securities - Emil Salman - Sept 22 2010
Zohar Goshen. Photo by Emil Salman
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After days of keeping investors on the edge, the Givot Olam Oil Exploration partnership yesterday released the conclusions of the final engineering report from the production tests at its Meged-5 exploratory well, near Rosh Ha'ayin. The problem was that even after reading the report, investors felt little the wiser. "We are unable to estimate the amount of oil possible to produce from Meged-5," wrote the firm in its announcement to the Tel Aviv Stock Exchange.

The Israel Securities Authority, headed by Zohar Goshen, on Sunday suspended trading in Givot Olam participation units, saying the firm's reporting on its tests was unclear and "filled with holes," and refused to approve the release of Givot's proposed announcement on the Meged-5 field. The report's late release prevented the resumption of trading in Givot Olam shares in Tel Aviv yesterday. Trading will resume on Sunday, after the long holiday weekend.

The report showed the production test to be disappointing, with only 44 million barrels of oil. And Givot Olam couldn't say how much of this will be economically feasible to pump - the key information investors want. Worse still, tests have not yet been conducted on the two remaining sections of the field, sections 7 and 8. It is expected that the results of these tests will not be available until November at the earliest.

Yesterday's report did include a model of the field and an analysis of its structure and composition. There were also a number of long-term analyses of the field, but not a word about commercial viability, so important to investors.

Givot, advised by geologist Tuvia Luskin, admitted it lacked the necessary expertise to estimate the probabilities in accordance with oil industry standards. "The general partner has not received and does not have an expert opinion," wrote Givot.

Last month's interim report estimated reserves at up to 1.5 billion barrels, with high probability that 10% could be pumped out profitably.

Not necessarily the end of the story

Energy analyst Yaron Zar of Clal Finance said: "On first sight, the engineering report released by Givot is poor. The report points out that in Meged-5 it will be possible, in a best-case scenario, to produce about 13 million barrels of oil. This is significantly lower than estimates bandied about by investors recently. Nonetheless, it is not necessarily the end of the story," Zar said.

"In my opinion, investors will be cautious and will not assume that the amount of actual oil in the entire field can be derived linearly from the Meged-5 data," said Zar.

Instead of releasing its report at 2:30 P.M. yesterday, after the Israel Securities Authority approved the new version, Givot sent the TASE a harsh letter attacking the ISA's handling of the matter. Investors were kept waiting until 4:30 P.M., after the stock exchange closed, and trading in Givot shares could not resume yesterday.

During the three-day halt in Givot share trading on the TASE, however, eager investors could still buy and sell the participation units outside the exchange.

TheMarker has obtained figures showing 20 such trades on Monday worth a total of NIS 1.76 million - at about a 20% discount on the share price before trading was stopped.