Delek, Noble Energy sue state over royalties

gas oil Tamar

The Tamar partners claim the state collected excess royalties on gas.

Delek Group Ltd. (TASE: DLEKG) and US company Noble Energy are suing the State of Israel for NIS 58 million, sources inform "Globes". According to the statement of claim, a few months ago the state charged the companies tens of millions of shekels for royalty differences from the Tamar natural gas reserve. The companies have now decided to sue the state for the return of their money plus interest.

In early November 2014, the Ministry of National Infrastructures, Energy and Water collected NIS 45 million from Noble Energy and Delek Group units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling for royalty differences from the Tamar reserve, deriving from deals between the Tamar partnership and the Yam Tethys partnership.

The Yam Tethys partnership (Delek Group 53%, Noble Energy 47%) held the Mary B reservoir, which did not manage to supply all the gas it had undertaken to supply under a contract with Israel Electric Corporation (IEC). Among other things, this was because of the halt in the flow of gas from Egypt, which forced the Yam Tethys partnership to produce gas from the reserve more quickly. Over-pumping of gas from the reserve led to the collapse of several wells and a halt in the flow of gas.

The Yam Tethys partnership therefore entered into a swap deal with the owners of Tamar (Noble Energy 36%, Delek and Avner 31%, Isramco 28%, Dor Gas 4%), under which the Tamar reserve supplied gas to IEC, and made up the shortfall in the supply of gas to IEC from Yam Tethys. In exchange, the Tamar partnership received the gas remaining in the Mary B reserve.

However, the average price in the Yam Tethys gas contracts ($3.5 per million BTU) was far lower than the average price in the Tamar contracts ($5.7), so that the Tamar partnership sold the gas at a much lower price than the price at which it could have sold it to third parties. It therefore also paid lower royalties to the state.

Now, the partnership has decided to sue the state. "There are two main kinds of gas contract," an energy industry source says, "The first is a depletion contract, under which the buyer's gas rights expire when the gas in the reserve runs out. The second is a supply contract, under which the buyer is entitled to receive the full amount of gas in the contract from different sources of supply. The Yan Tethys partnership's contract with IEC was of the first type, and so Delek and Noble Energy were not obliged to supply the gas to IEC at a low price. It's inconceivable that they should lose twice: once from agreeing to sell IEC gas at a low price, and again from having to pay royalties according to a high price."

Published by Globes [online], Israel business news - www.globes-online.com - on March 15, 2015

gas oil Tamar
gas oil Tamar
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