Energean success at Karish North

Energean has made a significant gas find at its high profile Karish North well. The well reached a depth of 4,880m and encountered a fantastic hydrocarbon column of c.250m

Management guidance of the estimated Gas-in-Place is 1-1.5tcf of which ~875bcf could be recoverable resource (i.e. close to 60% recovery factor).

Further evaluation will now be undertaken to determine the liquids content on the discovery.  The A, B and C sands have been drilled and Energean will now deepen the well to the D4 horizon. Following completion of D4 at Karish North, the rig (Stena DrillMAX) will return to drill the three development wells at the Karish Main development.

Karish North could be developed as a tie-back to the Energean Power FPSO which is located 5.4km from the Karish North well.

The FPSO is designed to handle 8bcm/y and Energean has so far secured 4.2bcm/y of offtake. It is expecting to finalise another 1.1bcm/y shortly, bringing contracted volumes up to 5.3bcm/y. Energean therefore has another 2.7bcm/y of capacity and Energean will look to contract this as soon as it is comfortable that it has more upstream gas volumes to underpin this.

In December 2018, Energean signed a contract with power supplier I.P.M. for 0.2tcf of gas over the life of the contract contingent on the results of the 2019 drilling programme. The result at Karish North significantly increases the chance of such potential supply being converted into firm contracted volumes.

Energean see lots of opportunity to sell more gas, led by the privatisation of Israeli power stations in the period 2019-22 which will open up 4.3bcm/y of demand.

See also: Energean targets Karish North

RBC Capital Markets, Morgan Stanley

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Energean targets Karish North

Energean is in the middle of drilling the Karish North prospect with results expected at the end of April 2019. The prospect is located c.5.4km from the Karish FPSO and is targeting 1.4tcfe. Assuming success and a discovery, Energean believes it would convert into 0.4bcm/y.

The FPSO is designed to handle 8bcm/y and Energean has so far secured 4.2bcm/y of offtake. It is expecting to finalise another 1.1bcm/y shortly, bringing contracted volumes up to 5.3bcm/y. Energean therefore has another 2.7bcm/y of capacity and Energean will look to contract this as soon as it is comfortable that it has more upstream gas volumes to underpin this.

Energean see lots of opportunity to sell more gas, led by the privatisation of Israeli power stations in the period 2019-22 which will open up 4.3bcm/y of demand.

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Energean bearing fruit in the Eastern Med

Energean has published a new CPR highlighting the conversion of 2C resources into 2P reserves at the Karish and Tanin fields. Net 2P reserves for the fields now stands at 298mmboe with 22tcf gas and 32mmbbl liquids (gross) being upgraded. The company’s net 2P reserves including its Greek fields are now at 349mmboe.

A further 0.2tcf gas and 1mmbbl liquids remain in contingent resources relating to the Karish B reservoir and will be upgraded upon successful well production testing.

Energean is now thinking beyond its flagship development project with the recent award of its exploration acreage offshore Israel (Blocks 12, 21-23 and 31). These are estimated to contain 7.5tcf gas and over 100mmbbl liquids prospective resources. This massively enlarges the company’s exploration portfolio beyond the 1.3tcf Karish North prospect being drilled in early 2019. The company has secured an extension on the drilling rig for further exploration drilling should it have matured targets over the next 12 to 18 months.

#Karish #Tanin # Israel #Energean #EastMed #Greece

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Aphrodite gas: lover's quarrel

Aphrodite is owned by Noble (35% operator), Delek Drilling (30%) and Shell (35%). The field lies in Block 12, offshore Cyprus and was discovered in 2011. BG Group farmed into 35% from Noble Energy in November 2015 for USD165 million following declaration that the field was commercial in June 2015.

As reported earlier, Shell intends to use Aphrodite gas to supply ELNG, but this has now faced a new hurdle. Cyprus and Israel are arguing over the extension of the Aphrodite structure into Israeli waters. Given the importance of the gas, the regional governments are keen to avoid the dispute delaying the commercialisation of the field.

Despite its vicinity to and significantly earlier discovery than Zohr (2015), Aphrodite remains uncommercialised. In fact, its commercialisation was previously called into question given the resource was too small to justify export infrastructure. This is a recurring theme within East Med gas with export route remaining a key issue. Egyptian gas discoveries are lucky enough to have a short gas domestic market and the option to export via LNG.

Israeli gas has taken longer to get off the ground, but has reached sufficient scale to export into the region by pipeline beyond supplying its own domestic market.

Cypriot gas, and indeed Lebanon, face the challenge of a small domestic market and lack of gas export infrastructure. Cyprus has toyed with the idea of developing its own LNG terminal but currently lacks the scale of reserves required to do so.

It makes sense for Aphrodite to supply ELNG at Idku. Shell has ownership in both Aphrodite and ELNG and a direct pipeline to the plant would allow it to bypass the Egyptian gas grid. Furthermore, a direct pipeline could galvanise further exploration and development activity along the route.

ELNG is largely supplied by the West Delta Deep fields and has been operating at minimal levels since gas was diverted to the domestic grid in 2013. In 2017, it shipped 0.78 million tonnes in cargoes (vs. capacity of 7.2 mmtpa). This has meant the plant remains operational and ready to ramp up once gas is supplied. In contrast, the Damietta LNG plant has been idled and would require significant work to restart operations.

The partners of Aphrodite are now finalising the field development plan with the Cypriot government. The plan initially involves five wells with a combined output of 800mmcf/d and developed using a floating platform. Cost estimates are estimated at USD2.5 - 3.5 billion excluding the cost of any pipeline to ELNG at Idku.

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Tamar: Win one contract, lose another

Following Noble Energy and Delek Drilling’s announcement in February that it would be selling gas to Egypt’s Dolphinus Holdings from the Tamar and Leviathan fields, Egypt is ditching a previous agreement to import gas from Tamar.

Madrid’s Union Fenosa Gas had signed a non-binding letter of intent in May 2014 with the Tamar field partners to buy gas for the supply of the Damietta LNG plant in Egypt. The LNG plant is operated by Segas, a JV between Union Fenosa Gas, Eni and the Egyptian state. This arrangement has been cancelled as at the end of March, citing that it was “no longer relevant”.

This suggests that Eni, one of the partners of Segas, will supply Damietta with gas from its Zohr field.

Last month, Dolphinus Holdings had agreed to import 3.5bcm from each of Tamar and Leviathan for a period of 10 years under a contract wortg USD15 billion.

Tamar is owned by Isramco Negev (28.75%), Noble Energy (25% operator), Delek Drilling (22%), Tamar Petroleum (16.75%), Dor Gas (4%) and Everest Infrastructures (3.5%) – this reflects the ownership post the recent sale of 7.5% by Noble Energy to Tamar Petroleum as reported previously (Tamar Petroleum to raise bonds to finance acquisition of Tamar from Noble and Israel capital cycle: Noble sells down Tamar to fund Leviathan).

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Double success for Energean – IPO and FID

Energean put the East Med on the map this week propelling the region into the headlines.

Energean debuted on the London Stock Exchange at the beginning of this week with its Initial Public Offering and USD460 million of new money putting the company’s market capitalisation at just under USD1 billion. The company’s flagship asset is its 70% stake in the Karish & Tanin gas fields offshore Israel which contain 2.4tcf of gas and 33mmboe of light hydrocarbon liquids. First gas is targeted for 2021. The company also has producing assets in Greece and an exploration portfolio throughout the Aegean region.

In the same week Energean reached Final Investment Decision on the Karish & Tanin development giving the green light to commence the USD1.6 biliion project. USD405 million from the IPO proceeds will be used to fund Energean’s 70% share of the project and partner Kerogen will fund its 30% stake. A USD1.275 billion bank facility will also be used to fund this ambitious project.

Energean has secured long-term gas agreements with some of the largest private power producers and industrial companies in Israel. To date it has contracted for the purchase of a total of 61bcm over a period of 16 years, at an annual rate of c.4.2bcm p.a..

The East Med has become a hot play for gas and Karish & Tanin follow in the footsteps of giant gas fields in the region including Leviathan, Zohr and Aphrodite. Energean is set to become an exciting story to follow as industry interest in the East Med grows and the demand for its gas becomes increasingly important being in the centre of short gas MENA countries and the doorstep of Europe.

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Leviathan and Aphrodite gas to fuel ELNG at Idku

As widely reported, Shell has been in talks to buy gas from Israel’s Leviathan field and Cyrpus’ Aphrodite field. It is understood that Shell are looking to contract up to 10bcm p.a. for 10 years in a deal worth up to USD25 billion.

Shell would use the gas to properly restart LNG exports from Egyptian LNG at the Idku liquefaction plant. BG Group was the operator of the plant prior to its acquisition by Shell and previously had a non-binding 15 year deal to source gas from Leviathan – this deal stalled amid the takeover by Shell and regulatory hurdles in Israel.

Leviathan is owned by Delek Drilling (45.34%), Noble Energy (39.66% operator) and Ratio Oil Exploration (15%). The field is on track to target first gas by end 2019.

Aphrodite is owned by Noble (35% operator), Delek Drilling (30%) and Shell (35%). Aphrodite lies in Block 12, offshore Cyprus and was discovered in 2011. BG Group farmed into 35% of the field from Noble Energy in November 2015 for USD165 million. Its commercialisation was previously called into question given the resource was too small to justify export infrastructure to mainland Europe or Egypt. However with the recent Calypso discovery in Block 6, which operator Eni has dubbed as a “Zohr like” play, Cypriot gas could finally take off.

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Dolphinus and the wider Egyptian gas hub story

Dolphinus was established with the main aim of becoming a “reliable and stable supplier of gas to major industrial gas distributors and consumers in Egypt”. It was co-founded by prominent Egyptian entrepreneurs Dr. Alaa Arafa, Eng. Khaled Abu Bakr and Mohamed Khalifa.

As a first step in its strategy, Dolphinus entered into a 64bcm, 10 year gas supply contract with Noble Energy and Delek Drilling for their gas in Israel (see Israel's Leviathan and Tamar gas to be sold into Egypt).

This is a welcome move for Egypt as Dolphinus can act as “middleman” for sourcing Israeli gas into Egypt. The two countries are still embroiled in a lawsuit over compensation to Israel when Egypt stopped supplying gas to the former in 2014 under a long term contract after Egypt ran into domestic supply shortages. Dolphinus therefore acts as a politically clean way to buy gas from Israel.

Dolphinus sees Egypt becoming a regional gas hub and looks to take part in that story by playing to the as import side of the story. Egypt has the right ingredients to be a hub. The country has a long history with gas, being an exporter for decades up until 2014 before needing to import gas in the last few years. This means the country has much of the infrastructure in place from domestic gas grids, cross-border pipelines, LNG facilities and access to FSRU capabilities.

While Egypt remains short gas, it is on the verge of being able to export again given the recent large discoveries in the offshore and also the emerging ability to re-export gas sourced from another country. This introduces the concept of Egypt being a gas trader, albeit currently at very early stages.

The existence of LNG export facilities means that the country has the ability (as it did before) to ship gas to a wide variety of destinations and is not reliant on pipeline infrastructure to penetrate markets. Being on the doorstep of the East Med allows Egypt to tap abundant sources of gas and the developing gas import dynamics means that the country is no longer tied to domestic supply sources to feed LNG – the issue back in 2014 when domestic demand outstripped supply and led to LNG facilities to call force majeure and stop exports.

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Israel's Leviathan and Tamar gas to be sold into Egypt

Noble Energy and Delek Drilling announced plans in February to export gas to Egypt. The plan is to supply 64bcm over a 10 year period to Egypt’s Dolphinus Holdings – 32bcm from Leviathan and 32bcm from Tamar.

Each field is contracted up to 3.5bcm p.a. or c.350mmcfpd and will bring the partners USD15 billion over the life of the supply contract. The contracted price and terms are in line with other supply contracts from these fields which is based on a Brent linked formula.

Source: Delek Drilling, February 2018

Leviathan is owned by Delek Drilling (45.34%), Noble Energy (39.66% operator), Ratio Oil Exploration (15%). The field is on track to target first gas by end 2019 and with the extra 350mmcfpd to Dolphinus brings contracted sales close to 900mmcfpd, just below the 1bcfpd target. The first phase of the field is planned to deliver 1.2bcfpd from four wells.

Source: Noble Energy, November 2017 with 525mmcfpd firm GSPAs at the time

Tamar is owned by Isramco Negev (28.75%), Noble Energy (25% operator), Delek Drilling (22%), Tamar Petroleum (16.75%), Dor Gas (4%) and Everest Infrastructures (3.5%) – this reflects the ownership post the recent sale of 7.5% by Noble Energy to Tamar Petroleum as reported previously (Tamar Petroleum to raise bonds to finance acquisition of Tamar from Noble and Israel capital cycle: Noble sells down Tamar to fund Leviathan).

The export route for the gas to Egypt is still to be decided but could utilise existing infrastructure or a new pipeline. At the end of February Noble Energy, Delek Drilling and Dolphinus were reported to be considering acquiring the Arish-Ashkelon pipeline owned by the East Mediterranean Gas company (otherwise known as the EMG pipeline).

Source: Delek Drilling, February 2018

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Tamar Petroleum to raise bonds to finance acquisition of Tamar from Noble

As reported previously, Tamar Petroleum is acquiring a 7.5% stake in the Tamar field from Noble Energy for USD800 million. The consideration will be paid USD560 million in cash with the remainder in Tamar Petroleum shares.

To help finance the transaction, Tamar Petroleum is planning to raise USD 625million (ILS 2.178bn) through the sale of bonds, Ha'aretz. reported. The net proceeds are expected to be c.USD605 million, the excess would be put in a special fund for a potential bond buyback, or early repayment.

Tamar Petroleum's holding in the field will increase to 16.75% following the deal, whereas Noble will be left with a 25% stake. This deal builds on Tamar's acqusition of 9.25% in the field from Delek Group for USD980 million in 2017.

Tamar Petroleum was a wholly owned subsidiary of Delek Drilling that was established to acquire the initial 9.25% stake in Tamar from Delek. The subsidiary was listed on the Tel Aviv Stock Exchange in 2017, raising USD330 million as part of the IPO. At the same time, it also raised USD650 million on the bond markets to fund the acquisition.

The move by Delek Drilling was the first in a series of steps to sell its entire 31.25% stake in the Tamar field by 2021 as mandated by the government due to competition concerns.

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Israel capital cycle: Noble sells down Tamar to fund Leviathan

Noble Energy is divesting 7.5% of its 32.5% interest in the Tamar field for USD800 million. This will reduce Noble’s interest to 25% as required by the Israeli government’s competition requirements. The buyer is Tamar Petroleum who will pay for the acquisition with USD560 million in cash and 38.5 million shares in Tamar Petroleum. The divested interest represents 62mmcfpd of production in 2017 and reserves of 500bcfe.

Noble intends to sell-down the share portion of the consideration over the next few years. After capital gains tax on the USD800 million, Noble will net around USD615 million which it will use to help cover upcoming development expenditure on the giant Leviathan development. The spend in 2018, net to Noble, is USD600 million in 2018 and USD425 million in 2019.

Noble continues to be a major player in the Eastern Mediterranean and advances its contracting efforts on Leviathan where it has signed up 525mmcfpd is gas sales contracts with another 1,100mmcfpd being negotiated.

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