Gas association demands freeze of all exploration projects

Uri Aldubi: “The recommendations presented by the Sheshinski Committee will lead to vast changes in the conditions placed on the gas market in Israel.”

By SHARON WROBEL
December 1, 2010 23:32
3 minute read.
Offshore Leviathan gas field.

leviathan gas drill. (photo credit: (Albatross))

The Oil and Gas Exploration Industry Association in Israel is urging the National Infrastructures Ministry to freeze all oil and gas exploration work plans and licenses so the companies involved in the gas market can reassess their plans in light of the changes that may result from the Sheshinski Committee’s recommendations.

“The recommendations presented by the Sheshinski Committee will lead to vast changes in the conditions placed on the gas market in Israel,” said Uri Aldubi, chairman of the Oil and Gas Exploration Industry Association at the Federation of Israeli Chambers of Commerce.

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“The changes are likely to have an impact on the attractiveness of projects in Israel and hence are threatening to strangle the young gas industry in Israel as well as damage the energy independence of the country, and not just the pockets of the entrepreneur,” he said.

Aldubi added that the association and its members, which include the main players active in the local gas market – Delek, Avner Oil & Gas Exploration, Isramco, Ratio Oil Exploration, Givot Olam and Noble Energy, were working on alternative recommendations to the ones proposed by the Sheshinski Committee that would take into account the interests of the government, citizens and companies.

In a letter to Yaacov Mimran, petroleum supervisor at the National Infrastructures Ministry, the association said that the Sheshinski Committee’s interim recommendations, if adopted, would impair the economic attractiveness of projects for the exploration and production of oil and gas in Israel.

In its interim report published last month, the Sheshinski Committee recommended leaving the royalty rate at 12.5 percent and to levy a progressive tax on part of the gas and oil companies’ profits in an effort to boost the government take.

The tax would be levied on the profit made by all the gas and oil companies actively exploiting natural resources, after they recouped 150% of their investment in the gas-field projects. The tax rate would range from 20% to 60%, depending on the amount of the profits. It would be levied on individual gas fields rather than on companies, since most projects consist of partnerships between developers.

The committee also recommended cancelling the depletion allowance that gas-field developers now enjoy in the form of a tax exemption, which is offsetting income the government generates from royalties.

“It is unacceptable that license holders should have to continue with their current work plans and invest huge sums without having certainty regarding the fiscal conditions under which they will be governed,” the association’s letter read.

“The recommendations make it clear that the government’s intention is not only to change the rules of the game for the oil and gas exploration market from now on, but that they are also likely to be applied retroactively, which is hurting the conditions and rights of licenses that have already been given. Hence it makes sense that gas exploration companies active in Israel will need to reassess the economic viability of the implementation of their work and development plans with regard to current projects taking into consideration new fiscal conditions, which have not yet been legislated.”

The continuation of current projects without certainty about the extent of the changes would not only damage the companies involved, which will need to make drastic changes to their operations, but also hurt the investor public, it was claimed in the letter.

“The recommendations, if adopted, will deepen the discrimination against Israeli gas in favor of Egyptian gas, which would increase the country’s dependence on foreign energy sources,” the letter read.

“Furthermore, the policy presented by the committee’s recommendations is expected to hamper the entry of partners and foreign producers into the energy market in Israel, which is against the public interest.”


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