The Myra 1 well is due to reach its target strata, at a depth of 4,800-5,00 meters (including the depth of the water), where the partners, led by Israel Land Development Company Energy Ltd. (TASE: IE) and Modiin Energy LP (TASE:MDIN.L), hope to find natural gas-bearing sands. But the expectations and hopes of another offshore gas discovery have turned pessimistic in the past month, at least as far as TASE investors are concerned.
Since the breakdown in the well, which the partners announced in early August, and assessments that the hoped-for signs of gas have not yet been found, the shares of ILDC Energy and Modiin Energy, which own most of the rights to the Myra license, have plummeted, shaving NIS 650 billion from the two companies' combined market cap.
Both shares have lost more than half their value since the beginning of August: the share price of ILDC Energy, controlled by Ofer Nimrodi, has fallen 59% to give a market cap of NIS 300 million, and the share price of Modiin Energy, controlled by Tzahi Sultan and Nochi Dankner, has fallen 50% to give a market cap of NIS 365 million.
It should be emphasized that not everyone is pessimistic about the chances of finding gas. Last week, on a day when the two shares fell by over 10%, ILDC Energy CEO Ohad Marani bought NIS 80,000 worth of shares in the company. The amount is negligible in terms of the investment in the Myra and Sarah licenses, but besides a vote of confidence in the Myra 1 well and in the company at this critical time, Marani's shares purchase signaled that he, too, did not know whether the well will be a success. Had he had such information, he would have been banned from buying (or selling) shares.
The market, however, has had its say. Since the drilling pipe in the Myra 1 well became stuck, and the companies' decision to carry out sidetrack drilling to reach the target strata, the shares of the Israeli partners in the license have plummeted, and the slide has steepened in the past week.
ILDC Energy owns 41.6% of Myra and Sarah through subsidiaries Emanuelle Energy Ltd. and Emanuelle Energy Oil and Gas LP, Modiin Energy owns 29.2%, IPC Oil and Gas Holdings Ltd. (IPC) (TASE: IPC) owns 13.6%, and Canada's GeoGlobal Resources Inc. (AMEX: GGR) owns 5%. ILDC Energy parent company Israel Land Development Company (TASE: ILDC) and Modiin Energy shareholder IDB Development Corp. Ltd. each own 5%, and Blue Water Oil and Gas Exploration Company Ltd. owns 8.7%.
In mid-August, in an attempt to stem the slide, the Myra partners held a press conference to dispel the uncertainty caused by the breakdown, which caused a flood of speculation. At the press conference, IPC CEO Muli Ravina said, "The problems we encountered are neither mechanical nor geological, and they do not change the geology of the licenses or the quality of the target. There is replacement and supplementary equipment for quickly dealing with these kinds of situations."
Investors believe otherwise, and the plunge in the companies' share prices reflect the investors assessments that the Myra 1 well will turn out to be a dry hole.
According to the seismic survey by Netherland Sewell & Associates (NSAI), the best estimate for the Myra reservoir, located in deep water 60 kilometers west of Hadera, is 1.4 trillion cubic feet (TCF) of gas, about the same size as the estimated Myra reservoir, but the low and high estimates range from 0.2 TCF to 12.1 TCF, respectively. The geological probability of success is a high 63%. For the sake of comparison, the Tamar discovery, northwest of Myra, has 9 TCF of gas.
Speculating in the shares
Commenting on the plunge in the share prices at the press conference, Marani said, "We cannot explain the market. In Israel, there is always over-reaction, both good and bad." Sultan said, "When there is uncertainty, speculation runs wild, usually for the worse."
It is possible that there was just this kind of speculation last week. A report on one business website anonymously quoted a top energy market source who said that the Myra 1 well was unlikely to result in a commercial discovery. ILDC Energy and Modiin Energy's share prices fell 15% following the report, and later that day ILDC Energy made an extraordinary notice to the TASE, stating that it had asked the Israel Securities Authority to investigate trading in the company's shares, "in view of anonymous reports, without a journalist's byline, published in the media, which cited 'top sources' or 'sources close to', about the progress by the Myra 1 well, which is currently being drilled, and without contacting the partners to obtain a response."
ILDC Energy continued, "These reports are groundless, have no relationship with the actual status of the well, and their sole purpose was apparently to dramatically affect the prices of the securities - an objective which seems to have been achieved given the volatility in the securities' prices - seriously harming the shareholders."
Investment institutions almost never invest in gas exploration companies or limited partnerships, most of whose shareholders are private individuals, who are more affected by buzz. Consequently, it is possible that, despite the plunge in the share prices, gas may be found in the well's target strata next week. Meanwhile, the drilling is on schedule, with no problems or delays.
The estimated cost of the Myra 1 well is $85-90 million. If gas is found in the target strata, the partners will conduct production tests, at an additional cost of $20 million, to verify the amount of gas present and other data. Irrespective of the result, the Noble Homer Ferrington rig will then drill the Sarah 1 exploratory well.
According to NSAI, the Sarah license has a best estimate of 1.5 TCF of gas, with a low estimate of 0.5 TCF and high estimate of 4.1 TCF. The geological probability of success is 54%. The Myra and Sarah licensees will decide whether to drill a verification well at one of the two licenses only after the completion of the Sarah well, or whether to return to the Myra 1 well site to drill to the deeper oil-bearing target strata at a depth of 5,200 meters.
Published by Globes [online], Israel business news - www.globes-online.com - on August 28, 2012
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