In 2004 Givot Olam announced an oil discovery in their Meged #4 well, the newly discovered ‘Meged oil field’ was estimated to contain 980 million barrels of crude; about 200 million barrels of that actually recoverable. Israel’s Ministry of National Infrastructures looked t the data, confirmed the discovery and issued a production license to the company … that was six years ago. Givot Olam hasn’t actually produced any appreciable amount of the oil they discovered in 2004 and the Meged #4 was shut down due to ‘engineering problems’ after attempting a horizontal drilling process in 2005.
Last year Givot Olam tried to resurrect hopes of producing oil by drilling the Meged #5, south of it’s previous wells. The Meged #5, still under 13,000 feet deep (according to Givot’s drilling agreement with Lapidoth, the original planned depth was over 16,000 feet) and the drilling project is $4.9 million over budget; add to that an additional $6 – 7.5 million for production testing. Givot Olam only has $3.7 million in the bank, so they’ll need to raise more capital before anyone knows if the Meged #5 will be a commercial well.
Givot representatives stated last week (see below) that the “quantities of gas measured in the mud of the Meged 5 well is ten times the amount in all other wells in the Meged field.” But since no actual quantity was disclosed, there’s no way of telling whether the well is capable of producing commercial gas until testing is complete.
An oil ‘discovery’ of 980,000 million barrels in 2004 (the Givot Olam website states 2,000 million [2 billion] barrels) and still no oil?
First of all, I believe Givot Olam discovered oil 13,000 feet below the surface in 2004. Secondly, while the oil is still 13,000 feet down, I don’t believe there’s any ironclad way of determining exactly how much was discovered or, more importantly, how much of the oil in the ground is producible to the surface. And (this is an important part of the oil business) you can only send oil to the refinery that’s that’s actually on the surface.
What’s the moral of this story?
Discovering oil and producing oil are two separate and distinct events. Sometimes they happen back to back … but sometimes they don’t. And how much time and capital an oil company thinks exploration and completion will cost, reality may have a higher figure in mind. In a recent interview, Zion Oil & Gas Exploration Manager Stephen Pierce stated that the odds of finding oil in the exploration process are “one in nine.” That means, on average, nine wells are drilled for every one that produces. But not one of the oil explorers I’ve interviewed or researched in the history of Israel’s hunt for oil expected to drill nine holes before discovering oil. Every well was expected to be the well. That, unfortunately, isn’t the way it is.
Here’s the good news.
Israel possesses a massive amount of natural gas – more than they’ll need into the foreseeable future. Israel’s natural gas was discovered just last year. And Israel possesses oil – that’s been proven by exploration and, I believe, it will be confirmed by discoveries outside the Meged field in the near future. The gap between ‘discovery’ and ‘production’ may be time consuming and expensive (as it has been in Givot Olam’s case), but once fields begin producing they generally continue. Israel will be energy independent; she will produce and consume domestic oil and gas, all Givot Olam and the other oil exploration companies in Israel need to do is stay in business. Givot Olam will raise the capital to finish the Meged #5. Will the well produce oil or gas? I don’t know, but I do know they’re a lot closer to the finish line than when they started.
Below is the February 28 Globes article on Givot Olam:
“The quantities of gas measured in the mud of the Meged 5 well is ten times the amount in all other wells in the Meged field,” Givot Olam Oil Exploration LP (TASE:GIVO.L) announced today in a presentation ahead of Tuesday’s partners meeting. At the meeting, the general partner will try to get the investors’ approval to issue NIS 25 million worth of partnership units and options.
Givot did not disclose the actual quantity of gas measured in the well, or its significance for the quantity of oil at the site, which will only be known when the production tests are completed.
Givot’s general partner added that the drilling cost of the Meged 5 well is $12.6 million, more than the $7.7 million originally planned. The general partner attributed the higher cost to “two serious breakdowns during the drilling and adjustments to the drilling plan”.
The presentation added that the Meged 5 has reached the Upper Mohila strata at a depth of 3,879 meters, and that the well is due to reach a depth of 3,950 meters. The partnership estimates the cost of the production tests at $6 – 7.5 million and they will last for two more months. The partnership has just $3.7 million in cash left, hence the need to raise more capital.
Published by Globes [online], Israel business news – www.globes-online.com – on February 28, 2010
(source: Scandinavian Oil & Gas Magazine)
AMG Oil says that the Israeli Petroleum Commissioner’s office has notified the Company that, during the most recent sitting of the Israeli Petroleum Board, the Company, through its wholly-owned subsidiary Adira Energy Corp., was awarded a second petroleum license in offshore Israel (the “Yitzhak License”).
Yitzhak License The Yitzhak License area is centered approximately 17 km off the Israeli coast and stretches from Netanya in the South to Hadera in the North (about 11 km). The Yitzhak License covers a total license area of 127,700 Dunam (approximately – 127.7 square kilometers or 31,555 acres). The Yitzhak License is directly to the North of, and contiguous to the company’s Gabriella License.
The license area is in shallow water with a depth of approximately 150 meters, which the Company believes will make drilling more cost efficient. The Yitzhak License has been granted for an initial period of three years commencing October 15, 2009.
Stephen Pierce, AMG’s Senior Vice President of Geology, said, “During early 1970 an oil well located in the area covered by the Yitzhak License called “Delta-1″ was drilled. The total depth of Delta-1 was 4423m, and ended in the Upper Jurassic. However, this depth is above the oil encountered in the Jurassic Bathonian age limestones in the Yam Yafo-1 (4894m – 4955m) and Yam-2 wells (5315m). It remains unclear as to why drilling stopped at this depth. However, the Delta-1 well was drilled in 1970 before the later discoveries of Yam Yafo-1 and Yam-2. Subsequent to Delta-1 being drilled, seismic mapping demonstrated a structural high extending from Delta-1 to the oil discoveries at Yam Yafo-1 to Yam-2. We believe that we have a good prospect that is an attractive target for hydrocarbon exploration.”
The Company’s successful application for the Yitzhak License expands AMG’s portfolio of petroleum licenses from its current two licenses (“Eitan” and Gabriella”) to include a prospective offshore area within a region that is known to host significant evidence of hydrocarbons.
AMG’s Chief Executive Officer, Ilan Diamond stated, “We are very pleased to have been successfully granted the Yitzhak License, the second block in the region. Both the Company’s offshore licenses, “Gabriella” and “Yitzchak” are within the broader region of the Nobel/Delek Tamar gas discoveries, which are 60 km west of Hadera (Dalit) and 90 km west of Haifa (Tamar). Evaluation work on our ‘Gabriella’ license has recently commenced and we are excited to continue work on this license. In addition, we continue to plan for the start of our exploration and drilling program on our “Eitan” license in the Hula Valley, northern region of Israel. We have completed the purchase of the drill rig and associated equipment, and are in the process of moving the rig to site. We have contracted the services of a full time drilling team who have significant experience operating rigs of similar nature and who have worked in the area previously.”
Zion Oil’s exploration manager was featured in last week’s company update to shareholders.
In February 2005, Stephen was retained as Zion’s consulting geologist for the drilling of the Ma’anit #1 well. He joined us on a full time basis in October 2005 and was appointed our Exploration Manager in June 2006.
Before joining Zion, Stephen was a project geologist in the Caribbean as well as a consulting geologist for several onshore and offshore projects in the U.S., the Dominican Republic, Colombia and Guyana.
He was senior geological adviser for Mobil Oil Corporation and worked as a senior geologist for both Superior Oil Co, AMOCO and as a geologist for UNOCAL.
Stephen has both a B.S. and M.S. in geology and holds the title of Professional Geologist in Wyoming and memberships with the American Association of Petroleum Geologists and the American Institute of Professional Geologists.
Stephen Pierce is also the author of Stones of the Bible; a fascinating text on the stones mentioned in the Bible. The book is a high quality spiral bound field guide with beautiful color plates of each stone mentioned in scripture. Stones of the Bible is available to ‘Oil in Israel’ readers for just $15.96 (plus shipping), that’s 20% off the $19.95 cover price. To order go to: http://stonesofthebible.com or call the publisher toll free at (888) 543-8028 (don’t forget to mention that you’re an ‘Oil in Israel’ reader for your discount).