Givot Olam: Meged has 1.5b barrels of oil

Production test drilling at Givot Olam's Meged 5 site near Rosh Ha'ayin indicated it holds 1.525 billion barrels' worth of oil, the company announced early Tuesday morning.

However, the tests did not show how many barrels the site can actually produce or how much the find is worth financially, it noted.

The Israel Securities Authority demanded clarifications, but that didn't seem to dissuade investors, who snapped up Givot Olam shares. The share price was up 19.7% on Tuesday alone.

Trading in Givot Olam was suspended for much of the day, but resumed before the close of trade.

Yesterday's developments left analysts divided, professionals angry and speculators giddy.

It all began at 12:35 A.M., when the partnership released the announcement regarding the results of the test production phase, which investors had been awaiting for about a month. The news was supposed to give investors an interim indication of the test production results at Meged 5. The announcement mentioned that there could be as much as 1.525 billion barrels in oil reserves there, but didn't provide further details about the test results, such as the site's daily production capacity, the production cost and whether the site is economically viable.

The announcement said a distinction should be made between the size of the reserve and the amount that could be extracted, which is substantially less. Details about the latter figure are not yet available, Givot Olam said.

Stock shot up 69%

A draft of the announcement mentioned low rates of porousness and penetration. A low rate of porousness means there is a small quantity of oil relative to the other components flowing through the natural crevices in the rock, but that the site has the capacity to hold a large quantity of oil.

Despite the lack of basic details about the commercial feasibility of the find, by early morning, the media was full of headlines announcing the exploration partnership's massive reserves. Some observers even began comparing Israel to Kuwait, and in preliminary trading yesterday morning, the partnership's shares shot up 34%, hitting a trading ceiling.

At that point the securities authority intervened, demanding that Givot Olam provide clarifications and additional information. Trading in the partnership's shares was suspended, and resumed only at 2:30 P.M. after the firm released another announcement.

The second announcement did not provide addition data, but noted specifically that the partnership had not carried out tests regarding the commercial viability of the oil find.

Once trading resumed, the share price shot up by 69% to 16.4 agorot, but minutes later fell to 11 agorot. Givot Olam closed the trading day up 19.7% for the day, at a market cap of NIS 922 million.

The partnership did release preliminary data on the quality of the oil at the site, as measured by the API index rating of the amount of crude oil in the mix. Light crude, which is the most desirable, has an API rating of at least 31.1. Givot Olam said its preliminary samples ranged from 39 to 40. The samples also showed a high level of natural gas, 1,650 cubic feet per barrel of oil, indicating that gas could boost the value of each barrel by 30%.

Givot says the Meged 5 site produced 3,015 barrels in 189 hours during the test, a pace of about 380 barrels a day, and that the gas was worth the equivalent of another 90 barrels a day. The quantities were less than expected, but when the data is analyzed, the final production numbers may be somewhat different. A report to be issued on September 15 should definitively show the daily quantity produced at the site.

Investors still confused

The Meged site has been known since the 1990s to contain oil, but previously, it was not thought to be commercially extractable. The Meged site is divided into eight sections. The partnership says it believes that sections 7 and 8, where production test drilling has not yet been carried out, hold the greatest potential.

This is not the first time Givot has issued partial and less than definitive information that has had a major impact on the partnership's share price. This time, however, the securities authority intervened until more information was provided.

"The more I read the announcement, the more amazed I am," said one energy sector analyst, who added: "It raises so many questions and we are not receiving answers as to the amount of extractable oil, which is the figure investors are waiting for from the tests."

He said the fact that investors have to turn to details in a 2009 prospectus is an indication of the incompleteness of the report. "The [current] announcement has no significance," he said.

Another analyst was more upbeat.

"The 1.525 billion barrel figure is absolutely a positive [sign], because it eliminates the uncertainty," he said.

The two important facts are whether there is oil, and whether it can be extracted, he said. The site's commercial viability remains to be seen, but generally about 15% to 25% of reserves are commercially viable, he said.

A geophysicist in the field, however, called the most recent announcement "speculative" and said the 1.525 billion figure appeared "exaggerated."

"The bottom line is that I want to see the well's capacity of barrels per day over time," he said. "How much the drilling site can produce - that's what will answer questions regarding its economic viability. Regarding the reserves, I don't think they can be assessed at the moment. It's a very rough estimate and everything gets into the range of probabilities."