling.
Since the start of drilling of the Leviathan verification well, the rig has been out of operations for nearly three months altogether. The final straw was the latest breakdown in the Leviathan 3 well, due to constant technical problems with the rig's blowout preventer and related equipment, which the companies announced on September 5.
The Leviathan 3 well was halted at a depth of 2,600 meters, half way to the target strata. The companies added that it was not yet possible to assess the extent of the breakdown or its affect on the drilling timetable or $70 million budget. The companies have not issued any update on the status of the drilling.
This was the second time that problems in the rig's pressure valve forced a halt to the drilling; the first time was on July 5, which shut down the rig for almost two months. A gas exploration expert said that the Pride North America's crew was not sufficiently trained in the operation of the blowout preventer.
The sources said that Leviathan's partners are considering replacing the Pride North American with the Homer Ferrington rig, owned by Noble Corporation (NYSE: NE) (no relation to Noble Energy), after it competes drilling an exploratory well at Nobel Energy's Block 12 in Cypriot waters, and development of the Noa reservoir, owned by Noble Energy and Delek.
The Leviathan partners have an option to use the Homer Ferrington rig to begin a new well by March 2012. However, this could delay drilling of the Myra and Sarah wells, by the rig as contracted by the licensees, Modiin Energy LP (TASE:MDIN.L) and Israel Land Development Company Energy Ltd. (TASE: IE).
A costly bargain price
The Leviathan partners hired the Pride North America rig for a bargain price of $278,000 a day, not including peripheral equipment. For the sake of comparison, the Sedco Express rig that Noble Energy and Delek hired for the Tamar well cost an estimated $450,000 a day, not including peripheral equipment.
The low price is due to the timing of lease - the deep water drilling moratorium that the US imposed in the wake of the BP blowout disaster in the Gulf of Mexico last year. Alternatively, it could be a simple case of buy cheaply, pay dearly.
There have been breakdowns and delays at the Pride North America rig from the start. Even before it reached Israeli waters, it was delayed in Mediterranean ports for two weeks for repairs. The first breakdown in Israel occurred on May 14, which forced the abandonment of the Leviathan 2 well at a depth of 4,570 meters when water burst into the borehole.
Noble Energy said in response, "Noble Energy currently has three rigs operating in Israel. The company seeks to maximize their potential, and operates flexibly to promote the various projects on the basis of the work plans."
Noble Energy owns 39.66% of Leviathan, Delek Group units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) each own 22.67% and Ratio owns 15%.
Published by Globes [online], Israel business news - www.globes-online.com - on September 14, 2011
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