Ishai well disappoints

It is doubtful whether it is worthwhile developing the reservoir.

The capital market and energy industry are disappointed at the preliminary findings at the Ishai license well. The findings confirm the "Globes" exposé that the amount of natural gas in the reservoir is much smaller than expected, and that it is doubtful whether it is worthwhile developing the reservoir.

Last night's report by Israel Opportunity Energy Resources LP (TASE: ISOP.L) did not mention the amount of gas discovered, and said that the drilling would be terminated without carrying out production tests. It also said that the thickness of the gas-bearing strata did not exceed 15 meters.

A preliminary estimate of the size of the reservoir will only be received in the resources report, which will be published in a few weeks. However, many investors compared the figure for the thickness of the gas-bearing strata with corresponding thickness from the Shimshon reservoir, where 0.6 trillion cubic feet (TCF) of gas was discovered - 75% less than forecast. At Shimshon, the gas-bearing strata were 19 meters thick.

The price of the company's participation units fell by over 20% by mid-afternoon on the TASE today. Israel Opportunity owns 10% of the five Pelagic licenses, Benny Steinmetz's Nammax Oil and Gas Ltd. owns 42.5% and two companies owned by Teddy Sagi, Frendum Investments Ltd. and Daden Investment Ltd. own 33.5%, and 9%, respectively, and well operator AGR Petroleum Services Holdings AS of Norway owns 5%. Steinmetz and Sagi, who financed the well from their own resources, may be the biggest losers.

The future of other wells in the companies' five licenses is also unclear. The results of the well will also be seen as bad news for other offshore gas developers, beginning with Noble Energy Inc. (NYSE: NBL) and Yitzhak Tshuva's Delek Group Ltd. (TASE: DLEKG), because they will increase the pressure to reopen the Tzemach Committee recommendations on gas exports. The committee recommendation to allow gas exports of up to 50% of any reservoir assumed that there would more major discoveries - an assumption that is turning out to be over-optimistic. The government did not approve the recommendations because of Prime Minister Benjamin Netanyahu's fear of the reaction by his political rivals.

The Ishai well was considered low risk. In June, Ryder Scott Company LP estimated the potential gas reserves at Ishai at 3.7 trillion cubic feet (TCF), with a probability of 68-77%. The low risk was because of Ishai's proximity to the Aphrodite discovery by Noble Energy in Cyprus's exclusive economic zone a year ago. Some commentators and analysts said today that the developers could still reach a deal to develop the reservoir as part of Noble Energy's development of the Aphrodite field, in which case Ishai will have economic value.

Published by Globes [online], Israel business news - www.globes-online.com - on January 3, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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