The deepest oil well drilled in Israel’s 65-year history may be the most important.

Houston’s Noble Energy Inc. (NBL) will probe 6,500 meters (4 miles) below the Mediterranean seabed later this year, targeting as much as 1.5 billion barrels of crude, equal to about 15 years of Israeli demand.

While explorers have found enough natural gas in the past five years to turn Israel into an exporter, a major oil discovery would break new ground. The Middle East’s third-largest economy spends about $10 billion a year importing 98 percent of the oil it uses. Domestic production would increase tax revenue, boost the country’s balance of payments and reduce vulnerability to supply disruptions.

“The economic impact on Israel would be far greater than that of natural gas,” David Wurmser, director of the Washington-based Delphi Global Analysis Group, said in a phone interview. “Finding the oil would mean big money for the Israeli companies and the government.”

Noble isn’t the only explorer hunting for oil. Shemen Oil & Gas (SMOG) Resources Ltd. is looking to hit an oil field reckoned to hold 120 million barrels by the end of August. Gabi Ashkenazi, once Israel’s top general and now Shemen’s chairman, said finding crude will enhance the country’s security.

“If we are successful, it will be a strong push to the economy, and to the strategic objective to become energy independent,” said Ashkenazi, 59, who spent four years heading the armed forces before retiring in 2011. “Oil will be an important factor in this.”

Tamar Field

Israel has discovered enough natural gas under the Mediterranean to supply the country for decades while leaving plenty left over for exports. In March, production started from the Tamar field, the largest yet developed, a project that may add about 1 percentage point to gross domestic product, according to the Bank of Israel. Leviathan, almost twice Tamar’s size, is scheduled to come on stream in 2016.

It’s at Leviathan that Noble, the lead partner in a group including local billionaire Isaac Tshuva’s Delek Drilling-LP and Avner Oil Exploration LLP (AVNRL), believes a layer of rock below the gas field may contain the equivalent of 210 million to 1.5 billion barrels of oil.

Noble expects to start a well at the end of this year when a new drilling ship is delivered fromSouth Korea and rates its chances of success at 25 percent, according to company filings.

“We believe there is potential for significant oil resources at this prospect and the basin,” Noble’s Susan Cunningham, senior vice president of exploration and business innovation, said in a May 2012 statement.

Deeper Waters

The key to finding Israel’s offshore energy deposits has been technology — developed in places like the U.S. Gulf of Mexico and Brazil – to drill in deeper waters and further under the seabed. The Leviathan oil well will be drilled in 1,600 meters of water and probe a further 6,500 through the rocks below, according to company filings.

“Thanks to advances in drilling technology, Israeli companies and their international partners can now reach greater depths that will enable oil exploration at lower geological levels than ever before,” Yossi Abu, chief executive officer of Delek Drilling (DEDRL), said in a phone interview.

Delek Group (DLEKG) shares advanced 1.4 percent today to the highest since June 23, bringing its 12-month rise to 82 percent. Delek Drilling shares closed little changed, capping a 40 percent rise in the past 12 months.

Avner shares gained 0.4 percent, bringing its 12-month advance to 36 percent. Ratio Oil Exploration 1992 LP (RATIL), also a partner in the Leviathan field, rose 2.4 percent, the most since June 23.

Because it’s deeper, the well will probably cost more than the $120 million spent making the original Leviathan discovery. The greater profits from pumping oil over gas make the expense worthwhile, Guil Bashan, an analyst at IBI-Israel Brokerage & Investments Ltd., said in a note in June. While gas requires expensive pipelines or export terminals, oil can be easily put in tankers and shipped wherever it’s wanted, he said.

Raise Money

Still, drilling is uncertain. Ashkenazi’s Shemen had to raise money from investors twice this year after delays completing the Yam 3 well 16 kilometers (10 miles) off Israeli’s coast. It expects to to hit the well’s target depth by the end of August.

Former military and security officers like Ashkenazi are coveted by energy companies that find government contacts useful during the licensing process. Meir Dagan, former head of Israel’s intelligence service, Mossad, is chairman of oil explorer Gulliver Energy Ltd. (GLVR) Delek Group Ltd.’s chairman Gabriel Last was a deputy inspector-general of Israel’s police in the 1990s.

Israel’s search for oil and gas opens opportunities to supply neighboring countries that will enhance Israel’s security, Ashkenazi said.

“Natural resources in this region, especially in energy, are providing an opportunity to co-operate with some of our neighbors, maybe with Jordan, maybe with Turkey and other places,” said Ashkenazi, who fought Egyptian troops in the Sinai peninsula in 1973. “Energy is important, like water.”

Published by: www.bloomberg.com