Category: Oil and Gas business

Based on the gas finds known as “Or 1” and “Or South”, a 30 year lease covering 53 square kilometers (approximately 13,100 acres) offshore Israel, was granted in June 2000 (the “Med Yavne Lease”). The original operator of the Med Yavne Lease was BG International Limited. BG resigned as the operator of the Lease and relinquished its working interests in the Med Yavne Lease, and the partners appointed I.O.C Israel Oil Company as the successor operator. According to the operator’s estimates, which are based on the results of drilling the Or 1 and on a 3D seismic survey performed in the area of the Med Yavne lease, the recoverable gas reserves of Or 1 reserve are estimated at 35 billion cubic feet. In January 2008 and in January 2009, I.O.C Israel Oil Company received an opinion from a consulting firm in the United States that performed a techno-economic examination of the development of the Or 1 reserve. This opinion indicates that, under certain assumptions, development of the reserve by connection to a nearby platform (at a distance of seven miles) and from there via an existing transportation pipeline to the coast of Israel, may be economically feasible. It is the intention of the partners in Med Yavne Lease to cooperate with independent third parties to jointly develop Or 1 reserve with their gas reserve.

Oil has a high energy to volume ratio

There are two main properties that affect processing complexity and products characteristics: sulfur content and API gravity

A graphic representation of cumulative oil discoveries versus cumulative new fields exploratory drilling. The objective is, meant to illustrate changes over time in the efficiency of drilling.

A diagram that plots oil discovered compared to the amount of oil exploration that happens. As one might imagine the low hanging fruit, in this case, easily discoverable oil is extracted first, resulting in a gentle curve on the diagram.

Any simultaneous purchase or sale of crude oil against the sale or purchase of oil products. These spreads represent refining margins.

This is the most important parameter that defines the profits of oil refineries around the world. It is the gap between the price of the different refined products and that of crude oil. Refinery is a process whereas the long crude oil molecules are split by heating to produce a variety of products such as petrol for cars, diesel for trucks and heavy duty vehicles, fuel oil for industrial purposes, jet fuel or kerosene, LPG, heating oil and asphalt.

Let us assume that a barrel of crude oil costs $100. If the refined product that is produced from it is sold at $120, then the crack spread is $20, but if this is very small, the oil refinery will incur losses as it will not be able to covers its fixed costs and pay the interest on its loans.

The crack spread is very volatile, mainly because the price of crude oil is volatile whilst that of the refined products are less so. Oil refineries require a lot of time to roll over between the price of the crude oil and the refined products and so even when the price of crude oil falls, they are in no hurry to reduce the price of the refined products out of concerned that the price of the crude will increase once again quickly.

The volatility of the crack spread is the number one risk to the profits of the oil refineries. In order to reduce the risks, refineries trade in the “spread” via financial tools in order to hedge their risks. Other traders and speculators use the same kind of tools to try to make profits from oil refineries.

The existence of these financial tools enables to obtain an updated picture of the refinery profits on each day that the financial markets are active.