Clal Finance cautions on Gabriella oil discovery

Analyst Yaron Zar: The fact that there is 100% chance of oil does not mean that it can be recovered.

Clal Finance Brokerage cautions about the oil and natural gas discovery that Modiin Energy LP (TASE:MDIN.L) announced today at the offshore Gabriella license.

Clal Finance Analyst Yaron Zar ignores Modiin controlling shareholder Tzahi Sultan's remark about a "100% oil discovery." Zar notes that the important figure is the quantity of recoverable oil, which will only be known when a well is drilled. "The fact that there is 100% chance of oil does not mean that it can be recovered. This will only be known at the end of the year. The risk is still very high."

Although Zar sees a strong potential upside in Modiin's share price, he nevertheless cautions that investors may have already priced the discovery in the share price. "Today's announcement about Gabriella could give Modiin an upside potential of tens of percent, assuming that investors have not already priced in Gabriella's potential," Zar says.

Zar estimates Gabriella's natural gas reservoir at 550 million barrels of oil equivalent, on the basis of the Netherland Sewell & Associates Ltd. (NSAI) report of 110 million barrels of oil. He says that NSAI always reduces its estimate a reservoir's recoverable oil by 20%. "It should be noted that this estimate could change sharply after a well is drilled, and the question remains open about the recoverable amount of oil."

Published by Globes [online], Israel business news - - on March 13, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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