Gas pains grow intense for ILDC Energy investors
DDoubts about the Myra 1 oil and gas exploration cost company a third of its market cap on Sunday; a correction Monday added 6%.
It's been a roller coaster week for ILDC Energy shares - and it's only Tuesday.
After losing more than a third of their value on Sunday, the stock rebounded on Monday after the company assured investors that it remains optimistic that its Myra 1 drilling venture will eventually yield a natural gas bonanza.
ILDC Energy shares closed 6.25% higher to 43 agorot in Tel Aviv Stock Exchange trading Monday while Modi'in Energy Limited Partnership, its junior partner in Myra 1, rebounded 5.8% to finish at 24 agorot after plunging on Sunday by 22%.
IPC Oil& Gas Holdings, which is traded on the TASE's maintenance list (of companies in some form of noncompliance with listing rules), also staged a recovery, ending 7.9% higher to 21 agorot after crashing 46% the previous day.
ILDC Energy is the senior partner in the offshore Myra exploratory license area, with a 42% stake. Modi'in holds 19% and IPC 14%.
At a hastily called press conference Monday morning, ILDC Energy CEO Ohad Marani tried to reassure investors. "Malfunctions occur in drillings. It's part of our business and we're drilling in deep waters," he explained. "All recent drillings experienced mishaps but this hasn't stopped them from reaching discoveries."
The excitement began last weekend when the drilling partners reported a change in plans following a technical malfunction, dropping the oil exploration at this stage to focus exclusively on searching for gas.
But the immediate trigger for Sunday's crash was uncertainty over finding any gas whatsoever at the site, after drilling reached the depth indicated by earlier studies for reaching deposits without any signs of their existence.
Failure isn't assured
It still isn't clear, however, that the drilling has failed. ILDC Energy reported last weekend that it still hasn't reached the Tamar sands formation in which the gas is expected to be found.
It was explained Monday in professional circles that two possibilities still exist: Either the Tamar sands are deeper than expected at that location, or they simply aren't present.
Drilling at the site, performed by Noble Corporation's Homer Ferrington rig at a cost of $105 million, was originally planned to reach a depth of 5,200 meters and pass through two target formations expected to contain oil and gas deposits.
The Tamar sands, containing all of Israel's natural gas discoveries since the huge Tamar find in January 2009, including Leviathan, were expected to be reached at a depth of 4,300 to 4,700 meters.
The second target, an anomalous and complex formation - dubbed "Masada" by Ofer Nimrodi, who controls ILDC Energy - is thought by some to be an ancient volcano. Due to its unique structure, the partners hope to find oil trapped inside, and thereby also reach a greater depth than anyone else in the area has succeeded in drilling.
But just days before the drilling's expected arrival at the Tamar sands, its pipes collapsed on hitting an underground cavern - a fairly common mishap.
The partners won't reveal the depth at which this occurred, but it is estimated at between 4,200 and 4,400 meters. The drilling will now need to change course and the partners have revised the estimated depth of the Tamar sand formation to between 4,800 and 5,000 meters.
"We aren't worried, but in principle anything can happen," said Marani. "We very much believe that there are sands, and also gas, and the fact is we decided to continue drilling diagonally."
Marani went on to explain that diagonal drilling is an accepted procedure throughout the world. "If a well is encountered at a problematic point, the drilling is raised a certain height - say 1,000 meters - and is continued from there at an angle," he continued.
"You don't continue through the obstacle because more mechanical problems could be encountered. The problem isn't due to the equipment or the rig, but to the landscape. We hit some sort of cavern or cavity at a depth of about 4,600 meters, and the lack of resistance resulted in a breakdown."
"What happened last weekend and at the beginning of the week - which was one of the reasons for holding this meeting - was massive uncertainty among investors," said Tzachi Sultan, the owner in charge at Modi'in, when asked to explain the behavior of investors who dumped their shares on Sunday.
"Nobody knew what was going on. I happened to be abroad and began receiving text messages from dozens of investors," Sultan said. "There was a great deal of bewilderment, and this is the worst thing that can happen to an investor and the capital market, with speculation running in every direction. Some investors misunderstood the report."