Israeli gov't officials mull gas fields compromise

Leviathan

Noble Energy is refusing to compromise on its Tamar and Leviathan gas holdings but Delek is more flexible.

Just before the final decision by Antitrust Authority head Prof. David Gilo on declaring if the Leviathan natural gas reservoir is a cartel, decision-makers in Israel's energy sector face a dilemma. Should they offer the gas developers a package deal, a compromise that will instantly solve all the disputes interfering with the development of the natural gas reservoirs, or to continue on the "safe" course leading to a confrontation with the developers in the antitrust court. The current compromise proposals on the table involve the Delek Group Ltd. (TASE: DLEKG), controlled by Yitzhak Tshuva, selling its rights in the Tamar reservoir, while leaving the US partner, Noble Energy, with its holdings in both reservoirs (with the possibility of diluting its rights in the Tamar reservoir). At the same time, mechanisms are being examined for ensuring that Noble Energy does not take an active part in negotiations for the sale of gas to the domestic market, which will, at least ostensibly, create competition between Isramco in the Tamar reservoir and Delek Group and Ratio Oil Exploration (1992) LP (TASE:RATI.L) in the Leviathan reservoir. A comprehensive agreement within the government on such a compromise proposal, however, is still far off.

The path leading to the "end of the conflict" depends on achieving a broad consensus among all the regulators dealing in the sector: the Antitrust Authority, the Ministry of Finance budget department, the Ministry of National Infrastructure, Energy, and Water Resources, and the Public Utilities Authority (Electricity) - just to mention the first ones that come to mind. Beyond this, the question arises of what status and validity such an agreement will have - whether it will be binding on the next government in a way that will create certainty in a sector with strategic importance for the economy and the nation.

Tshuva's flexibility, Noble Energy's refusal to compromise

As of now, it appears that the second question is simpler. Gilo has full authority to reach a compromise with the gas developers, regardless of the elections. He is entitled to issue a new consent decree, and he will receive approval from whatever new government is elected. Gilo can issue a consent decree at the end of the hearing for the gas companies that will be effective two days later (for Noble Energy on Tuesday, for Delek Group on Wednesday, and for Ratio on Thursday). The antitrust laws put no time constraints on Gilo, which is, by the way, a topic worthy of separate discussion.

The answer to the first question is much more complex. An agreement ending the dispute at this stage will have to forego at least the imposing of controls on gas prices in order to give competition a chance. The Public Utilities Authority (Electricity) will have to agree to a settlement on the subject of the gas agreements and prices. The Petroleum Commissioner will have to approve the development plan for the Leviathan reservoir. The deputy Attorney General will have obviously have to provide a legal sanction for the entire package. Another party, possibly less important, but not less essential for attaining a compromise agreement, is the developers themselves.

Tshuva, the more easygoing of the partners, is willing to sell his holdings in the Tamar reservoir, but refuses to sell the Tanin and Karish reservoirs. Noble Energy, on the other hand, is not willing to concede anything. The Texas company is refusing to sell, or even dilute, its holdings in either of the two gas reservoirs. Noble Energy's stubbornness, compared with Tshuva's flexibility, is explainable as follows: Tshuva's investment in Tamar is essentially financial, and he now senses a rare opportunity to sell off his rights. The reason is the global crisis in the oil and gas exploration industry resulting from plunging oil prices. The sophisticated investors realize that this crisis is expected to generate once-in-a-lifetime acquisition opportunities for those with cash. Noble Energy also realizes this, but the US company has its own reasons for refusing to sell its rights.

First of all, Noble Energy is different from Tshuva in character. It looks at its investments from a far more long-term perspective. Secondly, Noble Energy no longer trusts Gilo, and does not believe that agreements with him are of any value. Thirdly, after investing its best technology in the Tamar reservoir, Noble Energy finds it difficult to bear the thought of this infrastructure being given to a competitor. Fourthly, the US company believes that it has a strong legal case against Gilo, and that there is no reason for it to give its bête noire in advance what he could get only under the company's worst case scenario. The only way it will agree to withdraw from the Tamar reservoir is in an expropriation proceeding, which will involve payment of enormous compensation.

Internal conflict in the government

The confrontation with Noble Energy is arousing an internal dispute in the government. On the one hand, the thought of Americans dictating terms to the Israeli government sets on edge the teeth of more than a few senior officials. On the other hand, even the hottest head understands that it will be very difficult for Israel to find a company of Noble Energy's caliber, even if the latter is excluded from Tamar, or abandons the reservoir voluntarily. Just to be safe, government officials in recent weeks have put out feelers to examine the feasibility of bringing a serious energy company here - a pathetic attempt that resulted in predetermined failure.

Meanwhile, it appears that a decision is being delayed. No government minister can interfere with the professional discretion of officials, and they will find it difficult to agree between themselves on the government's stance.

Published by Globes [online], Israel business news - www.globes-online.com - on January 25, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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