Natural Gas Sector Shares Roar on Round of Positive Reports

Israeli oil and gas exploration shares have shot up lately on brisk trade, following a series of recent developments in the sector. The latest trigger for gains was a report from the United States Geological Survey last week, estimating natural gas reserves in the Eastern Mediterranean off the coasts of Israel, Lebanon and Syria at 122 trillion cubic feet, or 3.45 trillion cubic meters, the more commonly used measure in Israel.

In addition, the Tamar partnership, which found tremendous amounts of gas in the Mediterranean seabed, is nearing the completion of negotiations to sell natural gas to the Israel Corporation group companies Israel Chemicals and Oil Refineries (locally known as Bazan), and the Noa reserve's chances of being developed have increased. The results of the 3D seismic survey of the Leviathan prospect, which is controlled by the Delek Group, Noble Energy and Ratio, is also expected to be published by the end of June.

According to the USGS report the gas can be recovered using currently available technology. This is the first time the USGS has granted an assessment of recoverable natural gas in this region.

"Its gas resources are bigger than anything we have assessed in the United States," said Brenda Pierce, USGS Energy Resources Program Coordinator.

"That report could have been issued a year or two ago," says Yaron Zar of Clal Finance, explaining that the information sources cited in the report indicate it is not based on any new data, but the timing of its publication was excellent for the market, coming on the eve of publication of results on Leviathan.

"Most of the market is unfamiliar with the subject," continues Zar. "The moment [data] comes from an authorized, reliable American source, it has good potential."

Zar notes the mention of the layer of salt above the reserves, and that most of the gas referred to in the report is beneath that layer. "A number of conditions are required for a discovery," says Zar. "One is covering rock. The rock layer at Tamar is 25 million years old. The geologists had to verify that the gas had not escaped, if it had indeed existed, and the salt layer can protect the gas."

Geologists claim there is a similar salt layer beneath Israel's deep territorial waters, but the presence of natural gas can only be verified by drilling through this layer. "Noble and Delek have reiterated that there are a number of prospects that could be bigger than Tamar. The investors are focusing on Leviathan, although there could be other prospects in Delek's lease areas," says Zar. "When the [seismic] surveys are published in June we will all be wiser."

The Israel Corp. has confirmed negotiations for the purchase of natural gas, and is likely to be the second largest consumer, buying over 2 BCM a year. Zar adds that in light of the estimated potential of the gas reserves, Delek is considering developing the Noa reserve.

Clal analysts repeated a recommendation to overweight gas sector stocks, specifically to hold Isramco, Avner and Delek Drilling beyond their weight on the index.