Gambling on Israeli energy shares

Does Israel own commercial quantities of black gold? And so I asked a few days back.

Since then, the potential energy reserves seemingly continue to grow exponentially by the second. The latest gas revelations could be worth up to US$6 billion, give or take a million.

Nevertheless, I wonder. With all this modern tech, why were none of these finds discovered years ago? And is there a true justification for the price rises in energy shares?

Matters were not helped when it was revealed today that the shares of  Delek Real Estate Ltd. (TASE: DLKR) are at the centre of a suspected scandal.

As usual, when a share market is running wild with speculation, caution is in short supply. And with no lack of irony, I received an e-mail earlier today from a long-time oil industry analyst. To quote with their permission:

The costs and expenses (of exploration) go quickly into millions. That is assuming things go well. Then if you actually find oil or gas, you have to make sure the quantities are worth it for production! Right now, a lot of speculators are making a lot of money on hype and they are making sure part of the money they raise goes into their pockets and keep the developments as slow and stretched out as possible…

The fact is that it always been like this in petroleum and gold. There are phases. First there is the rush. Then the reality quickly requires structure of all kinds. Then there is need for further investments and then comes production. Usually a major comes in when the smaller companies have done the footwork. Every phase washes out a lot of the companies. It is a very tough business and you really need a tight team with petroleum investors who understand exploration, otherwise it is pure gambling.

For all of Israel’s competitiveness in Cleantech, it lacks significant energy reserves. If only half of the supposed finds are converted into reality, the country’s economy will benefit in a major way. Let us hope that there will not be too many desolate speculators along the way.

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