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Israel Hopes to Build on Success of First Bid Round

Major gas finds in Israel, Egypt, and Cyprus over the past few years have transformed the offshore eastern Mediterranean region into an energy hot spot. In November 2018, Israel launched its second bid round for exploration licenses in the region. Technology Editor Judy Feder recently interviewed Michael Gardosh, head of the Geology and Geophysics Department for the Israel Ministry of Energy, about the bid round.

Michael Gardosh,
Head of the Geology and
Geophysics Department, 
Israel Ministry of Energy

What are the details of this new bid round?

The bid round is for 19 offshore blocks in five zones in the Levant Basin in the eastern Mediterranean Sea. High-quality 3D seismic data show various types of structural and stratigraphic traps through the basin. To date, 10 gas fields of various sizes have been found in water depths of up to 1800 m, and yet-to-find potential reserves are estimated at 6.6 billion bbl of oil and 2137 billion cubic meters of natural gas in place.

We launched the bid round in November. Submissions are due by June, and bid winners will be announced in July.

Were you pleased with the initial round in 2016–2017?

That round was our first attempt, and I would describe it as a moderate success. We gained tremendous understanding about how to conduct a bid round, we granted six of 24 blocks, and we brought new players, Energean and a consortium of Indian companies, into the region.

This bid round is intended to continue the development of the natural gas market in Israel, increase competition by bringing new international energy companies into the mix, and broaden our energy security.

How does this round differ from the first one?

We applied what we learned from the first bid round to make significant improvements in this one. The individual blocks we offered in the first round were too small for economically viable development offshore. In the new round, the blocks are clustered in five mega-zones to allow better correlation between the exploration areas and subsurface geological structures that potentially contain oil and gas reservoirs. This will also allow large and contiguous holdings for each group of participants. We think that holding larger interests will provide more and better opportunities for investors. And, all of the zones are located in an area that has been licensed previously in part and had previous seismic research and limited exploration activity.

In the first round, we just gave bidders access to data. This time, we’re sharing existing research that indicates the potential for the discovery of hydrocarbons in the bid round area. We are providing lists of targets, or progressive summaries, for each block. And, we are providing a prospectivity summary report for each zone with identified targets and prospective resources. We have a data room in Jerusalem that companies have visited, and we will soon open a second data room at the Houston office of the Israel Energy Mission. Now companies won’t have to travel to Israel to watch and process data. In some cases, they can literally cross the street.

We opened the Houston Energy Mission office in 2017 for two reasons: first, to be closer to companies, to make data accessible here on the ground, and to have an energy consul available for discussion; and second, as a way to listen to companies and bring intelligence back to Israel so we can better understand their challenges.

Describe the work program for this bid round.

We’ve introduced a more flexible 3+2+2 work program to allow each licensee time to study the area and only then decide whether to continue activity. The initial 3-year exploration period applies to the entire zone granted in the license. After completing the work plan, the licensee can request a license extension for two years, with the condition that they submit a work plan that includes drilling in at least one of the licenses in the zone. They will also need to submit an additional work plan that will be approved by the petroleum commissioner. After drilling and completing all the work plans, the license term will be able to be extended by 2 additional years, to a maximum of 7 years, with the condition of a commitment to drill in every license which was granted by the end of the license term.

What else is different from the 2016–2017 bid round?

A final improvement for this new round is the markets. Our government recently adopted terms to make it easier to export gas from Israel while guaranteeing sufficient gas to meet our domestic needs. We have signed an export deal with Jordan for $12 billion, with gas flowing there from Tamar. We signed a $15-billion agreement with Egypt; gas will begin flowing in 2019 from Leviathan. Other regional export options include supplying two LNG facilities in Egypt’s Nile Delta. And, we have completed an agreement with Cyprus, Greece, and Italy for a 2100-km, 1.9-billion-cu-ft/D subsea pipeline to supply gas and diversify energy sources for the larger European market from an area that is in closer proximity than competing areas, provides long-term regulatory stability, and has infrastructure in place.

We believe that all of these improvements, plus the fact that two-thirds of the waters’ estimated reserves are yet to be found, creates a very favorable investment environment for international energy companies.

     
Export options for Israeli natural gas. Source: Israel Ministry of Energy.


What type of companies are you hoping to attract for this bid round?

We want to attract companies that have worked in areas with geologies and challenges similar to the eastern Mediterranean. We have had interest from companies across a variety of sizes and geographies. We have a minimum size threshold. We want to encourage diversity and discourage monopoly. Other than that, we are not selective. The bottom line is that we want licensees to be successful.

What is it about the geology of the Levant Basin that makes it a world-class hydrocarbon basin?

It offers numerous types of opportunities, but it is relatively simple to understand. The structure has existed for 200–250 million years. It is gradually evolving, expanding, becoming deeper. The sediments that fill it are 50–70 km thick. We have identified the source rocks, and the basin is deep enough for them to be mature. We have proven that oil was and is being generated there in deeper levels. We have a thick salt layer, but it doesn’t appear to pose any big drilling issues.

The upper part of the basin is relatively cool and not mature, but it possesses good characteristics for biogenic gas that is formed not by “cooking”, but from bacterial activity. Much of the gas in the region is from this cool, sedimentary section that produces naturally. Many reservoir layers are of similar type. So, it is less expensive to produce.

The gas is pure and dry, without heavier components. What little treatment is required is simple. This makes it relatively easy and inexpensive to clean and get into the transportation and processing system.

Israel Hopes to Build on Success of First Bid Round

Judy Feder, Technology Editor

21 February 2019

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