Israeli government officials met through the night with representatives of Leviathan partners Delek Group Ltd. (TASE: DLEKG) and Noble Energy Inc. (NYSE: NBL) in an attempt to reach an agreed compromise with the State as quickly as possible.
At the end of last month, "Globes" reported that Noble Energy was refusing to agree to the separate marketing model being proposed by the government, and now it appears it is also refusing the individual marketing model, senior sources in Israel's natural gas market say. Instead, Noble Energy is considering passive involvement in domestic natural gas marketing in Israel.
The hoped-for compromise is looking as far away as ever. Last month the Israel Antitrust Authority head Prof. David Gilo held a hearing for each of the Leviathan partners - Delek, Noble Energy and Ratio Oil Exploration (1992) LP (TASE:RATI.L). The hearings were designed to discover whether Delek and Noble Energy had illegally bought 85% of Ratio's rights in Leviathan and thus created a cartel.
In parallel with these legal proceedings, Ministry of Finance, Ministry of National Infrastructures, Energy and Water Resources, and Antitrust Authority officials have been meeting to try and hammer out an agreed compromise between them. The last such meeting was last night.
In the compromise being formulated, first reported by "Globes," Delek will sell its stake in Tamar to a third party, while Noble will keep its rights in both Tamar and Leviathan. The government is hoping that the wished for competition between the gas fields will be allowed through domestic marketing. Two main options have been put on the table: The first is that each gas field will have an individual marketer - Tamar gas will be marketed by Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) and Leviathan gas will be marketed by Ratio. The second option is separate marketing by all the partners in each gas field except Noble Energy. In this proposal Isramco will market Tamar gas together with whoever buys Delek's stake, and Ratio and Delek will market Leviathan gas.
However, as reported by "Globes" last month, Noble Energy has not agreed to the separate marketing model because it is complex and not suitable for a small market like Israel. The government had been hoping that the second model of separate marketing would satisfy Noble Energy, but it is now becoming clear that the US company will not agree to it.
A senior gas market source said, "Just as Noble Energy would not agree to separate marketing, it won't agree that another company will handle all its contracts in the domestic market. Noble invested huge amounts in developing Tamar. Would you be prepared to sit idly by and let another company manage contacts without any control over it. Gas contracts cover over 100 pages containing hundreds of different clauses. The price is often the last thing agreed. Everybody has heard of take and pay (the commitment by a gas consumer to pay the minimum for the amount of gas purchased even if they don't use the full amount) but apart from that there are many clauses. Clauses related to fines for the seller if he doesn't supply the full amount for any technical or other reason. Another clause relates to the delivery point for the gas. In the gas contract with Jordan, it was decided that the gas would be delivered to the Israel-Jordan border, while in the contract with Egypt it will be from the well. Each such clause influences the risk and ultimately the price."
Despite Noble's opposition to the Israeli government's compromise, it would be prepared to consider some passive involvement in the domestic market. For example, Noble might be ready to take a step back and not intervene over the price of gas, its linkage or the period of the contract. But in all the other clauses, it will not agree to take no part. Whatever the case, senior sources in the gas sector do not sense that a compromise is close to hand.
Noble Energy declined to comment on this report.
Published by Globes [online], Israel business news - www.globes-online.com - on February 10, 2015
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