Energean takes a new approach at Karish
The East Mediterranean producer goes for a novel and nimble concept at Karish
London and Tel-Aviv-listed independent Energean took FID at its Karish-Tanin field offshore Israel in March, less than 20 months after project acquisition. It credits an innovative procurement process for the shortened timeframe.
Energean dispensed with concept selection and pre-feasibility studies. Instead it selected a floating production, storage and offloading (FPSO) solution, both for maximising recovery by reducing pressure on the wells through proximate infrastructure and in siting most of the technology 100km away from Israel's infrastructure-averse shore dwellers.
Based on Energean's size at that time, it wanted a strong technical partner but, rather than a lengthy tendering process, it identified the best fit in the market, and proposed working together with global engineering services firm TechnipFMC on an "open book" basis. "We wanted to work as partners, not each trying to take advantage of the other," says Energean CEO Mathios Rigas.
The firms inked a $1.3bn engineering, procurement, construction, installation and commissioning (EPCIC) contract covering FPSO, sub-sea gathering, pipeline to shore and onshore facilities. And, in another innovative move, Energean offered TechnipFMC no detailed specifications beyond project concept, but rather asked it to provide the best solution based on proven industry-leading technology. TechnipFMC was then better able to give firm guarantees around delivery on time and on budget.
"This is a genuine supplier-led solution," says Rigas. "This industry has to work together; the days of locking in an aggressively low price, only for the supplier to immediately begin to look for uplift must go. There will always be oil price volatility, but, unfortunately, the industry has a very short memory and makes the same mistakes in every cycle. We need to find a new way of doing business."
Karish first gas is targeted for March 2021, having achieved development approval as recently as August 2017. The time and budget guarantees within the TechnipFMC contract were key to this "extremely fast" timescale in three ways, says Rigas.
The financial markets had greater confidence of reduced development risk, allowing Energean to raise $1.7bn in project financing. Would-be buyers also signed supply contracts with more certainty of volumes arriving on schedule. When buyers are refineries, power plants and chemicals firms, where a gas supply gap could shutter operations, such confidence is crucial, says Rigas.
With the EPCIC contract in place, Energean executed agreements with the yard building the FPSO and the firm drilling the Karish wells at the optimal time, at the bottom of the cycle and when yards and order books were relatively empty-bringing the project in 30-40pc cheaper than at pre-oil price crash cost levels, Rigas estimates. "For a company of our size to be sustainable, we have to time the market right," he says.
The firm has gas sales agreements (GSAs) with 12 Israeli customers for 4.2bn m³/yr (11.5mn m³/d) at an average price currently around $4.10/mn Btu, with a hard floor price around $4/mn Btu. It snatched a 40pc share of the Israeli market from previous monopoly supplier Noble-Delek, mainly by offering an "aggressive" 15pc discount to the incumbent's private client price. The ability to discount was driven by lower development costs secured on the back of greater EPCIC certainty, says Rigas.
The FPSO's 8bn m³/yr capacity offers future-proofing. Increased production at Karish and its Tanin satellite could fill this ullage, contingent on sufficient reserves to fulfil the existing GSAs' full-life commitments. But Energean has 7.5tn ft³ of 3P resources in its seven Israeli blocks along with Karish-Tanin's 2.4tn ft³ of 2P reserves. So it is looking at tie-ins, both from its own finds but also proximate third-party volumes, including potentially the Cypriot Aphrodite discovery.
The FPSO concept also has a liquids element, with Karish having 32mn bl of 2P condensate reserves. Energean will talk to BP, the off-taker for associated liquids from its Greek Prinos field, and other oil traders about a deal to load tankers at the FPSO. And should deeper drilling unlock a larger eastern Mediterranean oil system, the Energean-owned FPSO, with up to 1mn bl storage capacity, will offer a hub option.