Tags: Gil | Shidlo | Israeli | Energy | Boom

Shidlo: Proceed Carefully Into Israeli Energy Boom

By    |   Friday, 06 Aug 2010 07:05 AM

In the last few months, estimates of oil and gas findings in Israel have increased dramatically.

At the beginning of August, Noble Energy reported that the Leviathan offshore field could be 40 percent bigger than first estimated. The revised analysis of Leviathan’s geological formation indicates, with a 55 percent probability, 20 trillion to 23 trillion cubic feet of gas, revised up from 16 trillion in early June. Noble Energy has a 40 percent working interest in Leviathan.

This is in addition to an increase of the Tamar field estimates of recoverable resources in early June by Noble, bringing it to 8.4 trillion cubic feet of gas, which should be enough to supply Israel’s domestic gas needs. The sharp increase of estimates in Leviathan means Israel could become a net gas exporter.

Israel’s Finance Minster recently was quoted as saying that “until a few months ago, we were talking about $50 billion in gas. Now there are estimates that the fields may contain gas worth hundreds of billions of dollars.”

There are quite a few companies partnering in the exploration: Delek Group, Delek Drilling, Avner and Isramco. Delek Group is a major player in the exploration for offshore natural gas. The Delek holding group owns 80 percent of Delek Energy, which in turn owns a majority of Avner and Delek Drilling.

Tamar field, which will reach the target production in 2012, is owned by several partners: Noble Energy at 36 percent, Isramco Negev owns 28.75 percent, and Delek Group owns just more than 31 percent via two units, Avner Oil Exploration and Delek Drilling. Dor Gas Exploration holds the remainder.

Only Noble Energy is listed on the New York Stock Exchange. All the others are listed in Tel Aviv’s TASE, which makes it difficult for U.S. individuals to invest directly. While Israel is only part of Noble’s diversified portfolio (which includes the Rocky Mountains, Mid Continent, deepwater Gulf of Mexico, Eastern Mediterranean and West Africa), the increase of domestic demand for gas by Israel's electricity industry and major new findings might increase profits.

There are some risks in investing in Israeli energy. Deep-sea rigs could be targeted and damaged, for instance. The other risk is a government risk. Israel has low state royalties, at 12.5 percent.

That's because, historically, the government didn’t think it was very likely that energy companies would find major reserves. Now there is a public outcry to increase state royalties and to reinvest them in social programs, much like Norway has done. That country has 85 percent royalties.

It also remains to be seen if a royalty increase, if any, will be applied only to future findings or also to existing ones like the Tamar field. According to David Stover, Noble Energy President and COO, “our expectation (is) that Tamar would be grandfathered. It was an existing discovery and there’s very strong argument to be made that it would not be part of any changes in taxes or royalties.”

Long-term investors could benefit from the Israel energy bonanza. It is important to point out that Delek Group decided recently to increase its holding of Noble Energy to 4 percent from 2.7 percent.

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In the last few months, estimates of oil and gas findings in Israel have increased dramatically. At the beginning of August, Noble Energy reported that the Leviathan offshore field could be 40 percent bigger than first estimated. The revised analysis of Leviathan s...
Gil,Shidlo,Israeli,Energy,Boom
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2010-05-06
Friday, 06 Aug 2010 07:05 AM
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