Israel Drilling-rights Auction Draws One Offer So Far; Deadline Extended

Energy officials put on brave face and extended deadline for proposals for a second time

Off Haifa coast, oil rig at enormous Leviathan natural gas field.
An oil rig in the Leviathan natural gas field off the Haifa coast. Albatross

Israeli energy officials put on a brave face on Tuesday after TheMarker reported that an auction for rights to drill in 24 blocs offshore Israel had attracted only one bid even after the deadline for filing was extended.

TheMarker has learned that the only company to submit a drilling proposal was Greece’s Energean. Two others – Italy’s Edison and Israel’s Shapir Engineering – had purchased the documents and may still act while a fourth – Spain’s Repsol – bought the documents but later backed out.

The Energy Ministry, which had already extended the deadline for submitting proposals to July 10 from February, is extending it a second time to mid-November, officials said.

“The offshore drilling tender is an achievement in its own right and represents a leap forward in Israel’s international status. Our global image has improved,” Michael Gardosh, the head of Energy Ministry’s geophysical unit, told an energy conference in Tel Aviv. “We knew from the start that there wouldn’t be a lot of applications, but I believe we will eventually see results.”

Israel announced last November that it was accepting bids for three-year licenses to drill in 24 blocs and tempted bidders with a study conducted by Paris-based firm Beicip-Franlab that estimated there are still 2,137 billion cubic meters of natural gas and 6.6 billion barrels of oil to be discovered in Israeli waters. The blocs are each up to 400 square kilometers in size.

The terms were generous, with proposals based on the timeframe companies offered, not the level of royalties they were willing to pay, in order to encourage them to drill quickly.

But as of this week only Energean had submitted a proposal and that was for the a bloc located between the Karish and Tanin blocs it already holds rights to and would reduce its production costs in the future. The company last week submitted a $1.5 billion plan to put Karish and Tanin into production.

Edison has shown an interest in Israeli energy. It holds a 20% stake in the Roi field and had sought to buy Karish and Tanin. Shapir, meanwhile, remains interested but has no energy experience and has yet to find an operating partner that does.

Israel marketed the auction aggressively, with roadshows in London, Singapore and Houston as well as a pitch in Tel Aviv. Officials have blamed the scant interest on competing auctions by neighboring Cyprus and Lebanon as well as geopolitical and regulatory concerns on the part of energy companies.

However, the real problems are the price of oil, which hit a 10-month low last week and has deterred new drilling all around the world and the lack of ready markets either in Israel or overseas for the gas and oil any new fields would produce.