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UK-listed Energean makes 'significant' gas discovery offshore Israel

Highlights

Initial gas in place estimates at 1-1.5 Tcf

First Israeli gas find after years of 'stagnation'

To help create Israeli gas hub: minister

London — UK-listed explorer Energean Oil & Gas said Monday it had made a "significant" gas discovery offshore Israel, the first new gas find in Israeli waters after years of inactivity in the country's East Mediterranean blocks.

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The Karish North well encountered a gross hydrocarbon column of up to 249 meters, with initial estimates suggesting gas in place of 1-1.5 Tcf (28-42 Bcm), Energean said in a statement.

Israel's offshore is already home to the major Tamar and Leviathan gas fields -- discovered in 2009 and 2010, respectively -- and the latest drilling success will contribute to the already vast resources in the region.

"The first exploration drilling following years of stagnation ended up with a discovery for Energean -- I am sure that further discoveries will follow and turn Israel into a regional gas hub," Israeli energy minister Yuval Steinitz said Monday.

Israel's proven gas reserves are estimated at some 16.1 Tcf (455 Bcm), but are closer to 1 trillion cu m when the possible and probable reserves at Tamar and Leviathan are added in.

Resources in the wider East Mediterranean region -- including fields and discoveries in Egypt and Cyprus -- are close to 3 trillion cu m, making the East Mediterrranean a key future supply source of gas to the European market and potentially of LNG to global markets.

KARISH NORTH WELL

The Karish North well was drilled to a target depth of 4,880 meters, with further evaluation now to be undertaken to "further refine resource potential and determine the liquids content of the discovery." Energean also plans to deepen the well to evaluate hydrocarbon potential at a deeper horizon.

Energean is operator of the Karish and Tanin license areas offshore Israel with a 100% working interest.

It has already proven combined reserves of 2.2 Tcf of gas at the two areas, with first production set for 2021 through the planned 800 Mcf/d capacity Energean Power floating production, storage and offloading (FPSO) vessel.

Energean CEO Mathios Rigas said the new find at Kanish North "further demonstrates the attractiveness of our acreage offshore Israel." Rigas said the company was building its FPSO with spare capacity "to enable us to quickly, safely and economically develop both Karish North and future discoveries."

Energean has already signed a contingent contract to sell 5.5 Bcm (0.2 Tcf) of the new resource.

"Our strategy is now to secure the offtake for remaining volumes," Rigas said. "We continue to see strong demand for our gas, which we believe will be supported by today's announcement."

RECOVERABLE RESERVES

Analysts see the announcement Monday of the additional reserves at Karish North as important to the development of the gas.

"The significance of the announcement is that these resources should now be viewed as recoverable, and there is now a stronger basis to assume that these resources could be monetized," analysts at Morgan Stanley said Monday.

"This discovery creates optionality for Energean to either produce more gas every year or operate the Karish resource base for longer," they said.

There have been question marks about the ability of operators in the East Mediterranean to monetize their gas given the limited regional market and the significant geopolitical challenges the region represents.

To date, gas from the Noble Energy-operated Tamar field has been sent for use in the Israeli domestic market.

However, Noble plans to begin Israeli gas exports by pipeline to Egypt by the middle of this year, with gas from the giant Leviathan field -- which is due to begin production by the end of 2019 -- set to add gas to the stream of gas to Egypt.

Israel in November also launched its second international gas licensing round -- offering licenses for 19 blocks within five zones -- as it looks to move forward with upstream developments.

The zones are located in the southern extent of Israel's economic waters, an area previously licensed in part and had previous seismic research and limited exploration activity.

The new round -- which follows a first that began in 2016 -- encourages new companies to bid by preventing any company with more than 20% of an existing producing license from taking part.

-- Stuart Elliott, stuart.elliott@spglobal.com

-- Edited by Jonathan Fox, newsdesk@spglobal.com