As Energean Oil & Gas prepares to dive into Israel’s Mediterranean waters, the Greek company is aiming not only to develop the Karish and Tanin gas reservoirs, but also to start competition in a previously monopolized sector.
“We are here to open a market that has been closed until today,” Energean chairman and CEO Mathios Rigas told journalists at a Tel Aviv press conference on Wednesday.
“For Energean, this is a very important moment,” he said. “I would like to use the word historic from the Greek word historia because it’s a new step in a new country. We have been trying to do business in Israel for a long time and we are going to develop two worldclass assets.”
After receiving the Israel Petroleum Council’s approval in December, Energean purchased the two gas reservoirs from the Delek Group in a $148 million deal, originally cemented in mid-August. If the company is able to secure sale contracts for at least three billion cubic meters of gas annually, as well as garner government support for expedient regulatory approvals, Rigas expressed his confidence that gas would be able to flow to Israel’s domestic market by 2020.
“These are the two conditions we need – nothing else,” he said. “If we meet these two, gas will be flowing from Karish and Tanin very soon.”
The purchase of Karish and Tanin was the first concrete result of Israel’s contentious “gas outline” that rattled the sector for all of 2015. As part of the outline agreement, which aimed to settle disputes between the government and dominant gas companies in Israel, the firms were required to sell both of these basins.
“The reason why we’re here today is because the government of Israel decided that the monopoly situation has to be broken and there has to be competition in the market,” Rigas said.
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Located in the north of Israel’s exclusive economic zone, the Karish and Tanin reservoirs jointly contain about 58.7 bcm of gas and 14.3 million barrels of condensate in contingent resources.
In addition to these quantities are prospective resources with high chances of success, including approximately 25.6 bcm of gas and an additional 4.3 million barrels of condensate.
Contingent resources are estimates of hydrocarbons that have been discovered but have not yet reached commercial development, while prospective resources are potentially recoverable estimates that have yet to be discovered.
From an Israeli perspective, according to Rigas, Karish and Tanin’s development must ensure competition and security of supply, maximize reserves, increase tax revenues, lower utility prices and minimize environmental impact. Also important, he explained, is replacing the use of imported coal with domestic gas, as well as building infrastructure that could commercialize other small discoveries.
To achieve these aims, Rigas said that his company has decided to develop Karish and Tanin using a Floating Production, Storage and Offloading (FPSO) unit, a vessel that can be used for hydrocarbon production in place of more traditional fixed drilling platforms.
Not only does such a unit have the least environmental impact on Israel’s shore, it provides the quickest way to develop a field and is 20% more productive than a traditional gas platform like Israel’s Tamar, Rigas said.
Development will begin at Karish with three to four wells, with a production capacity of 4 bcm of dry gas per year and 15,000 barrels of condensate per day, Rigas explained. About five to 10 years later, once Karish has passed its peak, two to three wells would be developed at Tanin, tied back to the Karish infrastructure.
The fields would likely produce about 3 bcm. of gas per year for 25 years, as well as potentially 7,500 barrels of condensate per day, according to Energean forecasts.
The company’s capital expenditure until the first flow of gas would reach about $1.3 to 1.5 million, Rigas said.
In order to finance the project, Energean is seeking out a combination of local and international banks, separating the FPSO lease from the upstream costs, he explained. Rigas expressed confidence that there is sufficient liquidity in the market and that the company would, in fact, be able to raise the necessary funds.
Energean will be submitting its development plan to the government this May, aiming to make a final investment decision by December and enabling gas flow by 2020, Rigas said. As long as the company receives the necessary government approvals in a timely manner and secures contracts to supply 3 bcm of gas per year, Rigas stressed that Energean is ready to move forward.
“We all have to work together if we want to achieve the objective of breaking this monopoly,” he said. “If everybody sits back and says, ‘I don’t want to take the risk,’ nothing is going to happen.”
Energean has operated oil and gas-producing assets since 1981, and currently holds four licenses in Greece and one in Egypt. In Israel, in addition to developing Karish and Tanin, Energean is considering bidding on new exploration blocks that have recently been made available, Rigas said.
With an understanding of “what it means to be in countries that have continuous changes,” Energean’s track record in Greece is a testament to the firm’s ability to succeed in the Israeli gas sector as well, according to Rigas.
“Greeks and Israelis have very strong relationships, both as governments and most importantly, as people,” he said. “For us, it’s an easy place to work.
We understand what it takes to do business in countries like Israel.”
“We are ready and able to start working,” Rigas said.
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