Israel announces 2nd offshore bid round

Israel has launched its second bid round to grant exploration licenses for natural gas and oil in the country’s economic waters in the Eastern Mediterranean. The upcoming bid round is pursuant to an earlier round that began two years ago and granted six licenses; some are expected to commence drilling in the upcoming months.

“It is my pleasure to announce the launch of our new bid round for exploration and production of natural gas reservoirs in the East Mediterranean,” Dr Yuval Steinitz, Israeli Energy Minister, said. “This bid is intended to continue the development of the natural gas market in Israel, increase competition by the entry of new international energy companies and broaden Israel’s energy security. These efforts correlate with the progress of the subsea pipeline between Israel and Europe, which will allow us to export the gas to Greece, Italy and the rest of Europe.”

Zoning of blocks:

In the new bid round, licenses for 19 blocks will be issued in five zones. The decision to market the blocks in zones is to allow better correlation between the exploration areas and subsurface geological structures that potentially contain oil and gas reservoirs. Holding larger interests will allow efficient subsurface evaluation and will increase the attractiveness of the zones to investors.

The zones are located in the southern extent of Israel’s economic waters, an area which has been previously licensed in part and had previous seismic research and limited exploration activity. The existing research indicates the potential for the discovery of hydrocarbons in the bid-round area.

Participant guarantees:

Requirements for bid-round participation are in place to ensure the winner will be able to perform the work plan quickly and professionally. This will also allow large and contiguous holdings for each group of participants.

The basic participation guarantee amount for the first block licensed in a zone will be $2.5 million. Every additional block in the same zone will require another $0.5 million guarantee. The maximum guarantee required to receive four consecutive blocks will be $4 million.

In addition, before drilling, the licensee will be required to place an additional guarantee, in the sum of $5 million.

License period:

An exploration license will be granted for an initial period of three years. During this period, the licensees will follow through with the work plan they have committed to, which constitutes exploration of the whole area granted in the license. After completing the work plan, the licensee can request a license extension for two years, with the condition that they submit a work plan that includes drilling in at least one of the licenses in the zone. They will also need to submit an additional work plan that will be approved by the petroleum commissioner.

After drilling and completing all the work plans, the license term will be able to be extended by two additional years, to a maximum of seven years, with the condition of a commitment to drill in every license which was granted by the end of the license term.

The basis to this decision is to allow the licensee time to study the area and only then decide regarding continuing activity.

Competition consideration:

To broaden the participation of as many new bidders as possible in the bid round, the Israeli Energy Ministry has decided to limit the number of licenses granted to any one party to eight licenses.

In addition, it has been decided that any licensee holding over 20% of an oil-producing lease – will not be able to participate in the current bid round. In addition, a group that does not hold current licenses will be preferred in the current bid round in order to increase diversity of license holders.

Environmental principles:

Licenses will only be granted in areas approximately four miles or greater from the shoreline, according to the strategic environmental survey conducted. While granting exploration licenses and approving surveys, drilling and infrastructure, the Ministry of Energy will inform the licensees regarding habitats in the license areas, the potential impacts on the level of development that will be allowed, the precautions that will be needed and the restrictions regarding the preservation of these habitats.

Fees and payments:

Companies who are interested in participating in the bid round and submitting proposals will be requested to enroll in the bid process and purchase a data package to include geological and geophysical data from drilling and 2D and 3D seismic surveys. The data package will be available for purchasing in the Israeli Energy Ministry’s website.

Announcement of the bid winners will take place in July 2019.