Joseph Kennedy is said to have realized it was time to exit the stock market in the 1920s when a shoeshine boy asked him for stock tips. In the Israel of 2010, the only reason shoeshine boys aren't invested in oil and gas exploration stocks is that there are no shoeshine boys.
The rest of the folks, it seems, are in deep, sharing in the fun that began last year after the discovery of gas at the Tamar drilling, continued recently in an orgy of speculation completely divorced from any economic logic, and then took a sickening turn from the investors' point of view: sharp drops that wiped billions of shekels off the values of the exploration partnerships.
In 2009 it was possible to justify the wave of rises in the partnerships involved in the Tamar discovery, or in the nearby promising Leviathan prospect. But in the past few months, the wave has swept up immature exploration partnerships with no real activity, and even ephemeral companies that have only announced negotiations for buying rights in exploration licenses.
Along the way, economic criteria have been thrown to the winds, and the generally accepted statistics about the rate of success in the energy exploration industry have been forgotten.
Although we warned here time and again about the development of a dangerous "gas bubble" on the Tel Aviv Stock Exchange, it's easy to understand why so many people were tempted to risk their money in this sector. Between a tough economic situation and virtually zero interest rates on bank deposits, these securities offered fantastic returns of tens and even hundreds of percentage points a year sometimes even in a day.
The dream of easy riches through a supposedly risk-free investment attracted many. And as in every pyramid, for some investors (in the nature of things, those who got in first) the dream came true. For others, those who rushed into the oil and gas partnerships more recently, the dream has now turned into a nightmare.
This past week, with what looks like crude use of inside information on the eve of reports to the stock exchange about exploration license deals, the Ministry of National Infrastructures'' decision to freeze these deals (at last someone is acting responsibly), and the affair of the involvement of underworld figures in the Ratio partnership, is likely to prove a watershed.
If that is what it turns out to be, maybe investment in oil and gas exploration will get back to something more like sanity. True, it will happen while heads (and pockets) are hurting, but that's the price of a wild night on the town. It's called a hangover.
Published by Globes [online], Israel business news - www.globes-online.com - on September 16, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010