Greece’s Energean to Buy 2 Israeli Gas Fields as Cyprus Advances 3rd Licensing Round

Greece’s Energean Oil & Gas inked on August 16 a $148.5 million deal to purchase Israel’s natural gas fields Karish and Tanin.

Delek Drilling and Avner, part of Israel’s leading integrated energy company, signed the agreement, which is being undertaken as part of the implementation of the Gas Framework, set up by the Israeli Government as part of their strategy to develop the energy market, for the sale of 100% of their holdings in the two fields to Energean.

The deal is estimated to be valued at $148 million, which reflects return of Delek Drilling and Avner’s investment and future royalties from the expected sales of gas and condensate from the reservoirs, Energean said in a press release on August 17.

Cyprus Natural Hydrocarbons Company CEO Charles Ellinas told New Europe on August 19 the deal might help offshore exploration in Israel, especially now that Israel is preparing to announce a new round.

"It shows that a new international player, albeit small, has faith in the Israeli gas market. But Energean is taking a gamble. The terms are that it can only sell this gas to the Israeli market. In doing so it must build its own installations: production facilities, gas pipeline, gas treatment plant, which will be costly. So it has to secure finance,” Ellinas said.

He noted that the Israeli gas market is more or less saturated. "To penetrate it, it must offer an attractive price well below that for Tamar gas and competitive with spot LNG (liquefied natural gas). And there are still regulatory issues to be sorted out.”

Asked about the Energean’s agreement impact on Cyprus. Ellinas said it really has no impact on the Mediterranean island, even if the Energean subsidiary that completed this deal is registered in Cyprus.

The Karish and Tanin fields are located in the north of Israel’s EEZ, approximately 40 kilometres from each other. In Tanin, which was discovered in 2011, approximately 22.4 billion cubic metres of natural gas (contingent resources) and 12.7 billion cubic metres of natural gas (prospective resources) was discovered.

In Karish, which was discovered in 2013, approximately 36.3 billion cubic metres of natural gas (contingent resources) and 14 billion cubic metres of natural gas (prospective resources) was discovered. In addition, a further approximately 14.3 million barrels of condensate (contingent resources) and approximately 4.3 million barrels of condensate (prospective resources) was discovered in the two reservoirs.

Under the requirements of the Gas Framework, the partners in the reservoirs were obligated to sell their holdings in the reservoirs 14 months after the date of execution of the agreement.

Energean CEO Mathios Rigas hailed the deal, noting that it allows his company "to enter Israel, a strategic market for us, and to sign a deal that will lead to the development of the Karish and Tanin fields”.

According to the gas framework regulation, the deal is subject to the final approval of the relevant Israeli authorities.

Turning to Cyprus’ EEZ third licensing round, Ellinas told New Europe the results were good and evaluation of the offers is in progress and is expected to be completed by the end of the year. But realistically awards will be during the first quarter of 2017 at the earliest, he said. "It has created euphoria, but given persisting low global gas and LNG prices, well into the next decade, expectations need to be managed. And then there may be an impact from the Cyprus problem negotiations, should these be concluded successfully by the end of the year,” Ellinas said.

Asked about the upstream plans of the oil majors in Eastern Mediterranean gas, Ellinas said the hotbed of activity is Egypt. "The healthy gas prices negotiated with the government and the readily available market for any gas finds has spurred massive development,” he said.

British Petroleum, Italy’s ENI, US-based Apache, Royal Dutch Shell, and UK-based Dana Petroleum are all pursuing new projects. "ENI is looking for partners in developing Zohr and interestingly ExxonMobil is one of the interested companies. Not only it is also joining ENI in Mozambique, but it is also interested in block 10 in Cyprus’ EEZ. These developments are already starting to reverse the decline in Egypt’s gas production. Egypt is justifiably expecting to achieve self-sufficiency by 2020 and possibly LNG exports by 2022,” Ellinas said.

He reminded that Egypt is about to announce a new offshore licensing round, which should attract interest, following the Zohr discovery and the success of the second round in Cyprus. "It appears that Zohr has wetted the appetite of oil majors in the region and its promise for more major gas discoveries to come.

In Israel Noble and its partners are expanding Tamar production, and have started the process of developing Leviathan,” Ellinas.

But he added the final investment decision (FID) for this still needs firm gas sales agreements. "These may come from Turkey. Diplomatic relations are about to restart. The decision for a gas pipeline to Turkey will probably need to be taken next year,” he said, adding that solving the Cyprus problem, which is making progress, could help boost the chances for building a gas pipeline to Turkey. "In Cyprus plans to sell Aphrodite gas are stuck with no real progress expected in the foreseeable future, despite the ongoing negotiations with Egypt,” he said.

by Kostis Geropoulos, Energy & Russian Affairs Editor of New Europe newspaper