Energean hails Athena success as it scales Olympus [Gas In Transition]
Energean has declared another commercial gas discovery in offshore Israel as the firm’s new production vessel makes its way to the Eastern Mediterranean.
While the Athena-1 well in Block 12 hit 0.28 trillion ft3 (8bn m3) of gas, significantly less than the pre-drill target of 0.7 trillion ft3 (19.8bn m3), the find’s importance lies in its location. Halfway between Energean’s two key assets – Karish 20 km to the east and Tanin 20 km to the west – Athena is seen de-risking nearly 1.8 trillion ft3 (50bn m3) of additional gas across the company’s new Olympus development area, all of which can likely be tied back to the Energean Power FPSO and onward to the Israeli grid.
The first of its fields to be developed will be Karish Main which is seen coming on-stream in Q3 to target 1.4 trillion ft3 (40bn m3) and will be joined in the second half of 2023 by the 1.2 trillion ft3 (34bn m3) Karish North asset.
Drilled by the Stena IceMAX drillship, Athena-1 hit a gross hydrocarbon column of 156 metres in the “A, B and C sands” of the offshore Block 12. However, Energean noted that “commercial hydrocarbons were not discovered in the deeper secondary target” of the D sands, for which it had estimated a 22% probability of success, compared to the overall 70% success rate of Athena. The well was drilled in 51 days and came in below the company’s $35mn budget.
Additional analysis is now being conducted to produce a clearer picture of the resource potential, including liquids, with the company noting that this would examine “volumes contained within thinner sands between the main reservoir units”.
Meanwhile, Athena, and future Block 12 discoveries, have an 8% ‘revenue advantage’ compared to Karish and Tanin – which were bought from Noble and Delek in a $184mn deal in 2016 – as “economics of gas produced and sold from Block 12 are not subject to royalties payable to any the original sellers”.
Tanin – 0.92 trillion ft3 (26bn m3) of 2P gas reserves – appears set to be further pushed to the backburner, with Energean saying last year that any Block 12 discovery “would be prioritised over the development of Tanin due to lower capital expenditure investment (as compared to Tanin) and the absence of any seller royalties”.
Following the addition of the FPSO’s second oil train and second riser, the facility will have a processing capacity of 8bcm/yr, with the full Karish asset capable of in excess of this level. With this in mind, even without further exploration, Energean’s reserves could utilise the full capacity of the FPSO for more than 13 years.
The vessel is currently en route to the Eastern Mediterranean from the COSCO Marine shipyard in Singapore. When it arrives, it will be connected to a 90-km tie-back to the Israel National Gas Line (INGL) network through which Energean will sell gas to local and regional customers.
Mathios Rigas, CEO of Energean said: “This discovery and the broader de-risking of a number of prospects in the Olympus Area reaffirms the role of the East Mediterranean as a global gas exploration hotspot. It strengthens our commitment to provide competition and security of supply to the region, enables the optimisation of our Israel portfolio and fulfils one of our key milestones for 2022.”
The Olympus Area consists of the Achilleus, Apollo, Hera, Hestia and Zeus prospects of Block 12 – as well as Athena – and those of the neighbouring Tanin lease. Meanwhile, Hermes and Poseidon are located on the adjoined Block 21, to the south. Energean was awarded blocks 12 and 21 along with the blocks 23 and 31 in December 2017.
Following the completion of the Athena well, the drillship has been repositioned to drill the Karish Main-04 appraisal well before completing the Karish North development well.
Energean said that it would make a decision on whether to drill optional wells at Hermes (Block 31) and/or Hercules (Block 23) by mid-year. The wells have previously been estimated to cost $40mn and $50mn, respectively.
Having agreed 19 gas sales and purchase agreements (GSPAs) with various Israeli power producers between 2017 and 2020 covering 7.4bcm/yr, Energean was let down by two of its buyers last year.
While Energean agreed to the mutual termination of a 0.2bn m3/year deal due to begin in 2024 when the buyer announced it would be unable to meet the contract’s conditions, it is in arbitration with Dalia Power Energies over the Israeli firm’s efforts to terminate a 0.8bn m3/yr deal agreed in 2017. Energean is seeking to recover damages of $105-407mn for what it describes as a “material breach of contract”.
With contracted volumes at 2021 year-end dropping to 6.4bn m3/yr as a result, Energean has sought to find more buyers in order to ensure full utilisation of the FPSO. It did this in March, signing a one-year, extendable spot deal with the Israel Electric Co. (IEC), followed by a 0.8bn m3/yr, 15-year deal with two local companies in the process of privatising IEC’s East Hagit Power Plant.
Meanwhile, the company signed a memorandum of understanding (MoU) in December 2021 with Egyptian Natural Gas Holding Co. (EGAS) for the sale and purchase of up to 3bn m3/yr of gas “discovered in the 2022/23 drilling campaign” via INGL and the EMG pipeline.
After years of waiting for a breakthrough, Energean’s investors are beginning to see signs of a pay-off with the company’s shares – traded on the London and Tel Aviv Stock Exchanges – generating significant value over the past year. Shares on the LSE have risen from GBP6.2 in August to an all-time high of GBP13.81.
With more exploration to come and sales already shored up, investors will be anticipating another uptick once Karish comes on stream later this year.