The Israeli capital market is tensely waiting for the announcement by the partners of the results of the Myra 1 exploratory well, due within days, which should clarify whether the reports that the well is a failure are true or not.
"Globes" reported in August that no substantial signs of natural gas were found in the well's original target strata. Nonetheless, the share prices of the well's main Israeli partners - Israel Land Development Company Energy Ltd. (TASE: IE) and Modiin Energy LP (TASE:MDIN.L) - have risen sharply ahead of the announcement. The companies are currently trying to rebuff pessimistic assessments about the well's results and that the rig will not carry out production tests. The companies call these assessments "speculation", and have said that no decision on production tests have been made yet.
A source close to the Myra well's partners told "Globes", "There is nothing yet to report. We still don’t know whether there will be production tests at the Myra well or not."
The companies have stated that if the Homer Ferrington rig, which is drilling the Myra 1 well, carries out production tests at a cost of $21 million, they will only be conducted if enough gas is found to justify commercial development of the field. If the companies decide against conducting production tests, this will be an admission of failure for the well, and the rig will move on to drill a new exploratory well at the Sarah license, held by the same licensees, which is estimated to be smaller than the Myra field.
The combined costs of the wells is $160 million, most of which is being financed by capital raised from the public by the licensees: ILDC Energy, controlled by Ofer Nimrodi; Modiin Energy, controlled by Tzahi Sultan and Nochi Dankner through IDB Development Corp. Ltd.; and IPC Oil and Gas Holdings Ltd. (IPC) (TASE: IPC).
TASE investors today expressed optimism about the Myra well's results, reflected by the jump in the share prices of ILDC Energy and Modiin Energy. The Myra 1 well has been the focus of unusual attention by the capital market since the drilling began in June by the Homer Ferrington rig, owned by Noble Corporation (NYSE: NE). The well operator, Canada's GeoGlobal Resources Inc. (AMEX: GGR) is a small company, which owns 5% of the Myra and Sarah licenses. In early August, the companies announced that a breakdown in the drilling would delay the project by a week and add at least $4 million to its cost. A week later, "Globes" reported that the well had reached the target strata, but that no substantial signs of gas were found.
The well's partners said in response that they had decided to pursue the drilling on the basis of data which indicated that the gas was in deeper strata than originally thought, and because the chances of finding gas had not diminished. They decided to carry out sidetrack drilling to reach the deeper strata, avoiding the well's original path.
Geologists familiar with the well have a somewhat different take on the companies' conduct, saying that since the main reservoir turned out to be empty, the companies were seeking nearby pockets, using the pinch-out method. This week's announcement will hopefully resolve the contradictory explanations.
Investors believe Nimrodi works miracles
TASE investors like Ofer Nimrodi, which seems to be the only logical reason why the share price of ILDC Energy rose 34.3% today, given that there was no announcement about the Myra 1 well to justify such a jump. On the contrary, professional assessments about the well are pessimistic. The only reason that can explain the rise in the share price is emotions - investor sentiment about a man who offers them color, excitement, and dreams of easy riches. It's impossible to take away Nimrodi's marketing skills.
He is the man who said when hiring the rig to drill the Myra and Sarah wells, "You don’t call a mohel at a cost of $160 million if you don’t have a son." He is the man who handled initial talks with Israel Electric Corporation (IEC) (TASE: ELEC.B22) for a gas purchasing contract, even before any gas has been found, and he is the man who rushed to sign a memorandum of understanding with a South Korean company immediately after the Tamar partners signed such an agreement. More than any other Israeli businessman, Nimrodi is depicted as the man who can compete against Yitzhak Tshuva's formidable gas monopoly through Tamar and Leviathan partner Delek Group Ltd. (TASE: DLEKG).
Appreciate the energy and chutzpah
Investors appreciate Nimrodi's energy and chutzpah and have compensated accordingly. They have priced ILDC Energy's rights to Myra and Sarah at several times the value of gas exploration companies with similar characteristics, such as Shemen Oil and Gas Resources Ltd. (TASE: SMOG). ILDC Energy, which owns 40% of the rights to a license with one big missing element, which is buried deep in the earth, but armed with just one flattering seismic survey, raised capital at a company value of NIS 750 million. In November, the company sold 7.5% of its rights to Modiin Energy at a value of NIS 1.5 billion.
This week is the moment of truth for Nimrodi's romance with his investors. If the Myra 1 well is a dry hole, it will be a blow that the Israeli oil and gas exploration industry will struggle to recover from. If the well is a success, Nimrodi will consolidate his standing as a miracle-worker.
Published by Globes [online], Israel business news - www.globes-online.com - on September 3, 2012
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