Major gas province emerging in eastern Mediterranean

David Paganie • Houston

Prospecting for oil and gas offshore Israel was an afterthought to many international operators until discoveries were made by Noble Energy in 2009 and 2010, the latter of which was estimated to be the world's largest natural gas discovery in a decade. Reports from the region suggest that the discoveries – Tamar and Leviathan – combined could meet Israel's natural gas demand for 30-50 years. According to the United States Geological Survey, the Levant Basin Province contains an estimated 122 tcf of undiscovered, recoverable gas; and about 1.7 Bbbl of undiscovered, technically recoverable oil. The basin comprises about 83,000 sq km (32,046 sq mi) of the eastern Mediterranean and includes the Tamar and Leviathan discoveries. While foreign participation in the area is still marginal, ATP Oil & Gas is poised to be the next international operator to test the geological promise of the basin. Earlier this year, the company farmed into Israel offshore licenses Shimshon, Daniel East, and Daniel West. The US-based independent has allocated $24-$29 million to drill its first well on the Shimshon license next year. An independent reservoir engineering evaluation, ATP noted, estimates gross potential natural gas reserves at Shimshon of 1.5-3.4 tcf, with a 20% probability of success.

The problem, according to Israeli energy officials, is the short term. The majority of natural gas used for Israel's power generation is from the declining offshore Mari-B field. With the state's intent to continue shifting from coal and oil to natural gas for power, new supply is needed. The percentage share of natural gas in the fuel mix has grown from zero in 2004 to about 36% this year. And it estimated that natural gas could comprise up to 70% of the fuel mix by 2020.

Meanwhile, to the chagrin of the offshore leaseholders, a newly imposed tax on petroleum profits was signed into law earlier this year. In this issue,Noy Dor and Menachem Danishefsky with Israeli law firm Herzog Fox & Neeman, seek to clarify the main legal issues for parties interested in Israel offshore oil and gas activities. The full report, beginning on page 32, details the criteria for obtaining and transferring permits, licenses, and leases; financing options for offshore projects; and the newly imposed levy on oil and gas profits.

Meanwhile, Toronto-based Adira Energy is preparing to investigate oilfield opportunities closer to the Israeli coast.Adira CEO Hexi Kugler tells Jeremy Beckman, Offshore Editor-Europe in an exclusive interview that the advances in technology, as well as changed economics in the oil sector, make for commercially attractive targets in the shallow water basins. Adira expects to start drilling its three commitment wells on the licenses by the end of 2012, with the campaign likely to continue into mid-2013. Beckman's complete report begins on page 30.

Gulf of Mexico lease sale proposed

BOEMRE is set to hold the first oil and natural gas lease sale in the Gulf of Mexico since the Macondo incident. The proposed Western Gulf of Mexico Lease Sale 218 is scheduled to be held in New Orleans on Dec. 14, 2011. The sale will include all available unleased areas in the Western Gulf Planning Area offshore Texas.

An interesting twist to the parameters of the lease sale is a proposed increase of the minimum bid amount for blocks in water depths of 1,312 ft (400 m) and greater from $37.50 per acre to $100 per acre. The administration suggests that raising the minimum bid will discourage companies from purchasing leases they are unlikely to explore in the near term. The minimum bid amount for leases in shallower water depths will remain at $25 per acre.

Given that operators continue to view the GoM deepwater as a leading source of value growth, expect healthy bidding at the upcoming sale.