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.

Meanwhile, 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 added.

“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 morning.

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 said.

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 said.

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%.

With operations 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 said.

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 recommendations.

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, he said.

“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 continued.

Meanwhile, constructing a facility to transform the gas into a transportable, liquefied natural gas (LNG) form will be quite expensive.

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.

In a 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 said.

Davidson assured reporters that the drilling in the eastern Mediterranean meets the highest of safety and environmental standards.

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.

As work 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.”

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