Givot Olam Oil Exploration LP (TASE:GIVO.L) today held a press briefing at the Tel Aviv Stock Exchange (TASE) building. Givot geologist Tuvia Luskin, strategic consultant Giora Eiland, communications advisor Motti Morrell, and geologist Nick Wright of Greensand Associates Ltd., an oil and gas exploration consultancy, were present.
Wright gave a presentation for institutional investors.
On the basis of the probable and contingent reserves evaluations for the Meged 5 well and the planned Meged 6 and Meged 7 wells, the value of the Meged field is $830 million. Givot's share price rose 2.6% today to NIS 0.08, giving a market cap of NIS 800 million.
Wright's evaluation was broken down to proven oil and gas reserves, probable reserves (classified as P1 - proven; P2 - probable; and P3 - possible). The probable reserves, which have a 50% geologic chance of success, include the P1 proven reserves, which have a 90% geologic chance of success. The P3 possible reserves include the quantities included in the P1 and P2 categories.
Wright's report, based on a Reserves Classification Report by Baker RDS Ltd. of the UK, covered the Meged 5 well and planned Meged 6 and Meged 7 well, which are scheduled to be drilled in 2012, under Givot's work plan. Baker RDS estimates Meged's proven reserves at 2.2 million barrels of oil, from Meged 5's sections 1 through 6, which have been analyzed so far. When the Meged 6 and 7 wells are added to the equation, the P2 probable reserves increase to 10.5 million barrels of oil, with a 10% geological chance of success. The P3 possible reserves total 16.9 million barrels.
Givot had asked Wright to prepare an independent evaluation of the Meged oil reserve and the chances and risks of drilling another well into the structure before Givot drilled the Meged 5 well.
Before the Meged 5 well was drilled, Wright evaluated its chance of success at 40%, that is, the probability that in his estimation, actual oil production by the well will be possible. The evaluation was based on seismic data from 2005.
Wright estimated that the Meged field had more than one billion barrels of oil, an estimate that was subsequently confirmed by the latest engineering report published by Givot a few months ago. The question for Givot's investors, however, is not the quantity of oil in the Meged field, but how much oil can be produced.
"This is a historic milestone for the company and Israel's oil industry," said Luskin at the start of the briefing.
Eiland immediately followed, "I am trying to remove the element of opacity that characterized the company's reports in recent months." He added that Givot had already sold 6,000 barrels of oil to Oil Refineries Ltd. (TASE:ORL), it has a work plan for more wells, and has a plan for handling the gas associated with the oil, which was submitted to the Ministry of National Infrastructures for approval. The company is waiting for an answer.
Eilan turned the dais over to Wright, who made several quite optimistic comments. He said that there is a chance of producing 600 million barrels of oil from the entire Meged field, although he declined to state the probability of producing such an amount. "The focus at the moment is on the area of the Meged 5 well, because this well is very promising. The results of the well are very encouraging, and there is a chance of producing 60% of the one billion barrels trapped in the entire Meged field," he said. The reference is to the southern part of the Meged field, called the "core area", where the Meged 5 well is located, and where the Meged 6 and Meged 7 wells are planned.
During the questions and answers stage, Eiland stood at the fore. Asked by "Globes" when investors could begin to see revenue, in view of the plan for more wells, he replied, "Revenue from Meged 6 and Meged 7 will begin in late 2011. We hope to begin commercial production in 2012."
Before the briefing, Givot notified the TASE about the oil reserves and economic analysis of the Meged field, which were prepared by Wright and Baker RDS Ltd. of the UK. The report includes a calculation of the reserves classification for the Meged 5 well and the planned Meged 6 and Meged 7 wells, for which there is a work plan and timetable approved by the Petroleum Supervisor at the Ministry of National Infrastructures.
According to the report, there is a 90% probability of producing 2.2 million barrels of oil or more from sections 1 to 6 of the Meged 5 drilling alone. There is a 50% probability of producing 10.5 million barrels of oil or more from the Meged 5, 6, and 7 drillings, which have an approved work plan. In addition there is a 10% probability of producing 16.9 million barrels of oil or more from Meged 5, 6, and 7. The probabilities are classified in the report as P1, P2, and P3.
Givot subsequently states that additional quantities of oil, classified as contingent resources 1C, 2C, and 3C. (To comply with PRMS, there must be at least 90% probability of production, and 2C and 3C must have at least a 50% probability). The contingent resources are contingent on drilling, fracturing, and gas-lifting 13 production wells in the core area, in addition to Meged 5, 6, and 7, with a further 27 in the non-core area.
Assuming a price of $70 per barrel of oil (the current price) and a capitalization ratio of 10% for the holders of Givot partnership units of the oil produced at 16 wells, gives a pretax value of $830 million.
Wright said, "These are good economic numbers, and are for only three wells."
Givot added that it has signed a letter of intent with General Electric Company's (NYSE: GE) representative in Israel Madei Taas Power Ltd. to build a turbine to generate electricity from the gas produced by the Meged 5 well.
Givot's share price rose 6.4% by midday to NIS 0.083, giving a market cap of NIS 800 million.
Published by Globes [online], Israel business news - www.globes-online.com - on November 29, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010