Zion Drilling Venture in Israel Signals New Era

Zion Oil & Gas, Inc. announced last week that it had signed a Memorandum of Understanding with Turkish drilling contractor Aladdin Middle East Ltd. to purchase AME’s 2,000 horsepower drilling rig (currently located at Zion’s Ma’anit-Rehoboth #2 wellsite, in Israel). The proposed new company, Zion Drilling, Inc. (a subsidiary of Zion Oil & Gas, Inc.), will own and operate the drilling rig in Israel.

What the new company will mean for Zion Oil & Gas is that they will no longer need to rely on third party drilling contractors on future exploration wells. What the new company will mean for the State of Israel, now experiencing a gas and oil exploration boom, is that a rig, twice the size as has ever operated onshore in Israel, will now be permanently ‘in-country’ and possibly available for other (besides Zion Oil & Gas) Israeli exploration efforts. And that the rig will be owned and controlled by a company solely invested on Israeli oil and gas exploration.

During Zion’s drilling of the Ma’anit #1 well in 2005 operations were frustrated by the rig contracted for project. The Israeli owned 1,000 horsepower Ideco Super 7-11 (at that time the biggest in the country) just wasn’t up to the task of drilling to Zion’s estimated 18,000 foot Permian depth. Fearing they would lose the hole due to mechanical problems, Zion stopped drilling the Ma’anit #1 at 15,842 feet. Although they tested several zones above 15,842, noen produced commercial quantities of oil or gas. The well was abandoned and Zion went on the hunt for a rig capable of drilling to a depth greater than 18,000 feet.

After a year of searching, they discovered a rig owned by Aladdin Middle East in Turkey. The rig required refurbishment and transport to Israel, but at 2,000 horsepower it had the mechanical ability to drill beyond 18,000 feet. Zion brought the rig to Israel in the spring of 2009 and immediately began drilling the Ma’anit-Rehoboth #2. In October of 2009 the AME rig was moved to Zion’s Asher license to begin the Elijah #3 well. Then in February of this year, Zion moved the rig back to the Ma’anit-Rehoboth #2 site to conduct completion testing. Zion’s next well, the Ma’anit-Joseph #3, will be in close proximity to the Ma’anit-Rehoboth #2.

Zion Drilling will purchase AME’s drilling rig for an initial payment of US$ 7 million and a series of US$ 1 million additional payments that are anticipated to coincide with our drilling seven additional wells in Israel over the next few years. As the funds for the purchase of the rig are to be provided by Zion Oil & Gas, our plans are subject to a number of events, including due diligence, the raising of additional capital and the establishment of Zion Drilling.

Zion currently has seven new exploration wells planned and the establishment of a new drilling subsidiary signals not only a long term stability and commitment in Zion’s exploration efforts, but a substantial move forward in Israel’s deep onshore exploration capability and security.

Zion CEO Richard Rinberg’s comment as he announced plans of the new drilling venture speaks not only for Zion’s intention for future oil and gas exploration but can reasonably express the nation of Israel’s oil and gas exploration future as well: “We have both the patience and the firm resolve… and now, we expect to soon have the right tool to finish the job – a 2,000 Horsepower drilling rig in Israel on a permanent basis.”

International Energy Agency Reports a Decline in World Oil Output

London’s Financial Times reported on the International Energy Agency’s “World Energy Outlook”. Petroleum output, according to the agency, is declining. At the same time the world’s demand is increasing. Currently world oil output just meets oil demand. The world won’t feel this energy crunch in the short term due to slowed demand as a result of the current economic crisis. But when demand picks up again oil demand will continue to increase as oil production continues to decrease. Without more investment in oil exploration and opening of new fields supply will fail to meet demand and crude oil prices will once again skyrocket and shortages will become a reality. Israel having a domestic oil supply on line by the time by the time a world economic resurgence hits will have a tremendous impact on the nation’s financial and political future. Now, while world markets are down, is the time for Israel to increase oil and gas exploration and secure its energy future.

Here’s the Financial Times excerpt:

“The FT reports output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows. Without extra investment to raise production, the natural annual rate of output decline is 9.1%, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times. The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term de­mand. The effort will become even more acute as prices fall and investment decisions are delayed. The IEA, the oil watchdog, forecasts that China, India and other developing countries’ demand will require investments of $360bn each year until 2030. The agency says even with investment, the annual rate of output decline is 6.4 per cent. The decline will not necessarily be felt in the next few years because demand is slowing down, but with the expected slowdown in investment the eventual effect will be magnified, oil executives say”

TomCo Energy reports near doubling of oil-in-place in Heletz Field

Tomco Energy announced the results of a revised TRACS (independent reporting agency) report nearly doubling the estimated Heletz Field oil reserves in southern Israel. In addition to the estimated 94.4 million barrels estimated by TRACS (whose report only included the shallow Cretaceous section), Tomco estimates an additional 100 million barrels of reserves at the lower Jurassic level.

Here is Tomco’s announcement as reported by the UK’s Proactive Investors (http://www.proactiveinvestors.co.uk/companies/news/3549):

TomCo Energy plc (AIM: TOM), the AIM listed oil and gas exploration and production company with investments in the United States and Israel, released an updated independent Reserves and Resource evaluation and audit of the Heletz Field, Israel.

The study, undertaken by TRACS International, (‘TRACS’) reported an mid-case (P50) estimate original oil-in-place for the Heletz Field of 94.4 million barrels, with a range from 52.7 million barrels (P90) to 164.4 million barrels (P10).

Tomco said the revised estimate represented a “significant increase” over the previously quoted figure of 50 million barrels. The additional resource largely emanated from the inclusion of “substantial additional volumes of oil in lower quality carbonate reservoirs” in the Cretaceous reservoir section of the field.

Around 17 million barrels have been produced from the field to date, mainly from the “better quality sandstone reservoirs” in the middle of the Cretaceous reservoir section.

TRACS International additionally calculated a 2P (Proved plus Probable) reserve of 974,000 barrels, of which 720,000 barrels are Undeveloped Reserves.  Tomco and joint venture partner Avenue Energy  will be targeting the undeveloped reserves in their 2009 work over and infill drilling campaign. The 3P (Proved plus Probable plus Possible) upside reserves are 1.87 million barrels. Tomco’s net interest in these reserves is around 35%.

TRACS further identified 3.5 million barrels of 2C Contingent Resources and 8.5 million barrels of 3C Contingent Resources. Approximately 63% are in the Kokhav Dolomite.

Howard Crosby, the Company’s CEO, said: ‘We are very pleased with the TRACS Report with original Oil-in-Place (P50) estimates almost double the figure previously released. It is also our belief that the planned work program for 2009 can significantly increase the proven and probable reserves and the Report also confirms the huge up-side potential that further exploitation can unlock at the Heletz Field.’