On the slim chance that the government decides to revisit the recommendations of
the Sheshinski Committee to Examine the Fiscal Policy on Oil and Gas Resources
in Israel, Noble Energy chairman and CEO Charles Davidson says his firm would
need to reevaluate its presence in the eastern Mediterranean.
if the new government does not agree upon a natural gas export policy soon,
Israel could face an unwelcome gap in its energy supply in a few years, Davidson
“If [the Sheshinski Committee recommendations] would be reopened I
think we would have to reconsider everything we’re doing,” Davidson told
journalists in a meeting at the company’s Herzliya Pituah office on Thursday
Approved by the Knesset on March 30, 2011, the conclusions of
the Sheshinski Committee determined a new taxation method for oil and gas
exploitation in Israel. Royalty rates would be kept intact at 12.5 percent, but
oil and gas profit levies would begin at 20% and eventually rise to 60%
employing an “R-factor” formula – with net cumulative revenues reduced by
exploration and development expenses.
While the recommendations have been
law for two years, comments from Finance Minister Yair Lapid on Wednesday have
wouldbe natural resource entrepreneurs anxious.
The Canadian Potash
Corporation is trying to buy Israel Chemicals, but Lapid vowed to block such a
deal, adding that he intended to establish a public committee to reexamine the
purchase of national natural resources by private firms.
Davidson said he
does not feel that such a committee would include a reexamination of natural
gas, as the Sheshinski Committee dealt with the issue.
If the government
nonetheless did change the gas levy rates, companies interested in explorations
of Israel’s eastern Mediterranean would probably be “scared off,” Davidson
In such a scenario, Noble Energy would likewise have to reconsider
its Israeli projects, he explained.
“I think the tax discussions are
done,” Davidson said.
“This [the Sheshinski Committee] is a situation
where taxes were raised after we had made investments, and that is very unusual
in the industry, because if a government makes a practice of retroactively
raising taxes after investments are made, that scares off investors,” he
Noble Energy is the largest stakeholder in both the Tamar and
Leviathan natural gas reservoir projects; the former began sending gas to Ashdod
on March 31. The company holds 36% of the working interest in Tamar, with
partner Isramco Negev 2 holding 28.75%, Delek Drilling, 15.625%, Avner Oil
Exploration, 15.625% and Dor Gas Exploration, 4%.
starting at Tamar, Noble Energy has elevated the status of the entire eastern
Mediterranean area, Davidson said. The Tamar reservoir constitutes a truly
international project, with 18 countries and 20 US states contributing equipment
to its development, he added.
“We [have] created a standalone region
where before the eastern Mediterranean was part of a larger group,” he
The approximately 250 billion cubic meters of gas in Tamar are
slated for domestic use only, but the resources found in the neighboring,
double-sized Leviathan reservoir are expected to be allocated for both domestic
use and export.
The Zemach Committee, an interministerial committee led
by Energy and Water Ministry director-general Shaul Zemach, recommended last
fall that the government allow no more than 500 b.cu.m. worth of gas to be
exported – but the government has yet to approve the
Environmental activists and officials such as
Environmental Protection Minister Amir Peretz and his predecessor Gilad Erdan
have warned that such an export allocation is too high and would put Israel’s
domestic natural gas future in jeopardy.
While exporting gas from
Leviathan will bring clear benefits to the drilling companies as they sell the
resource at higher prices to importing countries, Davidson stressed that export
also provides an immediate benefit to Israel. For Israel, exports would mean an
instant surge in levies paid to the government, and would encourage other
companies to explore the region.
It is critical, however, that the
government deploy an export policy immediately, or risk facing a naturalgas gap
in 2016, Davidson warned.
When initial calculations for natural gas
flow-rate from the Tamar reservoir were made, Egyptian natural gas imports into
Israel were still part of the equation.
Without the Egyptian supply and
with ever-increasing domestic needs, Tamar alone will not be able to meet
Israel’s natural gas needs by 2016, Davidson said. Nevertheless, the companies
cannot begin drilling in Leviathan until an export policy has been constituted,
because the Leviathan project is a combined, simultaneous domestic-export plan,
“There is a clock ticking,” Davidson said. “The demand for gas
in Israel is growing. We’re going to reach a point here in a few years where a
lot more gas is needed here domestically, which means we need to develop
Leviathan and we’re going to need time to do it,” he
Meanwhile, constructing a facility to transform the gas into a
transportable, liquefied natural gas (LNG) form will be quite
Export options, whether they be through LNG or through
pipelines, are still in an “exploratory phase,” as the company is still awaiting
an official export policy from the State of Israel, explained Davidson, along
with his colleague Lawson Freeman, who serves as commercial vice president and
director of eastern Mediterranean operations at Noble Energy.
meeting with Binyamin Netanyahu on Wednesday, Davidson said he alerted the prime
minister to the urgency of approving an export framework.
“It was an
agreement that a decision needs to be made and I think we received strong
support that it would be taken up by the State of Israel,” he
Davidson assured reporters that the drilling in the eastern
Mediterranean meets the highest of safety and environmental
Since drilling began, green activists have been up in arms
about the country’s lack of environmental regulations to cope with a disaster
akin to the 2010 Gulf of Mexico oil spill.
Davidson told reporters that
Noble Energy was one of the first companies to resume drilling in the Gulf of
Mexico after the spill, after being an integral figure in developing stronger
drilling standards for the United States. Davidson stressed that Noble Energy
operates in the eastern Mediterranean according to new US standards of design,
maintenance and inspection.
“We believe that the appropriate safeguards
are in place,” he said, adding that the company’s resources and insurance
policies have the capability to address any risk. “But I would continue to add
that those risks have been dramatically reduced,” he said.
continues to move forward on both Tamar and Leviathan, Davidson emphasized in
what a unique position Israel has found itself, by suddenly becoming a country
with “abundant resources” and a wealth of opportunities.
“I have great
sympathy – that’s a rapid change, it’s a wonderful change,” he said. “But at the
same time I want to make sure that everyone involved understands that when
decisions are delayed they have implications.”