(photo credit: Courtesy)
The exploratory well being drilled into the deepwater Leviathan gas field off
the coast of Haifa since October 18 is due to reach the target depth of 5,095
meters, and the moment of truth about the presence of huge gas reserves is
approaching. The partners in the Leviathan leases – Noble Energy Inc., Delek
Group Ltd. and Ratio Oil Exploration (1992) LP – may announce preliminary
findings as soon as Friday.
The answer to the question of whether the
strata contain natural gas worth an estimated billions of dollars will have
The immediate answer will come on the Tel Aviv Stock
The meteoric rise in the share prices of oil and gas
exploration partnerships since the discovery of the Tamar reservoir will not be
repeated. Many analysts believe the share prices of Ratio and Delek Group units
Avner Oil and Gas LP and Delek Drilling LP (the latter two are also partners in
Tamar) already include a scenario that the quantities of gas reported by Noble
Energy in June will be found.
A discovery will lift from the companies
the threat of a collapse of their share prices.
“Oil and gas shares will
continue to be risky,” Clal Finance analyst Yaron Zar said. “But a discovery at
Leviathan will turn the partners’ shares into legitimate investments for most
investors, subject, of course, to the question of price.”
If no signs of
gas are found, the companies’ shares will collapse and drag down the entire oil
and gas exploration sector, whose aggregate market cap recently peaked at NIS 40
For the companies, investors and analysts, an announcement of a
gas discovery is only one question, however important it may be.
are two other questions, just as important, for establishing the economic value
of a Leviathan discovery: its effect on the Sheshinski Committee; and the
business model for the sale of gas from the reservoir.
In other words,
how much will be exported, to which markets and at what price, how will the gas
be transported, will the companies prefer laying an undersea pipeline to Europe,
or will they invest in building a liquid natural-gas terminal for shipping gas
to Far East markets. All these questions will remain open only if the Leviathan
structure shows signs of gas.
If no gas is found, all these questions
will become irrelevant.
The Finance Ministry, in contrast to the TASE,
will receive an announcement of a gas discovery with conflicting feelings.
Ministry officials see the gas reserves as a mixed blessing, concerned over the
threat of infection from “Dutch Disease”: the effect of expected income from gas
exports, or from gas sales on the domestic market instead of importing fuel, on
the shekel’s exchange rate.
While the Finance Ministry estimates the
relative weight of Tamar’s income on the current balance of payments at 10
percent, it believes the weight of Leviathan could reach 25%, which could result
in the shekel appreciating to NIS 2-NIS 2.50 to the dollar.
scenario, Finance Ministry officials warn about a death knell for export
industries and hi-tech – and of massive layoffs among Israel’s best educated and
For Finance Minister Yuval Steinitz, the heavy taxes
proposed by the Sheshinski Committee are the initial vaccination against Dutch
Disease. The second dose is what to do with the revenues.
several models around the world for sophisticated use of oil and gas revenues:
one is to invest directly in transportation and education infrastructures to
improve competitiveness; a second is to encourage exporters through tax cuts and
other breaks; a third is to improve the national debt ratio and cut interest
payments; and a fourth is a sovereign-wealth fund, which will invest the
revenues in acceptable channels outside Israel.
So far, the inclination
of the Finance Ministry and Steinitz is to distribute the revenues among all